Podcast - Corporate Documents in the Context of Clearances

Molly O'Casey: Welcome to the fourth episode of Are We All Clear? the Podcast on Facilitating Security Clearances. I'm your host, Molly O'Casey, an international trade associate with Holland & Knight's Washington, D.C., office. Today's episode will discuss corporate documents in the context of clearances. We'll talk about choosing the right corporate structure when applying for a facility security clearance or an FCL. We'll also discuss what information the cleared companies are required to provide to the Defense Counterintelligence and Security Agency, also known as DCSA. This will involve an initial package to get cleared, as well as what's needed to keep the information current in the National Industrial Security System or the NISS. Today's speaker is Libby Bloxom. Libby is an associate with the International Trade Group in Holland & Knight's Dallas office, where she practices international trade and commercial transactions. Welcome to the podcast, Libby. 

Libby Bloxom: Thanks, Molly. It's good to be here. 

Molly O'Casey: Onto the questions. At what point in the process does DCSA require companies to produce documents?

Libby Bloxom: During the application stage. So if you recall from another episode of facility security clearances, or FCLs, cannot be issued in a vacuum. The company cannot just decide that it's going to have an FCL, it must have a need-to-know — so an identified government contract, subcontract or other award that has been given to the company — so that the FCL process can begin, and a company must be sponsored and obtain a sponsorship letter from either the government customer itself or the company holding the government contract, and this really kicks off the process. And not only do you have to provide information about your company to DCSA during the application process, in order to be eligible to receive a government contract, you must also obtain a Commercial and Government Entity code, or a CAGE code, on SAM.gov, which is the System for Award Management. It's a government contract database. In order to obtain the CAGE code, a company has to provide a lot of business information for the application for the CAGE code itself. So this includes general information about formation of the entity and ownership details to executive comp questions to size metrics, annual receipts, number of employees. 

Molly O'Casey: Interesting. So that's a lot of information to provide at the outset. 

Libby Bloxom: Yeah. And if you thought the government was big brother before, you know, apply for an FCL or as we learned on another episode, a PCL, personnel security clearance. So you've been awarded a government contract. You have your sponsorship letter, you have your CAGE code. Now you're applying for the FCL, which is where DCSA will request information about the company. 

Molly O'Casey: When people are thinking about applying for a facility security clearance, does the corporate structure have an impact on how they go about it? Is there a better corporate structure for making this application? 

Libby Bloxom: It depends, right? I think that's a very attorney answer, but it does depend. From a corporate standpoint, it would depend on the nature of the business, the liability risks, you know, willing to take, the management structure you want to put in place. And thinking about it from the DCSA perspective, it would depend on the overall group structure, whether you have foreign ownership or control or influence, or whether you want to have to clear your parent companies in addition to the contractor. 

Molly O'Casey: Gotcha. So you should be thinking about facility security clearances even at the outset when you're setting the company up. 

Libby Bloxom: That's right. I mean, if you're thinking about getting into kind of the government contractor business, yeah you really need to be thinking about it holistically. 

Molly O'Casey: Interesting. What type of information is DCSA requesting? 

Libby Bloxom: Again, it depends. For corporations, you'll need to provide the articles of incorporation, the other formation documents. So state certificate information. If it's a public company and issuing stock, you're going to need to provide stock records, board minutes, appointing officers and directors. For LLCs, or limited liability companies, you will need to provide the bylaws and the operating agreement, the membership ledger. So who all is a member of the LLC? For partnerships, general partnerships, or GPs, or limited partnerships, LPs, you will need to provide the partnership agreement and disclose the name of all the partners. For all entities, no matter the type, you will need to provide the EIN or employer identification number. It's a federal tax ID, so it's kind of like a social security number for companies. You'll also need to provide a summary of the business. You know, what kind of business you're in, address for the last 10 years and other legal or doing business as names of the company. 

Molly O'Casey: Gotcha. So really, all the documentation that tracks the nature and contents of a company. 

Libby Bloxom: Yeah. That's right. 

Molly O'Casey: Why does it matter? 

Libby Bloxom: Formation matters because when you're thinking about the way a company is organized, whether it's public or not, and how the management is structured, it dictates the information and the documents that need to be provided to DCSA. Companies are obviously very sensitive to providing certain information about investors and owners. It also can dictate whether any parent entities need to be cleared or not. It can also affect who the KMP or the key management personnel are. For example, members of the board of directors, as well as officers appointed by the board, will need to be disclosed for corporations. When you're an LLC, you can elect to be member-managed or manager-managed, and if manager-managed, you likely only have to disclose the manager as a KMP. But if you're member-managed, you will need to disclose all of the members, which can include parent entities if they are a member. So in a limited partnership, you have a general partner and a limited partner sometimes, and you may or may not have officers there. So really how you form your corporation or your organization dictates that. And it does depend on the structure. And it's something you want to keep in mind when thinking about the FCL process. 

Molly O'Casey: Gotcha. So whenever you're making this application, you can't just think about your own company. There are knock-on effects for companies that you're affiliated with, like your parent company. 

Libby Bloxom: Yeah, exactly. I mean, you probably want to think about it before you get to the application stage, but yes, correct. 

Molly O'Casey: Gotcha. So what happens when any of this information changes after you obtain the FCL? Do you start over from square one? Do you have to go through the entire process again?

Libby Bloxom: Short answer is no, but I guess it depends again. I always thought I never was going to speak like a lawyer, and here I am. But it depends on the extent of the changes for, you know, some changes are not going to trigger a need to update DCSA, but others will. So if information changes by a new investor comes in, or an acquisition that the cleared companies acquired or the current owners divest, cleared companies have to submit what we call a changed conditions package, and it's updating its information in NISS, the National Industrial Security System. So another example is if a foreign owner invests. If a foreign investor invests up to a certain percentage in the company, you'll need to update the SF 328, the certificate pertaining to foreign interests, and on that certificate, if any answer is yes — so you have a foreign investor who owns more than 10 percent — you must provide details to DCSA to substantiate that response. And then if the KMP changes, DCSA will want to know this and see the supporting documentation, so the resolutions appointing the new company official. If the underlying corporate documents change or the structure changes, the amended corporate documents also need to be provided to DCSA. 

Molly O'Casey: Gotcha. So you can kind of have an impact on how the company grows in terms of its investors and who's involved. 

Libby Bloxom: Yes, very much so. 

Molly O'Casey: Are there any specific issues to keep in mind with respect to corporate documents? 

Libby Bloxom: I'll echo what was said I think in another episode: Companies need to support their entity structures with clear documentation. So companies with an FCL need to make sure to keep their corporate documents and their governing documents up to date. In addition, when thinking about the appropriate entity for a future government contractor or subcontractor, think about the overall corporate structure. Is the cleared company going to be a subsidiary in a large corporate family? If so, limited liability company that is manager-managed may be the best approach, so the company can avoid having to clear the parent entity. Or if a large public company, you may want to consider establishing a government-facing subsidiary, because this may be the best approach in order to avoid having to provide lengthy and sometimes sensitive information on stock records. 

Molly O'Casey: Thank you so much for your thoughts, Libby. 

Libby Bloxom: Yeah, sure. 

Molly O'Casey: Well, this area is full of acronyms. Just this week we had NISS, the National Industrial Security System, SAM, the System for Award Management, KMP, key management personnel, LLC, limited liability company, LP, limited partnerships, GP, general partnerships, and EIN, employer identification number. Each episode, we ask our speaker to explain an acronym that featured in the episode with wrong answers only. Libby, would you like to choose an acronym? 

Libby Bloxom: Sure, and I know it wasn't on the list, but we're going to go with CAGE code or just CAGE. But when going through the FCL process, just remember complicated answers get expensive. 

Molly O'Casey: All righty. Thank you again to Libby for taking the time to meet with us today and talk about your experience.

Libby Bloxom: Sure. Thanks, Molly. 

Molly O'Casey: On our next episode, we will be discussing the SF 328, which is a certificate pertaining to foreign interests. I hope everyone has a great week.