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USCIS loses appeal of landmark decision: EB-5 investors can use unsecured loans as investment capital

A three-judge panel ruled in the D.C. Circuit court that EB-5 investors can use the proceeds of unsecured loans for their investment capital, upholding an 2018 D.C. federal court decision. USCIS tried to argue in their appeal that to allow unsecured loans as investment capital would be tantamount to third parties buying Green Cards for foreigners. But the panel declared that there is no need to have an investor’s loan secured as the investment project will be able to use the capital even if the investor defaults on their loan.

This landmark ruling centered on whether unsecured loans could be used as investment capital for I-526 applications. For the past five years, the agency has interpreted those proceeds as debt and has been denying petitions using that element in their source of funds.

An investor’s source of capital ‘makes no legal or practical difference’

Circuit Judge Gregory G. Katsas made this statement: ”Cash is fungible, and it passes from buyer to seller without imposing on the seller any of the buyer’s obligations to his own creditors. The buyer’s source of cash — whether paycheck, gift, or loan — makes no legal or practical difference.”

This decision is contrary to a 2015 USCIS policy that viewed loan proceeds as debt rather than cash, if not secured by the investor’s personal assets. That same year, a Chinese EB-5 investor, Huashan Zhang, and a Japanese investor, Masayuki Hagiwara, sued the agency for using that policy to deny their I-526 applications, arguing that USCIS erroneously interpreted policy and applied it retroactively to petitions without a notice-and-comment period — thus contravening the Administrative Procedure Act.

In 2018, a D.C. federal court agreed with the investors, and also granted the investors class certification.

USCIS appealed the decision, arguing that to allow unsecured investor loans to qualify as investment capital would allow third parties to essentially buy Green Cards for the investors. The agency also argued against the class certification.

A job creating enterprise can use unsecured loan proceeds even if the investor defaults

However, the three-judge panel in the D.C. Circuit court did not accept the immigration service’s rationale. Instead, the panel pointed out that unsecured loan proceeds will still be used by the EB-5 investment project — even if the investors were to default; and thus this source of funds should still be permissible.

In support of the investors, Judge Katsas made this statement: ”As far as the enterprise is concerned, whether or how the investor’s loan was secured makes no difference; it can deploy the cash either way, and it faces no exposure if the investor defaults on any obligation to a third-party lender.”

This decision should be welcome news to many potential EB-5 investors. It simplifies things considerably.

See the Law360 article “Immigrants Can Use Loans For Investor Visas, DC Circ. Says” (subscription required)

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