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October 5, 2018

Stroock Commentary

By: Chris Griner, Gregory Jaeger, Shannon Reaves, Erin Bruce Iacobucci

Change is nearly continuous for the National Industrial Security Program.  On August 1, the Department of Defense (“DoD”) issued DoD Manual 5220.22, Volume 2, "National Industrial Security Program: Industrial Security Procedures for Government Activities" (“Volume 2”).  Volume 2 is particularly significant, since it incorporates and cancels DoD Regulation 5220.22-R, "Industrial Security Regulation," which had been effective for more than 30 years -- since 1985.  Volume 2 sets forth the industrial security practices and procedures that DoD components (and non-DoD agencies that use DoD for industrial security services) implement, ensuring uniform and effective implementation of the NISP.  The revised text replaces the 1985 volume and is one of the key controlling authorities for the National Industrial Security Program (“NISP”).  The revised text follows current practice and contains no major surprises.  Nevertheless, Facility Security Officers and others who have need to consult the NISP should take care to update their files. 
 
On August 31, DSS released a White Paper:  “Partnering with Outside Directors & Proxy Holders To Strengthen FOCI Boards.”  The White Paper describes various policy reforms related to the qualifications, training, and evaluation of Outside Directors and Proxy Holders at companies operating under foreign ownership control or influence (“FOCI”) mitigation, including :   

  • ensuring that the Board includes directors with government, business, FOCI, and leadership experience; and with expertise in industry, technology, and security;
  • ensuring that OD/PH candidates have sufficient availability to do the work required of them
  • consideration of staggered terms and term limits;
  • consideration of candidates who may not be “completely disinterested” in accordance with NISPOM 2-305(b);
  • requiring evaluations of the performance and effectiveness of OD/PHs; and
  • requiring certain training for OD/PHs, such as Insider Threat awareness, shareholder engagement, boardroom fundamentals, and cybersecurity. 

DSS expects to release an Industrial Security Letter in late 2018 or early 2019 describing the reforms that will ultimately be implemented, together with relevant timelines.  Foreign-controlled companies looking to appoint or replace Outside Directors or Proxy Holders are well-advised to consult the White Paper.
 
Stay informed of important DSS policy updates by contacting the Stroock National Security Practice Group and by following @StroockCFIUS

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