Obama Shoots Down Ralls Deal. What Happens Next?

October 1, 2012

You may recall I wrote a post a couple weeks ago about a Chinese company that had purchased several wind farms in the U.S. One of those happened to be within the five-mile restricted, super-secret security zone surrounding a Navy facility that tests drone aircraft and other fun toys.

Ralls claims that it received approval from the Federal Aviation Administration and, when requested by the Navy to relocate some turbines, complied with orders involving national security. Ralls says that the Navy was OK with the project moving forward.

Enter CFIUS, the review panel controlled by the U.S. Treasury Department that has authority to review inward foreign investment deals. It took a look at this particular wind farm and decided that because of national security concerns, the deal should be unwound.

Ralls then sued CFIUS, claiming several things, including what sounded to me like a “regulatory taking” case, which is constitution-speak for “The government took something of mine and didn’t pay me for it.” At that point, the decision bounced upstairs to the president.

The case against CFIUS was eventually dropped by Ralls, perhaps because they knew Obama would be getting involved. That final decision by the president happened late last week, with an expected upholding of the CFIUS denial. Ralls has responded with the threat of another lawsuit, this time going after the president’s decision.

So what happens next? If Ralls goes ahead with a lawsuit, it will probably lose. The applicable statute apparently states that the president’s decision on these deals is not reviewable. If that’s true (I haven’t looked at the law myself), then the show is probably over.

And of course we still don’t know what the heck this is all about. Apparently there are other wind farms near this Navy base, which suggests that this has something to do with China and the equipment manufacturer behind the deal, Sany.

Could there be a real national security issue here? Of course. I don’t know much about electronic espionage, but there could be a lot going on here that is hidden. Something more sophisticated than Ralls sticking a camera on top of a wind turbine and tracking the movements of drones. (You don’t need a wind turbine facility to do something like that, I suspect.)

On the other hand, this could be political bullshit, with the national security angle being a thin excuse for an anti-China move or some kind of protectionism.

The point is that we don’t know because it’s all super secret, which is fine if you trust the government not to abuse ┬áits authority. I certainly don’t, at least not since 9/11.

Moreover, these kinds of mysterious decisions are horrible for cross-border investment. They foster speculation, uncertainty, and a whole lot of rumors. In the end, there is a chilling effect on future investment.

Finally, does the Ralls case tells us about any trends with respect to inward investment reviews by CFIUS? Anyone that says yes is probably blowing smoke up your ass. This was a non-transparent decision, so it’s impossible to say whether future deals, such as Nexen, will be somehow influenced by this case.