Defense Industrial Security

Weaknesses in U.S. Security Arrangements With Foreign-Owned Defense Contractors Gao ID: NSIAD-96-64 February 20, 1996

This unclassified version of a 1995 GAO report discusses security arrangements--known as voting trusts, proxy arrangements, and special security agreements--used to protect sensitive information when foreign-owned defense contractors work on classified Defense Department projects. GAO concludes that the Pentagon needs to strengthen controls to prevent the export of military secrets when foreign-owned defense contractors work on such highly sensitive weapons programs as the B-2 bomber and the F-22 fighter. Agreements at most of the 14 companies GAO reviewed permitted some risk of foreign control, influence, and unauthorized access to classified data and technology.

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.


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