Dear USCIS, Izummi is no Longer the Law

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I was recently asked to help out on a case where an EB-5 investor’s I-526 petition was denied, because USCIS claimed the option of the investor to redeem a portion of her investment in the form of realty violated the long-standing precedent of Matter of

Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998). USCIS’s theory, which was wrong from the inception of the policy, was that the options violated the ‘at-risk’ capital requirements of the EB-5 program. 

In this recent case, where the investor received a denial letter in March of 2021, USCIS completely missed (or ignored) the August of 2020 US Court of Appeals decision in Mirror Lake Village, LLC v. Wolf, No. 19-5025 (D.C. Cir. 2020) (“Mirror Lake&rdquo, which fundamentally invalidated years of USCIS interpretation of Matter of Izummi. It is important to note that Izummi is a decision issued by the Administrative Appeals Office (AAO) of USCIS in 1998. USCIS has no choice in following the Mirror Lake holding. Just in case that point didn’t come across, it’s none, zero, the Mirror Lake is completely binding and controlling authority on USCIS. For a copy of the Mirror Lake decision, see this link: https://www.cadc.uscourts.gov/internet/opinions.nsf/3C0042A81F91FBFF852585CB005860BF/$file/19-5025-1857642.pdf

It is important to note, the Mirror Lake holding did not invalidate Izummi, but rather correctly explained when Izummi applied:

USCIS focuses its briefing and argument on Matter of Izummi, 22 I. & N. Dec. 169 (Assoc. Comm. 1998), which the agency cited in its denials, and which also involved a rejected EB-5 visa petitioner. There, the petitioner also had the opportunity to sell his membership interest back to the business in which he had invested. Yet, unlike in this case, there was no contingency in Izummi. Instead, the petitioner’s capital was “guaranteed to be returned, regardless of the success or failure of the business.” Id. at 184. For that reason, the agency said, the capital “cannot be considered to have been properly ‘invested’ and is not at risk.” Id. at 188. (Mirror Lake Page 8)

The Mirror Lake court correctly articles that the heart of Izummi is to prevent ‘illusory’ arrangements whereby a capital investment is not at risk:

…it is plain that what Izummi meant by “redemption agreement” was the kind of agreement at issue in that case: one that guaranteed a return of capital, without risk. See Izummi, 22 I. & N. Dec. at 185 (finding that the redemption agreement there was no more than a “straight loan” because the petitioner had made his money “available to [the business] with the contractual expectation that it would be returned to him six months later&rdquo. Indeed, the business in Izummi was required to “deposit sufficient [cash] reserves for the purpose of enabling [it] to meet its obligations under the sell-option agreement.” Id. at 19 (Mirror Lake P8).

As noted by the Court of Appeals, the central issue in the Izummi holding was that there was no contingency in Izummi and that the capital was to be returned regardless of the outcome of the underlying business. In Mirror Lake, and I am sure many past and current cases, there was no such guarantee. Typically, the redemption option was not exercisable until the filing or adjudication the investors’ Form I-829. Accordingly, for the entire period between the investment and the filing/adjudication of the I-829, the NCE/JCE may have failed, it may have never built whatever it was supposed to have built, and it may very well have lost all of the investors’ money. This is the very definition of being at-risk.

Finally, from a policy basis, USCIS’s interpretation of Izummi in which it objects to post-I-829 redemption options simply makes no logical sense. USCIS’s objection begs the question, following the adjudication investor’s form I-829s, what possible policy interest could there be for requiring the capital to stay at-risk and invested in the NCE. There is none, which is why EB-5 investors are permitted to receive a return of capital not only after the I-829 is adjudicated, but upon filing of the I-829. The logic stands that if an investor can receive their capital back and not be invested after the I-829 is filed or adjudicated, then what is the difference if the investor is promised in advance the right to get his or her capital back at that time. The prior promise of the return of capital does nothing whatsoever to change the fact that the investor’s capital remained at risk during the entire period during which it was required to be at risk, namely the time between filing the I-526 and the filing or adjudication of the I-829.

As Ron Klasko pointed out in his article summarizing the Mirror Lake decision (see https://discuss.ilw.com/articles/articles/395424-article-successful-litigation-challenging-uscis-interpretation-of-guaranteed-redemptions-by-klasko-immigration-law-partners-llp), “This decision contradicts and requires a rewriting of almost the entirety of the USCIS Policy Manual language regarding redemptions….”. This is an important point, as I note in the introduction, USCIS, as recently as March of 2021, was still issuing denials based on its traditional Izummi position notwithstanding Mirror Lake having been issued over six months prior. That is completely unacceptable. 

USCIS is obligated to follow the law, the current law, as is every petitioner, and for USCIS to have failed to update their procedures to account for new and binding precedent is a dereliction of their duty. There are not new decisions coming down from the courts every day, week month or often even year. Each case is a notable event, a very notable event. They have had plenty of time. Their mission is to defend the Constitution and uphold the laws of the United States and they are failing to do so.

About The Author

Matt Gordon is a noted expert in the EB-5 field and is an authority on structuring EB-5 investments. Mr. Gordon's career spans business operations, finance and law. He is the editor of the EB-5 Book, the legal treatise on the EB-5 program and a frequent lecturer to immigration attorneys. Mr. Gordon has participated in policy events, including those hosted by the White House and Harvard University’s Kennedy School of Government. Prior to found E3 Investment Group, Mr. Gordon was an investment banker for a decade and ran the US division of a Swiss multi-national corporation. Mr. Gordon is a licensed attorney, having practiced mergers and acquisitions law at the beginning of his career with the largest and most reputable Wall Street firms including Fried Frank and Sullivan & Cromwell. Mr. Gordon received his B.S. in Policy Analysis from Cornell University and his J.D., cum laude, from the University of Pennsylvania School of Law.


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