Foreign-ownership vetting is coming to unclassified contracts

For decades, Foreign Ownership, Control, or Influence — FOCI — was a classified-world problem. If your company held a facility clearance, you disclosed your ownership structure and mitigated foreign influence. If you only did unclassified work, the question rarely came up. The Department of Defense has now proposed closing that gap, and the comment period on the rule closed on July 6.

The proposed DFARS rule (Case 2021-D011) would extend FOCI disclosure and mitigation to unclassified DoD contracts and subcontracts above $5 million, with beneficial-ownership disclosure filed on the SF 328 through the National Industrial Security System. Per the Federal Register notice and analyses by Arnold & Porter and Holland & Knight, DoD projects the rule would reach roughly 37,740 contractors and subcontractors, expand the Defense Counterintelligence and Security Agency's annual FOCI caseload from about 2,000 cases to about 41,000, and bring up to $200 billion in acquisitions under vetting that today receives none.

Adversary acquisition strategies have long favored the unclassified tier of the supply chain precisely because it was the unwatched tier. Ownership stakes, board influence, and supplier relationships below the clearance line offered a path to sensitive technology without ever touching classified information. Extending vetting to that tier is a recognition that the defense industrial base's exposure does not stop at the facility-clearance boundary.

What contractors should take from it

• Beneficial ownership becomes a compliance artifact at scale. Companies that have never mapped their own ownership chains — or their subcontractors' — will need to.
• A twentyfold caseload increase means DCSA adjudication will lean heavily on the quality of submitted data. Incomplete or stale disclosures will be the norm unless companies treat them as living records.
• Prime contractors inherit the problem downward: flowdown to subcontractors above the threshold makes supplier ownership visibility a prime's obligation, not a courtesy.

Commercial and COTS contracts are exempt absent a national-security determination, and the final rule may shift thresholds. But the direction is set, and it matches what counterintelligence practitioners have argued for years: influence arrives through ownership and dependency long before it arrives through espionage.

The protective-intelligence view

Ownership screening at this scale is an entity-resolution problem before it is a compliance problem — the same person, fund, or holding company appearing across filings under different names. OBSIDIAN — Counterintelligence approaches vetting this way: beneficial-ownership analysis, sanctions and adverse-media screening, and FOCI indicators resolved to one entity picture, with audit-ready reporting. The adjudication call always remains a human one; the platform is designed to make it earlier and better-evidenced.

Whatever the final rule keeps or drops, the era of unwatched ownership in the defense supply chain is ending. Programs that build the visibility now will not be scrambling when the rule lands.