National Security

Chinese firm gets big cache of U.S. government documents in unprecedented exchange over wind-farm dispute

American soldiers and members of China's People's Liberation Army participate in a joint disaster relief exercise in Hawaii last November.
American soldiers and members of China's People's Liberation Army participate in a joint disaster relief exercise in Hawaii last November. U.S. Department of Defense

The Justice Department has delivered hundreds of previously concealed documents to a Chinese firm that President Obama had blocked from buying Oregon wind farms because they are near a sensitive military base.

The delivery to Chinese-owned Ralls Corp. of 3,487 pages of government material tied to the dispute was completed Friday under a July federal appellate ruling that Obama’s unexplained 2012 rejection of the sale had denied the Chinese-owned company constitutional due process.

Analysts said it was the first time the government had given a foreign purchaser documents underlying the deliberations of the Committee on Foreign Investment in the United States, a secretive inter-agency committee, known by its acronym CFIUS, that vets such sales for national security risks.

Christopher Brewster, a Washington lawyer with Stroock & Stroock & Lavan who represents Chinese and other firms seeking to buy American companies, said the document dump was significant even though the materials were unclassified.

“Much of this (material) will be inconsequential, but not all of it,” Brewster told McClatchy. “So this is still pretty big. CFIUS has not previously been required to fork over the documents it relies upon in its decisions.”

Brewster and other experts said the move would likely spawn more foreign companies’ objections to CFIUS, which President Gerald Ford established in 1975, or at least more demands for the rationales behind its decisions.

“What we can expect is more challenges when CFIUS seeks to impose mitigation agreements,” Brewster said. “CFIUS is headed into a brave, new world.”

CFIUS, whose work is classified, is chaired by the Treasury secretary and made up of the heads of the Departments of Homeland Security, Defense, State and Energy, along with the Attorney General.

Short of rejecting a foreign purchase outright, CFIUS often requires the buyer and/or the target company to take certain actions to protect U.S. national security -- called mitigation steps -- in order for the sale to be completed.

The committee in recent years has increasingly focused on the growing number of Chinese acquisitions, with China in 2012 becoming for the first time the country with the most foreign investments subject to national security review.

Few foreign firms challenge CFIUS decisions. But in the Ralls case, two prominent Chinese businessmen who own the firm, Dawai Duan and Jialiang Wu, appealed the committee’s rejection of its already-completed purchase of Project Companies, a conglomerate of four wind-farm firms.

Obama upheld the CFIUS rejection of the deal on the grounds that the wind farms would interfere with test flights by drones and bomber squadrons at a Navy base in northern Oregon.

During his 2012 re-election campaign, Obama heralded his move as a sign of his willingness to stand up to China.

Ralls, however, sued CFIUS and added Obama as a defendant when he ratified the committee’s recommendation.

The U.S. Circuit Court of Appeals for the District of Columbia, which hears most major legal disputes involving key federal agencies, ruled in July that Ralls had been denied its due process rights because the government failed to explain its rejection of the sale and thus to give the Chinese firm a chance to respond.

The appellate court sent the case back to U.S. District Judge Amy Berman Jackson, who originally had ruled against Ralls, with a mandate to work out a way for the government to justify its move.

In an order earlier this month, Jackson directed the government to provide unclassified documents behind its decision.

Jackson said the Justice Department, whose attorneys represent federal agencies in lawsuits, could withhold documents under a claim of executive privilege, but she required it to justify each use of such privilege.

Executive privilege is a venerable legal principle akin in government to attorney-client confidentiality. It was first claimed by the U.S. government’s executive branch when President George Washington refused to share with the House of Representatives documents tied to a pending treaty with Britain, saying the Constitution gives only the Senate the power to ratify or reject such international accords.

In providing documents to Ralls last week, the Justice Department withheld only sections of two documents under the assertion of executive privilege.

“Given the sheer volume of documents that CFIUS has agreed to turn over, it is a little surprising that only portions of two documents were withheld on grounds of privilege,” Brewster said.

Brewster recommended that the committee “get ahead of the curve” and begin crafting a regulation governing how foreign purchasers seek and obtain CFIUS documents.

“If they don’t (devise a federal rule), decisions are going to be made on the fly,” Brewster said. “And if they wait for the next court challenge, the decisions could be made for them.”