Washington Tightens Scrutiny of Foreign Investment, Ownership, Control, and Influence

Recent rulemakings would broaden disclosure, reporting, and mitigation obligations for contractors, investors, and agricultural landowners.

Increasing concerns about the impact of Foreign Direct Investment and Foreign Ownership Control and Influence on the U.S. economy and national security have recently prompted new rules to protect U.S. industry, agriculture, and government. 

The new rules are specifically intended to protect U.S. small business, defense industry, innovation, and agriculture from Foreign Ownership Control and Influence. Individual U.S. States have also enacted FDI restrictions preventing or requiring reporting of foreign ownership in certain industries and real estate. 

Explanation of FDI and FOCI

Historically, the Committee on Foreign Investment in the United States (CFIUS) protected the U.S. defense industrial base from Foreign Direct Investment (FDI). The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded FDI protections to include critical technologies, infrastructure, and/or data – as well as real estate located near critical infrastructure, and more recently agricultural land.

Foreign Ownership Control and Influence (FOCI) historically applied to U.S. government contractors or suppliers that became subject to influence by a foreign entity, including:

• Ownership by a foreign entity that holds some form of ownership interest, whether equity, debt, or other indicia of ownership.
• Control by a foreign entity that has the power to influence the policies or operational decisions, by means of ownership, voting rights, governance, agreements or other arrangements.
• Influence by a foreign entity that has the ability to affect the decisions or actions through subjective, rather than direct control, such as financial dependencies, strategic arrangements, or familial ties.

Similar to FDI, the definition and application of FOCI has expanded beyond its historical U.S. defense application. It has become increasingly clear that foreign entities can exploit FOCI, to access, manipulate, or sabotage many facets of the U.S. economy and governmental interests, including impacts to U.S. innovation, competitiveness, supply chains, and agriculture. 

U.S. businesses with access to classified or sensitive information that are subject to FOCI pose a specific risk to U.S. national security. As a result, FOCI is a key factor considered by CFIUS when assessing whether to permit foreign direct investment in a U.S. business involved with critical technologies, infrastructure, data, or agriculture.

Historically, FOCI mitigation has been limited to companies that hold Department of Defense (DoD) security clearances, have access to classified or Controlled Unclassified Information (CUI). FOCI was historically vetted by requiring defense contractors to submit a Standard From 328 (SF-328) to divulge foreign ownership.

The Defense Counterintelligence and Security Agency (DCSA) is responsible for conducting FOCI reviews and evaluating contractor mitigation plans when a FOCI risk is identified. To do so, the DCSA analyzes various FOCI risk factors prior to contract award, including foreign ownership, management, voting, and financing to determine whether sufficient risk factors are present to warrant mitigation. If warranted, a FOCI mitigation plan can be required to protect national security from the perceived FOCI risk. FOCI mitigation plans vary from relatively simple exclusionary resolutions and firewalls, to special purpose legal entities with independent directors and management, access and communication restrictions, shared services limitations, and other physical and electronic protections.

In recent years, U.S. Government concerns about FOCI have substantially increased, regardless of whether classified information is involved. This development has become more pronounced with the Government’s increased focus on safeguarding CUI which is reflected in the DoD’s proposed FAR rule to add CUI solicitation and contract clauses (FAR 52.240-6, “Notice of Controlled Unclassified Information” and FAR 52.240-7, “Controlled Unclassified Information”).

 Newly Proposed FOCI Rule Extends to Uncleared Contractors 

In May 2024, the DoD published an instruction to enhance FOCI risk mitigation, which was recently on May 7, 2026, recast as a proposed Defense Federal Acquisition Regulation Supplement (DFARS) rule (the “FOCI Rule”) to implement Section 847 of the National Defense Authorization Act for Fiscal Year 2020. The FOCI Rule details a FOCI process required for all DoD contractors – cleared or not – that hold certain contracts exceeding $5 million USD. 

The FOCI Rule expands historical coverage beyond DoD cleared contractors to “an existing or prospective contractor or subcontractor of the DoD on a contract, subcontract, or defense research assistance award (DRAA) with a value exceeding $5 million”.  The proposed rule explains that it is intended to reduce the risk of foreign adversaries obtaining access to sensitive, unclassified information, intellectual property and critical technologies through various FOCI or FDI means. The FOCI Rule excludes contractors providing commercial products or services, or where the designated senior DoD official determines the contract does not involve a potential risk to national security or potential compromise of sensitive data, systems, or processes such as personally identifiable information, cybersecurity, or national security system.

The FOCI Rule provides that FOCI disclosure must be made during the source selection process for a covered contract by the submission of an SF-328 to the DCSA. The FOCI Rule also provides that “covered contractors” are required to execute and implement any required mitigation measures within 90 days after award or commencement of performance on the contract. A change in beneficial ownership for a “covered contractor” will trigger a requirement to file an updated SF328. Based on existing regulations a 5% or more change in the beneficial ownership will trigger a filing requirement. Contractors are required to update and verify their SF-328 in the National Industrial Security System before any contract modification or renewal and whenever previously disclosed FOCI information changes.  In addition, prime contractors will be required to flow down the substance of the rule to covered subcontractors. 

It is currently unclear how DCSA will mitigate FOCI risks for covered contractors that only perform unclassified contracts or only possess CUI. It is also unclear whether DCSA will apply typical FOCI mitigation measures for cleared contractors to contractors that do not require access to classified information or develop new FOCI mitigation measures.

DoD contractors are advised to become more familiar with SF-328 requirements, conduct a FOCI self-assessment and take other proactive measures since failure to comply may lead to contract terminations, suspension and/or debarment, or other enforcement. 

New Agricultural Protections

In furtherance of the National Farm Security Action Plan to protect U.S. agriculture from FDI, on June 25, the United States Department of Agriculture (USDA) released a proposed rule to broaden the definition of agricultural land and enhance reporting requirements of FDI in U.S. agricultural lands under the Agricultural Foreign Investment Disclosure Act (AFIDA).

As background, any entity with a foreign-owned parent has an obligation to report the acquisition or long-term lease of U.S. agricultural land. “Foreign-owned” is defined by AFIDA as an interest of ten percent or more. Reporting is required whenever U.S. agricultural land is acquired or transferred.

 The USDA is responsible for tracking FDI in U.S. agricultural lands as defined by AFIDA and has done so by requiring foreign acquirers of U.S. agricultural land to submit an FSA-153 disclosure to the Farm Service Administration. The required FSA-153 must be filed within 90 days of a covered transaction. Failure to do so can result in monetary penalties up to 25% of the fair market value of the effected land.

The recent AFIDA Rule would replace the existing FSA-153 filing in favor of on-line submissions via an FSA portal, which would include a digital geospatial plat detailing the uses of covered land, a diagram of the ownership structure and tax identification or passport numbers of all owners in the covered land.  The AFIDA Rule also expands reportable leases from those longer than ten years, to those longer than one year. Most significantly, the AFIDA Rule would require AFIDA disclosures for any non-U.S. “Beneficial Owner” who exercises FOCI over covered land or the legal entity that holds said land, and/or “Shell Corporations” that have nominal operations other than to own or control covered land. 

The AFIDA Rule would also increase general penalties, heighten penalties for connections to a U.S. Foreign Adversary, eliminate discretion to adjust penalties -- regardless of extenuating circumstances, and reduce appeals from 60 to 30 days.

In addition to AFIDA reporting, foreign investors in U.S. agricultural land, businesses, or facilities need to also comply with the reporting requirements of the U.S. Department of Commerce, Bureau of Economic Analysis (BEA). Failure to do so within 45 days of a transaction can result in substantial monetary penalties. BEA and AFIDA reporting may need to be harmonized based on the proposed inclusion of solar and wind power generation as agricultural activity under the AFIDA Rule. 

In addition to USDA AFIDA rule making, both houses of the U.S. Congress have passed bills to update AFIDA to address the increase of FDI in U.S. agricultural land and perceived threats to the U.S. food supply. The House passed the Farm, Food, and National Security Act of 2026 (H.R. 7567) in April, and the Senate released a draft of the Agricultural Act of 2026, which has provisions very similar to the legislation passed by the House.

Outbound FDI

U.S. businesses are also required to determine whether a prospective investment outside the U.S. requires notification and/or approval under the “Comprehensive Outbound Investment National Security Act of 2025” (COINS Act).

 In addition to the COINS Act, U.S. persons investing abroad need to also assure compliance with the reporting requirements of the U.S. Department of Commerce, Bureau of Economic Analysis, as well as with other applicable U.S. trade regulations, including U.S. export controls, sanctions, anti-corruption, and anti-boycott laws and regulations.

Recommendation

Understanding and managing FDI and FOCI is now essential for all U.S. businesses engaged in certain technologies, infrastructure, data or international trade. U.S. businesses, government contractors, and farmers need to ensure that they comply with applicable U.S. FDI and FOCI requirements. They should exercise early diligence to determine whether a proposed investment or transaction involves:

• Foreign parties
• Countries of concern
• Critical technologies
• Controlled information
• U.S. agricultural land.

U.S. businesses should also be mindful that most U.S. trading partners have similar FDI regulations and should assure compliance around the globe. 

About the Authors

David Vance Lucas is a member of Womble Bond Dickinson’s, Global Trade and Government Solutions Team (U.S.). He applies his legal, technological and operational experience to craft strategic advice on intellectual property, international trade and complex litigation matters — throughout the U.S., U.K. and Europe. He assists both U.S. and no-U.S. businesses with FDI and FOCI compliance and mitigation needs for covered businesses, technology, and real estate.

Curtis Schehr is a member of Womble Bond Dickinson, GCSolutions Team (U.S.). Curtis brings over 25 years of experience as a general counsel and senior executive to advise clients on government contracting and national security matters. He provides guidance on government and commercial contracts, mergers and acquisitions, employment law, corporate governance, ethics and compliance, and intellectual property.

Womble Bond Dickinson is a transatlantic law firm, assisting U.S., UK, and international business with cross border issues. Womble’s attorneys can safeguard transactions involving foreign direct investment in a variety of jurisdictions around the globe, including early diligence to identify required licenses, registrations, disclosures, and filings.