An advisory resolution is the most widely used FOCI mitigation instrument. It is the least restrictive for the company`s activity and easy to implement. However, if the foreign company owns the business or can send a representative to the company`s board of directors, one of the most restrictive FOCI mitigation measures must be applied. If a company is owned or controlled by a foreign entity, a special security agreement (SSA) can be used to reduce foreign ownership, control or influence of Foreign Ownership, Control or Influence (FOCI). Although the implementation is longer and more complicated than the mitigation measures mentioned above, the Special Security Agreement (SSA) is a popular choice. It can reduce security risks to foreign ownership or foreign control and allow the foreign company to appoint representatives to the company`s board of directors, which the more restrictive proxy agreement (PA) and the Voting Trust Agreement (VTA) do not allow. However, one of the drawbacks of the special security agreement is that it provides restrictions for the types of secret national security information that the company can access. We can discuss a customer`s options and recommend an approach to mitigate the FOCI and maintain the authorization to release the security of the facility. We also refer our clients to qualified candidates for director, agent or proxy positions. In addition to one of the mitigation measures mentioned above, companies active under FOCI are generally required to implement an Electronic Communication Plan (ECP). Since electronic communications plans are generally the most laborious and resource-intensive guidelines to implement, we have devoted another page to this issue. For U.S. companies, it is important to contact a lawyer when they are considering a merger or acquisition with or by a foreign investor or when they plan to establish significant relationships (including strategic alliances) with a foreign partner.
Foreign investors considering acquiring a U.S. contractor with FCL should verify the impact of the acquisition on the target company`s U.S. government contracts to determine whether the government is likely to require a foci reduction and, if so, whether it is possible to structure a FOCI reduction plan to the satisfaction of both the U.S. government and the foreign investor. (2) The Vote Trust Agreement and the Proxy Agreement – Voting Trust Agreements and Proxy Agreements are applied in cases where a foreign investor is able to control a US company. Under these agreements, three trustees or representatives of the voting rights are generally given control of the company, with the exception of a small number of specifically identified issues, such as mergers or bankruptcies, which may require the shareholder`s agreement. Voting representatives/agents must be citizens established in the United States without prior participation in either company. In practice, while foreign interest cannot influence the U.S. company under a proxy agreement, the U.S. government generally allows the shareholder to consult with voting rights representatives on matters of importance to the company, and NISPOM explicitly allows such interaction “if otherwise consistent with the law, rules and conditions of the vote trust or proxy agreement”. Under both agreements, there are no restrictions on the company`s right to access classified information or to compete with classified information.
Although the U.S. government is generally similar to voting trusts and proxy agreements for FOCI mitigation purposes, they subject different and significant legal restrictions to the foreign owner. . . .