Chapter 2
CHAPTER 2
Security Clearances
Section 1. Facilities Clearances
2-100. General.
A facility clearance (FCL) is an administrative determination that
a facility is eligible for access to classified information or
award of a classified contract. Contract award may be made prior to
the issuance of an FCL. However, in those cases, the contractor
will be processed for an FCL at the appropriate level and must meet
eligibility requirements for access to classified information. The
FCL requirement for a prime contractor includes those instances in
which all classified access will be limited to subcontractors.
Contractors are eligible for custody (possession) of classified
material, if they have an FCL and storage capability approved by
the CSA.
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. Application shall be made on
an SF Form 86 for DOE and NRC contractors. All others shall submit
a DD Form 398.
b. National Agency Check and Credit Check (NACC). An NACC is
required for a SECRET, L, and CONFIDENTIAL PCL. Application shall
be made on an SF Form 86 for DOE and NRC contractors. All others
shall submit a DD Form 398-2.
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.
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); or
(2) A Report of Birth Abroad of a Citizen of the United
States of America (Form FS-240); or
(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 Application Form.
The application forms shall be completed jointly by the employee
and the contractor. Contractors shall inform employees that page 5
of the DD Form 398-2 and the DD Form 398 or 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 (cleared and uncleared locations) 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.
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."
2-302. Factors.
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
their 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.
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