Protecting Facility-Clearance Eligibility During Foreign Investment, Transactions and DCSA Review

Foreign investment can provide the capital, technology and international relationships a government contractor needs to grow. For a company that holds or seeks a Facility Security Clearance, however, the structure of that investment can affect whether the company remains eligible to perform classified work.

Foreign Ownership, Control or Influence—FOCI—is not limited to majority foreign ownership. DCSA may examine direct and indirect equity, voting rights, board authority, financing, contractual influence, foreign-government relationships and the practical ability of a foreign interest to affect management or operations.

National Security Law Firm advises cleared contractors, defense and technology companies, founders, boards, private-equity sponsors, venture investors and foreign owners concerning:

  • pre-transaction FOCI risk;
  • foreign investment in cleared companies;
  • mergers, acquisitions and corporate restructuring;
  • ownership, governance and control analysis;
  • DCSA submissions and communications;
  • Standard Form 328 disclosures;
  • FOCI mitigation strategy;
  • Board Resolutions and Security Control Agreements;
  • Special Security Agreements;
  • Voting Trust and Proxy Agreements;
  • Government Security Committee requirements;
  • continuing compliance under mitigation instruments;
  • changes to ownership, financing, management or governance; and
  • FOCI concerns threatening facility-clearance eligibility.

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Nationwide Representation · Cleared-Company Transactions · DCSA and NISPOM Counsel

FOCI Can Affect the Transaction—and the Business Built Around the Clearance

A corporate transaction may be sound under ordinary corporate law and still create national-security concerns for a cleared company.

The parties may agree on price, governance and investor protections, only to discover that provisions involving board representation, veto rights, information access, financing or operational dependence complicate the company’s facility-clearance position.

The consequences may affect:

  • the timing or feasibility of a transaction;
  • the company’s existing Facility Security Clearance;
  • eligibility for future classified awards;
  • access to categories of classified information;
  • board composition and management authority;
  • investor information and visitation rights;
  • technology-control arrangements;
  • classified-contract performance;
  • the value of the acquired business; and
  • future financing or exit transactions.

FOCI strategy therefore should not begin after the deal documents are final. The earlier the parties identify the classified business, foreign interests and proposed control rights, the more opportunity they may have to structure a workable transaction.

The objective is not simply to close the transaction. It is to build a structure that can operate, comply and preserve the classified business after closing.

What Is Foreign Ownership, Control or Influence?

Under the National Industrial Security Program, a U.S. entity is considered to be under FOCI when a foreign interest has the power, direct or indirect and whether exercised or exercisable, to direct or decide matters affecting the entity’s management or operations in a manner that may result in unauthorized access to classified information or may adversely affect classified-contract performance.

FOCI analysis is fact-specific. DCSA may consider factors including:

  • the source, nature and extent of foreign ownership;
  • record and beneficial ownership;
  • voting rights and governance provisions;
  • foreign representation on the board or in management;
  • shareholder agreements and negative-control rights;
  • debt, preferred equity and other financing arrangements;
  • dependence on foreign revenue, customers, suppliers or technology;
  • contracts and relationships with foreign persons or governments;
  • foreign access to facilities, systems, personnel or information;
  • the identity and nationality of relevant owners and principals;
  • whether the foreign interest can influence appointments or business decisions; and
  • the classified information and contracts the company needs to access.

No single ownership percentage answers every FOCI question. A minority investor may possess meaningful influence through contractual rights, financing leverage, board participation or operational dependence. Conversely, identifying foreign ownership does not automatically mean an FCL is impossible.

DCSA reviews FOCI as part of the facility-clearance process and throughout the life of an FCL. The company’s foreign-interest information is generally documented through the Certificate Pertaining to Foreign Interests, Standard Form 328, together with supporting ownership and governance materials.

Review DCSA’s official FOCI information

When Should a Company Contact a FOCI Lawyer?

FOCI counsel may be valuable when:

  • a cleared company is considering foreign investment;
  • a foreign company or investor plans to acquire a U.S. cleared contractor;
  • private equity or venture financing includes foreign limited partners or co-investors;
  • a minority investor requests board, observer, veto or information rights;
  • debt financing may create foreign leverage or dependence;
  • a company is preparing or revising an SF 328;
  • DCSA requests ownership, governance or foreign-interest information;
  • a company is entering the facility-clearance process with foreign ownership;
  • an acquisition changes the company’s ultimate parent or beneficial owners;
  • an existing mitigation instrument may no longer match the corporate structure;
  • the company is negotiating a Board Resolution, SCA, SSA, Voting Trust or Proxy Agreement;
  • a Government Security Committee must be created or restructured;
  • DCSA questions whether mitigation is effective;
  • the company identifies an unreported foreign interest or changed condition;
  • foreign-owner communications, visits or information requests create compliance concerns; or
  • FOCI threatens an existing FCL or classified-contract opportunity.

The company should obtain advice early enough for facility-clearance considerations to inform transaction structure—not merely document a structure that has already become difficult to change.

Discuss a Foreign-Investment or FOCI Concern With NSLF

FOCI Legal Services

Pre-Transaction FOCI Risk Assessment

Before signing or closing, NSLF can help the parties identify aspects of the proposed transaction that may affect the cleared entity.

Depending on the engagement, the review may include:

  • current ownership and organizational structure;
  • direct, indirect and beneficial foreign interests;
  • the buyer’s or investor’s ownership chain;
  • foreign-government interests;
  • voting and consent rights;
  • board and observer rights;
  • management appointment and removal authority;
  • debt covenants and financial leverage;
  • access to information, facilities and technology;
  • commercial dependencies;
  • existing facility-clearance and mitigation documents;
  • current and anticipated classified contractual needs;
  • likely KMP changes; and
  • potential mitigation paths.

The objective is to identify material FOCI issues before they disrupt closing, reduce the value of the classified business or require expensive restructuring.

Transaction Structuring and M&A Coordination

FOCI analysis must be coordinated with the business transaction. Counsel may need to work with company leadership, deal counsel, investors, lenders, the FSO and other advisers to align corporate documents with the contemplated mitigation framework.

Relevant documents and issues may include:

  • stock or asset purchase agreements;
  • operating and shareholder agreements;
  • investor-rights agreements;
  • voting arrangements;
  • governance documents;
  • board composition;
  • reserved matters and veto rights;
  • management-services agreements;
  • debt instruments;
  • information and inspection rights;
  • technology-license agreements;
  • transition-services arrangements;
  • closing conditions; and
  • post-closing compliance obligations.

Facility-clearance counsel does not replace transaction counsel. The value lies in identifying how national-security restrictions may affect the deal and helping the transaction team account for those restrictions before closing.

SF 328 and Supporting Disclosures

The SF 328 requires the company to disclose specified foreign interests. The form should be approached as a legal and factual disclosure—not as a routine administrative certification.

Counsel can help the company:

  • identify responsive foreign interests;
  • understand the questions and definitions;
  • coordinate answers across the corporate family;
  • distinguish ownership from control and influence;
  • identify necessary supporting documents;
  • reconcile the disclosure with transaction and governance records;
  • address uncertainty without guessing;
  • explain material relationships accurately; and
  • prepare for reasonable follow-up.

The company remains responsible for supplying complete and truthful information and executing its submissions. Counsel provides legal analysis, drafting and strategic guidance within the agreed scope.

DCSA Communications and FOCI Review

During an FCL or changed-condition review, DCSA may request additional information about ownership, governance, financing, foreign relationships or the company’s proposed mitigation.

NSLF may assist with:

  • analyzing the request and applicable requirements;
  • organizing corporate and transaction documents;
  • identifying factual or structural gaps;
  • preparing written responses;
  • coordinating communications among company representatives;
  • explaining the company’s governance and operational safeguards;
  • addressing follow-up questions;
  • evaluating proposed mitigation; and
  • preserving consistency across DCSA, contractual and corporate records.

A response should answer the Government’s concern accurately and directly. It should not rely on broad assurances where governance documents, operating practices or access restrictions provide the more persuasive evidence.

Mitigation Strategy and Negotiation

When DCSA determines that FOCI exists, the company may need an approved arrangement to negate or mitigate the national-security risk. The appropriate approach depends on the nature and extent of the foreign interest, the company’s structure, the classified information involved and the Government’s assessment.

Counsel can help evaluate:

  • whether FOCI may be negated through restructuring;
  • which mitigation instrument may be appropriate;
  • the governance changes each structure requires;
  • treatment of foreign-owner rights;
  • eligibility and independence of directors, trustees or proxy holders;
  • Government Security Committee responsibilities;
  • technology-control and electronic-communications requirements;
  • visitation and information-access restrictions;
  • reporting and meeting obligations;
  • interaction with KMP requirements;
  • operational burden and implementation cost; and
  • whether the structure supports the company’s anticipated classified work.

No company is entitled to a particular mitigation instrument merely because it prefers that business structure. DCSA evaluates whether the proposed arrangement adequately addresses the identified national-security risk.

Continuing Mitigation Compliance

FOCI work does not end when an agreement is signed. The approved arrangement becomes part of the company’s governance and security operations.

Continuing obligations may involve:

  • Government Security Committee meetings and records;
  • annual implementation and compliance reporting;
  • outside director, trustee or proxy-holder responsibilities;
  • communications with foreign owners;
  • visitation controls;
  • technology-control plans;
  • electronic-communications plans;
  • facilities-location plans;
  • affiliated-operations procedures;
  • changes to management, ownership or financing;
  • DCSA reviews and information requests; and
  • amendment of mitigation instruments when circumstances change.

Counsel can help interpret the mitigation documents, assess changed conditions, document compliance and address situations in which the company’s actual operations no longer align with the approved framework.

Understanding the Principal FOCI Mitigation Structures

The names of the mitigation instruments are familiar. Their consequences are not interchangeable.

Board Resolution

A Board Resolution may be used in circumstances involving limited foreign ownership or influence where the foreign interest is not entitled to board representation and does not otherwise possess disqualifying influence. The resolution can impose restrictions intended to prevent the foreign interest from controlling or influencing the cleared company.

Whether this approach is sufficient depends on the actual rights and relationships—not merely the ownership percentage.

Security Control Agreement

A Security Control Agreement may address FOCI where the foreign owner has representation on the board but the circumstances permit mitigation through governance and security controls. Outside directors and a Government Security Committee may be required.

The arrangement affects how the board, foreign owner and cleared business interact and should be evaluated alongside the transaction documents.

Special Security Agreement

A Special Security Agreement permits a foreign owner to retain a greater degree of ownership involvement while imposing controls designed to protect classified information and the cleared company’s security functions.

An SSA can affect access to certain categories of classified information and may require additional Government determinations or measures depending on the information and contract. The parties should evaluate whether the anticipated classified business is compatible with the proposed structure.

Voting Trust Agreement

A Voting Trust Agreement transfers voting rights to approved U.S. citizen trustees who exercise control independently of the foreign owner. The foreign owner retains an economic interest but gives up substantial governance authority for the duration of the arrangement.

Proxy Agreement

A Proxy Agreement similarly places voting power and management control in approved U.S. citizen proxy holders. The agreement imposes significant separation between the foreign owner and the cleared company’s governance and classified operations.

Limited Entity Eligibility Determination

In narrowly defined circumstances, a limited entity eligibility determination may be considered for a specific contract, agreement or circumstance. It is not a general substitute for FOCI mitigation and carries inherent access limitations. Availability depends on the governing requirements, the Government customer’s need and the cognizant security agency’s determination.

The correct question is not “Which agreement lets the investor retain the most control?” It is “Which lawful structure protects the national-security interest while supporting the company’s actual classified mission and business objective?”

How DCSA Evaluates a Proposed Mitigation Structure

DCSA’s analysis is not confined to the mitigation document’s title. The Government may evaluate whether the proposed arrangement addresses the actual sources of ownership, control and influence.

Relevant considerations may include:

  • the foreign interest’s identity and country of origin;
  • foreign-government ownership or relationships;
  • the percentage and type of ownership;
  • voting and consent rights;
  • board composition and management authority;
  • debt, financing and economic dependence;
  • access to sensitive information, technology or personnel;
  • the company’s classified contractual requirements;
  • whether governance restrictions are enforceable;
  • the independence and qualifications of outside directors, trustees or proxy holders;
  • technology and communication controls;
  • affiliated business operations;
  • the company’s capacity to implement the proposed controls; and
  • whether residual risk remains consistent with the national interest.

A sophisticated presentation connects the identified risk to the proposed control. It explains not only what the organizational documents say, but also how the structure will operate when the board votes, management acts, information is requested or the business changes.

Private Equity, Venture Capital and Cleared Startups

Cleared companies increasingly rely on private capital. The investor’s nationality is only one component of the analysis.

A fund or investment structure may raise questions involving:

  • foreign limited partners;
  • co-investors and side vehicles;
  • ultimate beneficial ownership;
  • foreign-government or sovereign interests;
  • board and observer rights;
  • reserved matters;
  • information and inspection rights;
  • management-company authority;
  • debt facilities;
  • follow-on financing;
  • portfolio-company relationships; and
  • exit or transfer rights.

For emerging technology companies, the FOCI structure must also function in a rapidly changing business. A mitigation arrangement designed only for the initial financing may become difficult to maintain when the company raises another round, adds directors, enters foreign markets or pursues new classified work.

Early analysis can help investors and founders identify which rights are commercially essential, which create national-security complications and which may be restructured without undermining the investment.

When Personnel Issues Become FOCI or Facility Issues

FOCI is an entity-level question, but individual personnel can affect the mitigation structure and facility-clearance position.

Issues may arise when:

  • a required KMP lacks or loses personnel eligibility;
  • an outside director, trustee or proxy holder becomes unavailable;
  • an executive has undisclosed foreign relationships;
  • a person exercises authority inconsistent with the approved governance structure;
  • the FSO, ITPSO or Senior Management Official cannot perform required responsibilities; or
  • an individual investigation creates broader questions about reporting, access or corporate control.

NSLF’s individual security-clearance practice allows the firm to evaluate personnel and entity consequences together when appropriate.

Learn how personnel issues can trigger facility-clearance scrutiny

FOCI and the Broader Facility-Clearance Lifecycle

FOCI is a major part of facility-clearance eligibility, but it is not the entire FCL practice. Cleared companies may also need assistance with sponsorship, NISPOM compliance, DCSA security reviews, KMP requirements, reporting, findings or adverse facility-clearance action.

For the complete umbrella service, visit:

Facility Security Clearance Lawyers →

Companies requiring advice about solicitations, classified procurements, contract performance or acquisition disputes should visit our Federal Government Contracts Lawyers page.

Procurement suspension and debarment is a separate present-responsibility system. Companies facing threatened exclusion should visit our Federal Contractor Suspension and Debarment Lawyers page.

One Transaction Can Create Several Government Records

Foreign investment in a cleared contractor may generate overlapping submissions and obligations involving:

  • DCSA and the company’s FCL;
  • the Government customer and classified contracts;
  • corporate and beneficial-ownership records;
  • CFIUS or export-control counsel, where applicable;
  • individual security-clearance reporting;
  • procurement representations and certifications;
  • lenders, investors and transaction parties; and
  • mitigation plans governing post-closing operations.

Different systems may ask different questions, but the underlying facts should remain accurate and reconcilable. A rushed explanation intended to move one review forward can create difficulty if it conflicts with transaction documents, an SF 328, an individual disclosure or another Government submission.

NSLF helps clients identify those intersections and coordinate the FOCI record with related facility-clearance and federal-contracting concerns within the scope of the engagement.

How NSLF Approaches FOCI Matters

1. Define the Business Objective

We begin by identifying what the parties are trying to accomplish: obtain an FCL, preserve existing eligibility, close a transaction, accept investment, retain classified access or correct an existing problem.

2. Map Ownership, Governance and Influence

We examine the relevant ownership chain, transaction documents, governance rights, financing, foreign relationships, management authority and classified contractual needs provided within the engagement.

3. Identify the Government’s Actual Concern

FOCI analysis should connect the structure to the national-security risk. We distinguish direct ownership from indirect control, formal authority from practical influence and relevant facts from unsupported assumptions.

4. Develop an Implementable Structure

A mitigation proposal must do more than satisfy a document checklist. It should allocate authority clearly, protect classified information and function in the company’s real operations.

5. Build a Consistent Record

We help coordinate relevant DCSA communications, corporate documents and connected disclosures so that the company’s explanation remains accurate across the transaction and facility-clearance process.

6. Plan for Continuing Compliance

The structure must survive post-closing operations, future financing, management changes and Government oversight. We help clients consider continuing responsibilities before they accept them.

Why Companies and Investors Choose National Security Law Firm

National-Security Decision-Making Experience

NSLF’s attorneys include former administrative judges, former clearance adjudicators, former agency counsel, former federal prosecutors and former military attorneys. This experience helps the firm evaluate how federal decision-makers develop records, examine risk and require defensible conclusions.

Facility-Clearance and Government-Contracts Coordination

FOCI can affect both the company’s entity eligibility and the classified contracts that make the clearance commercially necessary. NSLF combines security-clearance experience with government-contracts and federal administrative counsel so those consequences are not evaluated in isolation.

A Collaborative Team for Multidisciplinary Problems

Foreign investment in a cleared company may involve security, acquisition, governance, personnel and investigative questions. When appropriate, the responsible attorney can obtain perspectives across NSLF’s relevant practices within the agreed scope.

Business-Focused Advice

The legal analysis must account for how the structure will function after closing. NSLF focuses on identifying a lawful, sustainable path that addresses the Government’s concern while remaining attentive to the company’s operational objective.

Nationwide Representation

FOCI and facility-clearance matters arise under federal industrial-security requirements. NSLF advises cleared companies, investors and executives nationwide, subject to conflicts, timing, subject matter and the scope of the particular engagement.

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Scope and Pricing

FOCI engagements vary substantially. A targeted review of proposed investor rights is different from a complex acquisition involving multiple foreign owners, substantial governance changes and negotiation of a mitigation agreement.

Depending on the matter, NSLF may offer a defined review, phased engagement, flat fee, hourly engagement or another written fee arrangement. If representation is offered, the engagement agreement identifies:

  • the client or clients represented;
  • the documents and issues included;
  • the anticipated work product;
  • whether DCSA communications or negotiation are included;
  • the applicable legal fee or billing structure; and
  • material exclusions or later phases requiring separate agreement.

The consultation is free and does not obligate the company or investor to retain the firm.

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What FOCI Counsel Can—and Cannot—Do

NSLF may help the client NSLF cannot
Analyze foreign ownership, governance and influence Guarantee that DCSA will approve an FCL or mitigation structure
Review transaction and facility-clearance documents Create the classified need required for FCL sponsorship
Advise concerning SF 328 disclosures and DCSA responses Supply facts or make certifications for the company
Develop and negotiate proposed mitigation arrangements Promise that a preferred mitigation instrument will be accepted
Coordinate FOCI, FCL, KMP and government-contract concerns Replace deal counsel, tax counsel, export counsel, the FSO or company officers
Help document continuing mitigation compliance Independently verify every fact unless the engagement requires it

The company and transaction parties remain responsible for providing complete and accurate information, obtaining advice outside the engagement’s scope, making authorized business decisions and complying with Government instructions.

Frequently Asked Questions

Does foreign ownership automatically disqualify a company from holding an FCL?

No. DCSA evaluates the nature and extent of FOCI and whether the risk may be negated or mitigated consistently with the national interest and the classified access required. The available approach depends on the complete facts.

Can a minority foreign investment create FOCI?

Yes. Ownership percentage is not the only consideration. Voting rights, board authority, veto provisions, financing, access to information, contractual relationships and practical influence may matter.

When should FOCI counsel become involved in a transaction?

Ideally, before the parties finalize governance, control, information and financing terms. Early review provides greater opportunity to address FOCI risk through transaction structure rather than attempting to revise completed documents later.

What is the SF 328?

The Certificate Pertaining to Foreign Interests is the form used to provide information concerning specified foreign interests relevant to the facility-clearance process. The form and supporting information should be complete, accurate and consistent with the company’s ownership and governance records.

Is an SSA always the best mitigation option?

No. The proper mitigation method depends on the foreign interest, governance structure, classified access required and DCSA’s national-security assessment. An SSA may also affect access to certain categories of classified information.

What is the difference between an SCA and an SSA?

Both permit some foreign-owner involvement subject to controls, but they address different degrees and forms of FOCI and impose different governance and access consequences. The transaction and classified business must be examined before assuming either structure is appropriate.

Does a Proxy Agreement allow the foreign owner to control the board?

No. A Proxy Agreement transfers voting power and management control to approved U.S. citizen proxy holders, subject to the agreement and applicable Government oversight. The foreign owner generally retains its economic interest but accepts substantial limits on control.

What is a Government Security Committee?

A Government Security Committee is a board committee used under certain FOCI mitigation arrangements to oversee compliance with the mitigation agreement and protection of classified and controlled information. Its composition and duties depend on the governing instrument.

Can foreign investors receive company information after mitigation?

The answer depends on the approved agreement, information involved, access controls and transaction rights. Mitigation may significantly restrict foreign-owner access to classified, export-controlled, controlled or other sensitive information. The governing documents must be reviewed before information is shared.

Must DCSA be notified before a transaction closes?

Cleared contractors have reporting obligations concerning specified changes, including certain ownership and control developments. The parties should evaluate the proposed transaction, 32 C.F.R. Part 117, DCSA guidance and any existing mitigation instrument early enough to identify required timing and submissions.

Can FOCI issues affect government contracts even if the transaction closes?

Yes. If the company cannot obtain or maintain the classified access required for performance, existing or prospective classified work may be affected. Contractual notice, responsibility, performance and customer issues may also require separate analysis.

Is FOCI review the same as CFIUS review?

No. FOCI and CFIUS are distinct national-security regimes with different authority, procedures and consequences, although the same transaction may implicate both. NSLF’s engagement does not include CFIUS, export-control, tax or general transaction advice unless expressly stated.

FOCI and Facility-Clearance Resources

Main Facility-Clearance Service

FOCI Guidance

Related Services

Official FOCI Resources

Government regulations, guidance and mitigation practices may change. The current authority, cognizant security agency requirements, classified contractual need and facts of the particular company should be confirmed before action is taken.

Protect the Investment—and the Cleared Business Behind It

Foreign ownership does not necessarily end a company’s opportunity to perform classified work. But FOCI cannot be treated as a closing checklist or deferred until DCSA raises a problem.

The company must accurately identify the foreign interest, understand how control and influence operate in the proposed structure, address the Government’s national-security concern and implement any approved mitigation in practice.

Whether your company is preparing for investment, acquiring a cleared contractor, entering the facility-clearance process, negotiating mitigation or responding to DCSA scrutiny, NSLF can evaluate whether representation is appropriate.

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America’s Federal Law Firm.

The information on this page is general information, not legal advice. FOCI and facility-clearance requirements depend on the entity, ownership structure, cognizant security agency, classified need, transaction and facts. Contacting National Security Law Firm does not create an attorney-client relationship. Do not transmit confidential information until representation has been confirmed. Prior results and client reviews do not guarantee a similar outcome. This website is an attorney advertisement.

Attorney review: Katherine O’Brien
Last updated: September 3, 2026