FOCI Mitigation Instruments

The following guidance is provided regarding the FOCI mitigation instruments (guidance can be found in DTM 09-019, Sept 2, 2009 (Change 1, 06/08/10) – “Policy Guidance for Foreign Ownership, Control, or Influence (FOCI)”:

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.

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. There are no access limitations under a SCA.

SPECIAL SECURITY AGREEMENT
The Special Security Agreement (SSA) is used when a company is 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 (Top Secret, Sensitive Compartmented Information, Special Access Programs, COMSEC or Restricted Data/Formerly Restricted Data) 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:  

The Proxy Holders or Trustees must obtain approval from the foreign shareholder regarding the following matters:



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.