By: Thad McBride
As addressed in our September 27 blog, the Committee on Foreign Investment in the United States (CFIUS) was sued in U.S. District Court by Ralls Corp relating to the acquisition by Ralls of four Oregon companies whose assets consisted solely of windfarm development rights and to CFIUS’s determination to block the transaction.
On September 28, President Barack Obama did just that.
This is one of only a very few times that the President has actually blocked a transaction. (Some transactions that might be blocked have been halted by the parties to the transaction before CFIUS reaches a final determination of whether or not to recommend that the transaction proceed.) The transaction would be notable on that basis alone.
But the President’s actions here are particularly noteworthy given that the acquiring company was buying rights that, on their face, would seem to have somewhat peripheral importance to U.S. national security. To be sure, Ralls is owned by two Chinese individuals, and CFIUS often has examined transactions involving Chinese parties especially closely. In addition, the property Ralls was acquiring through the transaction was within or near restricted airspace.
The location of the property may indeed be the primary reason that CFIUS recommended that the President block the transaction and the primary reason the President did so. That reason may never have been satisfactory to Ralls.
It seems, though, that it was the lack of transparency CFIUS demonstrated in providing its recommendation to the President that prompted Ralls to sue in this case. Even for those purchasers – the overwhelming majority – who ultimately are able to proceed with a transaction that progressed through the CFIUS process, the lack of transparency is often frustrating. It can also be a bit scary: through the intra-government process, CFIUS has access to a lot of information that parties to a transaction may not. In other words, in the CFIUS process, you have to face the fact that you don’t know what you don’t know.