EB5 Investors Magazine "Top 25 Awards Edition" Volume 8 Issue 1 | Page 78

regulation and addressing which types of capital contributions must be secured in order to constitute an investment of “capital,” the implementing agency referenced only the term indebtedness, and did so twice. In the definition, t h e c l a u s e r e fe r e n c i n g s e c u r i t y immediately follows and references “indebtedness.” It does not follow the noun “cash.” 14 "Treating cash investments as “indebtedness” artificially constrained the sources of investments which were appropriate for EB-5" THE CONSEQUENCES Treating cash investments as “indebtedness” artificially constrained the sources of investments which were appropriate for EB-5, thereby limiting the amount of investment under the EB-5 visa category. For example, under USCIS’ policy an investor who has proven to USCIS satisfaction that he or she has lawfully earned the monies used to purchase a proper ty, and who now seeks to mortgage that property to obtain cash to invest in the new commercial enterprise, will have his or her I-526 petition denied if he or she owns that property with a third party, because the investor is arguably not “personally and primarily liable” for the mortgage. 15 In a more obvious example, if an individual takes a cash advance from a credit card to purchase a new sofa from the sofa store, the sofa store isn’t accepting as payment indebtedness or a promissory note, they are accepting cash. This new interpretation also contravened over twenty years of case adjudications and the rationale of the implementing regulation. Legacy INS, the department 78 EB5 INVESTORS MAGAZINE which was replaced by USCIS , explicitly recognized the difference between cash and indebtedness by noting that congress, when it created the EB-5 visa categor y, had intended the regulator y definition of “capital” to be broad, and specifically included “debt” as a means to make an investment in a new commercial enterprise in order to not “severely limit the number of investors eligible or willing” to apply for an EB-5 visa. 16 A U.S. COURT OF APPEALS AGREES The EB-5 community, which has for years put forth these and other arguments as to why this policy is clearly incorrect, are now joined in that view by the U.S. Court of Appeals for the District of Columbia Circuit. The named plaintiffs in the case Zhang et al v. United States Citizen and Immigration Ser vices et al, Huashan Zhang and Masayuki Hagiwara, had each borrowed $500,000 without collateralizing such funds (in both cases, Zhang and Hagiwara wholly-owned the lender entity who was lending them the cash). 17 In Zhang, which is also a class action, the District Court agreed with the plaintiffs that USCIS’ policy was “plainly erroneous”, vacated the denial decisions and remanded to USCIS for further consideration. 18 Thereafter, USCIS appealed, which led to the ruling issued by the D.C. Court of Appeals on October 27, 2020. In a decision which did not surprise the immigration bar, the court picked apart USCIS’ arguments with ease. For