Mitigating the Control and Influence of Foreign Owners (FOCI)

To counterbalance the risk of exposing classified information, the U.S. Government National Industrial Security Program (NISP) requires that foreign owned companies being considered for award of a ‘classified contract’ take measures to mitigate Foreign Ownership, Control and Influence (FOCI). These measures are additional to the physical controls and security procedures necessary for determination by the Defense Security Services (DSS) of a Facility Clearance (FCL), as mandated under the National Industrial Security Program Operating Manual (NISPOM). (Please see the DMG Briefing Notes on NISPOM and FCL).

Essentially, to comply with FCL and FOCI mitigation measures, it may be necessary for a corporation to conduct significant changes to its physical assets, internal management structures and operating procedures. These include implementing on-site security and controls to permit the safe receipt, handling and storage of classified data and items in a manner that prevents foreign nationals from gaining unauthorized access; implementing changes to corporate control structures through establishing a ‘proxy board’ comprising only U.S. citizens eligible for appropriate security clearance so as to isolate foreign ownership from full visibility and operational control of ‘classified programs’; as well as ensuring that all Key Management Positions are filled by such U.S. citizens.Note that the FOCI mitigation measures require that the Proxy Board will be precluded under U.S. Law from disclosing to foreign shareholders, management and employees all information (technical and commercial) that has a bearing on classified and/or sensitive contracts.

What Actions Should You Take to Mitigate?

Due to the immense risks posed to companies and employees for violating the NISP, it is important that companies doing business in the U.S. and engaging with foreign entities create, implement, and maintain physical controls and security procedures compliant with the NISPOM. Drafting and executing a proxy agreement, while heavily dictated by the US Government, is not a one size fits all deal, but it is something you will have to live with for the life of the contract or longer. Take the time to do it right, and don't hesitate to get help when you need it.