IIUSA Member Analysis: Zhang v. USCIS: What It Is and What It Means for EB-5 Petitioners

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By Rana Jazayerli, Partner, Klingner Jazayerli LLP

On November 30, 2018, the U.S. District Court for the District of Columbia issued a decision in Zhang, et al. v. United States Citizenship and Immigration Services, et al., No. 15-cv-995 (D.C. Nov. 30, 2018) (hereinafter “Zhang”) finding that the U.S. Citizenship & Immigration Services’ (USCIS) policy of treating loan proceeds invested in an EB-5 qualifying entity as “indebtedness” that must be secured with an investor’s personally-owned capital was arbitrary and capricious, and further, constituted unlawful rulemaking by USCIS without notice and comment, in violation of the Administrative Procedure Act (APA), 5 U.S.C. § 706, and the Immigration and Nationality Act (INA), 8 U.S.C. § 1153(b)(5). The Court granted class certification to all investors who had received a denial of their I-526 petition based on USCIS’ application of this policy and remanded all such I-526 petitions denied on that basis for re-adjudication.

Zhang involved a case brought by two EB-5 investors whose I-526 petitions were denied because their EB-5 investment funds were sourced from uncollateralized loans. The Zhang Plaintiffs challenged USCIS’ denial of their I-526 petitions based on a policy first introduced and articulated by USCIS’ Immigrant Program Office in remarks released in April 22, 2015 requiring that if EB-5 investors use third-party loan proceeds as EB-5 capital, then such EB-5 investors must demonstrate that they are personally and primarily liable for the indebtedness and that the indebtedness is secured by assets petitioners own sufficient to secure the amount of the debt. USCIS’ policy relied on its interpretation of the EB-5 regulation’s definition of “capital” as set forth in 8 C.F.R. section 204.6(f), whereby it concluded that investment of funds obtained from a third-party loan constituted investment of “indebtedness” and not “cash” into an EB-5 enterprise.

The Court in Zhang, however, concluded that USCIS’ interpretation of loan proceeds invested as cash constitute indebtedness to be (1) erroneous because it was not consistent with the “ordinary and natural meaning” of “cash” and (2) “capricious and arbitrary” as it was at odds with the congressional intent behind EB-5. In so finding, the Court distinguished USCIS’ interpretation that cash obtained from a third-party loan and then invested into an EB-5 enterprise constituted “indebtedness,” from a situation where the where the alien “investor’s ‘state of being indebted’ is to the enterprise itself.” i.e. the definition of “capital” in the EB-5 regulations defined the asset actually being contributed to an EB-5 enterprise, and not the means in which that asset was obtained.

The Court further found that USCIS engaged in improper rulemaking in violation of the Administrative Procedures Act (APA) when USCIS interpreted the plaintiffs’ investments from loan proceeds as “indebtedness,” because in so doing, USCIS impermissibly added another requirement (that investors personally collateralize loan proceeds invested as cash) to the regulatory definition of “capital” not found within the original regulation. Such additional requirement to a regulation can only be implemented following proper notice and comment procedure. Therefore, the court in Zhang concluded that USCIS violated APA’s notice and comments requirement, as it created an additional requirement to the regulation that was legislative.


The D.C. District Court’s decision in Zhang represents a clear victory not only for the two named plaintiffs in the case, but also to all EB-5 investor’s whose I-526 petitions were denied solely because the capital they invested into the EB-5 new commercial enterprise was obtained from an unsecured third-party loan – a policy that USCIS only began implementing in 2015. Such a sudden change in policy or interpretation of regulatory requirements by USCIS in the EB-5 context has not been unique to this single issue. Thus, the Zhang decision also serves as a clear reminder that the federal courts can and will serve as a check on USCIS when the agency goes beyond the plain language of the EB-5 regulations and attempts to impose requirements not stated in the regulations.

Read the Full Decision 

1) See USCIS, Immigrant Investor Program Office, EB-5 Telephonic Stakeholder Engagement: IPO Deputy Chief’s Remarks (April 22, 2015), available at https://www.uscis.gov/sites/default/files/USCIS/Outreach?PED_IPO_Deputy_Chief_Julia_Harrisons_Remarks.pdf).


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