Foreign owned, controlled, or influenced (FOCI) companies with operations in the United States are entering a new era of regulatory oversight. As the Big Beautiful Bill Act advances through Congress, Section 899 is drawing sharp attention for its potential to reshape how foreign ownership is scrutinized.
Section 899 as currently proposed expands federal authority to enforce transparency, impose reporting requirements, and drive structural changes in how foreign controlled U.S. business units operate. Although many associate these requirements with classified defense contractors, the implications now extend across the broader commercial landscape, including IT services, consulting, healthcare, and manufacturing.
For organizations planning to remain in the U.S. market, PROPOSED Section 899 raises the urgency of implementing a robust FOCI mitigation framework. This article outlines the regulatory shift, explains how PROPOSED Section 899 applies to foreign owned U.S. entities, and provides strategic guidance on mitigation structures designed to meet rising PROPOSED compliance expectations.
Note: All content in this article is based on the proposed Section 899 provisions as of June 18, 2025.
Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or insurance advice. Organizations should consult with qualified legal counsel, a licensed insurance advisor, and their Chief Financial Officer (CFO) to evaluate the specific risks, requirements, and obligations relevant to their specific circumstances.
Understanding FOCI and the Role of a DCSA-like Mission
FOCI stands for Foreign Ownership, Control, or Influence. The term is used by the U.S. government to identify situations where a foreign interest has the power, either directly or indirectly, to direct, decide, or influence matters affecting a U.S. entity’s operations, decisions, or obligations. While the term is commonly associated with defense and intelligence contractors under the National Industrial Security Program (NISP), its relevance is expanding under Section 899 of the Big Beautiful Bill Act.
If Section 899 is enacted as currently proposed, the U.S. government will likely designate a centralized agency or mission, modeled after the Defense Counterintelligence and Security Agency (DCSA), to act as the oversight authority for foreign controlled business units operating in the commercial space. This entity would serve as the Cognizant Security Office (CSO), responsible for determining whether mitigation measures are sufficient and enforceable.
The scope of oversight would go beyond traditional security clearance concerns and extend into tax compliance, intercompany data governance, corporate structure, and executive decision-making authority. For many companies, this represents a fundamental shift in how U.S.-based operations must be organized, reported, and monitored.
Under this framework, foreign owned U.S. business units would need to demonstrate that appropriate barriers are in place to mitigate the influence of the foreign parent. These measures are likely to affect governance, cybersecurity, financial operations, and personnel access. The goal is to ensure that U.S. operations can be trusted to operate independently and transparently, even when owned by a non-U.S. parent entity.
Common FOCI Mitigation Instruments
For foreign owned companies operating in the United States, FOCI mitigation involves implementing a set of structural, legal, and operational safeguards designed to insulate U.S. operations from undue foreign influence. These safeguards vary depending on the perceived risk level, the nature of the business, and the type of contracts or data involved.
Historically, mitigation instruments have been developed under DCSA oversight for companies holding facility security clearances. While Section 899 may extend oversight beyond the traditional defense sector, many of the same instruments are likely to serve as reference models. These include:
- Board Resolutions: Used in low-risk situations to formally acknowledge FOCI concerns and commit to mitigation principles.
- Security Control Agreements (SCA): Allows foreign ownership while restricting access to certain information and requiring U.S. citizen oversight of sensitive functions.
- Special Security Agreements (SSA): Used in moderate-risk cases where more stringent controls are necessary, including requirements for cleared U.S. personnel in key roles and separate governance layers.
- Proxy Agreements / Voting Trusts: The most restrictive structures, typically used when foreign ownership is significant and sensitive government contracts are involved. These instruments effectively place control of U.S. operations in the hands of independent U.S. trustees or proxy holders.
Section 899 may trigger similar mitigation expectations even in commercial environments, particularly where regulatory, financial, or cross-border data concerns exist. Companies without classified contracts may still be required to implement some form of mitigation to demonstrate independence and operational transparency.
In addition to structural models, mitigation increasingly requires proactive cybersecurity and data governance measures. These include:
- Centralized audit logging and transparency frameworks
- Encryption standards aligned with post-quantum security goals
- Restricted access controls for intercompany financial systems and communications
- Clearly documented intercompany agreements and decision-making authority
- And more
The level of mitigation required will depend on whether a centralized oversight body adopts a tiered or uniform model. Regardless of the enforcement mechanism, companies seeking to retain access to U.S. markets and clients will need to prepare for a mitigation process that is both operational and strategic in nature.
Selecting the Right Mitigation Strategy
For companies facing increased scrutiny under Section 899, the first strategic decision is whether to remain active in the U.S. market. Foreign owned, controlled, or influenced entities must evaluate their risk profile, business dependencies, and ability to implement the operational and legal safeguards required to satisfy federal oversight.
OPTION 1: Exiting the U.S. Market
Some organizations may determine that the cost, complexity, or disclosure obligations associated with FOCI mitigation outweigh the benefits of maintaining a U.S. presence. This path may appeal to companies with minimal U.S. revenue exposure or those facing unavoidable barriers under Section 899, such as treaty ineligibility or unavoidable tax penalties. However, exiting the market may carry reputational consequences, disrupt client contracts, or complicate global delivery models.
OPTION 2: Remaining in the U.S. and Implementing Mitigation
For organizations choosing to remain, establishing a FOCI mitigation framework will likely become a non-negotiable requirement. This includes demonstrating transparency, operational independence, and the ability to protect sensitive data from foreign influence. Section 899 increases the importance of internal separation between U.S. and foreign operations, not only in structure but also in substance.
Key considerations include:
- Understanding the Current U.S. Oversight Structure
Although Section 899 does not yet designate a formal oversight agency, the expectation is that a DCSA-like body will assume the Cognizant Security Office (CSO) role. Companies should monitor regulatory updates closely and prepare for engagement with a centralized authority charged with evaluating mitigation plans. - Assessing Business Readiness
Organizations must evaluate whether their current governance, legal, IT, and compliance structures can support the level of documentation, reporting, and operational control that mitigation will require. - Planning for Regulatory Proof Points
Effective mitigation is not only about internal structure but also about providing clear, auditable proof that U.S. operations are governed independently. This may include board documentation, independent financial reporting, executive separation, and system-level controls.
The strategy selected will shape how the organization engages with U.S. clients, regulators, and internal stakeholders. Early preparation can help reduce operational disruption and improve the likelihood of regulatory acceptance.
OPTION 3: Pay the Tax but Remain Subject to Oversight
Some organizations may consider absorbing the punitive tax while continuing to operate without implementing a formal mitigation structure. However, this path does not eliminate regulatory scrutiny. Section 899 signals an intent to establish structural oversight, not just tax enforcement. Organizations that choose not to mitigate may still face restrictions, audits, or operational barriers tied to U.S. compliance expectations. Paying the tax may address part of the financial impact, but it will not eliminate the need for transparency, data governance, and structural safeguards.
Implementing a FOCI Mitigation Structure
For foreign owned companies committed to maintaining U.S. business presence, FOCI mitigation is not a single policy. It is a comprehensive structural effort that must be embedded across governance, legal, cybersecurity, HR, and IT systems. The following elements represent a strategic starting point for organizations preparing to demonstrate compliance under Section 899.
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Perform Data Mapping and Residency Review
Identify all systems and datasets that contain financial, ownership, tax, or intercompany communication data related to U.S. operations. Determine whether any of this information is hosted outside U.S. borders and evaluate the legal and contractual implications.
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Update Access Controls and Encryption Standards
Review all systems holding Section 899-relevant data and apply access restrictions based on compliance authorization. Implement encryption protocols that align with post-quantum (PQC) security standards to ensure future-ready protection of sensitive assets.
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Conduct Risk Assessment with Legal and Compliance Teams
Collaborate across departments to assess current structures, identify exposure points, and align mitigation planning with U.S. tax law, beneficial ownership rules, and treaty-related documentation standards.
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Strengthen Audit Trail and Retention Policies
Ensure that all transactional data, decision logs, and internal communications are captured with immutability, time-stamping, and proper retention. Centralized logging and defensible audit trails will be critical if reviewed by a Cognizant Security Office or during an IRS inquiry.
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Evaluate Data Localization Needs
Determine whether specific datasets, especially those tied to tax, ownership, or regulatory obligations, should be migrated to U.S.-based infrastructure to reduce cross-border compliance risks.
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Update Third-Party Risk Framework
Many U.S. business units rely on global SaaS platforms or outsourced service providers. Evaluate each vendor’s ability to meet data residency, audit, and disclosure requirements under Section 899. Where needed, negotiate new terms or seek alternative solutions.
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Establish Transparent Cross-Border Communication Channels
Clarify which communication systems, processes, and data flows are shared between the U.S. unit and the foreign parent. Apply role-based controls and tracking to ensure that communications comply with mitigation protocols.
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Define Internal Readiness Across Key Functions
Assign mitigation responsibilities across U.S.-based legal, security, compliance, HR, and executive roles. Training, access rights, and decision-making authority must be clearly documented and auditable.
Note: Until formal guidance is issued, organizations should treat this list as a foundational readiness framework.
Separation Strategies for Foreign Affiliated U.S. Entities (Case Study)
A useful reference point for understanding how FOCI mitigation can be applied at scale is the structural model used by some global consulting firms with U.S. business units that support government clients. These U.S.-based entities operate with dedicated leadership, infrastructure, and compliance systems while maintaining affiliation with their global parent. Although not tied specifically to Section 899, this structural model demonstrates how organizations across industries can apply FOCI mitigation principles to support autonomy, transparency, and regulatory alignment.
Lessons and Results from Implementing FOCI mitigation strategy:
- Executive Leadership Separation
U.S. business unit maintains its own U.S.-based executive leadership team, independent from the global parent. Decision-making authority is formally documented and limited to U.S. personnel. - Tax and Financial Systems Separation
Financial records, reporting systems, and tax filings are independently maintained to demonstrate operational autonomy. - Technical Systems Separation
Sensitive systems, including internal communications, document management, and security controls, are hosted and managed within the U.S. and isolated from the parent infrastructure. - Personnel Separation and Vetting
Staff working on sensitive contracts undergo U.S. government background checks. Hiring, training, and HR processes are managed locally to avoid foreign influence. - Compliance Program Setup and Maintenance
U.S. business unit operates a dedicated compliance office with U.S.-based officers responsible for regulatory engagement, audit response, and internal monitoring. - Ongoing Reporting and Auditing
Regular audits and reporting obligations help ensure that the mitigation framework remains intact and operationally effective over time.
This type of model illustrates that, with the right planning, foreign affiliated businesses can create a governance and compliance framework to meet elevated federal standards.
Challenges and Considerations
Implementing a FOCI mitigation strategy under the regulatory expectations of Section 899 presents a range of organizational and operational challenges. Foreign owned companies must be prepared to address structural complexities, manage compliance risks, and adapt quickly to evolving federal guidance.
Cultural and Operational Tensions
One of the most difficult aspects of FOCI mitigation is separating day-to-day operations without undermining global business cohesion. U.S. business units may face pressure to localize decision-making, reporting structures, and financial systems, which can create friction with foreign parent companies accustomed to centralized control. Aligning governance expectations between jurisdictions requires clear boundaries and strong communication.
Compliance During Corporate Restructuring
If a company is undergoing internal reorganization, pursuing an acquisition, or spinning off a U.S. entity, maintaining mitigation controls can become significantly more complex. Legal, Tax, and compliance teams must ensure that FOCI mitigation remains intact and auditable throughout corporate transitions. This includes updating agreements, revalidating personnel assignments, and preserving system-level controls.
Timeline Pressures
Once Section 899 is enacted, the timeframe for achieving compliance may be limited. Unlike traditional security clearance processes, the enforcement of tax and ownership transparency rules can move more quickly, especially if handled by agencies outside the Department of Defense. Companies will need to act promptly to avoid penalties or operational disruption.
Readiness Gaps
Some organizations may lack the internal capabilities needed to execute a mitigation strategy across legal, IT, cybersecurity, and governance domains. Identifying gaps early and seeking external advisory support can help reduce risk and ensure alignment with expected requirements.
Conclusion
Section 899 of the Big Beautiful Bill Act marks a turning point in how the U.S. government approaches foreign ownership, control, and influence over domestic business operations. For companies with U.S. subsidiaries or affiliates, this shift introduces not only tax and reporting obligations, but a structural expectation of independence, transparency, and accountability.
The implementation of a FOCI mitigation framework is no longer limited to companies working in classified or defense-related environments. As federal oversight extends into commercial sectors, organizations must be prepared to demonstrate that their U.S. operations are sufficiently insulated from foreign influence and aligned with U.S. regulatory interests.
Developing and maintaining a mitigation structure is more than a compliance task. It is a strategic investment in long-term market access, reputational trust, and operational continuity. By preparing now, companies can reduce risk, preserve relationships with the U.S., and position themselves as credible partners in a more tightly regulated environment.
The path forward requires coordination across legal, tax, cybersecurity, governance, and executive leadership functions. The organizations that succeed will be those that treat mitigation not as a checkbox, but as a core element of U.S. market strategy.
Note: All content in this article is based on the proposed Section 899 provisions as of June 18, 2025.
Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or insurance advice. Organizations should consult with qualified legal counsel, a licensed insurance advisor, and their Chief Financial Officer (CFO) to evaluate the specific risks, requirements, and obligations relevant to their specific circumstances.
Appendix / Resources
For organizations navigating FOCI-related compliance under Section 899, the following resources provide additional guidance on current mitigation models, regulatory expectations, and relevant documentation standards.
U.S. Government Resources
- Defense Counterintelligence and Security Agency (DCSA) – FOCI Guidance
https://www.dcsa.mil/FOCI/
Outlines FOCI definitions, mitigation instruments, and requirements under the National Industrial Security Program (NISP). - NISPOM Rule – 32 CFR Part 117
https://www.ecfr.gov/current/title-32/subtitle-A/chapter-I/part-117
The National Industrial Security Program Operating Manual (NISPOM), which governs the protection of classified information and includes FOCI policy. - IRS Forms and Tax Guidance
https://www.irs.gov/
Relevant for foreign owned U.S. entities affected by Section 899. Organizations should consult the IRS for updated filing requirements tied to beneficial ownership and intercompany transactions. - Full Legislative Text – Section 899 of the Big Beautiful Bill Act
https://www.congress.gov/bill/119th-congress/house-bill/1/text
The definitive source for the statutory language and enforcement scope of Section 899. This document should be treated as the controlling reference until a newer version is enacted.
Looking for more?
We have also created two supplemental resources available by request:
- For CISOs: A Cybersecurity and Data Governance Action Plan for FOCI Readiness
- For CFOs: A Financial & Structural Planning Brief to Support Section 899
📧 To request the one most relevant to your role, email us at: hello@strategixsecurity.com and let us know which resource is relevant to your role.
At StrategiX Security, we help foreign affiliated organizations navigate FOCI mitigation by building scalable, cybersecurity-ready governance structures aligned with U.S. regulatory expectations. Our team works with internal leadership across legal, IT, and compliance functions to support structural independence, data protection, and operational transparency. Whether planning for Section 899 or strengthening your existing U.S. business unit.
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