EB5 Program in a Nutshell

EB-5 is a program where a foreign person and their family seeking to come to the United States can invest $500K USD in a government certified program and receive a visa, thereafter followed by a permanent residency. This investment does, however, have certain conditions imposed by the USICS.
These conditions include: (1) the capital used must be traceable and legal, and (2) the funds used must be put “at risk”. The USCIS defines the capital to be used as: “[C]ash, 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.

What does “cash” and “at risk” mean in the context of loans?

In the 2018 case Zhang v USCIS, 15 CV 995, the USCIC struggled with defining whether an unsecured loan acquired by potential EB-5 investors could be seen as “cash” that was put “at risk” in the context of the statute.

In Zhang v USCIS, 15 CV 995, the USCIS had initially denied Zhang’s application alleging that had not placed his investment “at risk” because the loan that he got was unsecured. Zhang was a Chinese investor and owner of a company who had taken out a loan backed by his own company. The USCIS, however, treated his loan as unsecured because it was backed up by undistributed profits in the company he owned, therefore it was seen as indebtedness and not cash and therefore this source of funding was not accepted by the eb5 program. (Zhang v USCIS, 15 CV 995). The USCIS argued that under 8 CRF §204.6(c) “Cash” means that the loan must be secured by the petitioners’ personal assets. Using similar reasoning in a second case, the USCIS argued that investors funds did not qualify as capital because the loan was not secured by personal assets. Hagiwara v USCIS. USCIS concluded in Hagiwara’s case that the regulation “clearly precluded” characterizing all unsecured third-party loans as cash.

In December 2018, the United States District Court for the District of Columbia ruled in favor of Zhang, et al, ruling that in fact now these unsecured loans were now permissible as capital for the purpose of EB-5 investment.

What does this mean for former and new potential investors?

In the years preceding Zhang, many investors who had applications pending were denied review due to the USCIS interpretation of “capital”. However, with Zhang as now controlling precedent, many former investors who had their applications denied have the opportunity to apply to be a class member of the Matter of Zhang. If a former denied investor qualifies to be in the “Zhang Class” their previously denied case will be reconsidered by the USCIS. NOTE, however, the Zhang decision is currently under consideration for appeal, which may throw another hurdle in the road to acceptance.

Relevance to Chinese Investors

As previously stated, past investors may qualify to be in the Zhang Class and receive reconsideration of their application, Additionally, to new potential Chinese investors, the Zhang decision grants the opportunity to take out loans backed by their own companies just like in Zhang and Hagiwara. This decision should be especially encouraging to an entrepreneur who wishes to use their company as collateral for the investment loan.

Relevance to Brazilian Investors

As previously stated, past investors may qualify to be in the “Zhang Class” and receive reconsideration of their application. Additionally, this new decision can be encouraging to currently pending investors as a
the courts put a halt to USCIS’s narrow interpretation practices.

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