FOCI Mitigation Instruments *

The following guidance is provided regarding the below FOCI mitigation instruments (Guidance can be found in NISPOM, paragraph 2-303):

*The following DSS FOCI mitigation instruments are designed to provide a general overview of items covered in an actual agreement. Actual mitigation instruments will vary in content from those provided as examples as mitigation customization may be required by DSS based on the unique needs of each business entity. Should you have any questions, please contact that appropriate FOCI Regional Specialist here.

BOARD RESOLUTION

The Board Resolution is used when the foreign entity does not own voting stock sufficient to elect a representative to the company's governing board. (EXAMPLE: A British national owns 10% of the company's voting stock and that 10% stock ownership does not allow the British National to appoint a representative to the company's board of directors).

SECURITY CONTROL AGREEMENT

The Security Control Agreement (SCA) is used when the cleared company is not effectively owned or controlled by a foreign entity and the foreign interest is entitled to representation on the company's governing board. (EXAMPLE: A Danish corporation owns 25% of the cleared company's voting stock and that 25% ownership allows the Danish corporation to appoint a representative(s) to the company's governing board). There are no access limitations under a SCA.

SPECIAL SECURITY AGREEMENT

The Special Security Agreement (SSA) is used when a company is effectively owned or controlled by a foreign entity. The SSA has access limitations. Access to proscribed information by a company cleared under a SSA may require that the Government Contracting Activity complete a National Interest Determination to determine that the release of proscribed information (TS, SCI, SAP, COMSEC or RD) to the company shall not harm the national security interest of the United States.

The SCA and SSA are substantially identical arrangements that:

Imposes substantial industrial security and export control measures within an institutionalized set of corporate practices and procedures
Requires active involvement of senior management and certain Board members in security matters (who must be cleared, US citizens) (Officer/Directors and Outside Directors)
Provide for the establishment of a Government Security Committee (GSC) to oversee classified and export controlled matters (the GSC consists of cleared Officer/Directors and Outside Directors), and
Preserve the foreign shareholder's right to be represented on the Board of Directors with a direct voice in the business management of the company while denying unauthorized access to classified information. (Inside Director(s))

PROXY AGREEMENT AND VOTING TRUST AGREEMENT

The Proxy Agreement (PA) and Voting Trust Agreement (VTA) are used when a cleared company is owned or controlled by a foreign entity. The PA and VTA are substantially identical arrangements whereby the voting rights of the foreign owned stock are vested in cleared US citizens approved by the Federal Government (DSS). Neither arrangement imposes any restrictions on the company's eligibility to have access to classified information or to compete for classified contracts.

Establishment of the PA or VTA involves the selection of three Proxy Holders or Trustees who must be directors of the cleared company's board.
The Proxy Holders or Trustees exercise all prerogatives of ownership with complete freedom to act independently from the foreign stockholders, with the following exceptions:
1. The Proxy Holders or Trustees must obtain approval from the foreign shareholder regarding the following matters:
  - The sale or disposal of the corporation's assets or a substantial part.
  - Pledges, mortgages or other encumbrances on the capital stock
  - Corporate mergers, consolidations, or reorganization
  - The dissolution of the corporation
  - The filing of a bankruptcy petition
The Proxy Holder or Trustees assume full responsibility for the voting stock and for exercising all management prerogatives, except for the above matters.
The company must be organized, structured and financed to be capable of operating as a viable business entity independent from the foreign shareholder.
Individuals serving as Proxy Holders or Trustees must be US citizens, residing within the United States, completely "disinterested" individuals with no prior involvement with the cleared company, the corporate body with which it is affiliated or the foreign shareholder and they must be eligible for a personnel security clearance at the level of the facility clearance
Management positions requiring personnel security clearances must be filled by US citizens residing in the US.

The difference between the Proxy Agreement and the Voting Trust Agreement is that under the Voting Trust Agreement the foreign owner transfers legal title in the company to the Trustees that are approved by DSS.

FOCI FACTORS (Refer to NISPOM, Paragraph 2-301)

The following factors relating to the company, the foreign interest, and the government of the foreign interest are considered in the aggregate in determining if a company is under FOCI, its eligibility for a facility clearance and the protective measures required:

Record of economic and government espionage against U.S. targets,
Record of enforcement and/or engagement in unauthorized technology transfer,
Type and sensitivity of the information requiring protection,
Nature and extent of FOCI,
Record of compliance with pertinent US laws, regulations and contracts and
The nature of any bilateral and multilateral security and information exchange agreements that may pertain, and
Ownership or control, in whole or in part, by a foreign government.