Under Department of Defense (DoD) regulations and policies, government contractors that are owned or controlled by non-U.S. parties will not be awarded contracts that require access to classified information, unless safeguards are put in place. While the DoD recognizes that foreign investment in the U.S. defense industry may, in fact, serve national security interests, U.S. contractors subject to “foreign ownership, control, or influence” (FOCI) are still required to take specific steps to ensure that they can obtain and/or maintain classified contracts.

Within DoD, the Defense Security Service (DSS) administers access to classified information, including mitigation of FOCI.  DSS’ primary functions include:

  • Clearing industrial facilities, personnel and associated information systems for access to classified information;
  • Collecting, analyzing and providing threat information to industry and government partners;
  • Managing FOCI in cleared industries;
  • Providing advice and oversight to industry;
  • Delivering security education and training; and
  • Providing information technology services that support the industrial security mission of DoD and its partner agencies.

DSS has developed three instruments for companies to mitigate FOCI: (1) a Board Resolution; (2) a Special Security Agreement; or (3) a Voting Trust/Proxy Agreement.  The Board Resolution is the least restrictive measure, and the Voting Trust/Proxy Agreement is the most intrusive.  Each instrument is meant to insulate the company’s classified work from foreign influence.  The instrument’s level of restrictiveness is primarily a function of the extent to which FOCI is an issue, and the sensitivity of the information underlying the classified contract.

Once DSS has initially cleared a company for access to classified information, DSS is responsible for ensuring that the cleared company’s security operations are in compliance with agency policy. In order to successfully execute this task, DSS employs over 350 Industrial Security Representatives who provide oversight and assistance to cleared contractor facilities.  Currently, DSS is responsible for overseeing over 13,000 cleared companies participating in the NISP.

Additional information on these instruments and the FOCI mitigation process is available at  http://www.wileyrein.com/publications.cfm?sp=articles&id=7877.