Recognizing that undue foreign control or influence over management or operations of companies working on sensitive classified contracts could compromise classified information or impede the performance of classified contracts, DOD requires that foreign-owned U.S. firms operate under control structures known as voting trusts, proxy agreements, and special security agreements (SSA). Each of these agreements requires that the foreign owners select and DOD approve cleared U.S. citizens to be placed on the board of directors of the foreign-owned company to represent DOD’s interests by ensuring against (1) foreign access to classified information without a clearance and a need to know and (2) company actions that could adversely affect performance on classified contracts. 2) and the high degree of contact with foreign interests at foreign-owned U.S. defense contractors (see ch. Information at Risk

Contracts requiring access to classified information at the levels shown in table 2.1 have been awarded to foreign-owned U.S. defense contractors. Some of the contracts these foreign-owned U.S. companies are working on are Special Access Programs. Visitation Agreements Give Foreign Owners a High Degree of Access

“In every case where a voting trust agreement, proxy agreement, or special security agreement is employed to eliminate risks associated with foreign ownership, a visitation agreement shall be executed . . .” “The visitation agreement shall provide that, as a general rule, visits between the foreign stockholder and the cleared U.S. firm are not authorized; however, as an exception to the general rule, the trustees, may approve such visits in connection with regular day-to-day business operations pertaining strictly to purely commercial products or services and not involving classified contracts.”
The visitation agreements are to guard against foreign owners or their representatives obtaining access to classified information without a clearance and a need to know. None of these security arrangements is intended to deny U.S. defense contractors the opportunity to do business with their foreign owners. We also observed that some DOD-approved trustees appeared to have conflicts of interest. 3. 4. 5. 6. 7.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed security arrangements used to protect sensitive information from foreign-owned U.S. defense contractors that perform on classified Department of Defense (DOD) contracts.

What GAO Found

GAO found that: (1) security arrangements are intended to protect foreign-owned U.S. defense contractors from undue foreign control and to prevent foreign owners' access to classified information; (2) there are 54 foreign-owned U.S. defense contractors operating under security arrangements, such as voting trusts, proxy agreements, and special security agreements; (3) although special security agreement companies are not permitted access to the highest levels of classified information due to the risk of foreign control, DOD authorized such access to 12 of 33 special security agreement companies; (4) each foreign-owned U.S. defense contractor must have a visitation agreement with its parent company to protect against foreign owners' unauthorized access to classified information; (5) individuals contacted by the parent company are required to report on the technical discussions that took place under visitation agreements; (6) U.S. citizens are selected for the boards of directors of foreign-owned U.S. defense firms to protect against undue foreign control and unauthorized access to classified information; and (7) most trustees have limited oversight roles and do not actively check on the implementation of security policies or engage in management issues, and some appear to have conflicts of interest.