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September 14, 2018

Stroock Commentary

By: Chris Griner, Shannon Reaves

For years, the National Industrial Security Program Operating Manual has required Government Contracting Agencies (GCA) to complete a National Interest Determination (NID) before granting access to Proscribed Information to a company that is effectively owned or controlled by a foreign interest and cleared under a Special Security Agreement. In the NID, the GCA must find that release of Proscribed Information to the company is “consistent with the national security interests of the United States,” in accordance with [the Directive on Safeguarding Classified National Security Information, 32 CFR Part 2004]. Notwithstanding the modest standard for approval (i.e., “consistent with the national security interests of the United States”), the delay and sometimes capricious nature of NIDs have troubled any number of foreign-controlled companies. The requirement was particularly vexing to the nations that are counted among the closest allies of the United States, the member countries of the National Technology Industrial Base (“NTIB”) – Canada, Australia, and the United Kingdom. Efforts to streamline the process have met with indifferent success.

In apparent response to these concerns, the FY 2019 defense authorization bill repeals the NID requirement outright: “Effective October 1, 2020, a covered NTIB entity operating under a special security agreement pursuant to the National Industrial Security Program shall not be required to obtain a national interest determination as a condition for access to Proscribed Information.” (Pub. L. No. 115-232, Section 842(a)). Pending repeal, the Secretary of Defense, in consultation with the Director of the Information Security Oversight Office, may waive the NID requirement to obtain a national interest determination for a “covered NTIB entity” operating under an SSA that has (1) a demonstrated successful record of compliance with the National Industrial Security Program; and (2) previously been approved for access to Proscribed Information.

The repeal is limited to “a person that is a subsidiary located in the United States— (A) for which the ultimate parent company and any intermediate parent companies of such subsidiary are located in a country that is part of the national technology and industrial base (as defined in section 2500 of title 10, United States Code); and (B) that is subject to the foreign ownership, control, or influence requirements of the National Industrial Security Program.

The term “Proscribed Information” means information that is—(A) classified at the level of top secret; (B) communications security information (excluding controlled cryptographic items when un-keyed or utilized with unclassified keys); (C) restricted data (as defined in section 11 of the Atomic Energy Act of 1954 (42 U.S.C. 2014)); (D) special access program information under section 4.3 of Executive Order No. 13526 (75 Fed. Reg. 707; 50 U.S.C. 3161 note) or successor order; or (E) designated as sensitive compartmented information.

The criteria for discretionary waiver would presumably cover most established Canadian, Australian, and UK-controlled companies operating under SSAs. These firms are well-positioned to seek waivers now.

This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.