Oral Arguments Held in First-Ever Challenge to CFIUS National Security Review of Foreign Investments in the United States


On May 5, the US Court of Appeals for the District of Columbia (DC Circuit) heard oral arguments in Ralls Corp. v. CFIUS et al. The case is the first ever challenge to the review process conducted by the Committee on Foreign Investment in the United States (CFIUS) within the US federal government that reviews investments by foreign persons in the United States on national security grounds. In 2012, after the acquisition was completed. CFIUS halted and US President Barack Obama subsequently ordered Ralls Corporation, owned by two Chinese nationals, to divest its acquisition of four wind farm project companies in Oregon due to their proximity to a US Navy weapons testing and training facility. Ralls filed a lawsuit challenging the CFIUS and Presidential orders in the US District Court for the District of Columbia (District Court). The District Court ruled against Ralls, citing, inter alia, its failure to file advance notice of the transaction with CFIUS and the non-reviewable nature of the President’s actions. On appeal before the DC Circuit, the oral arguments focused on the issue of transparency in the President’s decision-making process. The case is important because it weighs the due process foreign investors are entitled to during CFIUS review. It also underscores the importance for potential investors in the United States to carefully consider engaging and filing notice with CFIUS and to remain alert to potential national security considerations in their investments — no matter how innocuous the target—such as proximity to military facilities.

What Is CFIUS?

Pursuant to the Exon-Florio Amendment to the 1950 Defense Production Act, the President, acting through CFIUS, an inter-agency committee in the federal government chaired by the US Department of the Treasury, can suspend, block or otherwise modify investments and acquisitions by foreign persons that result in foreign control of US entities engaged in inter-state commerce in the United States, if such control threatens US national security. This authority may be carried out by conditions or changes prior to the deal’s closing or through unwinding or divestment of a transaction that has already been concluded. CFIUS can review transactions upon the filing of a voluntary notice by the parties to a proposed transaction or initiate a review on its own. Upon the filing of a notice with CFIUS, it reviews the transaction over a 30-day period followed by, if need be, a 45-day investigation. At the conclusion, CFIUS may either clear the transaction or refer it to the President, who has 15 days to determine what action to take.

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