Defense Industrial Security:

Special Security Agreements Permit Foreign-owned U.S. Firms to Perform Classified Defense Contracts

T-NSIAD-90-17: Published: Mar 21, 1990. Publicly Released: Mar 21, 1990.

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GAO discussed the Department of Defense's (DOD) use of special security agreements that allow U.S. firms under foreign control or influence to work on classified defense contracts. GAO noted that: (1) DOD officials were not aware of any instances of information compromise related to such agreements; (2) most current and former DOD and military service officials believed that DOD policy was inadequate to deal with the number of such agreements and the amount of information subject to compromise; (3) DOD and the services have approved various agreement waivers that have increased the risks of information compromise; and (4) many officials did not believe that such agreements were preferable to proxy or voting trust arrangements that prevented foreign access to classified information, but DOD believed that such agreements were adequate. GAO also noted that procedural weaknesses affecting controls over classified information under such agreements included: (1) the lack of security measures over recently acquired companies; (2) inadequate supporting justifications for critical materials procurements; (3) a lack of a requirement that user agencies determine whether foreign-influenced firms were actually doing business with entities perceived as threats to national security; and (4) limited conflict-of-interest regulations.

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