National Security/CFIUS Team Comments on Department of Defense’s Interim Rules for FOCI Reviews Referenced in The Deal

As seen in The Deal’s “Defense Department Tweaks Foreign Investment Reviews”

August 8, 2014

The Deal reports that the Department of Defense (DoD) issued interim rules in April designed to clarify how Foreign Ownership, Control or Influence (FOCI) reviews should be conducted over federal contractors with security clearances that are in negotiations to be acquired by or invested in by a foreign company. These rules provide three options for mitigation measures to address relevant FOCI issues depending on the degree of foreign interest in the contractor. The DoD requested comments on these rules from interested parties, and many who responded feel that while the rules do make the process more transparent, they also do not provide enough flexibility to allow the alteration of these proposed mitigation templates for each individual deal.

Kaye Scholer’s National Security/CFIUS lawyers in Washington, DC issued comments to the DoD that were referenced by The Deal, in which they suggested changes “that are meant to acknowledge the limits of ‘one-size-fits-all’ FOCI-mitigation templates and provide the Defense Security Service (DSS) with the flexibility to exercise its discretion within the bounds of the requirements of the interim rule.” They added, “While templates serve the important purpose of providing baseline requirements and formats, the diverse industries, corporate forms, ownership structures, and governance arrangements of Department of Defense contractors and their corporate parents require that DSS have the flexibility to tailor FOCI-mitigation agreements based on the specific FOCI factors in each case.”

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