AAO Rights a Wrong on Redemption Issue in EB-5 Case

The Matter of Z-H- case at the AAO was decided late last year and provided a welcome relief for professionals and investors in the EB-5 world. In the past, USCIS seemed to bend over backwards to contend that non-guaranteed plans for eventual investor repayment violated the rule against guaranteed redemption and use that as the basis for denying petitions. USCIS lost on this matter in litigation a number of times in recent years and it appears the AAO is now coming around on the issue.

In this case, the offering memorandum and operating agreement of the investment vehicle stated three exit scenarios - buyout by the operating partner, continuing to operate the business until it reaches a specific value, and then a third scenario that is somewhat convoluted but basically amounts to the investors taking over day-to-day operations. Initially, the investor program office denied the investor’s I-526 petition, alleging the buyout scenario (somehow) created a guaranteed right of redemption.

The investor was given a chance to clarify some of the statements in the operating agreement (but not make any wholesale changes), which he or she did in such a way that satisfied the AAO that the petition should have been approved. So at least this one has a happy ending for the investor, unlike some similar cases in the past (though some of those were ultimately corrected through litigation). This was very clearly not a guaranteed redemption - it did not have a specific time or price or agreement between buyer and seller. Instead, the operating agreement appeared to basically just outline three plausible scenarios that might happen down the road. Fortunately, the AAO eventually stepped in to see the right result occurred.

Executive or Manager

In a non-precedent decision issued by the AAO in the In RE: 6968792 matter, an issue we dealt with commonly came up and is worth discussing a bit. This is an L-1a case involving an Indian jewelry company seeking to transfer its main owner to the U.S. to work in a similar capacity. So right off the bat, this sounds like a similar factual history to the type of case we regularly deal with in the L-1a category.

This case was unique because the employer did not say whether it was going to employ the beneficiary in a managerial or in an executive capacity. The case was originally denied and the denial was upheld on appeal. The first major mistake made by the company was that it did not explicitly say whether the beneficiary would be working in an managerial capacity or in an executive one. The AAO went (probably) further than it had to by, on its own, considering both scenarios and concluding neither definition was met. But it was a tactical error by the company not to carefully review the definitions of each type of role - which have minor overlap, but are quite different - and see which one most closely matched the planned duties. In most cases, for smaller companies just starting up their US operations, that will be as an executive.

In the last several years, the L-1a category has come under a lot more scrutiny at USCIS and perhaps rightfully so. These cases require a lot of attention to fine details in order to be approved. And one of those details is the nature of the work to be done by the proposed beneficiary.