What is FOCI risk?
There are many reasons that Foreign Ownership, Control, or Influence (FOCI) of a company can pose a risk. A foreign entity can exert undue influence on the organization, possibly leading to unauthorized access of sensitive information that compromises national security. Disruption of critical infrastructure, loss of intellectual property, and impacts to supply chain operations are additional risks.
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Why is FOCI risk mitigation important?
FOCI risk mitigation refers to measures implemented to safeguard national security interests when a company is under significant foreign ownership or influence. In the United States, the Department of Defense (DoD) and other federal agencies require mitigation strategies to prevent unauthorized foreign access to classified information and sensitive technologies.
FOCI mitigation ensures that U.S. companies with foreign ties can participate in classified contracts while protecting national security. Mitigation measures involve rigorous compliance requirements, affecting corporate governance and operational procedures. Companies must establish firewalls to segregate sensitive information and limit foreign influence. This regulatory framework maintains the balance between foreign investment and national security, fostering a secure environment for handling classified information.
The Foreign Investment Risk Review Modernization Act (FIRRMA) is an example of a regulatory framework designed to protect national security and strategic interests by scrutinizing those investments that may lead to foreign control over critical infrastructure, technology, or resources.
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Issues arising from unmitigated FOCI risk can result in legal action, reputational damage, and national security implications for organizations.
How you can mitigate FOCI risk
Central to mitigating FOCI risk is determining an entity’s ultimate beneficial owner (UBO). A UBO is the human owner(s) of a corporation who can benefit from its operations and profits or control the corporation’s activities.
Determining UBO is challenging because oftentimes the UBO is obfuscated through a web of companies, trusts, foundations, or similar entities. In addition, not all countries have clear requirements for companies to disclose their true beneficiaries and a mechanism for them to do so, such as a national public registry of beneficial owners.
However, a tremendous amount of publicly available data contains beneficial ownership information. Corporate records can be used to uncover UBOs and reveal high-risk ownership, such as state-owned enterprises. Sayari uses these corporate records to provide immediate worldwide visibility into the relationships between businesses and individuals.
Corporate enterprises can use Sayari Graph to analyze foreign entities’ commercial relationships and assess the need for FOCI mitigation measures. Graph helps enterprises:
- Trace ownership through multiple layers to identify UBOs regardless of the number of intermediaries.
- Easily discern companies controlled by entities sanctioned by the U.S., EU, UK, Australia, Japan, and Ukraine.
- Perform in-depth analysis and reporting by citing authoritative sources
Using Graph, organizations can identify potential risk and more efficiently prepare communication restriction policies, information security requirements, facility and data access controls, and other safety measures in compliance with the mitigation plan.
Request a personalized demo of Sayari Graph to learn how you can screen for potential risks associated with foreign investments to ensure compliance, protect national security interests, and make informed investment decisions.
