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Keep the CFIUS Curtain Shut

“The U.S. Intelligence Community judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer.”

This statement comes from an analysis of 2011 business transactions identified and reviewed by a little-known interagency group called the Committee on Foreign Investment in the United States (CFIUS). Created by President Ford in 1975 through, the Committee is charged with reviewing and “merger, acquisition or takeover . . . by or with any foreign person which could result in foreign control of any person engaged in interstate commerce in the United States.” The Committee, chaired by the Secretary of the Treasury, may take any measure it deems appropriate to assure covered transactions do not threaten national security interests at home.

The opaque review process has led some to call for a more transparency to better guide foreign investors looking to acquire critical technologies in the United States. In doing so, the Committee runs a serious risk of exposing vulnerable sectors of our nation’s economy.

Last fall, President Obama, in an unprecedented exercise of Presidential authority, its interest in a wind farm project in Oregon. Acting on a recommendation from CFIUS, the president cited national security concerns over the Ralls Corporation’s acquisition of property in near a U.S. Navy base used for training missions for drone aircraft. In an equally unprecedented response, Ralls Corporation filed suit challenging the Presidential and CFIUS orders. In February, The U.S. District Court for the District of Columbia dismissed all claims but one – Ralls argued the ruling constitutes a “taking” of property in violation of its due process rights under the Fifth Amendment.

Given the national security implications at stake, the court should deny Ralls’ request for insight into President Obama’s decision last fall. Subsection C in Section 721 of the Defense Production Act of 1950 as amended by the Foreign Investment and National Security Act of 2007 (FINSA) explicitly exempts from the Freedom of Information Act all materials provided to the President for review for the purposes of CFIUS process. This 2007 amendment to the Committee’s mandate leaves open the exception for review necessary for any judicial action; however, the president’s decision falls in line with stated criteria he may consider in his decision.

Subsection F of FINSA lays out certain criteria to be considered during the review process. Specific factors include “domestic production needed for projected national defense requirements,” “the capability and capacity of domestic industries to meet national defense requirements,” relations between the host country in which the acquiring company is located, and “such other factors as the President or the Committee may determine to be appropriate.”

The proximity of the wind farm the U.S. Naval base directly conflicts with the ability of the Navy to conduct drone test flights away from prying eyes. No one can argue that these flights do not comport with the Committee’s mandate for protecting “domestic production need[s] for projected national defense requirements.” Furthermore, America is not shying away from Chinese foreign direct investment (FDI), but the reality of bilateral relations cannot be overlooked – China is after our technology. Given the input of the Intelligence Community into the briefings and review process, the court should defer to the administration’s ruling.

Considered against the backdrop of the 2012 report to Congress, pulling back the curtain on evidence reviewed by CFIUS and the reasoning behind its findings would give a peek into what economic sectors and businesses the United States believes are vital to national security. Explaining the reasoning behind the Ralls ruling will please one company, but it may encourage a more focused targeting state-backed acquisition of businesses dealing with critical infrastructure. CFIUS is an important regulatory check on the increasingly complex global marketplace that must balance foreign investment in technology with national security concerns.


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