Foreign Ownership, Control or Influence (FOCI) and U.S. Facility Security Clearances
By Secure Defense Consulting Incorporated
NISPOM Compliance and Security Consulting Services
NISPOM Compliance and Security Consulting Services
Foreign Ownership, Control, or Influence (FOCI) affects an organization’s ability to obtain and maintain a facility security clearance in a number of ways. Whether an organization is applying for a Confidential, Secret, or Top Secret facility security clearance, FOCI is always assessed by the U.S. government.
It’s not uncommon nowadays for companies providing products and services to the federal government to be owned or influenced by foreign (non-U.S.) entities or interests. But if a product or service provider is to access classified national security information in the performance of its contract, it must obtain a facility security clearance. A major part of the U.S. federal government’s vetting process for granting a facility security clearance involves assessing the organization’s Foreign Ownership, Control or Influence (FOCI).
Simply because foreign (non-U.S) persons or entities hold interests in an organization does not necessarily mean that the organization is ineligible for a facility security clearance. It does mean, however, that the foreign entities’ influence on the organization’s performance on the classified contract from the U.S. federal government may need to be mitigated.
Foreign Ownership, Control or Influence (FOCI) can take a number of forms:
• more than five percent of an organization’s stock is owned by or five percent of its capital commitment is subscribed by a foreign person.
• the organization owns more than ten percent of a foreign interest.
• a member of the organization’s governing body, officers, executives, regents, trustees, or management officials is not a U.S. citizen.
• a foreign person has the power to control the appointment, election, or tenure of the above-mentioned managers of the organization.
• a foreign person has the power to control the direction or activities of the organization.
• the organization has a contract or other arrangement with a foreign person.
• the organization has debts, liabilities, or other obligations to a foreign person.
• significant revenue has been derived from a foreign person.
• the above-mentioned management personnel hold positions with a foreign organization.
Factors the government considers
The U.S. government assesses a number of factors pertaining to the organization to be cleared, the foreign entity involved, and the government of the other country. These factors include:
• a record of economic and government espionage against U.S. targets
• their record of enforcement and/or engagement in unauthorized technology transfer
• the type and sensitivity of the information requiring protection
• the nature and extent of the FOCI
• the organization’s record of compliance with pertinent US laws, regulations and contracts
• the nature of any bilateral and multilateral security and information exchange agreements that may pertain
• ownership or control, in whole or in part, by a foreign government
Instruments used to mitigate Foreign Ownership, Control or Influence (FOCI)
Perhaps the simplest and easiest method used to mitigate FOCI is for the organization’s governing board to pass a resolution. This method can be used in instances where a foreign entity owns some stock in the company but not enough to elect a representative to the governing board.
A Security Control Agreement can be used to mitigate Foreign Ownership, Control or Influence (FOCI) when a foreign interest is represented on the company’s governing board but the company is not owned or controlled by the foreign interest.
When a company is effectively owned or controlled by a foreign entity, a Special Security Agreement can be used. This is the most restrictive approach, as it limits the company’s access to classified national security information. Other options in this scenario are a Voting Trust Agreement or Proxy Agreement. They do not restrict the company’s access to classified information, they simply appoint a cleared U.S. citizen to exercise the voting rights of the foreign entity.
Situations in which to consider Foreign Ownership, Control or Influence (FOCI)
An organization needs to consider its FOCI issues not only when it is being sponsored for a facility security clearance. When a company that already has a facility security clearance is about to be acquired by or merge with another company, the other company’s Foreign Ownership, Control or Influence should be assessed. If the other company is found to be under FOCI, the company with the facility security clearance is required by clause 2-302(b) of the National Industrial Security Program Operating Manual (NISPOM) to notify the U.S. government of this fact.
ABOUT THE AUTHOR: Secure Defense Consulting Incorporated
Secure Defense Consulting Incorporated provides security consulting services to the U.S. government and companies. We advise on the security of physical assets and classified national security information, specializing in compliance with the National Industrial Security Program Operating Manual (NISPOM), International Traffic in Arms Regulations (ITAR), and Export Administration Regulations (EAR).
Copyright Secure Defense Consulting Incorporated
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.