"Obama Administration Blocks Chinese Purchase of Wind Farms on National Security Grounds"

[authors: Ivan A. Schlager, Malcolm Tuesley, John P. Kabealo]

Citing “credible evidence” that led him to believe that the Chinese-owned Ralls Corporation or its subsidiaries or affiliates “might take action that threatens to impair the national security of the United States,” President Obama today blocked the company’s purchase of four wind farms located in Oregon with a total anticipated generation capacity of 10 megawatts.

The last transaction formally blocked by presidential action occurred in 1990, when President Bush blocked the sale of Mamco Manufacturing, an avionics manufacturer, to China National Aero-Technology Import and Export Corp.

The Ralls purchase previously had been the subject of a mitigation order by the Committee on Foreign Investment in the Untied States (CFIUS), which required Ralls to immediately cease construction on the wind farms, remove all stockpiled and stored items from the wind farms, and cease all access to the wind farms. The CFIUS order came after the U.S. Navy raised concerns relating to the sites’ proximity to the Naval Weapons Systems Training Facility in Boardman, Oregon, and its restricted air space used for test flights and training missions of unmanned aerial vehicles.

The wind farms were begun in 2009 by Oregon Windfarms LLC and sold to Ralls Corp. in early 2012. The parties to the sale originally failed to notify CFIUS of the transaction and submitted a notice only after the Department of Defense learned of the transaction and alerted CFIUS.

After review and investigation of the transaction, CFIUS purported to block the transaction, ordering the deconstruction of certain preliminary infrastructure at the sites. Shortly thereafter, Ralls filed suit, alleging that CFIUS had exceeded its authority under the Administrative Procedure Act, as only the president has the power to formally block transactions. Ralls filed for a restraining order to allow continued construction at the sites, and stated that it would lose a $25 million tax credit if the farms were not operable by December 31.

CFIUS then agreed to allow certain preconstruction work to continue while President Obama reviewed the transaction. At the same time, CFIUS presented the transaction to President Obama, along with its recommendation that the transaction be blocked, which was based on a threat assessment by the Director of National Intelligence.

The Obama administration’s ruling may render all or a portion of the case moot. We will continue to monitor the status of the case and update our clients as appropriate.

Companies are advised to be aware that transactions that may not appear to be sensitive on their faces — such as the sale of a small wind farm — may indeed raise significant concerns within the CFIUS agencies and at the presidential level. Additionally, this case highlights a danger in failing to notify CFIUS of a sale to, or investment by, a foreign company. Companies are encouraged to consult counsel early in the sale process to conduct a thorough CFIUS analysis.

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Published In: Administrative Agency Updates, Energy & Utilities Updates, Environmental Updates, International Trade Updates, Mergers & Acquisitions Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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