The Other Secret Gov’t Agency That Operates Outside the Law
Policy + Politics

The Other Secret Gov’t Agency That Operates Outside the Law


About the only way the year 2012 could have been more Kafkaesque for the owners of Delaware-based Ralls Corporation is if they had awakened one morning transformed into a giant bug.

Early in the year the company, which is owned by two Chinese nationals, purchased four wind farms near Butter Creek, outside the small Oregon town of Hermiston. The owners of Ralls are both employed by the Sany Group, a Chinese firm that manufactures wind turbines. The plan was to use the Sany Group’s equipment on the farms as a sort of demonstration project, in order to help market the firm’s products in the U.S.

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At least, that was the plan until Ralls was contacted by a little-known agency of the Executive Branch known as the Committee on Foreign Investment in the United States. CFIUS (pronounced Siffy-us) informed the company that because of its foreign ownership, its purchase of the wind farms was being examined. After a short review process, CFIUS informed owners of Ralls that their wind farms – just four out of dozens in the area around Hermiston – presented a national security threat to the United States and needed to be dismantled.

What threat they posed and why, Ralls was never told. No evidence was presented, no accusation made, no charge filed. Despite having legal ownership of the four farms, Ralls officials were barred from accessing the property. Not only that, they were told to arrange to have all of their equipment removed from the four wind farms, down to and including the concrete pads the turbines stood on, and to sell the company’s interest in the land.

This kind of order is not uncommon from CFIUS, but last week, the little-known agency got an unexpected dose of publicity because Ralls did what most companies faced with an adverse ruling from the committee don’t – it fought back. The company won a ruling in Federal Appeals Court in D.C. that found the process under which its wind farms were shut down violated its right to due process.

It’s somewhat ironic that the Ralls suit should arise now at a time when members of Congress are actually considering filing a lawsuit against the president for executive overreach. CFIUS is, in fact, a creature of Congress – created in the 1970s by lawmakers in response to worries that foreign companies were buying up access to technology and manufacturing interests vital to U.S. security. It was substantially expanded - again by Congress - in the wake of the September 11, 2001, terrorist attacks.

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The committee has the power to review foreign purchases of U.S. firms, and to disallow them – retroactively, if necessary – if it finds they compromise national security.

By direction of Congress, the decisions made through the CFIUS program are not even subject to judicial review. The D.C. court got around the ban on judicial review by specifically ruling that it was in denying Ralls the opportunity to respond to the government’s concerns in advance of the president’s ruling that CFUIS violated the company’s due process rights.

The ruling requires CFIUS to share non-classified information with Ralls, allowing the company at least a potential opportunity to address whatever issues CFIUS has with its wind farms.

According to attorneys who deal with CFIUS on a regular basis, the ruling represents what could be a sea change in the functioning of one of the government’s most secretive agencies.

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“Companies have long been hesitant to challenge CFIUS because of the broad discretion given to the executive branch on issues of national security,” attorneys Farhad JalinousKaralyn Meany Mildorf and Keith Schomig wrote on the website Law360.

While the ruling doesn’t do anything to restrict the executive’s power, said the three attorneys, all of whom work for the Kaye Scholer firm in Washington, “[I]t could open the door to other such challenges.”

If they’re correct, it would be a marked shift in the way companies usually deal with CFIUS.

The way the process works is that the committee, made up of the heads of various executive branch agencies including the Treasury Department, the Defense Departments and others, has a 30-day review period to examine a transaction, followed by a 45-day investigation period if necessary.

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In the event a company is determined to be a national security threat, a recommendation is sent to the president, who makes an official finding – again, not subject to judicial review – on the existence of that national security threat.

In the five years between 2008 and 2012, 538 companies went through the review process, and 168 progressed to the examination stage. Exactly one company was subject to a presidential decision. Seventy companies, including 22 in 2012 alone, withdrew their applications voluntarily, before a presidential decision was made.

Available research suggests that a significant number of the companies targeted simply withdraw from the process early on - an untold number not because they actually mean harm to the United States, but because the possible fallout of being labeled a national security threat outweighs the potential benefits of the transaction being examined.

In a report for the Congressional Research Service earlier this year, James K. Jackson noted that, among other things, the committee’s ability to brand a company as a national security threat, even without presenting evidence, leads to skewed economic decision-making.

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“[A] CFIUS investigation of an investment transaction may have been perceived by some firms and by some in the financial markets as a negative factor that added to uncertainty and may have spurred firms to engage in behavior that may not have been optimal for the economy as a whole” he wrote.

Now, to be sure, it’s likely that some, or even most, of the companies targeted by CFIUS presented a legitimate national security threat. For instance, between 2010 and 2012, CFIUS examined 39 transactions involving firms from China – a country widely believed to engage in extensive espionage against the U.S. But because of the committee’s secrecy, there’s no way of knowing what the charges were against any individual firm.

It’s not only companies with connections to potentially hostile governments that find themselves facing off with CFIUS. Over the past three years, companies from staunch U.S. allies including Canada and the United Kingdom have been among the most frequently examined by the agency.

It’s a situation that frustrates good government activists.

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“What do I know about CFIUS? Less than I’d like to,” said Steven Aftergood, who runs the Project on Government Secrecy for the Federation of American Scientists.

It’s a common complaint from advocates of open government, who acknowledge that the agency confronts real threats to the U.S., but are troubled by its lack of transparency and accountability.

“The CFIUS approach was devised as an attempt to defend national interests in technology leadership,” said Aftergood. “But it is clumsy and imperfect both in what it does and what it fails to do.”

It remains unclear how far-reaching the effects of the Ralls ruling will be, but it seems likely to shed at least a little light on one of the U.S. government’s more shadowy programs.

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