When foreign investment and national security collide

by Dan Epstein

November 27, 2012

As part of the arms race between the United States and Russia that fueled the Cold War, Congress established the Committee on Foreign Investment in the United States (CFIUS) under the Defense Production Act of 1950. CFIUS’s purpose was to review transactions that could result in the control of a U.S. business by a foreign person to determine the effect of such transactions on the national security of the United States. CFIUS, the only committee of its kind in the world, is an artifact of Cold War-era fears about Soviet threats to America, but it is having the very real effect of reigning terror upon job creation in America.

CFIUS, like any taxpayer-funded institution under our constitution, has limited powers. CFIUS may only review certain “covered transactions” that could result in foreign control of a person engaged in interstate commerce in the United States. It may not bar a covered transaction from taking place, it may not arbitrarily or capriciously make decisions without supporting evidence, and it may not engage in the unconstitutional deprivation of property without due process.
Yet CFIUS has done all of these things.

On June 28, 2012, Ralls Corporation, a Delaware wind turbine company, informed CFIUS of its intent to build power-generating windmills by acquiring and controlling the assets of four wind farm projects in Oregon (“Project Companies”). Prior to Ralls’s acquisition of the Project Companies the Federal Aviation Administration issued “Determinations of No Hazard” for each of the twenty planned turbines. But on July 25, 2012, CFIUS determined that because Ralls is owned by executives of China’s Sany Group, “there are national security risks to the United States that arise as a result of the Transaction,” and ordered the Project Companies to cease all construction and operations of these wind farms.

The Navy wrote to the Oregon Public Utility Commission on Ralls’ behalf, saying the placement of the wind turbines “may have negative security implications” but recommending that the requested approvals be issued. In the same letter, the Navy added that it “appreciat[ed]” Ralls’s “cooperation and consideration” in agreeing to move their wind farms. Does this sound like the activities of a company looking to threaten American national security interests?

On July 26, 2012, in an effort to address CFIUS’s concerns, Ralls informed CFIUS that it sought to sell the Project Companies, as several American buyers expressed interest. But on August 2, 2012, CFIUS amended its order, prohibiting Ralls from any further construction or operations on its property, mandating that it remove its belongings from the property, prohibiting access to its own property, and prohibiting Ralls from selling goods associated with the wind farms until all items are removed, the companies notify CFIUS, and CFIUS does not object.

On September 12, 2012, Ralls filed a complaint against CFIUS in federal district court in Washington, D.C. and filed a motion for a temporary restraining order against CFIUS’s order. Ralls argued that the authority to block the Project Companies’ transactions, if any, lies with the president, who, under the Defense Production Act may take action “to suspend or prohibit any covered transactions that threatens to impair the national security of the United States,” and “shall not be subject to judicial review.” Sound Orwellian? On September 28, 2012, via Executive Order, President Barack Obama halted all of Ralls’ attempts broadly citing “credible” national security concerns. In other words, an unaccountable, unreviewable Committee has become President Obama’s latest political tool, this time at the sacrifice of job creation – even green energy jobs.

Obama’s logic is as follows: any company owned by two Chinese nationals is prima facie a national security risk. CFIUS claimed the wind-farm sites are all within or near restricted air space. But this argument seems dubious given the fact that wind turbines already operate in this area.

The Wall Street Journal described the move as politically calculated as “voters in the industrial Midwest, including Ohio and other battleground states . . . have lost millions of manufacturing jobs over the past decade.” But if anything, the Ralls transaction means creating U.S. jobs via foreign capital injection instead of outsourcing those jobs back to China. The most plausible explanation seems to be that anti-China resentment sells.

On October 1, 2012, Ralls amended its initial complaint to include President Obama as a defendant arguing that the order exceeds the president’s statutory authority. President Obama has not only shut down a job-creating, environmentally-friendly business deal in the name of politics, he has done so in a way that violates Constitutional due process and judicial review.

Cause of Action, a nonprofit dedicated to fighting government abuse, is going to court to challenge the president’s arbitrary abuse of power. CFIUS and the president must be held accountable for actions that limit economic growth and threaten free enterprise in the name of politics, or, worse, xenophobia.

Epstein is the executive director of government accountability group Cause of Action, based in Washington, D.C.