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"Good News For Foreign Investors In US Defense Industry"

Foreign ownership will bar a U.S. facility security clearance (“FCL”) unless foreign ownership, control or influence (“FOCI”) is mitigated in accordance with federal law. Though companies holding FCLs may play out their classified U.S. government contracts after being acquired by a foreign owner (if the government customer agrees), they may not receive or perform on new classified contracts. This can decimate the value of a company that draws a significant portion of its revenue from classified work, and frustrate the efforts of foreign-controlled companies to obtain FCLs and compete for classified contracts.

The key reference is the U.S. Department of Defense National Industrial Security Program Operating Manual. For foreign-controlled companies, the most common form of FOCI mitigation is the special security agreement. The SSA imposes a series of corporate governance constraints (including the appointment of independent, U.S. citizen outside directors), together with other extraordinary measures (such as restrictions on visits and electronic communications), to protect classified and controlled unclassified information, and to prevent undue foreign influence in the performance of classified contracts.

 

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