Foreign Ownership, Control, or Influence (FOCI)

Foreign Ownership Control or Influence (FOCI) Foreign investment plays an important role in maintaining the vitality of the U.S. industrial base. Therefore, it is the policy of the U.S. Government to allow foreign investment consistent with the national security interest of the United States.

The Defense Security Service conducts adjudication of FOCI factors of cleared contractors participating in the National Industrial Security Program on behalf of 24 DoD and non-DoD government agencies.

A company is considered to be operating under FOCI whenever a foreign interest has the power, direct or indirect, whether or not exercised, and whether or not exercisable, to direct or decide matters affecting the management or operations of that company in a manner which may result in unauthorized access to classified information or may adversely affect the performance of classified contracts.

The following factors relating to a company, the foreign interest, and the government of the foreign interest are reviewed in the aggregate in determining whether a company is under FOCI:

a.Record of economic and government espionage against U.S. targets,

b.Record of enforcement and/or engagement in unauthorized technology transfer,

c.The type and sensitivity of the information that shall be accessed,

d.The source, nature and extent of FOCI,

e.Record of compliance with pertinent U.S. laws, regulations and contracts

f.The nature of any bilateral and multilateral security and information exchange agreements that may pertain,

g.Ownership or control, in whole or in part, by a foreign government.

When a company with a facility security clearance enters into negotiations for the proposed merger, acquisition, or takeover by a foreign interest, the contractor shall submit notification to DSS of the commencement of such negotiations. The notification shall include the type of transaction under negotiation (stock purchase, asset purchase, etc.), the identity of the potential foreign investor, and a plan to mitigate/negate the FOCI consistent with paragraph 2-303, National Industrial Security Program Operating Manual (NISPOM).

The company should also advise DSS if the parties to the proposed transaction will be filing with the Committee on Foreign Investment in the United States (CFIUS). The CFIUS, an interagency committee chaired by the Treasury Department, conducts reviews of proposed mergers, acquisitions or takeovers, of U.S. persons by foreign interests under Section 721 of the Defense Production Act. The CFIUS review is a voluntary process and affords an opportunity to foreign persons and U.S. persons entering into a transaction to submit the proposed transaction for review by CFIUS to assess the impact of the transaction on U.S. national security.

Resources and Links

DSS website... http://www.dss.mil/