Section 1. Facilities Clearances
Section 2. Personnel Clearances
Section 3. Foreign Ownership, Control,
or Influence (FOCI)
Section 1. Facilities Clearances
a. An FCL is valid for access to classified information at the same, or lower, classification level as the FCL
granted.
b. FCLs will be registered centrally by the U.S. Government.
c. A contractor shall not use its FCL for advertising or promotional purposes.
2-101. Reciprocity.
An FCL shall be considered valid and acceptable for use on a fully reciprocal basis by all Federal departments and agencies, provided it meets or exceeds the level
of clearance needed.
2-102. Eligibility Requirements.
A contractor or prospective contractor cannot apply for its own FCL. A GCA or a currently cleared contractor may sponsor an uncleared contractor for an FCL. A
company must meet the following eligibility requirements before it can be processed for an FCL.
a. The contractor must need access to the classified information in connection with a legitimate U.S. Government or foreign requirement.
b. The contractor must be organized and existing under the laws of any of the fifty states, the District of Columbia, or Puerto Rico, and be located in the U.S. and its territorial areas or possessions.
c. The contractor must have a reputation for integrity and lawful conduct in its business dealings. The contractor and its key managers, must not be barred from
participating in U.S.Government contracts.
d. The contractor must not be under foreign ownership, control, or influence (FOCI) to a such a degree that the granting of the FCL would be inconsistent with the
national interest.
2-103. Processing the FCL.
The CSA will advise and assist the company during the FCL process. As a minimum, the company will:
a. Execute CSA-designated forms.
b. Process key management personnel for personnel clearances (PCLs).
c. Appoint a U.S. citizen employee as the facility security officer (FSO).
2-104. Personnel Clearances Required in Connection with the FCL.
The senior management official and the FSO must always be cleared to the level of the FCL. Other officials, as determined by the CSA, must be granted a PCL or
be excluded from classified access pursuant to paragraph 2-106.
2-105. PCLs Concurrent with the FCL.
Contractors may designate employees who require access to classified information during the negotiation of a contract or the preparation of a bid or quotation
pertaining to a prime contract or a subcontract to be processed for PCLs concurrent with the FCL. The granting of an FCL is not dependent on the clearance of
such employees.
2-106. Exclusion Procedures.
When, pursuant to paragraph 2-104, formal exclusion action is required, the organization's board of directors or similar executive body shall affirm the following, as
appropriate.
a. Such officers, directors, partners, regents, or trustees (designated by name) shall not require, shall not have, and can be effectively excluded from access to all
classified information disclosed to the organization. They also do not occupy positions that would enable them to adversely affect the organization's policies or
practices in the performance of classified contracts. This action shall be made a matter of record by the organization's executive body. A copy of the resolution shall
be furnished to the CSA.
b. Such officers or partners (designated by name) shall not require, shall not have, and can be effectively denied access to higher-level classified information (specify
which higher level(s)) and do not occupy positions that would enable them to adversely affect the organization's policies or practices in the performance of
higher-level classified contracts (specify higher level(s)). This action shall be made a matter of record by the organization's executive body. A copy of the resolution
shall be furnished to the CSA.
2-107. Interim FCLs.
An interim FCL may be granted to eligible contractors by the CSA. An interim FCL is granted on a temporary basis pending completion of the full investigative
requirements.
2-108. Multiple Facility Organizations.
The home office facility must have an FCL at the same, or higher, level of any cleared facility within the multiple facility organization.
2-109. Parent-Subsidiary Relationships.
When a parent-subsidiary relationship exists, the parent and the subsidiary will be processed separately for an FCL. As a general rule, the parent must have an FCL
at the same, or higher, level as the subsidiary. However, the CSA will determine the necessity for the parent to be cleared or excluded from access to classified
information. The CSA will advise the companies as to what action is necessary for processing the FCL. When a parent or its cleared subsidiaries are collocated, a
formal written agreement to utilize common security services may be executed by the two firms, subject to the approval of the CSA.
2-110. Termination of the FCL.
Once granted, an FCL remains in effect until terminated by either party. If the FCL is terminated for any reason, the contractor shall return all classified material in its
possession to the appropriate GCA or dispose of the material as instructed by the CSA. The contractor shall return the original copy of the letter of notification of the
facility security clearance to the CSA.
2-111. Records Maintenance.
Contractors shall maintain the original CSA designated forms for the duration of the
FCL.
Section 2. Personnel Clearances
2-200. General.
a.An employee may be processed for a personnel clearance (PCL) when the contractor determines that access is essential in the performance of tasks or services related to the
fulfillment of a classified contract. A PCL is valid for access to classified information at the same, or lower, level of classification as the level of the clearance granted.
b.The CSA will provide written notice when an employee's PCL has been granted, denied, suspended, or revoked. The contractor shall immediately deny access to classified
information to any employee when notified of a denial, revocation or suspension. The CSA will also provide written notice when processing action for PCL eligibility has been
discontinued. Contractor personnel may be subject to a reinvestigation program as specified by the CSA.
c.Within a multiple facility organization (MFO), PCLs will be issued to a company's home office facility (HOF) unless an alternative arrangement is approved by the CSA. Cleared
employee transfers within an MFO, and classified access afforded thereto, shall be managed by the contractor.
d.The contractor shall limit requests for PCLs to the minimal number of employees necessary for operational efficiency, consistent with contractual obligations and other
requirements of this Manual. Requests for PCLs shall not be made to establish "pools" of cleared employees.
e.The contractor shall not submit a request for a PCL to one agency if the employee applicant is cleared or is in process for a PCL by another agency. In such cases, to permit
clearance verification, the contractor should provide the new agency with the full name, date and place of birth, current address, social security number, clearing agency, and type
of clearance.
2-201. Investigative Requirements.
Investigations conducted by a Federal Agency shall not be duplicated by another Federal Agency when those investigations are current within 5
years and meet the scope and standards for the level of PCL required. The types of investigations required are as follows:
a.Single Scope Background Investigation (SSBI). An SSBI is required for TOP SECRET, Q, and SCI access. Investigative requests shall be made using the Standard Form (SF) 86.
b.National Agency Check with Local Agency Check and Credit Check (NACLC). An NACLC is required for a SECRET, L, and CONFIDENTIAL PCL. Investigative requests shall
be made using the SF 86.
c.Polygraph. Agencies with policies sanctioning the use of the polygraph for PCL purposes may require polygraph examinations when necessary. If issues of concern surface
during any phase of security processing, coverage will be expanded to resolve those issues.
2-202. Common Adjudicative Standards.
Security clearance and SCI access determinations shall be based upon uniform common adjudicative standards.
2-203. Reciprocity.
Federal agencies that grant security clearances (TOP SECRET, SECRET, CONFIDENTIAL, Q or L) to their employees or their contractor employees are responsible for
determining whether such employees have been previously cleared or investigated by the Federal Government. Any previously granted PCL that is based upon a current investigation of
a scope that meets or exceeds that necessary for the clearance required, shall provide the basis for issuance of a new clearance without further investigation or adjudication unless
significant derogatory information that was not previously adjudicated becomes known to the granting agency.
2-204. Pre-employment Clearance Action.
Contractors shall not initiate any pre-employment clearance action unless the recruitment is for a specific position that will require access to
classified information. Contractors shall include the following statement in such employment advertisements: "Applicants selected will be subject to a government security investigation
and must meet eligibility requirements for access to classified information." The completed PCL
application may be submitted to the CSA by the contractor prior to the date of
employment, provided a written commitment for employment has been made by the contractor that prescribes a fixed date for employment within the ensuing 180 days, and the candidate
has accepted the employment offer in writing.
2-205. Contractor-Granted Clearances.
Contractors are no longer permitted to grant clearances. As of January 1, 2004, Contractor-granted Confidential clearances will no longer be valid
for access to any classified information. Contractor-granted Confidential clearances in effect under previous policy are not valid for access to: Restricted Data; Formerly Restricted Data;
COMSEC information; Sensitive Compartmented Information; NATO information (except RESTRICTED); Critical or Controlled Nuclear Weapon Security positions; and classified foreign
government information.
2-206. Verification of U.S. Citizenship.
The contractor shall require each applicant for a PCL who claims U.S. citizenship to produce evidence of citizenship. A PCL will not be granted
until the contractor has certified the applicant's U.S. citizenship.
2-207. Acceptable Proof of Citizenship.
a.For individuals born in the United States, a birth certificate is the primary and preferred means of citizenship verification. Acceptable certificates must show that the birth record
was filed shortly after birth and it must be certified with the registrar's signature. It must bear the raised, impressed, or multicolored seal of the registrar's office. The only exception
is if a state or other jurisdiction does not issue such seals as a matter of policy Uncertified copies of birth certificates are not acceptable. A delayed birth certificate is one created
when a record was filed more than one year after the date of birth. Such a certificate is acceptable if it shows that the report of birth was supported by acceptable secondary
evidence of birth. Secondary evidence may include: baptismal or circumcision certificates, hospital birth records, or affidavits of persons having personal knowledge about the
facts of birth. Other documentary evidence can be early census, school, or family bible records, newspaper files, or insurance papers. All documents submitted as evidence of birth
in the U.S. shall be original or certified documents.
b.If the individual claims citizenship by naturalization, a certificate of naturalization is acceptable proof of citizenship.
c.If citizenship was acquired by birth abroad to a U.S. citizen parent or parents, the following are acceptable evidence:
(1) A Certificate of Citizenship issued by the Immigration and Naturalization Service (INS).
(2) A Report of Birth Abroad of a Citizen of the United States of America (Form FS-240).
(3) A Certificate of Birth (Form FS-545 or DS-1350).
d.A passport, current or expired, is acceptable proof of citizenship.
e.A Record of Military Processing-Armed Forces of the United States (DD Form 1966) is acceptable proof of citizenship, provided it reflects U.S. citizenship.
2-208. Letter of Notification of Personnel Clearance (LOC).
An LOC will be issued by the CSA to notify the contractor that its employee has been granted a PCL. Unless terminated,
suspended or revoked by the Government, the LOC remains effective as long as the employee is continuously employed by the contractor.
2-209. Representative of a Foreign Interest.
The CSA will determine whether a Representative of a Foreign Interest (RFI) is eligible for a clearance or continuation of a clearance.
a.An RFI must be a U.S. citizen to be eligible for a PCL.
b.The RFI shall submit a statement that fully explains the foreign connections and identifies all foreign interests. The statement shall contain the contractor's name and address and
the date of submission. If the foreign interest is a business enterprise, the statement shall explain the nature of the business and, to the extent possible, details as to its ownership,
including the citizenship of the principal owners or blocks of owners. The statement shall fully explain the nature of the relationship between the applicant and the foreign interest
and indicate the approximate percentage of time devoted to the business of the foreign interest.
2-210. Non-U.S.Citizens.
Only U.S. citizens are eligible for a security clearance. Every effort shall be made to ensure that non-U.S. citizens are not employed in duties that may require
access to classified information. However, compelling reasons may exist to grant access to classified information to an immigrant alien or a foreign national. Such individuals may be
granted a Limited Access Authorization (LAA) in those rare circumstances where the non-U.S. citizen possesses unique or unusual skill or expertise that is urgently needed to support a
specific U.S. Government contract involving access to specified classified information and a cleared or clearable U.S. citizen is not readily available. In addition, the LAA may only be
issued under the following circumstances:
a.With the concurrence of the GCA in instances of special expertise.
b.With the concurrence of the CSA in furtherance of U.S. Government obligations pursuant to U.S. law, treaty, or international agreements.
2-211. Access Limitations of an LAA.
An LAA granted under the provisions of this Manual is not valid for access to the following types of information.
a.TOP SECRET information.
b.Restricted Data or Formerly Restricted Data.
c.Information that has not been determined releasable by a U.S. Government Designated Disclosure Authority to the country of which the individual is a citizen.
d.COMSEC information.
e.Intelligence information.
f.NATO Information. However, foreign nationals of a NATO member nation may be authorized access to NATO Information provided that: (1) A NATO Security Clearance
Certificate is obtained by the CSA from the individual's home country; and (2) NATO access is limited to performance on a specific NATO contract.
g.Information for which foreign disclosure has been prohibited in whole or in part; and
h.Information provided to the U.S. Government in confidence by a third party government and classified information furnished by a third party government.
2-212. Interim Clearances.
Interim TOP SECRET PCLs shall be granted only in emergency situations to avoid crucial delays in precontract negotiation, or in the award or performance on
a contract. The contractor shall submit applications for Interim TOP SECRET PCLs to the pertinent GCA for endorsement. Applicants for TOP SECRET, SECRET, and CONFIDENTIAL
PCLs may be routinely granted interim PCLs at the SECRET or CONFIDENTIAL level, as appropriate, provided there is no evidence of adverse information of material significance. The
interim status will cease if results are favorable following completion of full investigative requirements. At that time the CSA will issue a new LOC. Non-U.S. citizens are not eligible for
interim clearances.
a.An interim SECRET or CONFIDENTIAL PCL is valid for access to classified information at the level of the interim PCL granted, except for Sensitive Compartmented Information,
Restricted Data, COMSEC Information, SAP, and NATO information. An interim TOP SECRET PCL is valid for access to TOP SECRET information and Restricted Data, NATO
Information and COMSEC information at the SECRET and CONFIDENTIAL level.
b.An interim PCL granted by the CSA negates any existing contractor-granted CONFIDENTIAL clearance. When an interim PCL has been granted and derogatory information is
subsequently developed, the CSA may withdraw the interim pending completion of the processing that is a prerequisite to the granting of a final PCL.
c.When an interim PCL for an individual who is required to be cleared in connection with the FCL is withdrawn, the interim FCL will also be withdrawn, unless action is taken to
remove the individual from the position requiring access.
d.Withdrawal of an interim PCL is not a denial or revocation of the clearance and is not appealable during this stage of the processing.
2-213. Consultants.
A consultant is an individual under contract to provide professional or technical assistance to a contractor or GCA in a capacity requiring access to classified
information. The consultant shall not possess classified material off the premises of the using (hiring) contractor or GCA except in connection with authorized visits. The consultant and
the using contractor or GCA shall jointly execute a consultant certificate setting forth respective security responsibilities. The using contractor or GCA shall be the consumer of the
services offered by the consultant it sponsors for a PCL. For security administration purposes, the consultant shall be considered an employee of the hiring contractor or GCA. The CSA
shall be contacted regarding security procedures to be followed should it become necessary for a consultant to have custody of classified information at the consultant's place of
business.
2-214. Concurrent PCLs.
A concurrent PCL can be issued if a contractor hires an individual or engages a consultant who has a current PCL (LOC issued to another contractor). The
gaining contractor must be issued an LOC prior to the employee having access to classified information at that facility. Application shall be made by the submission of the CSA
designated form.
2-215. Converting PCLs to Industrial Clearances.
PCLs granted by government agencies may be converted to industrial clearances when: (a) A determination can be made that the
investigation meets standards prescribed for such clearances; (b) No more than 24 months has lapsed since the date of termination of the clearance; and, (c) No evidence of adverse
information exists since the last investigation. Contractors employing persons eligible for conversion of clearance may request clearance to the level of access required by submitting the
CSA designated form to the CSA. Access may not be granted until receipt of the LOC. The following procedures apply.
a.Former DOE and NRC Personnel. A Q access authorization can be converted to a TOP SECRET clearance. An L access authorization can be converted to a SECRET clearance.
Annotate the application: "DOE (or NRC) Q (or L) Conversion Requested."
b.Federal Personnel. Submit a copy of the "Notification of Personnel Action" (Standard Form 50), which terminated employment with the Federal Government with the application.
c.Military Personnel. Submit a copy of the "Certificate of Release or Discharge From Active Duty" (DD Form 214).
d.National Guard and Reserve Personnel in the Ready Reserve Program. Include the individual's service number, the identity and exact address of the unit to which assigned, and the
date such participation commenced on the application. For those individuals who have transferred to the standby or retired Reserve, submit a copy of the order effecting such a
transfer.
2-216. Clearance Terminations.
The contractor shall terminate a PCL (a) Upon termination of employment; or (b) When the need for access to classified information in the future is
reasonably foreclosed. Termination of a PCL is accomplished by submitting a CSA-designated form to the CSA.
2-217. Clearance Reinstatements.
A PCL can be reinstated provided (a) No more than 24 months has lapsed since the date of termination of the clearance; (b) There is no known adverse
information; (c) The most recent investigation must not exceed 5 years (TS, Q) or 10 years (SECRET, L); and (d) Must meet or exceed the scope of the investigation required for the level
of PCL that is to be reinstated or granted. A PCL can be reinstated at the same, or lower, level by submission of a CSA-designated form to the CSA. The employee may not have access to
classified information until receipt of the LOC.
2-218. Procedures for Completing the SF 86.
The SF 86 shall be completed jointly by the employee and the contractor. Contractors shall inform employees that part 2 of the SF 86 may be
completed in private and returned to security personnel in a sealed envelope. The contractor shall not review any information that is contained in the sealed envelope. The contractor
shall review the remainder of the application to determine its adequacy and to ensure that necessary information has not been omitted. The contractor shall ensure that the applicant's
fingerprints are authentic, legible, and complete to avoid subsequent clearance processing delays. An employee of the contractor shall witness the taking of the applicant's fingerprints to
ensure that the person fingerprinted is, in fact, the same as the person being processed for the clearance. All PCL forms required by this Section are available from the CSA.
2-219. Records Maintenance.
The contractor shall maintain a current record at each facility (to include uncleared locations) of all cleared employees. Records maintained by a HOF and/or
PMF for employees located at subordinate facilities shall include the name and address at which the employee is assigned. When furnished with a list of cleared personnel by the CSA,
contractors are requested to annotate the list with any corrections or adjustments and return it at the earliest practical time. The reply shall include a statement by the FSO certifying that
the individuals listed remain employed and that a PCL is still required. When the SF 86 is submitted to the CSA electronically, the contractor shall retain an original, signed copy of the SF
86 and Authority for Release of Information and Records until the clearance process has been completed.
Section 3. Foreign Ownership, Control, or Influence (FOCI)
2-300. General.
a. This Section establishes the policy concerning the initial or continued clearance eligibility of U.S. companies with foreign involvement; provides criteria for determining whether U.S. companies are under foreign ownership, control or influence (FOCI); prescribes responsibilities in FOCI matters; and outlines security measures that may be considered to negate or reduce to an acceptable level FOCI-based security risks .
b. The foreign involvement of U.S. companies cleared or under consideration for a facility security clearance (FCL) is examined to ensure appropriate resolution of matters determined to be of national security significance. The development of security measures to negate FOCI determined to be unacceptable shall be based on the concept of risk management. The determination of whether a U.S. company is under FOCI, its eligibility for an FCL, and the security measures deemed necessary to negate FOCI shall be made on a case-by-case basis.
2-301. Policy.
Foreign investment can play 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 interests of the United States. The following FOCI policy for U.S. companies subject to an FCL is intended to facilitate foreign investment by ensuring that foreign firms cannot undermine U.S. security and export controls to gain unauthorized access to critical technology, classified information and special classes of classified information:
a. A U.S. company is considered 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 that company in a manner which may result in unauthorized access to classified information or may affect adversely the performance of classified contracts.
b. A U.S. company determined to be under FOCI is ineligible for an FCL, or an existing FCL shall be suspended or revoked unless security measures are taken as necessary to remove the possibility of unauthorized access or the adverse affect on classified contracts.
c. The Federal Government reserves the right and has the obligation to impose any security method, safeguard, or restriction it believes necessary to ensure that unauthorized access to classified information is effectively precluded and that performance of classified contracts is not adversely affected.
d. Changed conditions, such as a change in ownership, indebtedness, or the foreign intelligence threat, may justify certain adjustments to the security terms under which a company is operating or, alternatively, that a different FOCI negation method be employed. If a changed condition is of sufficient significance, it might also result in a determination that a company is no longer considered to be under FOCI or, conversely, that a company is no longer eligible for an FCL.
e. Nothing contained in this Section shall affect the authority of the Head of an Agency to limit, deny or revoke access to classified information under its statutory, regulatory or contract jurisdiction. For purposes of this Section, the term "agency" has the meaning provided at 5 U.S.C. 552(f), to include the term "DoD Component."
a. The following factors shall be considered in the aggregate to determine whether an applicant company is under FOCI; its eligibility for an FCL; and the protective measures required:
(1) Foreign intelligence threat;
(2) Risk of unauthorized technology transfer;
(3) Type and sensitivity of the information requiring protection;
(4) Nature and extent of FOCI, to include whether a foreign person occupies a controlling or dominant minority position; source of FOCI, to include identification of immediate, intermediate and ultimate parent organizations;
(5) Record of compliance with pertinent U.S. laws, regulations and contracts; and (6) Nature of bilateral and multilateral security and information exchange agreements that may pertain.
b. In addition to the factors shown above, the following information is required to be furnished to the CSA on the CSA-designated form. The information will be considered in the aggregate and the fact that some of the below listed conditions may apply does not necessarily render the applicant company ineligible for an FCL.
(1) Ownership or beneficial ownership, direct or indirect, of 5 percent or more of the applicant company's voting securities by a foreign person;
(2) Ownership or beneficial ownership, direct or indirect, of 25 percent or more of any class of the applicant company's non-voting securities by a foreign person;
(3) Management positions, such as directors, officers, or executive personnel of the applicant company held by non U.S. citizens;
(4) Foreign person power, direct or indirect, to control the election, appointment, or tenure of directors, officers, or executive personnel of the applicant company and the power to control other decisions or activities of the applicant company;
(5) Contracts, agreements, understandings, or arrangements between the applicant company and a foreign person;
(6) Details of loan arrangements between the applicant company and a foreign person if the applicant company's (the borrower) overall debt to equity ratio is 40:60 or greater; and details of any significant portion of the applicant company's financial obligations that are subject to the ability of a foreign person to demand repayment;
(7) Total revenues or net income in excess of 5 percent from a single foreign person or in excess of 30 percent from foreign persons in the aggregate;
(8) Ten percent or more of any class of the applicant's voting securities held in "nominee shares," in "street names," or in some other method that does not disclose the beneficial owner of equitable title;
(9) Interlocking directors with foreign persons and any officer or management official of the applicant company who is also employed by a foreign person;
(10) Any other factor that indicates or demonstrates a capability on the part of foreign persons to control or influence the operations or management of the applicant company; and
(11) Ownership of 10% or more of any foreign interest.
2-303. Procedures.
a. If there are any affirmative answers on the form, or other information is received which indicates that the applicant company may be under FOCI, the CSA shall review the case to determine the relative significance of the information in regard to:
(1) Whether the applicant is under FOCI, which shall include a review of the factors listed at 2-302;
(2) The extent and manner to which the FOCI may result in unauthorized access to classified information or adversely impact classified contract performance; and
(3) The type of actions, if any, that would be necessary to negate the effects of FOCI to a level deemed acceptable to the Federal Government. Disputed matters may be appealed and the applicant shall be advised of the government's appeal channels by the CSA.
b. When a company with an FCL enters into negotiations for the proposed merger, acquisition, or takeover by a foreign person, the applicant shall submit notification to the CSA of the commencement of such negotiations. The submission shall include the type of transaction under negotiation (stock purchase, asset purchase, etc.), the identity of the potential foreign person investor, and a plan to negate the FOCI by a method outlined in 2-306. The company shall submit copies of loan, purchase and shareholder agreements, annual reports, bylaws, articles of incorporation, partnership agreements and reports filed with other federal agencies to the CSA.
c. When a company with an FCL is determined to be under FOCI, the facility security clearance shall be suspended. Suspension notices shall be made as follows:
(1) When the company has current access to classified information, the GCAs and prime contractor(s) of record shall be notified of the suspension action along with full particulars regarding the reason(s) therefor. Cognizant contracting agency security and acquisition officials shall be furnished written, concurrent notice of the suspension action. All such notices shall include a statement that the award of additional classified contracts is prohibited so long as the FCL remains in suspension.
(2) The company subject to suspension action shall be notified that its clearance has been suspended, that current access to classified information and performance on existing classified contracts may continue unless notified by the CSA to the contrary, and that the award of new classified contracts will not be permitted until the FCL has been restored to a valid status.
d. When necessary, the applicant company shall be advised that failure to adopt required security measures, may result in denial or revocation of the FCL. When final agreement by the parties with regard to the security measures required by the CSA is attained, the applicant shall be declared eligible for an FCL upon implementation of the required security measures. When a previously suspended FCL has been restored to a valid status, all recipients of previous suspension notices shall be notified.
e. A counterintelligence threat assessment and technology transfer risk assessment shall be obtained by the CSA and considered prior to a final decision to grant an FCL to an applicant company under FOCI or to restore an FCL previously suspended. These assessments shall be updated periodically under circumstances and at intervals considered appropriate by the CSA.
f. Whenever a company has been determined to be under FOCI, the primary consideration shall be the safeguarding of classified information. The CSA is responsible for taking whatever interim action necessary to safeguard classified information, in coordination with other affected agencies as appropriate. If the company does not have possession of classified material, and does not have a current or impending requirement for access to classified information, the FCL shall be administratively terminated.
2-304. Foreign Mergers, Acquisitions and Takeovers, and the CFIUS.
a. Proposed merger, acquisition, or takeover (transaction) cases voluntarily filed for review by the Committee on Foreign Investment in the United States (CFIUS) under Section 721 of Title VII of the Defense Production Act (DPA) of 1950 (P.L. 102-99) shall be processed on a priority basis. The CSA shall determine whether the proposed transaction involves an applicant subject to this Section and convey its finding to appropriate agency authorities. If the proposed transaction would require FOCI negation measures to be imposed if consummated, the parties to the transaction shall be promptly advised of such measures and be requested to provide the CSA with their preliminary acceptance or rejection of them as promptly as possible.
b. The CFIUS review and the industrial security review are carried out in two parallel, but separate, processes with different time constraints and considerations. Ideally, when industrial security enhancements (see Sections 2-305 and 2-306) are required to resolve industrial security concerns of a case under review by CFIUS, there should be agreement before a recommendation on the matter is formulated. As a technical matter, however, a security agreement cannot be signed until the proposed foreign investor legally completes the transaction, usually the date of closing. When the required security arrangement, (1) Has been rejected; or (2) When it appears agreement will not be attained regarding material terms of such an arrangement; or (3) The company has failed to comply with the reporting requirements of this Manual, industrial security authorities may recommend that the Department position be an investigation of the proposed transaction by CFIUS to assure that national security concerns are protected.
2-305. FOCI Negation Action Plans.
If it is determined that an applicant company may be ineligible for an FCL or that additional action would be necessary to negate the FOCI, the applicant shall be promptly advised and requested to submit a negation plan.
a. In those cases where the FOCI stems from foreign ownership, a plan shall consist of one of the methods prescribed at 2-306. Amendments to purchase and shareholder agreements may also serve to remove FOCI concerns.
b. When factors not related to ownership are present, the plan shall provide positive measures that assure that the foreign person can be effectively denied access to classified information and cannot otherwise adversely affect performance on classified contracts. Examples of such measures include: modification or termination of loan agreements, contracts and other understandings with foreign interests; diversification or reduction of foreign source income; demonstration of financial viability independent of foreign persons; elimination or resolution of problem debt; assignment of specific oversight duties and responsibilities to board members; formulation of special executive-level security committees to consider and oversee matters that impact upon the performance of classified contracts; physical or organizational separation of the facility component performing on classified contracts; the appointment of a technology control officer; adoption of special board resolutions; and other actions that negate foreign control or influence.
2-306. Methods to Negate Risk in Foreign Ownership Cases.
Under normal circumstances, foreign ownership of a U.S. company under consideration for an FCL becomes a concern to the U.S. Government when a foreign shareholder 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 applicant company's board of directors by any means (equivalent equity for unincorporated companies). Foreign ownership which cannot be so manifested is not, in and of itself, considered significant.
a. Board Resolution. When a foreign person does not own voting stock sufficient to elect, or otherwise is not entitled to representation to the applicant company's board of directors, a resolution(s) by the applicant's board of directors will normally be adequate. The Board shall identify the foreign shareholder and describe the type and number of foreign owned shares; acknowledge the applicant's obligation to comply with all industrial security program and export control requirements; certify that the foreign shareholder shall not require, shall not have, and can be effectively precluded from unauthorized access to all classified and export-controlled information entrusted to or held by the applicant company; will not be permitted to hold positions that may enable them to influence the performance of classified contracts; and provide for an annual certification to the CSA acknowledging the continued effectiveness of the resolution. The company shall be required to distribute to members of its board of directors and its principal officers copies of such resolutions and report in the company's corporate records the completion of such distribution.
b. Voting Trust Agreement and Proxy Agreement. The Voting Trust Agreement and the Proxy Agreement are substantially identical arrangements whereby the voting rights of the foreign owned stock are vested in cleared U.S. citizens approved by the Federal Government. Neither arrangement imposes any restrictions on a company's eligibility to have access to classified information or to compete for classified contracts.
(1) Establishment of a Voting Trust or Proxy Agreement involves the selection of three trustees or proxy holders respectively, all of whom must become directors of the cleared company's board. Both arrangements must provide for the exercise of all prerogatives of ownership by the voting trustees or proxy holders with complete freedom to act independently from the foreign person stockholders. The arrangements may, however, limit the authority of the trustees or proxy holders by requiring that approval be obtained from the foreign person stockholder(s) with respect to matters such as: (a) The sale or disposal of the corporation's assets or a substantial part thereof; (b) Pledges, mortgages, or other encumbrances on the capital stock; (c) Corporate mergers, consolidations, or reorganizations; (d) The dissolution of the corporation; and (e) The filing of a bankruptcy petition. However, nothing herein prohibits the trustees or proxy holders from consulting with the foreign person stockholders, or vice versa, where otherwise consistent with U.S. laws, regulations and the terms of the Voting Trust or Proxy Agreement.
(2) The voting trustees or proxy holders must assume full responsibility for the voting stock and for exercising all management prerogatives relating thereto in such a way as to ensure that the foreign stockholders, except for the approvals enumerated in (1) above, shall be insulated from the cleared company and continue solely in the status of beneficiaries. The company shall be organized, structured, and financed so as to be capable of operating as a viable business entity independent from the foreign stockholders.
(3) Individuals who serve as voting trustees or proxy holders must be: (a) U.S. citizens residing within the United States, who are capable of assuming full responsibility for voting the stock and exercising management prerogatives relating thereto in a way that ensures that the foreign person stockholders can be effectively insulated from the cleared company; (b) Completely disinterested individuals with no prior involvement with the applicant company, the corporate body with which it is affiliated, or the foreign person owner; and (c) Eligible for a PCL at the level of the FCL.
(4) Management positions requiring personnel security clearances in conjunction with the FCL must be filled by U.S. citizens residing in the United States.
c. Special Security Agreement and Security Control Agreement. The Special Security Agreement (SSA) and the Security Control Agreement (SCA) are substantially identical arrangements that impose substantial industrial security and export control measures within an institutionalized set of corporate practices and procedures; require active involvement of senior management and certain Board members in security matters (who must be cleared, U.S. citizens); provide for the establishment of a Government Security Committee (GSC) to oversee classified and export control matters; and preserve the foreign person shareholder's right to be represented on the Board with a direct voice in the business management of the company while denying unauthorized access to classified information.
(1) A company effectively owned or controlled by a foreign person may be cleared under the SSA arrangement. However, access to "proscribed information" is permitted only with the written permission of the cognizant U.S. agency with jurisdiction over the information involved. A determination to disclose proscribed information to a company cleared under an SSA requires that a favorable National Interest Determination (see 2-309) be rendered prior to contract award. Additionally, the Federal Government must have entered into a General Security Agreement with the foreign government involved.
(2) A company not effectively owned or controlled by a foreign person may be cleared under the SCA arrangement. Limitations on access to classified information are not required under an SCA.
d. Limited Facility Clearance. The Federal Government has entered into Industrial Security Agreements with certain foreign governments. These agreements establish arrangements whereby a foreign-owned U.S. company may be considered eligible for an FCL. Access limitations are inherent with the granting of limited FCLs.
(1) A limited FCL may be granted upon satisfaction of the following criteria: (a) There is an Industrial Security Agreement with the foreign government of the country from which the foreign ownership is derived; (b) Access to classified information will be limited to performance on a contract, subcontract or program involving the government of the country from which foreign ownership is derived; and (c) Release of classified information must be in conformity with the U.S. National Disclosure Policy.
(2) A limited FCL may also be granted when the criteria listed in paragraph (1) above cannot be satisfied, provided there exists a compelling need to do so consistent with national security interests.
2-307. Annual Review and Certification.
a. Annual Review. Representatives of the CSA shall meet at least annually with senior management officials of companies operating under a Voting Trust, Proxy Agreement, SSA, or SCA to review the purpose and effectiveness of the clearance arrangement and to establish common understanding of the operating requirements and their implementation. These reviews will also include an examination of the following:
(1) Acts of compliance or noncompliance with the approved security arrangement, standard rules, and applicable laws and regulations.
(2) Problems or impediments associated with the practical application or utility of the security arrangement.
(3) Whether security controls, practices, or procedures warrant adjustment.
b. Annual Certification. Depending upon the security arrangement in place, the Voting trustees, Proxy holders or the Chairman of the GSC shall submit annually to the CSA an implementation and compliance report. Such reports shall include the following:
(1) A detailed description of the manner in which the company is carrying out its obligations under the arrangement.
(2) Changes to security procedures, implemented or proposed, and the reasons for those changes.
(3) A detailed description of any acts of noncompliance, whether inadvertent or intentional, with a discussion of steps that were taken to prevent such acts from recurring.
(4) Any changes, or impending changes, of senior management officials, or key Board members, including the reasons therefor.
(5) Any changes or impending changes in the organizational structure or ownership, including any acquisitions, mergers or divestitures.
(6) Any other issues that could have a bearing on the effectiveness of the applicable security clearance arrangement.
2-308. Government Security Committee (GSC).
Under a Voting Trust, Proxy Agreement, SSA and SCA, an applicant company is required to establish a permanent committee of it's Board of Directors, known as the GSC.
a. The GSC normally consists of Voting Trustees, Proxy Holders or Outside Directors, as applicable, and those officers/directors who hold PCLs.
b. The members of the GSC are required to ensure that the company maintains policies and procedures to safeguard export controlled and classified information entrusted to it.
c. The GSC shall also take the necessary steps to ensure that the company complies with U.S. export control laws and regulations and does not take action deemed adverse to performance on classified contracts. This shall include the appointment of a Technology Control Officer (TCO) and the development, approval, and implementation of a Technology Control Plan (TCP).
d. The Facility Security Officer (FSO) shall be the principal advisor to the GSC and attend GSC meetings. The Chairman of the GSC, must concur with the appointment of replacement FSOs selected by management. FSO and TCO functions shall be carried out under the authority of the GSC.
2-309. National Interest Determination.
a. A company cleared under an SSA and its cleared employees may only be afforded access to "proscribed information" with special authorization. This special authorization must be manifested by a favorable national interest determination (NID) that must be program/project/contract-specific. Access to proscribed information must be predicated on compelling evidence that release of such information to a company cleared under the SSA arrangement advances the national security interests of the United States. The authority to make this determination shall not be permitted below the Assistant Secretary or comparable level of the agency concerned.
b. A proposed NID will be prepared and sponsored by the GCA whose contract or program, is involved and it shall include the following information:
(1) Identification of the proposed awardee along with a synopsis of its foreign ownership (include solicitation and other reference numbers to identify the action);
(2) General description of the procurement and performance requirements;
(3) Identification of national security interests involved and the ways in which award of the contract helps advance those interests;
(4) The availability of any other U.S. company with the capacity, capability, and technical expertise to satisfy acquisition, technology base, or industrial base requirements and the reasons any such company should be denied the contract; and
(5) A description of any alternate means available to satisfy the requirement, and the reasons alternative means are not acceptable.
c. An NID shall be initiated by the GCA. A company may assist in the preparation of an NID, but the GCA is not obligated to pursue the matter further unless it believes further consideration to be warranted. The GCA shall, if it is supportive of the NID, forward the case through appropriate agency channels to the ultimate approval authority within that agency. If the proscribed information is under the classification or control jurisdiction of another agency, the approval of the cognizant agency is required; e.g., NSA for COMSEC, DCI for SCI, DOE for RD and FRD, the Military Departments for their TOP SECRET information, and other Executive Branch Departments and Agencies for classified information under heir cognizance.
d. It is the responsibility of the cognizant approval authority to ensure that pertinent security, counterintelligence, and acquisition interests are thoroughly examined. Agency-specific case processing details and the senior official(s) responsible for rendering final approval of NID's shall be contained in the implementing regulations of the U.S. agency whose contract is involved.
2-310. Technology Control Plan.
A TCP approved by the CSA shall be developed and implemented by those companies cleared under a Voting Trust Agreement, Proxy Agreement, SSA and SCA and when otherwise deemed appropriate by the CSA. The TCP shall prescribe all security measures determined necessary to reasonably foreclose the possibility of inadvertent access by non-U.S. citizen employees and visitors to information for which they are not authorized. The TCP shall also prescribe measures designed to assure that access by non-U.S. citizens is strictly limited to only that specific information for which appropriate Federal Government disclosure authorization has been obtained; e.g., an approved export license or technical assistance agreement. Unique badging, escort, segregated work area, security indoctrination schemes, and other measures shall be included, as appropriate.
2-311. Compliance.
Failure on the part of the company to ensure compliance with the terms of any approved security arrangement may constitute grounds for revocation of the company's FCL.