[Federal Register Volume 79, Number 68 (Wednesday, April 9, 2014)]
[Rules and Regulations]
[Pages 19467-19478]
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DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 117
[Docket ID: DOD-2011-OS-0063]
RIN 0790-AI71
National Industrial Security Program
AGENCY: Department of Defense (DoD).
ACTION: Interim final rule.
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SUMMARY: This DoD interim final rule (rule) assigns responsibilities
and establishes requirements related to the National Industrial
Security Program (NISP) to ensure maximum uniformity and effectiveness
for both DoD and non-DoD Components, as defined in this rule, for which
the Department serves as the Cognizant Security Agency (CSA) and
provides industrial security services in accordance with Executive
Order (EO) 12829, ``National Industrial Security Program.'' The rule
provides guidance on the procedures used to ensure classified
information will be properly safeguarded if a contractor has reported
foreign ownership, control or
[[Page 19468]]
influence (FOCI) information which DoD must evaluate, mitigate, or
negate as appropriate. The rule also provides guidance for the
evaluation, mitigation, and/or negation of FOCI information reported by
a company, as defined in the rule, which is in process for a facility
security clearance (FCL).
DATES: Effective Date: This rule is effective April 9, 2014. Comments
must be received by June 9, 2014.
ADDRESSES: You may submit comments, identified by 32 CFR part 117,
Docket No. DoD-2011-OS-0063 or Regulatory Information Number (RIN)
0790-AI71 by any of the following methods:
Federal Rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Federal Docket Management System Office, 4800 Mark
Center Drive, 2nd floor, East Tower, Suite 02G09, Alexandria, VA 22350-
3100.
Instructions: All submissions received must include the agency name
and docket number or RIN for this Federal Register document. The
general policy for comments and other submissions from members of the
public is to make these submissions available for public viewing on the
Internet at http://www.regulations.gov as they are received without
change, including any personal identifiers or contact information.
FOR FURTHER INFORMATION CONTACT: Valerie Heil, (703) 604-1112.
SUPPLEMENTARY INFORMATION:
Executive Summary
The purpose of this part 117, subpart C is to set forth industrial
security procedures and practices related to FOCI for the Components to
ensure maximum uniformity and effectiveness in the DoD implementation
of E.O. 12829.
In accordance with the authority in DoD Directive (DoDD) 5143.01,
the purpose of the rule is to implement policy, assign
responsibilities, establish requirements and provide procedures,
consistent with E.O. 12829, DoD Instruction (DoDI) 5220.22, and E.O.
10865, ``Safeguarding Classified Information within Industry,'' for the
protection of classified information that is disclosed to, or developed
by contractors.
This rule provides NISP policy to the Components and establishes
procedures concerning the initial FCL eligibility of U.S. companies
that may be subject to FOCI or continued FCL eligibility for
contractors subject to FOCI; provides criteria for determining whether
contractors are under FOCI; prescribes responsibilities in FOCI
matters; and outlines security measures that may be considered to
negate or mitigate the effects of FOCI to an acceptable level. This
rule does not levy requirements on U.S. contractors.
Depending upon the nature and extent of FOCI, DoD mitigates FOCI by
putting into place mechanisms such as a voting trust agreement (VTA),
proxy agreement (PA), special security agreement (SSA) or security
control agreement (SCA). These arrangements require trustees, proxy
holders or outside directors to oversee and provide business management
of the U.S. contractor.
For calendar year (CY) 11, five contractors cleared by DoD were
subject to a SCA, of which three required access to SECRET information
and two required access to TOP SECRET information. The average number
of outside directors for a SCA is two. For CY11, 16 contractors were
subject to a SSA, of which 12 required access to SECRET information and
four required access to TS information. The average number of outside
directors for a SSA is three. In CY 11, there were no VTAs and nine PAs
that required access to TS information. The average number of proxy
holders for a PA is three. The proxy holders, voting trustees, or
outside directors must be eligible for access at the level of the FCL.
CY 11 total estimated costs for personnel security investigations
of trustees, proxy holders and outside director are as follows:
(1) The unit cost for a SECRET clearance (National Agency Check
with Law and Credit NACLC) is $228.
3 SCA x 2 outside directors x $228/NACLC = $1,368
12 SSA x 3 outside directors x $4005/NACLC = $8,208
(2) The unit cost for a TS (Single Scope Background Investigation--
SSBI) is $4,005
2 SCAs x 3 outside directors x $4,005 = $16,020
4 SSAs x 3 outside directors x $4,005 = $48,060
9 PAs x 3 proxy holders x $4,005 = $108,135
Therefore, the total estimated investigation cost for outside
directors and proxy holders under SCAs, SSAs and PAs for CY 11 is
$181,791. These costs are government costs and not levied on
contractors.
FOCI measures provide protection from unauthorized transfer of
classified information to foreign interests, thus saving billions of
dollars.
At the same time, the procedures in this rule allow companies
determined to be under FOCI to be cleared through a FOCI mitigation or
negation agreement and thus realize billions of dollars in classified
contracts.
By maintaining the capability for foreign-owned U.S. contractors to
compete for classified contracts with FOCI mitigation, DoD, through the
NISP, enhances competition and realizes cost savings through that
competition.
Background
DoD, as one of the four NISP CSAs, provides oversight of more than
10,000 U.S. contractors as well as another 3,000 divisions and branch
offices of those contractors on behalf of the DoD Components and the
non-DoD Components. Non-DoD Components issuing contracts requiring
access to classified information who are not one of the four designated
NISP CSAs (i.e., the Department of Energy, the Office of the Director
of National Intelligence, the Nuclear Regulatory Commission and the
DoD) must enter into agreements with DOD to establish the terms of
oversight on their behalf. Currently, the procedures for assessing
initial FCL eligibility for U.S. companies and continued FCL
eligibility for U.S. contractors which may be subject to FOCI are not
uniform or consistent since these procedures do not apply to the non-
DoD Components. Currently, DoD does not have uniform procedures to
assess the risks and the potential adverse impact on the performance of
contracts requiring access to classified information due to any FOCI
information reported by U.S. contractors or U.S. companies in process
for an FCL. The rule will provide uniform and effective procedures for
DoD to assess the risks associated with reports of material changes to
FOCI information which are submitted annually by U.S. contractors.
The rule also establishes procedures and criteria for appropriate
actions to mitigate or negate any existing FOCI factors when DoD
determines a U.S. company in process for an FCL or a U.S. contractor is
under FOCI and is thus ineligible for access to classified information.
The rule also prescribes responsibilities for FOCI matters, to include
assessment of risks which may result from a contractor's FOCI
information. Finally, it outlines security measures DoD may consider,
implement, and oversee to mitigate or negate the effects of FOCI to an
acceptable level for classified contract performance.
The addition of this rule is part of DoD's retrospective plan,
completed in August 2011, under Executive Order 13563, ``Improving
Regulation and
[[Page 19469]]
Regulatory Review.'' Executive Order 13563 emphasizes the importance of
retrospective analysis of rules with its ``look back'' requirement,
which states that ``within 120 days of the date of this order, each
agency shall develop . . . a preliminary plan.'' The plans should
``facilitate the periodic review of rules that may be outmoded,
ineffective, insufficient, or excessively burdensome, and to modify,
streamline, expand, or repeal them in accordance with what has been
learned.'' This rule updates policy and procedures for industry that
are more than 20 years old. DoD's full plan and updates can be accessed
at: http://exchange.regulations.gov/exchange/topic/eo-13563.
Justification for Interim Final Rule
Without this rule, the Components face an elevated risk of
unauthorized disclosure of classified information to foreign interests
resulting in potential economic losses or damage to U.S. national
security. There is such an increased probability of unauthorized
disclosure of classified information because the owner of a U.S.
company has direct authority over all aspects of his company (e.g., who
gets paid, what contracts, including classified contracts are pursued,
and access to information/programs that those contracts include. If the
U.S. company has a foreign owner and is awarded a contract requiring
access to classified information, these procedures provide actions for
the USG to take to keep that foreign owner from having direct authority
over the disclosure of and access to classified information. If there
are no procedures as set forth in this rule to evaluate and determine
how to negate or mitigate the foreign ownership, there will be nothing
to prevent unauthorized disclosures of classified information since the
foreign owner will have unfettered control of the U.S. company. This
proposed rule provides the baseline requirements for the USG to
evaluate the foreign owner's rights and determine whether those rights
can be mitigated to effectively protect classified information and
preclude its unauthorized disclosure. Depending upon what a foreign-
owned U.S. company is working on, unauthorized disclosure of classified
information could have an adverse impact on national security.
This rule allows fair and open competition among U.S. companies,
including foreign-owned U.S. companies, who are vying for the
opportunity to provide products and services to the Components when
access to classified information is required. Also, without this rule,
Components will not have the ability to consider innovative
technologies developed by foreign-owned U.S. companies due to concerns
with awarding a classified contract without a uniform process to assess
and effectively mitigate or negate existing FOCI. Finally, the lack of
a formal, uniform process has created significant delay in the
completion of National Interest Determinations (NIDs) for foreign-owned
U.S. contractors. These delays increase the costs to Components by
preventing contract performance when access to classified information
is required.
This rule provides a baseline for protection of classified
information through analysis, evaluation and, if needed, protective
measures to mitigate or FOCI information at U.S. companies performing
on contracts requiring access to classified information. Government
Contracting Activities (GCAs) don't know if there are risks, such as
foreign ownership or control of a U.S. company before awarding a
contract requiring access to classified information or when a U.S.
company is acquired by a foreign interest while performing on any
contracts requiring access to classified information without these
procedures. The uniform procedures in this rule provide the GCAs with
analysis of potential adverse impact and mitigation or negation of FOCI
information to allow foreign-owned U.S. companies to compete to perform
on classified contracts. DoD and non-DoD Components face an increased
probability of the loss or compromise of classified information and
subsequent harm to the national security, as a result of the award of
classified contracts to foreign-owned U.S. companies without this rule
in place for the proper mitigation of FOCI information.
Definitions
For the definitions without a cited source in this rule, upon
approval of this rule, those terms and their definitions will be
proposed for inclusion in the next edition of the Joint Publication 1-
02, ``DoD Dictionary of Military and Associated Terms'' (available at
http://www.dtic.mil/doctrine/new_pubs/jp1_02.pdf).
Regulatory Procedures
E.O. 12866, ``Regulatory Planning and Review'' and E.O. 13563,
``Improving Regulation and Regulatory Review''
It has been certified that 32 CFR part 117 does not:
(1) Have an annual effect on the economy of $100 million or more or
adversely affect in a material way the economy; a section of the
economy; productivity; competition; jobs; the environment; public
health or safety; or State, local, or tribal governments or
communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs, or the rights and obligations of
recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
these Executive Orders.
Section 202, Public Law 104-4, ``Unfunded Mandates Reform Act''
It has been certified that 32 CFR part 117 does not contain a
Federal mandate that may result in expenditure by State, local and
tribal governments, in aggregate, or by the private sector, of $100
million or more in any one year.
Public Law 96-354, ``Regulatory Flexibility Act'' (5 U.S.C. 601)
It has been certified that 32 CFR part 117 is not subject to the
Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if
promulgated, have a significant economic impact on a substantial number
of small entities.
Public Law 96-511, ``Paperwork Reduction Act'' (44 U.S.C. Chapter 35)
It has been certified that 32 CFR part 117 does not impose
additional reporting or recordkeeping requirements under the Paperwork
Reduction Act of 1995. Standard Form (SF) 328, ``Certificate Pertaining
to Foreign Interests'' has been assigned OMB Control Number 0704-0194.
E.O. 13132, ``Federalism''
It has been certified that 32 CFR part 117 does not have federalism
implications, as set forth in E.O. 13132. This rule does not have
substantial direct effects on:
(1) The States;
(2) The relationship between the National Government and the
States; or
(3) The distribution of power and responsibilities among the
various levels of Government.
List of Subjects in 32 CFR Part 117
Classified information, Facility security clearances, Foreign
ownership, control or influence procedures, Security measures.
0
Accordingly, 32 CFR part 117 is added to read as follows:
[[Page 19470]]
PART 117--NATIONAL INDUSTRIAL SECURITY PROGRAM
Subpart A--[Reserved]
Subpart B--[Reserved]
Subpart C--Procedures for Government Activities Relating to Foreign
Ownership, Control or Influence (FOCI)
Sec.
117.51 Purpose.
117.52 Applicability.
117.53 Definitions.
117.54 Policy.
117.55 Responsibilities.
117.56 Foreign ownership, control or influence (FOCI).
Authority: Executive Order (E.O.) 12829, January 6, 1993, 58 FR
3479.
Subpart A--[Reserved]
Subpart B--[Reserved]
Subpart C--Procedures for Government Activities Relating to Foreign
Ownership, Control or Influence (FOCI)
Sec. 117.51 Purpose.
This part sets forth industrial security procedures and practices
related to Foreign Ownership, Control or Influence (FOCI) for the
Department of Defense (DoD) Components, as defined in this part and
non-DoD Components, as defined in this part, to ensure maximum
uniformity and effectiveness in DoD implementation of the National
Industrial Security Program (NISP) established by Executive Order
(E.O.) 12829 ``National Industrial Security Program,'' (available at
http://www.archives.gov/isoo/policy-documents/eo-12829.html).
Sec. 117.52 Applicability.
(a) This part applies to:
(1) The DoD Components.
(2) The non-DoD Components. When the term Government Contracting
Activities (GCAs) is used, it applies to both DoD Components and non-
DoD Components.
(b) This part does not:
(1) Limit in any manner the authority of the Secretary of Defense,
the Secretaries of the Army, Navy and Air Force; or the Heads of the
Components, as defined in this part, to grant access to classified
information under the cognizance of their respective department or
agency to any individual or entity designated by them. The granting of
such access is outside the scope of the NISP and is governed by
Executive Order (E.O.) 13526, ``Classified National Security
Information,'' (available at http://www.archives.gov/isoo/pdf/cnsi-eo.pdf) and applicable disclosure policies.
(2) Limit the authority of a GCA to limit, deny, or revoke access
to classified information under its statutory, regulatory, or
contractual jurisdiction.
(3) Levy requirements on contractors and companies currently in
process for facility security clearances (FCLs) as they are subject to
the requirements of DoD 5220.22-M, ``National Industrial Security
Program Operating Manual (NISPOM)'' (available at http://www.dtic.mil/whs/directives/corres/pdf/522022m.pdf) and the security requirements of
their contracts.
Sec. 117.53 Definitions.
Unless otherwise noted, these terms and their definitions are for
the purposes of this part only.
Access. As defined in DoD 5220.22-M.
Affiliate. As defined in DoD 5220.22-M.
Board resolution. A formal, written decision of a company's board
of directors, used to draw attention to a single act or board decision,
e.g., to approve or adopt a change to a set of rules, a new program or
contract.
Carve-out. As defined in DoD Directive 5205.07, ``Special Access
Program (SAP) Policy,'' (available at http://www.dtic.mil/whs/directives/corres/pdf/520507p.pdf).
Classified contract. As defined in DoD 5220.22-M.
Classified information. As defined in Joint Publication 1-02 ``DoD
Dictionary of Military and Associated Terms'' (available at http://www.dtic.mil/doctrine/new_pubs/jp1_02.pdf).
Company. As defined in DoD 5220.22-M.
Components. DoD Components and non-DoD Components for which DoD
provides industrial security services in accordance with E.O. 12829.
COMSEC. As defined in Joint Publication 6-0, ``Joint Communication
System'' (available at http://www.dtic.mil/doctrine/new_pubs/jp6_0.pdf).
Contractor. As defined in DoD 5220.22-M.
Counterintelligence. As defined in Joint Publication 1-02.
Covered transaction. As defined in DoD Instruction 2000.25, ``DoD
Procedures for Reviewing and Monitoring Transactions Filed with the
Committee on Foreign Investment in the United States (CFIUS)''.
(available at http://www.dtic.mil/whs/directives/corres/pdf/200025p.pdf).
CSA. As defined in DoD 5220.22-M.
Defense articles. As defined in DoD 5220.22-M.
Defense Industrial Base. As defined in Joint Publication 1-02.
Document. As defined in E.O. 13526.
DoD Components. Office of the Secretary of Defense (OSD), the
Military Departments, the Office of the Chairman of the Joint Chiefs of
Staff and the Joint Staff, the Combatant Commands, the Office of the
Inspector General of the Department of Defense, the Defense Agencies,
the DoD Field Activities, and all other organizational entities within
DoD.
Facility. As defined in DoD 5220.22-M.
Facility security clearance (FCL). As defined in DoD 5220.22-M.
Facility Security Officer (FSO). A U.S. citizen contractor
employee, who is cleared as one of the Key Management Personnel
required for the FCL, to supervise and direct security measures
necessary for implementing applicable requirements set forth in DoD
5220.22-M.
FOCI action plan. For purposes of this part, the methods or
agreements that can be applied to mitigate or negate the risk of
foreign ownership or control to allow a U.S. contractor to maintain or
a U.S. company to be granted an FCL.
FOCI mitigation agreement. For purposes of this part, a signed
agreement between a foreign interest and a U.S. contractor or a company
in process for an FCL which, based on an assessment of FOCI
information, imposes various security measures within an
institutionalized set of company practices and procedures. Examples
include board resolutions, security control agreements (SCAs) and
special security agreements.
FOCI negation agreement. For purposes of this part, a signed
agreement between a foreign interest and U.S. contractor or a company
in process for an FCL under which the foreign owner relinquishes most
ownership rights to U.S. citizens who are approved by the U.S.
Government and have been favorably adjudicated for access to classified
information based on the results of a personnel security clearance
investigation. Examples include voting trust agreements (VTAs) and
proxy agreements (PAs).
Foreign government information (FGI). As defined in E.O. 13526.
Foreign interest. As defined in DoD 5220.22-M.
GCA. As defined in DoD 5220.22-M.
Industrial security. As defined in DoD 5220.22-M.
Information. As defined in E.O. 13526.
[[Page 19471]]
Limited Access Authorization (LAA). As defined in DoD 5220.22-M.
National interest determination (NID). As defined in 32 CFR part
2004, ``National Industrial Security Program Directive No. 1.''
Non-DoD Components. Those USG executive branch departments and
agencies identified in DoD 5220.22-M that have entered into agreements
with the Secretary of Defense to act as the NISP Cognizant Security
Agency (CSA) for, and on their behalf, in rendering security services
for the protection of classified information disclosed to or generated
by industry pursuant to Section 202 of E.O. 12829.
Personnel security clearance (PCL). As defined in DoD 5220.22-M.
Personnel security clearance assurance (PCLSA). A written
certification by USG or applicable foreign government industrial
security authorities, which certifies the PCL level or eligibility for
a PCL at a specified level for their citizens. The assurance is used,
in the case of the United States, to give an LAA to a non-U.S. citizen,
provided all other investigative requirements are met.
Prime contract. As defined in DoD 5220.22-M.
Proscribed information. TOP SECRET (TS) information, COMSEC
information excluding controlled cryptographic items when unkeyed and
utilized with unclassified keys, restricted data (RD), special access
program (SAP) information, or sensitive compartmented information
(SCI).
Restricted Data (RD). As defined in DoD 5220.22-M.
Sensitive compartmented information (SCI). As defined in Joint
Publication 1-02.
Security assurance. A written confirmation, requested by and
exchanged between governments, that contains the following elements:
Verification of the personnel security clearance (PCL) level of the
sponsoring foreign government's citizens or nationals; a statement by a
responsible official of the sponsoring foreign government that the
recipient of the information is approved by the sponsoring foreign
government for access to information of the security classification
involved on behalf of the sponsoring government; and an obligation that
the sponsoring foreign government will ensure compliance with any
security agreement or other use, transfer and security requirements
specified by the components. The security assurance usually will be in
a request for visit authorization or with courier orders or a
transportation plan; but is not related to the PCL security assurance.
Special Access Program (SAP). As defined in E.O. 13526.
Subcontract. As defined in DoD 5220.22-M.
Sec. 117.54 Policy.
It is DoD policy that DoD FOCI procedures will be used to protect
against foreign interests:
(a) Gaining unauthorized access to classified, export-controlled,
or all communications security (COMSEC) (classified or unclassified)
information in accordance with E.O. 12829 and DoD Instruction 8523.01,
``Communications Security'' (available at http://www.dtic.mil/whs/directives/corres/pdf/852301p.pdf). DoD FOCI procedures for access to
unclassified COMSEC are set forth in National Security Agency Central
Security Service (NSA/CSS) Policy Manual 3-16, ``Control of
Communications Security Material'' (available to authorized users of
SIPRNET at www.iad.nsa.smil.mil/resources/library/nsa_office_of_policy_section/pdf/NSA_CSS_MAN-3-16_080505.pdf).
(b) Adversely affecting the performance of classified contracts, in
accordance with E.O. 12829.
(c) Undermining U.S. security and export controls, in accordance
with E.O. 12829.
Sec. 117.55 Responsibilities.
(a) The Under Secretary of Defense for Intelligence (USD(I)) will,
in accordance with DoD Directive 5143.01, ``Under Secretary of Defense
for Intelligence (USD(I))'' (available at http://www.dtic.mil/whs/directives/corres/pdf/514301p.pdf) and DoD Instruction 5220.22,
``National Industrial Security Program'' (see http://www.dtic.mil/whs/directives/corres/pdf/522022p.pdf):
(1) Oversee policy and management of the NISP, to include FOCI
matters.
(2) Direct, administer, and oversee the FOCI provisions of the NISP
to ensure that the program is efficient and consistently implemented.
(3) Provide additional guidance regarding FOCI matters by
memorandum as needed.
(4) Coordinate with the Under Secretary of Defense for Policy
(USD(P)) and the Under Secretary of Defense for Acquisition, Technology
and Logistics (USD(AT&L)) on matters under their cognizance that affect
the NISP consistent with paragraphs (c) and (d) of this section.
(b) The Director, Defense Security Service (DSS), in addition to
the responsibilities in paragraph (d) of this section, under the
authority, direction, and control of the USD(I) will in accordance with
DoD Instruction 5220.22, ``National Industrial Security Program''
(available at http://www.dtic.mil/whs/directives/corres/pdf/522022p.pdf).
(1) Make FOCI determinations on a case-by-case basis for U.S.
contractors or companies under consideration for an FCL under the NISP.
(2) Collect information necessary to examine the source, nature,
and extent of a company's ownership, control, or influence by foreign
interests.
(3) Determine, on behalf of the GCAs, whether a U.S. company is
under FOCI to such a degree that the granting of an FCL would be
inconsistent with the U.S. national security interests.
(4) Determine the security measures necessary to negate or mitigate
FOCI and make recommendations to the U.S. company and to those GCAs
with a contractual interest or other equity in the matter.
(5) Provide GCAs a guide to clarify their roles and
responsibilities with respect to the FOCI process and to national
interest determinations (NIDs), in particular. Update the guide, as
needed, in coordination with the Office of the Under Secretary of
Defense for Intelligence (OUSD(I)) Security Directorate.
(6) Determine a U.S. company's eligibility for an FCL on an initial
and continuing basis depending on recurring security reviews and other
interactions.
(7) Develop proposed changes to maintain the currency and
effectiveness of this part. Forward proposed changes and associated
justification to the OUSD(I) Security Directorate for consideration as
future changes to this part.
(8) Consider and, as warranted, approve requests for exception to
DoD 5220.22-M in consultation with affected GCAs for specific
contractors and for specific periods of time (such as, to the
completion date of a contract) when a contractor is unable to comply
with the requirements of DoD 5220.22-M. Consideration of such requests
will include an evaluation of any proposed alternative procedures with
supporting justification and coordination as applicable, consistent
with paragraph (a)(4) of this section.
(9) Coordinate and receive the concurrence of the OUSD(I) Security
Directorate on requests for exception to DoD 5220.22-M and consistent
with paragraph (a)(4) of this section when any of the following
provisions apply:
(i) The request exceeds the authority of the Director, DSS as
defined in this section;
[[Page 19472]]
(ii) The proposed exception applies to more than one contractor
location; or,
(iii) The exception would be contrary to U.S. national policy or
international agreements, including those relating to foreign
government information (FGI) and international issues under the
cognizance of the USD(P) with coordination as applicable, consistent
with paragraph (a)(4) of this section.
(c) The USD(P) will, in accordance with DoD Directive 5111.1,
``Under Secretary of Defense for Policy (USD(P))'' (available at http://www.dtic.mil/whs/directives/corres/pdf/511101p.pdf), advise the USD(I)
and DSS on the foreign relations and international security aspects of
FOCI, including FGI, foreign disclosures of U.S. classified
information, exports of defense articles and technical data, security
arrangements for DoD international programs, North Atlantic Treaty
Organization security, and international agreements.
(d) The USD(AT&L) will, in accordance with DoD Directive 5134.01,
``Under Secretary of Defense for Acquisition, Technology and Logistics
(USD(AT&L))'' (available at http://www.dtic.mil/whs/directives/corres/pdf/513401p.pdf):
(1) Advise the USD(I) on the development and implementation of NISP
policies, in accordance with DoD Instruction 5220.22.
(2) Ensure that DoD Components establish and maintain a record
capturing the current and legitimate need for access to classified
information by contractors in the Defense Industrial Base.
(3) Ensure that acquisition elements of DoD Components comply with
the applicable provisions of DoD 5220.22-M.
(e) The Director, DoD SAP Central Office (SAPCO) will, in
accordance with DoD Directive 5205.07, ``Special Access Program (SAP)
Policy'' (available at http://www.dtic.mil/whs/directives/corres/pdf/520507p.pdf), notify DSS of the existence of SAP equities when DSS
considers the acceptability of a contractor's FOCI action plan. In
addition, the Director, DoD SAPCO, will develop procedures for the
consideration of a NID when a contractor cleared under a Special
Security Agreement (SSA) requires access to an unacknowledged Special
Access Program (SAP).
(f) The Heads of the Components will:
(1) Oversee compliance by GCA personnel with applicable procedures
identified in this subpart.
(2) Designate in writing an individual who is authorized to make
decisions and provide a coordinated GCA position on FOCI matters to DSS
within timelines established in this part.
(3) Submit proposed changes to DoD 5220.22-M, as deemed
appropriate, to the OUSD(I) Security Directorate.
Sec. 117.56 Foreign ownership, control or influence (FOCI).
(a) General. This section provides guidance for and establishes
procedures concerning the initial or continued FCL eligibility of U.S.
companies and U.S. contractors with foreign involvement; provides
criteria for determining whether U.S. companies are under FOCI;
prescribes responsibilities in FOCI matters; and outlines security
measures that DSS may consider to mitigate or negate the effects of
FOCI to an acceptable level. As stated in DoD 5220.22-M, and in
accordance with E.O. 12829:
(1) The Secretary of Defense serves as the Executive Agent for
inspecting and monitoring contractors who require or will require
access to, or who store or will store classified information.
(2) The Components reserve the discretionary authority, and have
the obligation, to impose any security procedure, safeguard, or
restriction they believe necessary to ensure that unauthorized access
to classified information is effectively precluded and that performance
of classified contracts, as defined in DoD 5220.22-M, is not adversely
affected by FOCI.
(b) Procedures -- (1) Criteria. A U.S. company is considered to be
under FOCI whenever a foreign interest has the power, direct or
indirect (whether or not exercised, and whether or not exercisable
through the ownership of the U.S. company's securities, by contractual
arrangements or other means), to direct or decide matters affecting the
management or operations of the company in a manner that may result in
unauthorized access to classified information or may adversely affect
the performance of classified contracts.
(2) FOCI Analysis. Conducting an analysis of available information
on a company to determine the existence, nature, and source of FOCI is
a critical aspect of evaluating previously uncleared companies for FCLs
and also in determining continued eligibility of contractors for FCLs.
(i) A U.S. company determined to be under FOCI is ineligible for an
FCL unless and until security measures have been put in place to
mitigate FOCI.
(ii) In making a determination as to whether a company is under
FOCI, DSS will consider the information provided by the company or its
parent entity on the Standard Form (SF) 328, ``Certificate Pertaining
to Foreign Interests,'' (available at http://www.dtic.mil/whs/directives/infomgt/forms/eforms/sf0328.pdf) and any other relevant
information (e.g., filings with the Securities and Exchange Commission
(for publicly traded companies), articles of incorporation, by-laws,
and loan and shareholder agreements, as well as other publicly
available information about the company. Depending on specific
circumstances (e.g., extensive minority foreign ownership at a cleared
subsidiary in the corporate family), DSS may request one or more of the
legal entities that make up a corporate family to submit individual SF
328s and will determine the appropriate FOCI action plan(s) that must
be put in place.
(iii) When a contractor has been determined to be under FOCI, the
primary consideration will be the safeguarding of classified
information. DSS is responsible for taking whatever interim action is
necessary to safeguard classified information, in coordination with
other affected agencies as appropriate consistent with Sec. 117.54.
(iv) When a merger, sale, or acquisition involving a foreign
interest and a contractor is finalized prior to having an acceptable
FOCI mitigation or negation agreement in place, DSS will invalidate any
existing FCL until such time as DSS determines that the contractor has
submitted an acceptable FOCI action plan (see DoD 5220.22-M) and has
agreed to interim measures that address FOCI concerns pending formal
execution of a FOCI mitigation or negation agreement. Invalidation
renders the contractor ineligible to receive new classified material or
to bid on new classified contracts. If the affected GCA determines that
continued access to classified material is required, DSS may continue
the FCL in an invalidated status when there is no indication that
classified information is at risk of compromise. If classified
information remains at risk of compromise due to the FOCI, DSS will
take action to impose appropriate security countermeasures or terminate
the FCL, in coordination with the affected GCA.
(v) Changed conditions, such as a change in ownership,
indebtedness, or a foreign intelligence threat, may justify certain
adjustments to the security terms under which a contractor is cleared
or, alternatively, require the use of a particular FOCI mitigation or
negation agreement. Depending on specific circumstances, DSS may
determine that a contractor is no longer under FOCI or, conversely,
that a contractor is no longer eligible for an FCL.
[[Page 19473]]
(vi) If the contractor determined to be under FOCI does not have
possession of classified material and does not have a current or
pending requirement for access to classified information, DSS will
administratively terminate the FCL.
(3) Assessing the Implications of FOCI. (i) If DSS determines that
a company is under FOCI, DSS will assess the extent and manner to which
the FOCI may result in unauthorized access to classified information or
adverse impact on the performance of classified contracts and the type
of actions, if any, that would be necessary to mitigate or negate the
associated risks to a level deemed acceptable to DSS. An analysis of
some of the FOCI factors may clearly identify risk; while others may
result in circumstances that would mitigate or negate risks. Therefore,
these factors must be considered in the aggregate with regard to the
foreign interest that is the source of the FOCI, the country or
countries in which the foreign interest is domiciled and has its
principal place of business (if not in the country of domicile), and
any other foreign country that is identified by DSS because it is a
substantial source of the revenue for, or otherwise has significant
ties to, the foreign interest. DSS will consider the following FOCI
factors and any other relevant information in the context of threat,
vulnerability, and sensitivity of the classified information required
for current or prospective contract performance when rendering a risk
management assessment and determination of the acceptability of a
company's FOCI action plan:
(A) Record of economic and government espionage against U.S.
targets.
(B) Record of enforcement and/or engagement in unauthorized
technology transfer.
(C) Record of compliance with pertinent U.S. laws, regulations, and
contracts.
(D) The type and sensitivity of the information that will be
accessed.
(E) The source, nature, and extent of FOCI, including, but not
limited to, whether a foreign interest holds a majority or substantial
minority position in the company, taking into consideration the
immediate, intermediate, and ultimate parent companies of the company
or prior relationships between the U.S. company and the foreign
interest.
(F) The nature of any relevant bilateral and multilateral security
and information exchange agreements, (e.g., the political and military
relationship between the United States Government (USG) and the
government of the foreign interest).
(G) Ownership or control, in whole or in part, by a foreign
government.
(H) Any other factor that indicates or demonstrates a capability on
the part of foreign interests to control or influence the operations or
management of the business organization concerned.
(ii) As part of its FOCI assessment and evaluation of any FOCI
action plan, DSS will also request and consider counterintelligence
(CI) and technology transfer risk assessments and any available
intelligence from all appropriate USG sources. DSS will request these
assessments as soon as practicable, for the company itself and for all
business entities in the company's ownership chain.
(iii) If a company disputes a DSS determination that the company is
under FOCI, or disputes the DSS determination regarding the types of
actions necessary to mitigate or negate the FOCI, the company may
appeal in writing those determinations to the Director, DSS, for a
final agency decision no later than 30 days after receipt of written
notification of the DSS decision. The company must identify the
specific relief sought and grounds for that relief in its appeal. In
response, the Director, DSS, may request additional information from
the company. At a minimum, DSS will respond to appeals within 30 days,
either with a decision or an estimate as to when a decision will be
rendered. DSS will not release pre-decisional information to the
company, its legal counsel, or any of its representatives without the
express written approval of the applicable GCAs who own the data and
any other USG entities with an interest in the company's FOCI action
plan.
(iv) DoD recognizes that FOCI concerns may arise in a variety of
other circumstances, all of which cannot be listed in this subpart. In
FOCI cases involving any foreign ownership or control, DSS will advise
and consult with the appropriate GCAs, including those with special
security needs, regarding the required FOCI mitigation or negation
method and provide those GCAs with the details of the FOCI factors and
any associated risk assessments. DSS and GCAs will meet to discuss the
FOCI action plan, when determined necessary by either DSS or the
applicable GCAs. When DSS determines that a company may be ineligible
for an FCL by virtue of FOCI, or that additional action by the company
may be necessary to mitigate the FOCI or associated risks, DSS will
promptly notify the company and require it to submit a FOCI action plan
to DSS within 30 calendar days of the notification. In addition, DSS
will advise company management that failure to submit the requested
plan within the prescribed period of time will result in termination of
FCL processing or initiation of action to revoke an existing FCL, as
applicable.
(v) In instances where the identification of a foreign owner or
voting interest of five percent or more cannot be adequately
ascertained (e.g., the participating investors in a foreign investment
or hedge fund, owning five percent or more of the company, cannot be
identified), DSS may determine that the company is not eligible for an
FCL.
(vi) DSS will review and consider the FOCI action plan itself, the
factors identified in paragraph (b)(3)(i) of this section, and any
threat or risk assessments or other relevant information. If an action
plan is determined to be unacceptable, DSS can recommend and negotiate
an acceptable action plan including, but not limited to, the measures
identified in paragraphs (b)(4)(ii) and (b)(4)(iii) of this section. In
any event, DSS will provide written feedback to a company or the
company's designated representative on the acceptability of the FOCI
action plan within 30 calendar days of receipt.
(4) Options To Address FOCI. (i) Under all FOCI action plans,
management positions requiring PCLs in conjunction with the FCL must be
filled by eligible U.S. citizens residing in the United States in
accordance with DoD 5220.22-M.
(ii) When factors related to foreign control or influence are
present, but unrelated to ownership, the plan must provide positive
measures that assure that the foreign interest can be effectively
denied access to classified information and cannot otherwise adversely
affect performance on classified contracts. Non-exclusive examples of
such measures include:
(A) Adoption of special board resolutions.
(B) Assignment of specific oversight duties and responsibilities to
independent board members.
(C) Formulation of special executive-level security committees to
consider and oversee matters that affect the performance of classified
contracts.
(D) The appointment of a technology control officer.
(E) Modification or termination of loan agreements, contracts, and
other understandings with foreign interests.
(F) Diversification or reduction of foreign-source income.
(G) Demonstration of financial viability independent of foreign
interests.
[[Page 19474]]
(H) Elimination or resolution of problem debt.
(I) Physical or organizational separation of the contractor
component performing on classified contracts.
(J) Other actions that negate or mitigate foreign control or
influence.
(iii) FOCI concerns related to foreign ownership of a company or
corporate family arise when a foreign interest has the ability, either
directly or indirectly, whether exercised or exercisable, to control or
influence the election or appointment of one or more members to the
company's governing board (e.g., Board of Directors, Board of Managers,
or Board of Trustees) or its equivalent, by any means. Some methods
that may be applied to mitigate the risk of foreign ownership are
outlined in DoD 5220.22-M and further described in this section. While
these methods are mentioned in relation to specific ownership and
control thresholds, these descriptions should not be construed as DoD-
sanctioned criteria mandating the selection or acceptance of a certain
FOCI action plan. DSS retains the authority to reject or modify any
proposed FOCI action plan in consultation with the affected GCAs.
(A) Board Resolution. This method is often used when a foreign
interest does not own voting interests sufficient to elect, or
otherwise is not entitled to representation on the company's governing
board. In such circumstances, the effects of foreign ownership will
generally be mitigated by a resolution of the board of directors
stating the company recognizes the elements of FOCI and acknowledges
its continuing obligations under DD Form 441, ``DoD Security
Agreement'' (available at http://www.dtic.mil/whs/directives/infomgt/forms/eforms/dd0441.pdf). The resolution will identify the foreign
shareholders and their representatives (if any) and note the extent of
foreign ownership. The resolution will also include a certification
that the foreign shareholders and their representatives will not
require, will not have, and can be effectively excluded from access to
all classified information in the possession of the contractor, and
will not be permitted to occupy positions that may enable them to
influence the organization's policies and practices in the performance
of classified contracts. Copies of such resolutions will be furnished
to all board members and principal management officials.
(B) SCA. The SCA is a tailored FOCI mitigation agreement often used
when a foreign interest does not effectively own or control a company
or corporate family (i.e., the company or corporate family are under
U.S. control), but the foreign interest is entitled to representation
on the company's board. When an SCA is implemented, a U.S. citizen
serves as an outside director, as defined in DoD 5220.22-M. DSS may
determine the need for more than one outside director based on the FOCI
analysis and risk assessments.
(C) SSA. The SSA is a tailored FOCI mitigation agreement that
preserves the foreign owner's right to be represented on the company's
board (inside directors) with a direct voice in the business management
of the company while denying the foreign owner unauthorized access to
classified information. An SSA is based on the analysis of the FOCI
factors set forth in paragraph (b)(3) and is often used when a foreign
interest effectively owns or controls a company or corporate family.
DSS assesses the implications of the FOCI factors in accordance with
paragraphs (b)(3) and (b)(4)(iii) of this section. U.S. citizens serve
as outside directors in accordance with DoD 5220.22-M.
(1) If a GCA requires a contractor cleared under an SSA to have
access to proscribed information, the GCA will initiate action to
consider a NID at the pre-contract phase to confirm that disclosure of
such information is consistent with the national security interests of
the United States.
(2) Proscribed information includes TS; COMSEC material, excluding
controlled cryptographic items when unkeyed and utilized with
unclassified keys; RD; SAP; and SCI.
(3) Contractor access to proscribed information will not be granted
without the approval of the agency with control jurisdiction (i.e.,
National Security Agency (NSA) for COMSEC, whether the COMSEC is
proscribed information or not; the Office of the Director of National
Intelligence (ODNI) for SCI; and the Department of Energy (DOE) for RD
in accordance with its policies).
(4) In accordance with 32 CFR, part 2004 and the procedures in
paragraph (b)(5) of this section, GCAs will forward a request for
concurrence to NSA, ODNI, or DOE when a proposed NID involves access to
COMSEC, SCI, or RD, respectively, within 30 calendar days of DSS
advisement of the NID requirement. NSA, ODNI, and DOE, as appropriate,
will then have 30 calendar days to render a decision.
(D) VTA or PA. These FOCI negation agreements may be used when a
foreign interest effectively owns or controls a company or corporate
family. Under a VTA, PA and associated documentation, the foreign owner
relinquishes most rights associated with ownership of the company to
cleared U.S. citizens approved by DSS. Both FOCI agreements can
effectively negate foreign ownership and control; therefore, neither
agreement imposes any restrictions on the company's eligibility to have
access to classified information or to compete for classified contracts
including contracts with proscribed information. Both FOCI agreements
can also effectively negate foreign government control (see paragraph
(b)(11) of this section which provides guidance and requirements
regarding foreign government ownership or control, including with
respect to 10 U.S.C. 2536, ``Award of Certain Contracts to Entities
Controlled by a Foreign Government Prohibition (available at http://www.gpo.gov/fdsys/granule/USCODE-2010-title10/USCODE-2010-title10-subtitleA-partIV-chap148-subchapV-sec2536/content-detail.html)). DSS
retains the authority to deny a proposed VTA or PA.
(iv) When DSS implements a FOCI mitigation or negation agreement at
a contractor, the agreement may specify that the entire agreement, or
that particular provisions of the agreement (e.g., the provisions
restricting unauthorized access to classified information and
unclassified export-controlled information and the provisions of the
visitation policy) will apply to and will be made binding upon all
present and future subsidiaries of the company. If a subsidiary
requires and is eligible for an FCL at the TS level, the company
executing the FOCI mitigation agreement and any intermediate parents
must be formally excluded from TS access unless they have their own
requirement and are otherwise eligible for TS access.
(v) DSS will provide a copy of the DSS FOCI assessment, proposed
FOCI action plan and any associated risk assessments to the GCAs with
an interest in the company or corporate family. In the absence of
written objections (signed at the Program Executive Office (PEO) level
or higher) from GCAs with an interest in the company or corporate
family, DSS may proceed with implementation of what DSS considers in
its discretion to be an acceptable FOCI action plan based on available
information. Unless other regulatory review processes for mergers or
acquisitions have an earlier suspense date, DSS will provide a 30
calendar day period for the GCAs with an interest in the company or
corporate family to provide their PEO level or higher written
objections.
(vi) DSS will submit to the USD(I) for approval the DSS templates
for those FOCI mitigation or negation agreements identified in
paragraph (b)(4)(iii) of this
[[Page 19475]]
section as well as templates for any supplements thereto (e.g., the
electronic communications plan (ECP) or technology control plan (TCP)).
DSS may propose changes to the contents of these template FOCI
mitigation or negation agreements. DSS may tailor non-substantive
provisions of the template agreement for any particular FOCI case
without further approval from the USD(I), provided DSS notifies the
OUSD(I) Security Directorate of the deviation from the template. DSS
may provide this notification through the electronic submission of an
annotated copy of the modified agreement.
(5) NID. The requirement for a NID to authorize access to
proscribed information applies only to those foreign-owned U.S.
contractors or companies in process for an FCL under an SSA which is
used as a mechanism for FOCI mitigation. A NID does not authorize
disclosure of classified information to a foreign government, a non-
U.S. citizen or a non-U.S. entity. Timelines for NID decisions are set
forth in 32 CFR part 2004 and the provisions of this paragraph. NIDs
can be program, project, or contract specific, subject to the
concurrence of NSA for COMSEC, ODNI for SCI or DOE for RD. For program
and project NIDs, a separate NID is not required for each contract. DSS
will inform the DoD SAPCO of NID requirements to allow the SAPCO to
advise of awareness of unacknowledged SAPs or any carve-out SAP
activity.
(i) A NID is necessary when access to proscribed information is
required for:
(A) Pre-contract activities in accordance with paragraph
(b)(4)(iii)(C)(1) of this section.
(B) New contracts to be issued to a company in process for an FCL
that DSS has determined to be under FOCI when an SSA is anticipated, or
a contractor already cleared under an SSA.
(C) Existing contracts when a contractor is acquired by foreign
interests and proposes an SSA as the FOCI action plan.
(ii) If a contractor is proposing to use an SSA to mitigate FOCI
and requires access to proscribed information:
(A) DSS will:
(1) Request the contractor to provide information on all impacted
contracts, both prime and subcontracts, unless the contractor is
prohibited by contract from revealing their existence to DSS. In such
instances, DSS will request that the contractor notify the government
contracting officer and Program Security Officer of the need for a NID.
(2) Provide written notification to the individual designated by
the Component, in accordance with paragraph (f) of Sec. 117.55 within
30 calendar days of identifying the requirement for a NID.
(3) Provide to appropriate GCAs the contractor's proposed FOCI
action plan, any associated risk assessments, and DSS' recommendation
for FOCI mitigation.
(4) Ask the GCA to identify all of the GCA's contracts affected by
the proposed SSA that require a NID decision, unless the activity is
unacknowledged. The cognizant SAPCO will inform the DoD SAPCO of any
unacknowledged SAPs affected by the proposed SSA and consequently the
NID requirement.
(5) Provide OUSD(I) Security Directorate and the OUSD(AT&L), Deputy
Assistant Secretary of Defense for Manufacturing and Industrial Base
Policy, a monthly report of pending NID decisions that:
(i) Exceed 30 calendar days from the date of the DSS written notice
to the applicable GCA.
(ii) Have been pending for NSA, ODNI, or DOE concurrence for more
than 30 calendar days.
(B) OUSD(I) will intervene, as warranted, with GCAs regarding NID
decisions pending beyond 30 calendar days from the date of the DSS
written notice, as well as with NSA, ODNI, and DOE regarding
concurrence decisions that remain pending beyond 30 days from the date
of the GCA request.
(C) OUSD(AT&L) will confer, as warranted, with the applicable DoD
Service Acquisition Executive or component equivalent about unresolved
NID decisions.
(D) The GCA will, upon written notification by DSS of the need for
a NID:
(1) Review the FOCI action plan proposed by the uncleared company,
in addition to any associated risk assessments and the DSS analysis of
the appropriate FOCI mitigation based on the existing FOCI factors.
(2) Consider the FOCI factors noted in paragraph (b)(3) of this
section in the aggregate with any associated risk assessments and DSS'
analysis to determine whether to issue a NID.
(3) Provide DSS, as appropriate, one of the following within 30
calendar days of the DSS written notification that a NID is required:
(i) A final, documented NID with a copy provided to the contractor.
If the NID is not specific to a single program, project, or contract
(e.g., a blanket NID), the GCA will also forward a copy of the NID to
the OUSD(I) Security Directorate.
(ii) A copy of the GCA's request for NID concurrence sent to NSA,
ODNI, or DOE, when access to COMSEC, SCI, or RD is involved. The GCA
will request that NSA, ODNI, or DOE respond within 30 calendar days of
the date of the GCA's written request directly to DSS with a copy to
the GCA.
(iii) A GCA decision that it will not issue a NID.
(4) Contact DSS to determine an alternative method to the proposed
SSA when the GCA chooses not to issue a NID (e.g., a contract
modification, a contract novation, or a PA or VTA authorized by the
Program Executive Officer).
(5) Notify DSS in writing when NSA, ODNI, or DOE renders a decision
on a proposed NID involving access to COMSEC, SCI, or RD, respectively.
A GCA's NID decision is not final until NSA, ODNI, or DOE, as
applicable, respond regarding access to COMSEC, SCI, or RD.
(6) When denying a NID, retain documentation explaining the
rationale for the decision.
(6) Government Security Committee (GSC). (i) Under a VTA, PA, SSA,
or SCA, DSS will ensure that the contractor establishes a permanent
committee of its Board of Directors or similar body known as the GSC.
(A) The members of the GSC are required in accordance with DoD
5220.22-M to ensure that the contractor maintains policies and
procedures to safeguard classified and export controlled information
entrusted to it, and that violations of those policies and procedures
are promptly investigated and reported to the appropriate authority
when it has been determined that a violation has occurred.
(B) The GSC will also take the necessary steps in accordance with
DoD 5220.22-M to ensure that the contractor complies with U.S. export
control laws and regulations and does not take action deemed adverse to
performance on classified contracts. This will include the appointment
of a Technology Control Officer and the establishment of Technology
Control Plan (TCP).
(ii) DSS will provide oversight, advice, and assistance to GSCs.
These measures are intended to ensure that GSCs:
(A) Maintain policies and procedures to safeguard classified
information and export-controlled unclassified information in the
possession of the contractor with no adverse impact on the performance
of classified contracts.
(B) Verify contractor compliance with the DD Form 441 or its
successor form, the FOCI mitigation agreement or negation agreement and
related documents, contract security requirements, USG export control
laws, and the NISP.
[[Page 19476]]
(iii) In the case of an SSA, DSS will ensure that the number of
outside directors exceeds the number of inside directors, as defined in
DoD 5220.22-M. DSS will determine if the outside directors should be a
majority of the Board of Directors based on an assessment of security
risk factors pertaining to the contractor's access to classified
information. In the case of an SCA, DSS will require the contractor to
have at least one outside director, but may require more than one
outside director based on an assessment of security risk factors.
(iv) In the case where a contractor is cleared to the SECRET level
under an SSA, and also has a subsidiary with a TS FCL based on an
approved NID, some or all of the outside directors of the cleared
parent contractor may be sponsored for eligibility for access to TS
information with their TS PCLs held by the subsidiary. Access will be
at the level necessary for the outside directors to carry out their
security or business responsibilities for oversight of the subsidiary
company in accordance with DoD 5220.22-M. If the subsidiary has an
approved NID for access to SAP or SCI, the applicable GCA may determine
that an outside director at the parent contractor requires approved
access at the subsidiary.
(7) Technology Control Plans (TCPs). Under a VTA, PA, SSA, SCA, or
Limited FCL, DSS will require the contractor to develop and implement a
TCP as required in DoD 5220.22-M. DSS will evaluate and, if the plan is
adequate, approve the TCP. The TCP must include a description of all
security measures required to prevent the unauthorized disclosure of
classified or export-controlled information. Although TCPs must be
tailored to the specific circumstances of the contractor or corporate
family to be effective, DSS may provide examples of TCPs to the
contractor to assist plan creation.
(8) Electronic Communication Plan (ECP). Under a VTA, PA, or SSA,
DSS will require the contractor to develop and implement an ECP
tailored to the contractor's operations. DSS will determine the extent
of the ECP and review the plan for adequacy. The ECP must include a
detailed network description and configuration diagram that clearly
delineates which networks will be shared and which will be protected
from access by the foreign parent or its affiliates. The network
description will address firewalls, remote administration, monitoring,
maintenance, and separate email servers, as appropriate.
(9) Administrative Support Agreement (ASA). There may be
circumstances when the parties to a transaction propose in the FOCI
action plan that the U.S. contractor provides certain services to the
foreign interest, or the foreign interest provides services to the U.S.
contractor. The services to be provided must be such that there is no
violation of the applicable FOCI mitigation or negation agreement. If
approved, the extent of such support and limitations on the support
will be fully documented in an ASA.
(10) Annual Review and Certification--(i) Annual Meeting. DSS will
meet at least annually with the GSCs of contractor's operating under a
VTA, PA, SSA, or SCA to review and discuss the purpose and
effectiveness of the FOCI mitigation or negation agreement; establish a
common understanding of the operating requirements and their
implementation; answer questions from the GSC members; and provide
guidance on matters related to FOCI mitigation and industrial security.
These meetings will also include an examination by DSS, with the
participation of the (FSO) and the GSC members, of:
(A) Compliance with the approved security arrangement, standard
rules, and applicable laws and regulations.
(B) Problems regarding the practical application or utility of the
security arrangement.
(C) Security controls, practices, or procedures and whether they
warrant adjustment.
(ii) Annual Certification. For contractors operating under a VTA,
PA, SSA, or SCA, DSS will obtain from the Chair of the GSC an
implementation and compliance report one year from the effective date
of the agreement and annually thereafter. DSS will review the annual
report; address, resolve, or refer issues identified in the report;
document the results of this review and any follow-up actions; and keep
a copy of the report and documentation of related DSS actions on file
for 15 years. The GSC's annual report must include:
(A) A detailed description stating how the contractor is carrying
out its obligations under the agreement.
(B) Changes to security procedures, implemented or proposed, and
the reasons for those changes.
(C) A detailed description of any acts of noncompliance with FOCI
provisions and a discussion of steps taken to prevent such acts from
recurring.
(D) Any changes or impending changes of senior management officials
or key board members, including the reasons for the change.
(E) Any changes or impending changes in the organizational
structure or ownership, including any acquisitions, mergers, or
divestitures.
(F) Any other issues that could have a bearing on the effectiveness
of the applicable agreement.
(11) Foreign Government Ownership or Control. (i) In accordance
with 10 U.S.C. 2536, the DoD cannot award contracts involving access to
proscribed information to a company effectively owned or controlled by
a foreign government unless a waiver has been issued by the Secretary
of Defense or designee.
(ii) A waiver is not required if the company is cleared under a PA
or VTA because both agreements effectively negate foreign government
control.
(iii) DSS will, after consultation with the GCA, determine if a
waiver is needed in accordance with subpart 209.104-1 of the Defense
Federal Acquisition Regulation Supplement ``Responsible Prospective
Contractors, General Standards'' (available at http://www.acq.osd.mil/dpap/dars/dfars/pdf/r20090115/209_1.pdf. The GCA will request the
waiver from the USD(I) and provide supporting information, to include a
copy of the proposed NID.
(iv) Upon receipt of an approved waiver, the GCA will forward the
waiver and the NID to DSS.
(v) If the USD(I) does not grant the waiver, the company may
propose to DSS an appropriate PA or VTA. Otherwise, the company is not
eligible for access to proscribed information.
(12) Changed Conditions. (i) DSS will require contractors to submit
timely reports of changes to FOCI by DSS-designated means in accordance
with DoD 5220.22-M.
(ii) Upon receipt of changes to the SF 328 from contractors, DSS
will assess the changes to determine if they are material; if they
require the imposition of new FOCI mitigation or modification of
existing FOCI mitigation; or if they warrant the termination of
existing FOCI mitigation. DSS will periodically review the definition
of material change with regard to FOCI and publish updated guidance as
to what constitutes a reportable material change in coordination with
OUSD(I) Security Directorate.
(13) Limited FCL. (i) A Limited FCL may be an option for a single,
narrowly defined purpose when there is foreign ownership or control of
a U.S. company. In that respect, a Limited FCL is similar to an LAA for
a non-U.S. citizen. Consideration of a Limited FCL includes a DSS
determination that the company is under FOCI and that the company is
either unable or unwilling to implement FOCI negation or mitigation. A
GCA or a foreign government may sponsor a
[[Page 19477]]
Limited FCL consistent with the provisions of paragraphs
(b)(13)(iii)(A) through (b)(13)(iii)(D) of this section.
(ii) DSS will:
(A) Document the requirements of each Limited FCL, including the
limitations of access to classified information.
(B) Verify a Limited FCL only to the sponsoring GCA or foreign
government.
(C) Ensure, in accordance with paragraph (b)(7) of this section,
that the contractor has and implements a TCP consistent with DoD
5220.22-M.
(D) Process a home office along with a branch or division, when the
GCA or foreign government sponsors the branch or division for a Limited
FCL and ensure that the limitations of the Limited FCL are applied to
the home office as well as the branch or division.
(E) Administratively terminate the Limited FCL when the FCL is no
longer required.
(iii) There are four types of Limited FCLs:
(A) A GCA may sponsor a joint venture company established in the
United States for the purpose of supporting a cooperative arms program
involving DoD. An authorized GCA official, at the PEO level or higher,
must certify in writing that the classified information to be provided
to the company has been authorized for disclosure to the participating
governments in compliance with U.S. National Disclosure Policy NDP-1,
``National Policy and Procedures for the Disclosure of Classified
Military Information to Foreign Governments and International
Organizations,'' (available to designated disclosure authorities on a
need-to-know basis from the Office of the Deputy Under Secretary of
Defense for Policy Integration and Chief of Staff to the Under
Secretary of Defense for Policy). Key management personnel (KMPs) and
employees may be citizens of the countries of ownership, if DSS is able
to obtain security assurances. The non-U.S. citizens retain their
foreign government issued personnel security clearances. The company
FSO must be a cleared U.S. citizen as set forth in DoD 5220.22-M.
(B) A U.S. subsidiary of a foreign company may be sponsored for a
Limited FCL by the government of the foreign parent company when the
foreign government desires to award a contract to the U.S. subsidiary
involving access to classified information for which the foreign
government is the original classification authority (i.e., FGI), and
there is no other need for the U.S, subsidiary to have an FCL. The KMPs
must all be U.S. citizens. However, if the U.S. subsidiary is to have
access to U.S. classified information in the performance of the
contract, the U.S. subsidiary must be considered for one of the FOCI
agreements set forth in paragraph (b)(4)(iii) of this section.
(C) A foreign owned freight forwarder may be sponsored for a
Limited FCL by a foreign government for the purpose of providing
services only to the sponsoring government. Access to U.S. classified
information or material will be limited to information and material
that has been authorized for export to the sponsoring government
consistent with an approved direct commercial sale contract or foreign
military sales letter of offer and acceptance. KMPs and employees may
be citizens of the sponsoring government, if DSS is able to obtain
security assurances on the individuals. As non-U.S. citizens, these
individuals would not be eligible for a LAA; would be assigned under an
extended visit authorization, and would retain their foreign government
issued personnel security clearances. The FSO must be a U.S. citizen.
(D) A senior GCA official, consistent with paragraph (f)(3) of
Sec. 117.55, may sponsor a U.S. company, determined to be under FOCI
by DSS, for a Limited FCL when the other FOCI agreements described in
paragraph (b)(4)(iii) and paragraphs (b)(13)(iii)(A) through
(b)(13)(iii)(D) of this section do not apply, and there is a compelling
need for the FCL. The official must fully describe the compelling need
and certify in writing that the sponsoring GCA accepts the risk
inherent in not negating or mitigating the FOCI. The Limited FCL
permits performance only on a classified contract issued by the
sponsoring GCA.
(14) Foreign Mergers, Acquisitions, Takeovers and CFIUS. (i) CFIUS
is a USG interagency committee chaired by the Treasury Department whose
purpose is to review transactions that could result in the control of a
U.S. business by a foreign person in order to determine the effect of
such transactions on the national security of the United States. The
regulations defining the CFIUS process are at 31 CFR part 800,
``Regulations Pertaining to Mergers, Acquisitions, and Takeovers by
Foreign Persons''.
(ii) DoD is a member of CFIUS. DoD procedures for reviewing and
monitoring transactions filed with CFIUS are provided in DoD
Instruction 2000.25.
(iii) The CFIUS review and the DSS industrial security review for
FOCI are separate processes subject to independent authorities, with
different time constraints and considerations. However, CFIUS may not
mitigate national security risks that are adequately addressed by other
provisions of law.
(iv) If the NISP process has not begun or has not been completed
prior to the submission of a CFIUS notice, DSS will review, adjudicate,
and mitigate FOCI on a priority basis. DSS will provide all relevant
information to the OUSD(I) Security Directorate specifically, for any
transaction undergoing concurrent CFIUS and DSS reviews.
(A) By the 10th calendar day after the CFIUS review period begins
DSS will advise the OUSD (AT&L) Manufacturing and Industrial Base
Policy (MIBP) CFIUS Team electronically, with a copy to the OUSD(I)
Security Directorate, of the U.S. company's FCL status (e.g., no FCL,
FCL in process, TS/S/C FCL).
(B) For contractors or U.S. companies in process for an FCL, DSS
will provide the following input in a signed memorandum with rationale
included to the Director, Security, OUSD(I) Security Directorate on or
before the suspense date established by the MIBP CFIUS Team:
(1) Basic identification information about the contractor, to
include name, address, and commercial and government entity code.
(2) FCL level.
(3) Identification of current classified contracts, to include
identification of GCAs and any requirement for access to proscribed
information.
(4) The nature and status of any discussions DSS has had with the
contractor or the foreign interest regarding proposed FOCI mitigation
measures.
(5) Whether DSS requires additional time beyond the established
MIBP CFIUS team suspense date to determine and recommend to the OUSD(I)
Security Directorate whether the proposed FOCI mitigation is sufficient
to address risks within the scope of DSS's FOCI authorities.
(6) Identification of any known security issues (e.g., marginal or
unsatisfactory security rating, unresolved counterintelligence
concerns, alleged export violations).
(v) If it appears that an agreement cannot be reached on material
terms of a FOCI action plan, or if the U.S. company subject to the
proposed transaction fails to comply with the FOCI reporting
requirements of DoD 5220.22-M, DSS may recommend additional time
through the OUSD(I) Security Directorate to resolve any national
security issues related to FOCI mitigation.
[[Page 19478]]
(vi) If the proposed transaction involves access to proscribed
information and the contractor is contemplating the use of an SSA to
mitigate FOCI, the GCA will provide DSS with a preliminary
determination regarding the acceptability of the proposed FOCI
mitigation. The determination must be provided to DSS one day prior to
the suspense date established by the MIBP CFIUS Team and must include
whether a favorable NID will be provided. If the GCA does not notify
DSS, DSS will not delay implementation of a FOCI action plan pending
completion of a GCA's NID process as long as there is no indication
that the NID will be denied.
(vii) If DSS, under its FOCI authorities, is notified of a
transaction with respect to which the parties thereto have not filed a
notice with CFIUS, DSS will notify the MIBP CFIUS Team through the
OUSD(I) Security Directorate.
(viii) When a merger, sale, or acquisition of a contractor is
finalized prior to having an acceptable FOCI mitigation agreement in
place, DSS will take actions consistent with paragraph (b)(2)(iv) of
this section.
Dated: April 2, 2014.
Aaron Siegel,
Alternate OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. 2014-07826 Filed 4-8-14; 8:45 am]
BILLING CODE 5001-06-P
