Mitigation Agreements

Overview

The following DCSA FOCI mitigation instruments (please reference NISPOM, paragraph 2-303) are designed to provide a general overview of items covered in an actual agreement. Actual mitigation instruments will vary in content from the templates as mitigation customization may be required by DCSA based on the unique needs of each business entity. Should you have any questions, please contact your respective Industrial Security Representative or the FOCI Operations Division under Contact Us.

The Board Resolution may be used when the foreign entity does not own voting stock enough to elect a representative to the company's governing board. (EXAMPLE: A British national owns 10% of the company's voting stock and that 10% stock ownership does not allow the British National to appoint a representative to the company's board of directors).

Download the Sample Board Resolution

 

The Security Control Agreement (SCA) may be used when the cleared company is not effectively owned or controlled by a foreign entity and the foreign interest is entitled to representation on the company's governing board. (EXAMPLE: A Danish corporation owns 25% of the cleared company's voting stock and that 25% ownership allows the Danish corporation to appoint a representative(s) to the company's governing board). There are no access limitations under a SCA. 

Download a Sample SCA

The Special Security Agreement (SSA) may be used when a company is effectively owned or controlled by a foreign entity. Access to proscribed information (TS, SCI, SAP, COMSEC or RD) by a company cleared under a SSA may require that the Government Contracting Activity complete a National Interest Determination to determine that the release of proscribed information to the company shall not harm the national security interest of the United States. The SCA and SSA are similar agreements in the respect that they:

  1. Impose substantial industrial security and export control measures within an institutionalized set of corporate practices and procedures

  2. Require active involvement of senior management and certain Board members in security matters (who must be cleared, US citizens) (Officer/Directors and Outside Directors)

  3. Provide for the establishment of a Government Security Committee (GSC) to oversee classified and export-controlled matters (the GSC consists of cleared Officer/Directors and Outside Directors), and

  4. Preserve the foreign shareholder's right to be represented (Inside Director(s)) on the Board of Directors with a direct voice in the business management of the company while denying unauthorized access to classified information. 

Download a Sample SSA

The Proxy Agreement (PA) and Voting Trust Agreement (VTA) may be used when a cleared company is effectively owned or controlled by a foreign entity. The PA and VTA 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 (DCSA). Neither arrangement imposes any restrictions on the company's eligibility to have access to classified information or to compete for classified contracts.

  1. Establishment of the PA or VTA involves the selection of three Proxy Holders or Trustees who must be directors of the cleared company's board.

  2. The Proxy Holders or Trustees exercise all prerogatives of ownership with complete freedom to act independently from the foreign stockholders, with the following exceptions:

    The Proxy Holders or Trustees must obtain approval from the foreign shareholder regarding the following matters:

    • The sale or disposal of the corporation's assets or a substantial part;

    • Pledges, mortgages or other encumbrances on the capital stock;

    • Corporate mergers, consolidations, or reorganization;

    • The dissolution of the corporation; and

    • The filing of a bankruptcy petition.

  3. The Proxy Holder or Trustees assume full responsibility for the voting stock and for exercising all management prerogatives, except as described above.

  4. The company must be organized, structured and financed to be capable of operating as a viable business entity independent from the foreign shareholder.

  5. Individuals serving as Proxy Holders or Trustees must be U.S. citizens, residing within the United States, completely "disinterested" individuals with no prior involvement with the cleared company, the corporate body with which it is affiliated or the foreign shareholder and they must be eligible for a personnel security clearance at the level of the facility clearance.

  6. Management positions requiring personnel security clearances must be filled by U.S. citizens residing in the U.S.

The difference between the Proxy Agreement and the Voting Trust Agreement is that under the Voting Trust Agreement the foreign owner transfers legal title in the company to the Trustees that are approved by DCSA.

Download a Proxy Agreement
Download a VTA

  PROXY/VOTING TRUST SPECIAL SECURITY AGREEMENT
NISP Bound by all the requirements of any cleared firm in the NISP. Bound by all the requirements of any cleared firm in the NISP.
Company Structure U.S. Company must be organized, structured and financed as a viable business entity independent from the foreign investor. N/A
Prerogatives of Ownership Prerogatives of ownership surrendered by foreign investor to U.S. Proxy Holders/Trustees. Prerogatives of ownership retained by foreign investor with decisions monitored by U.S. Outside Directors.
Proxy Holders Proxy Holders exercise all prerogatives of ownership and have the freedom to act independently from the foreign investor with the following exceptions:
  • Sale or disposal of US company's assets or a substantial part thereof
  • Pledges, mortgages, or other encumbrances on the capital stock
  • Mergers, consolidations or reorganizations
  • Dissolution of the U.S. company
  • Filing of a bankruptcy petition
 N/A
Foreign Board Members N/A Foreign investor board members may have direct voice in business management through board representation while denying unauthorized access to classified and export-controlled information.
Clearance Levels Proxy Holders/Trustees must be cleared to level of facility clearance. Outside Directors must be cleared to level of facility clearance.
Access Limitations No access limitations (can access proscribed information). Proscribed information (TS, SCI, SAP, COMSEC & RD) may require National Interest Determination.
Personnel 3 cleared U.S. citizens as Proxy Holders/Trustees 3 cleared U.S. citizens as Outside Directors
1 or 2 U.S. citizen cleared Officers/Directors
1 or 2 uncleared Inside Directors representing foreign investor
Nominations Only Proxy Holders/Trustees may elect other board members. N/A
GSC Members The Government Security Committee (GSC) includes:
  • Proxy Holders/Trustees
  • Cleared Officer/Directors
 The Government Security Committee (GSC) includes:
  • Outside Directors
  • Cleared Officer/Directors
Advisors to the GSC Advisors to the GSC include:
  • Facility Security Officer
  • Technology Control Officer
 Advisors to the GSC include:
  • Facility Security Officer
  • Technology Control Officer
Visit Approval Procedures There are no Routine Business Visits for foreign investor/affiliates. DCSA defers to the GSC to determine the appropriate advance notice required. Routine Business Visits for foreign investor/affiliates are referred to the GSC to determine the appropriate advance notice required.
Electronic Communications Plan (ECP) The ECP includes:
  • E-mail
  • Telephone
  • Video teleconferencing
  • Facsimile, etc.
 The ECP includes:
  • E-mail
  • Telephone
  • Video teleconferencing
  • Facsimile, etc.
Operating Procedures Proxy/Voting Trust Operating Procedures SSA Operating Procedures
Required certification by the GSC Certification of administrative services, as required Certification of administrative services, as required
Required Documents and Certifications Technology Control Plan Technology Control Plan
Annual Proxy/Voting Trust Compliance Reports Annual SSA Compliance Report
Annual Proxy/Voting Trust Compliance Review Annual Compliance Review
Annual Certifications by GSC & Proxy Holders/Trustees Annual Certifications by GSC Members & Outside Directors
Security Oversight Subject to security oversight as any other cleared firm in the NISP. Subject to security oversight as any other cleared firm in the NISP.
Expiration Proxy/Voting Trust Agreement expires five years from date of execution SSA expires five years from date of execution