The general principles expressed in the legislative history and the opinions cited above lead me to the conclusion that the Johnson Act is not to be construed as prohibiting transactions by United States firms or banking institutions for the financing of export sales of particular goods or services, provided that the terms of such transactions are based upon bona fide business considerations and do not involve a public distribution of securities.

Sincerely,

RAMSEY CLARK.

VALIDITY OF EXECUTIVE ORDER AUTHORIZING PROGRAM RESTRICTING TRANSFERS OF CAPITAL TO FOREIGN COUNTRIES BY SUBSTANTIAL INVESTORS IN THE UNITED STATES AND REQUIRING REPATRIATION BY SUCH INVESTORS OF PORTIONS OF THEIR FOREIGN EARNINGS AND SHORT-TERM FINANCIAL ASSETS HELD ABROAD Executive Order 11387 of January 1, 1968, 33 F.R. 47, which authorized the Secretary of Commerce to issue regulations establishing a Foreign Direct Investment Program, is a valid exercise of the power of the President by virtue of the authority provided by section 5(b) of the act of October 6, 1917, as amended.

The power of the President to regulate foreign investment by persons subject to the jurisdiction of the United States during a period of declared national emergency is supported by the clear language of section 5(b), which has been the foundation for a variety of Executive controls of domestic as well as international financial transactions.

The national emergency declared in Proclamation 2914 of December 16, 1950, continues in existence for the purposes of section 5(b).

THE SECRETARY OF COMMERCE.

FEBRUARY 3, 1968.

MY DEAR MR. SECRETARY: You have requested a statement of my views as to the legal authority for the Foreign Direct Investment Program which your Department presently is administering pursuant to Executive Order 11387 of January 1, 1968.

As you will recall, representatives of this Department participated in the preparation of the Executive order and implementing regulations. During the discussions preceding their issuance, I expressed informally my conclusion that a firm legal basis for the Program was provided by 12 U.S.C. 95a and Proclamation 2914, Dec. 16, 1950, 15 F.R. 9029. This letter will outline the legal support for this conclusion.

On January 1, 1968, the President issued Executive Order 11387, "Governing Certain Capital Transfers Abroad" (33 F.R. 47). The Executive order, with implementing regulations (33 F.R. 49, as amended, 33 F.R. 806) issued under authority delegated in the order to the Secretary of Commerce, established a Foreign Direct Investment Program. The basic provisions of this Program restrict transfers of capital to foreign countries by substantial investors in the United States, and require repatriation to this country by such investors of portions of their foreign earnings and short-term financial assets held abroad.

It is my view that the Foreign Direct Investment Program thus established is authorized by statutory provisions codified at 12 U.S.C. 95a.1 The basic terms of this statute were enacted in section 5(b) of the act of October 6, 1917, c. 106, 40 Stat. 415, and title I of the Emergency Banking Act of March 9, 1933, c. 1, 48 Stat. 1. These statutory provisions, as amended, will be referred to below as "section 5(b)."

My view is supported by four considerations: (1) the clear language of the statute, (2) the historical precedents of Executive action under section 5(b) over the past 35 years, together with the acts of Congress and judicial decisions which have sustained the President's authority under the statute, (3) the continued existence of the national emergency declared by President Harry S. Truman in Proclamation 2914 of December 16, 1950, 3 C. F.R. 99, and (4) the relation of the precedents under section 5(b) to the present exercise of Executive authority.

I

The Language of the Statute

The power of the President to regulate foreign investment by persons subject to the jurisdiction of the United States during a period of declared national emergency is supported by the clear language of section 5 (b). The relevant part of the section provides:

"During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, and

1 Also codified at 50 U.S.C. App. 5(b).

under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise

"(A) investigate, regulate, or prohibit any transactions in foreign exchange, transfers of credit or payments between, by, through, or to any banking institution, and the importing, exporting, hoarding, melting, or earmarking of gold or silver coin or bullion, currency or securities, and

"(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest,

by any person, or with respect to any property, subject to the jurisdiction of the United States ***""

The quoted language specifically authorizes regulation of capital investment transactions by its references, inter alia, to the exporting, and importing of gold, currency, or securities, and to transfers of credit or payments through banking institutions. Authority to require repatriation of foreign earnings and short-term financial assets held abroad is established also by the statutory power to "direct and compel, *** withdrawal, transportation, importation or exportation of, *** any property in which any foreign country or a national thereof has any interest, by any person, ** subject to the jurisdiction of the United States ***" The courts have recognized the extensive authority granted to the President by the plain words of this enactment. See, e.g., Smith v. Witherow, 102 F.2d 638 (C.A. 3, 1939); Ruffino v. United States, 114 F. 2d 696 (C.A. 9, 1940); Pike v. United States, 340 F. 2d 487 (C.A. 9, 1955); Sardino v. Federal Reserve Bank of New York, 361 F. 2d 106 (C.A. 2, 1966). It is a broad grant of power, particularly with respect to international financial transactions. As will be outlined below, it has in successive enactments been deliberately reaffirmed and broadened by the Congress, in recognition of the need to meet grave emergency conditions with authority ample enough to deal successfully with them.

Indeed, since 1941 section 5(b) has conferred authority on the President to define "any or all" of the terms used in

the statute itself. 12 U.S.C. 95a (3). It is evident that Congress intended by such an extraordinary grant of authority to allow the President great flexibility in using the emergency authority of section 5 (b) to deal with the varied and complex financial transactions encompassed by this section. As the Supreme Court stated, in construing an earlier version of this provision, which empowered the President to define only the term "banking institution": "The power in peace and in war must be given generous scope to accomplish its purpose." Propper v. Clark, 337 U.S. 472, 481 (1949).2

II

Precedents for the Exercise of Executive Authority Under Section 5(b)

Section 5(b) has been the statutory foundation for a variety of Executive controls of domestic as well as international financial transactions. This section, first enacted in the Trading with the Enemy Act of 1917, 40 Stat. 415, was originally designed to give the President authority to control commerce with countries with which the United States was then at war. Thus, section 5(b) in its original form gave the President power to regulate transactions in foreign exchange, the export or hoarding of gold, and transfers of credit abroad in any form, but the power expressly did not apply to purely domestic transactions.

In the economic crisis which faced President Franklin D. Roosevelt upon taking office in March of 1933, section 5(b) was extended by the President and the Congress into the field of domestic banking transactions. On March 6, 1933, as one of his first acts, President Roosevelt proclaimed a bank holiday under authority of this statute. Proclamation 2039. Congress convened on March 9, and promptly enacted the Emergency Banking Act, 48 Stat. 1, in which it "approved and confirmed" the actions taken by the President pursuant to section 5(b). The Emergency Banking Act also amended section 5(b) to authorize the President to regulate "transfers of credit between or payments by banking institutions as de

2 This case rejected a challenge to the President's definition of "banking institutions," for purposes of Executive Order 8785, June 14, 1941, 6 F.R. 2897, as "any person holding credits for others as a direct or incidental part of his business."