In April 2021, USCIS approved the I-526 Petition of Huashan Zhang, a Chinese national who had appealed the denial of his EB-5 petition under USCIS’s recent “Loan Proceeds Policy,” which was invalidated by the U.S. Circuit Court of Appeals for the D.C. Circuit on Oct. 27, 2020. In a break from previous interpretation, USCIS’s recent Loan Proceeds Policy sought to impose collateralization requirements on all EB-5 capital investments resulting from loans. Previously, USCIS only analyzed whether capital resulting from secured loans (“indebtedness”) was secured by the assts of the investor and that the assets of the new commercial enterprise upon which the petition was based were not used to secure any of the indebtedness.

In 2015, USCIS adopted the policy of treating cash resulting from a loan as “indebtedness” rather than “cash,” which required collateralization secured by assets owned by the investor.

The appellees in Zhang v. USCIS, Huashan Zhang, a Chinese citizen, and Masayuki Hagiwara, a Japanese citizen, both borrowed $500,000 from corporations they controlled and invested the capital in a new commercial enterprise for purposes of participation in the EB-5 program. In both instances USCIS concluded in 2015 that because the loans were not secured by the investor’s assets, their investment did not satisfy the regulatory requirements for “indebtedness” to qualify as “capital.” In analyzing the regulations, the definitions of the terms “cash” and “indebtedness,” and the purpose of the EB-5 program, the D.C. Circuit highlights that the security requirement serves no purpose for loan proceeds because “title to the cash passes unencumbered to the enterprise.”

Accordingly, on Oct. 27, 2020, the D.C. Circuit invalidated USCIS’s Loan Proceeds Policy, holding that loan proceeds are properly classified as “cash,” rather than “indebtedness,” and that USCIS therefore erred in imposing collateralization requirements on the investment of loan proceeds. This decision from the D.C. Circuit became binding on USCIS, and the approval of Huashan Zhang’s EB-5 petition provides precedent for future compliance. However, as of April 27, 2021, USCIS has not updated its Policy Manual to reflect the interpretation promulgated by the D.C. Circuit; it is not known if or when USCIS will so do.