National Industrial Security Program Operating Manual

by DOD

National Industrial Security Program Operating Manual (NISPOM)

FOREWORD

On behalf of the Secretary of Defense as Executive Agent, pursuant to Executive Order 12829, "National Industrial Security Program" (NISP), and with the concurrence of the Secretary of Energy, the Chairman of the Nuclear Regulatory Commission, and the Director of Central Intelligence, I am pleased to promulgate the inaugural edition of the NISP Operating Manual (NISPOM). The NISPOM was developed in close coordination with industry and it represents a concerted effort on behalf of hundreds of individuals throughout the Executive Branch and industry.

I believe the NISPOM represents the beginning of a new industrial security process which is based on sound threat analysis and risk management practices and which establishes consistent security policies and practices throughout the government. I also believe it creates a new government and industry partnership which empowers industry to more directly manage its own administrative security controls.

The President has recently created a Security Policy Board to ensure the protection of our nation's sensitive information and technologies within the framework of a more simplified, uniform and cost effective security system. The Security Policy Board and the Executive Agent will continue the process of consultation with industry on the NISPOM to make further improvements, especially in the complex and changing areas of automated information systems security and physical security.

All who use the NISPOM should ensure that it is implemented so as to achieve the goals of eliminating unnecessary costs while protecting vital information and technologies. Users of the NISPOM are encouraged to submit recommended changes through their Cognizant Security Agency to the Executive Agent's designated representative at the following address:

Department of Defens
Assistant Secretary of Defense for
Command, Control, Communications and Intelligence
ATTN: DASD(I&S)/CI&SP, Room 3E160
6000 Defense Pentagon
Washington, D.C. 20301-6000

The NISPOM replaces the Department of Defense Industrial Security Manual for Safeguarding Classified Information, dated January 1991.

John M. Deutch Deputy Secretary of Defense

CHAPTER 1. GENERAL PROVISIONS AND REQUIREMENTS
Section 1. Introduction 1-1-1
Section 2. General Requirements 1-2-1
Section 3. Reporting Requirements 1-3-1

CHAPTER 2. SECURITY CLEARANCES
Section 1. Facility Clearances 2-1-1
Section 2. Personnel Clearances 2-2-1
Section 3. Foreign Ownership, Control, or Influence (FOCI) 2-3-1
CHAPTER 3. SECURITY TRAINING AND BRIEFINGS
Section 1. Security Training and Briefings 3-1-1
CHAPTER 4. CLASSIFICATION AND MARKING
Section 1. Classification 4-1-1
Section 2. Marking Requirements 4-2-1
CHAPTER 5. SAFEGUARDING CLASSIFIED INFORMATION
Section 1. General Safeguarding Requirements 5-1-1
Section 2. Control and Accountability 5-2-1
Section 3. Storage and Storage Equipment 5-3-1
Section 4. Transmission 5-4-1
Section 5. Disclosure 5-5-1
Section 6. Reproduction 5-6-1
Section 7. Disposition and Retention 5-7-1
Section 8. Construction Requirements 5-8-1
Section 9. Intrusion Detection Systems 5-9-1
CHAPTER 6. VISITS and MEETINGS
Section 1. Visits 6-1-1
Section 2. Meetings 6-2-1
CHAPTER 7. SUBCONTRACTING
Section 1. Prime Contractor Responsibilities 7-1-1
CHAPTER 8. AUTOMATED INFORMATION SYSTEM
SECURITY
Section 1. Responsibilities 8-1-1
Section 2. Accreditation and Security Modes 8-2-1
Section 3. Controls and Maintenance 8-3-1
Section 4. Networks 8-4-1
CHAPTER 9. SPECIAL REQUIREMENTS
Section 1. Restricted Data and Formerly Restricted Data 9-1-1
Section 2. DoD Critical Nuclear Weapon Design Information 9-2-1
Section 3. Intelligence Information 9-3-1
CHAPTER 10. INTERNATIONAL SECURITY
REQUIREMENTS
Section 1. General and Background Information 10-1-1
Section 2. Disclosure of U.S. Information to Foreign Interests 10-2-
1
Section 3. Foreign Government Information 10-3-1
Section 4. International Transfers 10-4-1
Section 5. International Visits and Control of Foreign Nationals
10-5-1
Section 6. Contractor Operations Abroad 10-6-1
Section 7. NATO Information Security Requirements 10-7-1
CHAPTER 11. MISCELLANEOUS INFORMATION
Section 1. TEMPEST 11-1-1
Section 2. Defense Technical Information Center 11-2-1
Section 3. Independent Research and Development 11-3-1
APPENDICES
Appendix A. Organizational Elements for Industrial Security A-1
Appendix B. Foreign Marking Equivalents B-1
Appendix C. Definitions C-1
SUPPLEMENTS TO THE NISPOM
Document
NISPOM Supplement TBD

Chapter 1.

General Provisions And Requirements

Section 1. Introduction

1-100. Purpose.

This Manual is issued in accordance with the National Industrial Security Program (NISP). The Manual prescribes requirements, restrictions, and other safeguards that are necessary to prevent unauthorized disclosure of classified information and to control authorized disclosure of classified information released by U.S. Government Executive Branch Departments and Agencies to their contractors. The Manual also prescribes requirements, restrictions, and other safeguards that are necessary to protect special classes of classified information, including Restricted Data, Formerly Restricted Data, intelligence sources and methods information, Sensitive Compartmented Information, and Special Access Program information. These procedures are applicablto licensees, grantees, and certificate holders to the extent legally and practically possible within the constraints of applicable law and the Code of Federal Regulations. 1-101. Authority.

a. The NISP was established by Executive Order 12829, 6 January 1993, "National Industrial Security Program" for the protection of information classified pursuant to Executive Order 12356, April 2, 1982, "National Security Information," or its successor or predecessor orders, and the Atomic Energy Act of 1954, as amended. The National Security Council is responsible for providing overall policy direction for the NISP. The Secretary of Defense has been designated Executive Agent for the NISP by the President. The Director, Information Security Oversight Office (ISOO) is responsible for implementing and monitoring the NISP and for issuing implementing directives that shall be binding on agencies.

b. The Secretary of Defense, in consultation with all affected agencies and with the concurrence of the Secretary of Energy, the Chairman of the Nuclear Regulatory Commission and the Director of Central Intelligence is responsible for issuance and maintenance of this Manual. The Secretary of Energy and the Nuclear Regulatory Commission shall prescribe that portion of the Manual that pertains to information classified under the Atomic Energy Act of 1954, as amended. The Director of Central Intelligence shall prescribe that portion of the Manual that pertains to intelligence sources and methods, including Sensitive Compartmented Information. The Director of Central Intelligence retains authority over access to intelligence sources and methods, including Sensitive Compartmented Information. The Director of Central Intelligence may inspect and monitor contractor, licensee, and grantee programs and facilities that involve access to such information. The Secretary of Energy and the Nuclear Regulatory Commission retain authority over access to information under their respective programs classified under the Atomic Energy Act of 1954, as amended. The Secretary or the Commission may inspect and monitor contractor, licensee, grantee, and certificate holder programs and facilities that involve access to such information.

c. The Secretary of Defense serves as Executive Agent for inspecting and monitoring contractors, licensees, grantees, and certificate holders who require or will require access to, or who store or will store classified information; and for determining the eligibility for access to classified information of contractors, licensees, certificate holders, and grantees and their respective employees. The Heads of agencies shall enter into agreements with the Secretary of Defense that establish the terms of the Secretary's responsibilities on their behalf.

d. The Director, ISOO, will consider and take action on complaints and suggestions from persons within or outside the Government with respect to the administration of the NISP.

e. Nothing in this Manual shall be construed to supersede the authority of the Secretary of Energy or the Chairman of the Nuclear Regulatory Commission under the Atomic Energy Act of 1954, as amended; or detract from the authority of installation Commanders under the Internal Security Act of 1950; the authority of the Director of Central Intelligence under the National Security Act of 1947, as amended, or Executive Order No. 12333 of December 8, 1981; or the authority of any other federal department or agency Head granted pursuant to U.S. statute or Presidential decree.

1-102. Scope.

a. The NISP applies to all executive branch departments and agencies and to all cleared contractor facilities located within the United States, its Trust Territories and Possessions.

b. This Manual applies to and shall be used by contractors to safeguard classified information released during all phases of the contracting, licensing, and grant process, including bidding, negotiation, award, performance, and termination. This Manual also applies to classified information not released under a contract, license, certificate or grant, and to foreign government information furnished to contractors that requires protection in the interest of national security. The Manual implements applicable Federal Statutes, Executive orders, National Directives, international treaties, and certain government-to- government agreements.

c. If a contractor determines that implementation of any provision of this Manual is more costly than provisions imposed under previous U.S. Government policies, standards or requirements, the contractor shall notify the Cognizant Security Agency (CSA). The notification shall indicate the prior policy, standard or requirement and explain how the NISPOM requirement is more costly to implement. Contractors shall, however, implement any such provision within three years from the date of this Manual, unless a written exception is granted by the CSA. When implementation is determined to be cost neutral, or where cost savings or cost avoidance can be achieved, implementation by contractors shall be effected no later than 6 months from the date of this Manual.

d. This Manual does not contain protection requirements for Special Nuclear Material.

1-103. Agency Agreements.

a. E.O.12829 requires the heads of agencies to enter into agreements with the Secretary of Defense that establish the terms of the Secretary's responsibilities on behalf of these agency heads.

b. The Secretary of Defense has entered into agreements with the departments and agencies listed below for the purpose of rendering industrial security services. This delegation of authority is contained in an exchange of letters between the Secretary of Defense and: (1) The Administrator, National Aeronautics and Space Administration (NASA); (2) The Secretary of Commerce; (3) The Administrator, General Services Administration (GSA); (4) The Secretary of State; (5) The Administrator, Small Business Administration (SBA); (6) The Director, National Science Foundation (NSF); (7) The Secretary of the Treasury; (8) The Secretary of Transportation; (9) The Secretary of the Interior; (10) The Secretary of Agriculture; (11) The Director, United States Information Agency (USIA); (12) The Secretary of Labor; (13) The Administrator, Environmental Protection Agency (EPA); (14) The Attorney General, Department of Justice; (15) The Director, U.S. Arms Control and Disarmament Agency (ACDA); (16) The Director, Federal Emergency Management Agency (FEMA); (17) The Chairman, Board of Governors, Federal Reserve System (FRS); (18) The Comptroller General of the United States, General Accounting Office (GAO); (19) The Director of Administrative Services, United States Trade Representative (USTR); and (20) The Director of Administration, United States International Trade Commission (USITC). NOTE: Appropriate interagency agreements have not yet been effected with the Department of Defense by the Department of Energy, the Nuclear Regulatory Commission and the Central Intelligence Agency.

1-104. Security Cognizance.

a. Consistent with 1-101e, above, security cognizance remains with each federal department or agency unless lawfully delegated. The term "Cognizant Security Agency" (CSA) denotes the Department of Defense (DoD), the Department of Energy, the Nuclear Regulatory Commission, and the Central Intelligence Agency. The Secretary of Defense, the Secretary of Energy, the Director of Central Intelligence and the Chairman, Nuclear Regulatory Commission may delegate any aspect of security administration regarding classified activities and contracts under their purview within the CSA or to another CSA. Responsibility for security administration may be further delegated by a CSA to one or more "Cognizant Security Offices (CSO)." It is the obligation of each CSA to inform industry of the applicable CSO.

b. The designation of a CSO does not relieve any Government Contracting Activity (GCA) of the responsibility to protect and safeguard the classified information necessary for its classified contracts, or from visiting the contractor to review the security aspects of such contracts.

c. Nothing in this Manual affects the authority of the Head of an Agency to limit, deny, or revoke access to classified information under its statutory, regulatory, or contract jurisdiction if that Agency Head determines that the security of the nation so requires. The term "agency head" has the meaning provided in 5 U.S.C. 552(f).

1-105. Composition of Manual.

This Manual is comprised of a "baseline" portion (Chapters 1 through 11). That portion of the Manual that prescribes requirements, restrictions, and safeguards that exceed the baseline standards, such as those necessary to protect special classes of information, are included in the NISPOM Supplement (NISPOMSUP). Until officially revised or canceled, the existing COMSEC, Carrier, and Marking Supplements to the former "Industrial Security Manual for Safeguarding Classified Information" will continue to be applicable to DoD-cleared facilities only.

1-106. Manual Interpretations.

All contractor re-quests for interpretations of this Manual shall be forwarded to the Cognizant Security Agency (CSA) through its designated Cognizant Security Office (CSO). Requests for interpretation by contractors located on any U.S. Government installation shall be forwarded to the CSA through the Commander or Head of the host installation. Requests for interpretation of DCIDs referenced in the NISPOM Supplement shall be forwarded to the DCI through approved channels.

1-107. Waivers and Exceptions to this Manual.

Requests shall be submitted by industry through government channels approved by the CSA. When submitting a request for waiver, the contractor shall specify, in writing, the reasons why it is impractical or unreasonable to comply with the requirement. Waivers and exceptions will not be granted to impose more stringent protection requirements than this Manual provides for CONFIDENTIAL, SECRET, or TOP SECRET information.

Section 2. General Requirements

1-200. General.

Contractors shall protect all classified information to which they have access or custody. A contractor performing work within the confines of a Federal installation shall safeguard classified information in accordance with provisions of this Manual and/or with the procedures of the host installation or agency.

1-201. Facility Security Officer (FSO).

The contractor shall appoint a U.S. citizen employee, who is cleared as part of the facility clearance (FCL), to be the FSO. The FSO will supervise and direct security measures necessary for implementing this Manual and related Federal requirements for classified information. The FSO, or those otherwise performing security duties, shall complete security training as specified in Chapter 3 and as deemed appropriate by the CSA.

1-202. Standard Practice Procedures.

The contractor shall implement all terms of this Manual applicable to each of its cleared facilities. Written procedures shall be prepared when the FSO believes them to be necessary for effective implementation of this Manual or when the cognizant security office (CSO) determines them to be necessary to reasonably foreclose the possibility of loss or compromise of classified information.

1-203. One-Person Facilities.

A facility at which only one person is assigned shall establish procedures for CSA notification after death or incapacitation of that person. The current combination of the facility's security container shall be provided to the CSA, or in the case of a multiple facility organization, to the home office.

1-204. Cooperation with Federal Agencies.

Contractors shall cooperate with Federal agencies during official inspections, investigations concerning the protection of classified information, and during the conduct of personnel security investigations of present or former employees and others. This includes providing suitable arrangements within the facility for conducting private interviews with employees during normal working hours, providing relevant employment and security records for review, when requested, and rendering other necessary assistance.

1-205. Agreements with Foreign Interests.

Contractors shall establish procedures to ensure compliance with governing export control laws before executing any agreement with a foreign interest that involves access to U.S. classified information by a foreign national. Contractors must also comply with the foreign ownership, control or influence requirements in this Manual. Prior to the execution of such agreements, review and approval are required by the State Department and release of the classified information must be approved by the U.S. Government. Failure to comply with Federal licensing requirements may render a contractor ineligible for a facility clearance.

1-206. Security Training and Briefings.

Contractors are responsible for advising all cleared employees, including those outside the United States, of their individual responsibility for safeguarding classified information. In this regard, contractors shall provide security training as appropriate, and in accordance with Chapter 3, to cleared employees by initial briefings, refresher briefings, and debriefings.

1-207. Security Reviews.

a. Government Reviews. Aperiodic security reviews of all cleared contractor facilities will be conducted to ensure that safeguards employed by contractors are adequate for the protection of classified information.

(1) Review Cycle. The CSA will determine the frequency of security reviews, which may be increased or decreased for sufficient reason, consistent with risk management principals. Security reviews may be conducted no more often than once every 12 months unless special circumstances exist.

(2) Procedures. Contractors will normally be provided notice of a forthcoming review. Unannounced reviews may be conducted at the discretion of the CSA. Security reviews necessarily subject all contractor employees and all areas and receptacles under the control of the contractor to examination. However, every effort will be made to avoidunnecessary intrusion into the personal effects of contractor personnel. The physical examination of the interior space of equipment not authorized to secure classified material will always be accomplished in the presence of a representative of the contractor.

(3) Reciprocity. Each CSA is responsible for ensuring that redundant and duplicative security review, and audit activity of its contractors is held to a minimum, including such activity conducted at common facilities by other CSA's. Appropriate intra and/or inter- agency agreements shall be executed to fulfill this cost-sensitive imperative. Instances of redundant and duplicative security review and audit activity shall be reported to the Director, Information Security Oversight Office (ISOO) for resolution.

b. Contractor Reviews. Contractors shall review their security system on a continuing basis and shall also conduct a formal self- inspection at intervals consistent with risk management principals.

1-208. Hotlines.

Federal agencies maintain hotlines to provide an unconstrained avenue for government and contractor employees to report, without fear of reprisal, known or suspected instances of serious security irregularities and infractions concerning contracts, programs, or projects. These hotlines do not supplant contractor responsibility to facilitate reporting and timely investigation of security matters concerning its operations or personnel, and contractor personnel are encouraged to furnish information through established company channels. However, the hotline may be used as an alternate means to report this type of information when considered prudent or necessary. Contractors shall inform all employees that the hotlines may be used, if necessary, for reporting matters of national security significance. CSA hotline addresses and telephone numbers are as follows:

Defense Hotline The Pentagon Washington, DC 20301-1900 (800) 424-9098 (703) 693-5080

NRC Hotline U.S. Nuclear Regulatory Commission Office of the Inspector General Mail StopTSD 28 Washington, D.C. 20555-0001 (800) 233-3497

CIA Hotline Office of the Inspector General Central Intelligence Agency Washington, D.C. 20505 (703) 874-2600

DOE Hotline Department of Energy Office of the Inspector General 1000 Independence Avenue, S.W. Room 5A235 Washington, D.C. 20585 (202) 586-4073 (800) 541-1625

1-209. Classified Information Procedures Act (CIPA). (P.L. 96- 456, 94 STAT. 2025) The provisions of this Manual do not apply to proceedings in criminal cases involving classified information, and appeals therefrom, before the United States District Courts, the Courts of Appeal, and the Supreme Court. Contractors and their employees are not authorized to afford defendants, or persons acting for the defendant, regardless of their personnel security clearance status, access to classified information except as otherwise authorized by a protective order issued pursuant to the CIPA.

SECTION 3. REPORTING REQUIREMENTS

1-300. General

Contractors are required to report certain events that have an impact on the status of the facility clearance (FCL), that impact on the status of an employee's personnel clearance (PCL), that affect proper safegarding of classified information, or that indicate classified information has been lost or compromised. Contractors shall establish such internal procedures as are necessary to ensure that cleared employees are aware of their responsibilities for reporting pertinent information to the FSO, the Federal Bureau of Investigation (FBI), or other Federal authorities as required by this Manual, the terms of a classified contract, and U.S. law. Contractors shall provide complete information to enable the CSA to ascertain whether classified information is adequately protected. Contractors shall submit reports to the FBI, and to their CSA, as specified in this Section.

a. When the reports are classified or offered in confidence and so marked by the contractor, the information will be reviewed by the CSA to determine whether it may be withheld from public disclosure under applicable exemptions of the Freedom of Information Act (5 U.S.C. 552).

b. When the reports are unclassified and contain information pertaining to an individual, the Privacy Act of 1974 (5 U.S.C. 552a) permits withholding of that infomation from the individual only to the extent that the disclosure of the information would reveal the identity of a source who furnished the information to the U.S. Government under an expressed promise that the identity of the source would be held in confidence. The fact that a report is submitted in confidence must be clearly marked on the report.

1-301 Reports to be Submitted to the FBI.

The contractor shall promptly submit a written report to the nearest field office of the FBI, regarding information coming to the contractor's attention concerning actual, probable or possible espionage, or subversive activities at any of its locations. An initial report may be made by phone, but it must be followed in writing, regardless of the disposition made of the report by the FBI. A copy of the written report shall be provided to the CSA.

1-302 Reports to be Submitted to the CSA.

a. Adverse Information. Contractors shall report adverse information coming to their attention concerning any of their cleared employees. Reports based on rumor or innuendo should not be made. The subsequent termination of employment of an employee does not obviate the requirement to submit this report. The report shall include the name and telephone number of the individual to contact for further information regarding the matter and the signature, typed name and title of the individual submitting the report. If the individual is employed on a Federal installation, a copy of the report and its final disposition shall be furnished by the contractor to the Commander or Head of the installation. NOTE: In two court cases, Becker vs. Philco and Taglia vs. Philco (389 U.S. 979), the U.S. Court of Appeals for the 4th Circuit decided on February 6, 1967, that a contractor is not liable for defamation of an employee because of reports made to the Government pursuant to the requirements of this Manual.

b. Suspicious Contacts. Contractors shall report efforts by any individual, regardless of nationality, to obtain illegal or unauthorized access to classified information or to compromise a cleared employee. In addition, all contacts by cleared employees with known or suspected intelligence officers from any country, or any contact which suggests the employee concerned may be the target of an attempted exploitation by the intelligence services of another country shall be reported.

c. Change in Cleared Employee Status. Contractors shall report (1) The death; (2) A change in name; (3) The termination of employment; (4) Change in marital status; (5) Change in citizenship; and (6) When the possibility of access to classified information in the future has been reasonably foreclosed. Such changes shall be reported by submission of a CSA designated form.

d. Representative of a Foreign Interest. Any cleared employee, who becomes a representative of a foreign interest (RFI) or whose status as an RFI is materially changed.

e. Citizenship by Naturalization. A. non-U.S. citizen granted a Limited Access Authorization (LAA) who becomes a citizen through naturalization. Submission of this report shall be made on a CSA designated form, and include the (1) city, county, and state where naturalized; (2) date naturalized; (3) court; and (4) certificate number.

f. Employees Desiring Not to Perform on Classified Work. Evidence that an employee no longer wishes to be processed for a clearance or to continue an existing clearance.

g. Standard Form (SF) 312. Refusal by an employee to execute the "Classified Information Nondisclosure Agreement" (SF 312).

h. Change Conditions Affecting the Facility Clearance.

(1) Any change of ownership, including stock transfers that effect control of the company.

(2) Any change of operating name or address of the company or any of its cleared locations.

(3) Any change to the information previously submitted for key management personnel including, as appropriate, the names of the individuals they are replacing. In addition, a statement shall be made indicating: (a) Whether the new key management personnel are cleared, and if so, to what level and when, their dates and places of birth, social security numbers, and their citizenship; (b) Whether they have been excluded from access; or © Whether they have been temporarily excluded from access pending the granting of their clearance. A new complete listing of key management personnel need only be submitted at the discretion of the contractor and/or when requested in writing by the CSA.

(4) Action to terminate business or operations for any reason, imminent adjudication or reorganization in bankruptcy, or any change that might affect the validity of the FCL.

(5) Any material change concerning the information previously reported by the contractor concerning foreign ownership, control or influence (FOCI). This report shall be made by the submission of a CSA- designated form. When submitting this form, it is not necessary to repeat answers that have not changed. When entering into discussions, consultations or agreements that may reasonably lead to effective ownership or control by a foreign interest, the contractor shall report the details by letter. If the contractor has received a Schedule 13D from the investor, a copy shall be forwarded with the report. A new CSA-designated form regarding FOCI shall also be executed every 5 years.

i. Changes in Storage Capability. Any change in the storage capability that would raise or lower the level of classified information the facility is approved to safeguard.

j. Inability to Safeguard Classified Material. Any emergency situation that renders the facility incapable of safeguarding classified material.

k. Security Equipment Vulnerabilities. Significant vulnerabilities identified in security equipment, intrusion detection systems (IDS), access control systems, communications security (COMSEC) equipment or systems, and automated information system (AIS) security hardware and software used to protect classified material.

l. Unauthorized Receipt of Classified Material. The receipt or discovery of any classified material that the contractor is not authorized to have. The report should identify the source of the material, originator, quantity, subject or title, date, and classification level.

m. Employee Information in Compromise Cases. When requested by the CSA, information concerning an employee when the information is needed in connection with the loss, compromise, or suspected compromise of classified information.

n. Disposition of Classified Material Terminated From Accountability. When the whereabouts or disposition of classified material previously terminated from accountability is subsequently determined.

o. Foreign Classified Contracts. Any precontract negotiation or award not placed through a GCA that involves, or may involve, (1) The release or disclosure of U.S. classified information to a foreign interest, or (2) Access to classified information furnished by a foreign interest.

1-303. Reports of Loss, Compromise, or Suspected Compromise.

Any loss, compromise or suspected compromise of classified information, foreign or domestic, shall be reported to the CSA. Classified material that cannot be located within a reasonable period of time shall be presumed to be lost until an investigation determines otherwise. If the facility is located on a Government installation, the report shall be furnished to the CSA through the Commander or Head of the host installation.

a. Preliminary Inquiry. Immediately on receipt of a report of loss, compromise, or suspected compromise of classified information, the contractor shall initiate a preliminary inquiry to ascertain all of the circumstances surrounding the reported loss, compromise or suspected compromise.

b. Initial Report. If the contractor's preliminary inquiry confirms that a loss, compromise, or suspected compromise of any classified information occurred, the contractor shall promptly submit an initial report of the incident unless otherwise notified by the CSA. Submission of the initial report shall not be deferred pending completion of the entire investigation.

c. Final Report. When the investigation has been completed, a final report shall be submitted to the CSA. The report should include:

(1) Material and relevant information that was not included in the initial report;

(2) The name, position, social security number, date and place of birth, and date of the clearance of the individual(s) who was primarily responsible for the incident, including a record of prior loss, compromise, or suspected compromise for which the individual had been determined responsible;

(3) A statement of the corrective action taken to preclude a recurrence and the disciplinary action taken against the responsible individual(s), if any; and

(4) Specific reasons for reaching the conclusion that loss, compromise, or suspected compromise occurred or did not occur.

1-304. Individual Culpability Reports.

Contractors shall establish and enforce policies that provide for appropriate administrative actions taken against employees who violate requirements of this Manual. They shall establish and apply a graduated scale of disciplinary actions in the event of employee violations or negligence. A statement of the administrative actions taken against an employee shall be included in a report to the CSA when individual responsibility for a security violation can be determined and one or more of the following factors are evident:

a. The violation involved a deliberate disregard of security requirements.

b. The violation involved gross negligence in the handling of classified material.

c. The violation involved was not deliberate in nature but involves a pattern of negligence or carelessness.

Chapter 2.

Security Clearances

Section 1. Facilities Clearances

2-100. General.

A facility clearance (FCL) is an administrative determination that a facility is eligible for access to classified information or award of a classified contract. Contract award may be made prior to the issuance of an FCL. However, in those cases, the contractor will be processed for an FCL at the appropriate level and must meet eligibility requirements for access to classified information. The FCL requirement for a prime contractor includes those instances in which all classified access will be limited to subcontractors. Contractors are eligible for custody (possession) of classified material, if they have an FCL and storage capability approved by the CSA.

a. An FCL is valid for access to classified information at the same, or lower, classification level as the FCL granted.

b. FCLs will be registered centrally by the U.S. Government.

c. A contractor shall not use its FCL for advertising or promotional purposes.

2-101. Reciprocity.

An FCL shall be considered valid and acceptable for use on a fully reciprocal basis by all Federal departments and agencies, provided it meets or exceeds the level of clearance needed.

2-102. Eligibility Requirements.

A contractor or prospective contractor cannot apply for its own FCL. A GCA or a currently cleared contractor may sponsor an uncleared contractor for an FCL. A company must meet the following eligibility requirements before it can be processed for an FCL.

a. The contractor must need access to the classified information in connection with a legitimate U.S. Government or foreign requirement.

b. The contractor must be organized and existing under the laws of any of the fifty states, the District of Columbia, or Puerto Rico, and be located in the U.S. and its territorial areas or possessions.

c. The contractor must have a reputation for integrity and lawful conduct in its business dealings. The contractor and its key managers, must not be barred from participating in U.S.Government contracts.

d. The contractor must not be under foreign ownership, control, or influence (FOCI) to a such a degree that the granting of the FCL would be inconsistent with the national interest.

2-103. Processing the FCL.

The CSA will advise and assist the company during the FCL process. As a minimum, the company will:

a. Execute CSA-designated forms.

b. Process key management personnel for personnel clearances (PCLs).

c. Appoint a U.S. citizen employee as the facility security officer (FSO).

2-104. Personnel Clearances Required in Connection with the FCL.

The senior management official and the FSO must always be cleared to the level of the FCL. Other officials, as determined by the CSA, must be granted a PCL or be excluded from classified access pursuant to paragraph 2-106.

2-105. PCLs Concurrent with the FCL.

Contractors may designate employees who require access to classified information during the negotiation of a contract or the preparation of a bid or quotation pertaining to a prime contract or a subcontract to be processed for PCLs concurrent with the FCL. The granting of an FCL is not dependent on the clearance of such employees.

2-106. Exclusion Procedures.

When, pursuant to paragraph 2-104, formal exclusion action is required, the organization's board of directors or similar executive body shall affirm the following, as appropriate.

a. Such officers, directors, partners, regents, or trustees (designated by name) shall not require, shall not have, and can be effectively excluded from access to all classified information disclosed to the organization. They also do not occupy positions that would enable them to adversely affect the organization's policies or practices in the performance of classified contracts. This action shall be made a matter of record by the organization's executive body. A copy of the resolution shall be furnished to the CSA.

b. Such officers or partners (designated by name) shall not require, shall not have, and can be effectively denied access to higher-level classified information (specify which higher level(s)) and do not occupy positions that would enable them to adversely affect the organization's policies or practices in the performance of higher- level classified contracts (specify higher level(s)). This action shall be made a matter of record by the organization's executive body. A copy of the resolution shall be furnished to the CSA.

2-107. Interim FCLs.

An interim FCL may be granted to eligible contractors by the CSA. An interim FCL is granted on a temporary basis pending completion of the full investigative requirements.

2-108. Multiple Facility Organizations.

The home office facility must have an FCL at the same, or higher, level of any cleared facility within the multiple facility organization.

2-109. Parent-Subsidiary Relationships.

When a parent-subsidiary relationship exists, the parent and the subsidiary will be processed separately for an FCL. As a general rule, the parent must have an FCL at the same, or higher, level as the subsidiary. However, the CSA will determine the necessity for the parent to be cleared or excluded from access to classified information. The CSA will advise the companies as to what action is necessary for processing the FCL. When a parent or its cleared subsidiaries are collocated, a formal written agreement to utilize common security services may be executed by the two firms, subject to the approval of the CSA.

2-110. Termination of the FCL.

Once granted, an FCL remains in effect until terminated by either party. If the FCL is terminated for any reason, the contractor shall return all classified material in its possession to the appropriate GCA or dispose of the material as instructed by the CSA. The contractor shall return the original copy of the letter of notification of the facility security clearance to the CSA.

2-111. Records Maintenance.

Contractors shall maintain the original CSA designated forms for the duration of the FCL.

Section 2. Personnel Clearances

2-200. General.

a. An employee may be processed for a personnel clearance (PCL) when the contractor determines that access is essential in the performance of tasks or services related to the fulfillment of a classified contract. A PCL is valid for access to classified information at the same, or lower, level of classification as the level of the clearance granted.

b. The CSA will provide written notice when an employee's PCL has been granted, denied, suspended, or revoked. The contractor shall immediately deny access to classified information to any employee when notified of a denial, revocation or suspension. The CSA will also provide written notice when processing action for PCL eligibility has been discontinued. Contractor personnel may be subject to a reinvestigation program as specified by the CSA.

c. Within a multiple facility organization (MFO), PCLs will be issued to a company's home office facility (HOF) unless an alternative arrangement is approved by the CSA. Cleared employee transfers within an MFO, and classified access afforded thereto, shall be managed by the contractor.

d. The contractor shall limit requests for PCLs to the minimal number of employees necessary for operational efficiency, consistent with contractual obligations and other requirements of this Manual. Requests for PCLs shall not be made to establish "pools" of cleared employees.

e. The contractor shall not submit a request for a PCL to one agency if the employee applicant is cleared or is in process for a PCL by another agency. In such cases, to permit clearance verification, the contractor should provide the new agency with the full name, date and place of birth, current address, social security number, clearing agency, and type of clearance.

2-201. Investigative Requirements.

Investigations conducted by a Federal Agency shall not be duplicated by another Federal Agency when those investigations are current within 5 years and meet the scope and standards for the level of PCL required. The types of investigations required are as follows:

a. Single Scope Background Investigation (SSBI). An SSBI is required for TOP SECRET, Q, and SCI. Application shall be made on an SF Form 86 for DOE and NRC contractors. All others shall submit a DD Form 398.

b. National Agency Check and Credit Check (NACC). An NACC is required for a SECRET, L, and CONFIDENTIAL PCL. Application shall be made on an SF Form 86 for DOE and NRC contractors. All others shall submit a DD Form 398-2.

c. Polygraph. Agencies with policies sanctioning the use of the polygraph for PCL purposes may require polygraph examinations when necessary. If issues of concern surface during any phase of security processing, coverage will be expanded to resolve those issues.

2-202. Common Adjudicative Standards.

Security clearance and SCI access determinations shall be based upon uniform common adjudicative standards.

2-203. Reciprocity.

Federal agencies that grant security clearances (TOP SECRET, SECRET, CONFIDENTIAL, Q or L) to their employees or their contractor employees are responsible for determining whether such employees have been previously cleared or investigated by the Federal Government. Any previously granted PCL that is based upon a current investigation of a scope that meets or exceeds that necessary for the clearance required, shall provide the basis for issuance of a new clearance without further investigation or adjudication unless significant derogatory information that was not previously adjudicated becomes known to the granting agency.

2-204. Pre-employment Clearance Action.

Contractors shall not initiate any pre-employment clearance action unless the recruitment is for a specific position that will require access to classified information. Contractors shall include the following statement in such employment advertisements: "Applicants selected will be subject to a government security investigation and must meet eligibility requirements for access to classified information." The completed PCL application may be submitted to the CSA by the contractor prior to the date of employment, provided a written commitment for employment has been made by the contractor that prescribes a fixed date for employment within the ensuing 180 days, and the candidate has accepted the employment offer in writing.

2-205. Contractor-Granted Clearances.

Contractors are no longer permitted to grant clearances. Contractor- granted Confidential clearances in effect under previous policy are not valid for access to: Restricted Data; Formerly Restricted Data; COMSEC information; Sensitive Compartmented Information; NATO information (except RESTRICTED); Critical or Controlled Nuclear Weapon Security positions; and classified foreign government information.

2-206. Verification of U.S. Citizenship.

The contractor shall require each applicant for a PCL who claims U.S. citizenship to produce evidence of citizenship. A PCL will not be granted until the contractor has certified the applicant's U.S. citizenship.

2-207. Acceptable Proof of Citizenship.

a. For individuals born in the United States, a birth certificate is the primary and preferred means of citizenship verification. Acceptable certificates must show that the birth record was filed shortly after birth and it must be certified with the registrar's signature. It must bear the raised, impressed, or multicolored seal of the registrar's office. The only exception is if a state or other jurisdiction does not issue such seals as a matter of policy Uncertified copies of birth certificates are not acceptable. A delayed birth certificate is one created when a record was filed more than one year after the date of birth. Such a certificate is acceptable if it shows that the report of birth was supported by acceptable secondary evidence of birth. Secondary evidence may include: baptismal or circumcision certificates, hospital birth records, or affidavits of persons having personal knowledge about the facts of birth. Other documentary evidence can be early census, school, or family bible records, newspaper files, or insurance papers. All documents submitted as evidence of birth in the U.S. shall be original or certified documents.

b. If the individual claims citizenship by naturalization, a certificate of naturalization is acceptable proof of citizenship.

c. If citizenship was acquired by birth abroad to a U.S. citizen parent or parents, the following are acceptable evidence:

(1) A Certificate of Citizenship issued by the Immigration and Naturalization Service (INS); or

(2) A Report of Birth Abroad of a Citizen of the United States of America (Form FS-240); or

(3) A Certificate of Birth (Form FS-545 or DS-1350).

d. A passport, current or expired, is acceptable proof of citizenship.

e. A Record of Military Processing-Armed Forces of the United States (DD Form 1966) is acceptable proof of citizenship, provided it reflects U.S. citizenship. 2-208. Letter of Notification of Personnel Clearance (LOC). An LOC will be issued by the CSA to notify the contractor that its employee has been granted a PCL. Unless terminated, suspended or revoked by the Government, the LOC remains effective as long as the employee is continuously employed by the contractor.

2-209. Representative of a Foreign Interest.

The CSA will determine whether a Representative of a Foreign Interest (RFI) is eligible for a clearance or continuation of a clearance.

a. An RFI must be a U.S. citizen to be eligible for a PCL.

b. The RFI shall submit a statement that fully explains the foreign connections and identifies all foreign interests. The statement shall contain the contractor's name and address and the date of submission. If the foreign interest is a business enterprise, the statement shall explain the nature of the business and, to the extent possible, details as to its ownership, including the citizenship of the principal owners or blocks of owners. The statement shall fully explain the nature of the relationship between the applicant and the foreign interest and indicate the approximate percentage of time devoted to the business of the foreign interest.

2-210. Non-U.S.Citizens.

Only U.S. citizens are eligible for a security clearance. Every effort shall be made to ensure that non-U.S. citizens are not employed in duties that may require access to classified information. However, compelling reasons may exist to grant access to classified information to an immigrant alien or a foreign national. Such individuals may be granted a Limited Access Authorization (LAA) in those rare circumstances where the non-U.S. citizen possesses unique or unusual skill or expertise that is urgently needed to support a specific U.S. Government contract involving access to specified classified information and a cleared or clearable U.S. citizen is not readily available. In addition, the LAA may only be issued under the following circumstances:

a. With the concurrence of the GCA in instances of special expertise.

b. With the concurrence of the CSA in furtherance of U.S. Government obligations pursuant to U.S. law, treaty, or international agreements.

2-211. Access Limitations of an LAA.

An LAA granted under the provisions of this Manual is not valid for access to the following types of information.

a. TOP SECRET information;

b. Restricted Data or Formerly Restricted Data;

c. Information that has not been determined releasable by a U.S. Government Designated Disclosure Authority to the country of which the individual is a citizen;

d. COMSEC information;

e. Intelligence information;

f. NATO Information. However, foreign nationals of a NATO member nation may be authorized access to NATO Information provided that: (1) A NATO Security Clearance Certificate is obtained by the CSA from the individual's home country; and (2) NATO access is limited to performance on a specific NATO contract.

g. Information for which foreign disclosure has been prohibited in whole or in part; and

h. Information provided to the U.S. Government in confidence by a third party government and classified information furnished by a third party government.

2-212. Interim Clearances.

Interim TOP SECRET PCLs shall be granted only in emergency situations to avoid crucial delays in precontract negotiation, or in the award or performance on a contract. The contractor shall submit applications for Interim TOP SECRET PCLs to the pertinent GCA for endorsement. Applicants for TOP SECRET, SECRET, and CONFIDENTIAL PCLs may be routinely granted interim PCLs at the SECRET or CONFIDENTIAL level, as appropriate, provided there is no evidence of adverse information of material significance. The interim status will cease if results are favorable following completion of full investigative requirements. At that time the CSA will issue a new LOC. Non-U.S. citizens are not eligible for interim clearances.

a. An interim SECRET or CONFIDENTIAL PCL is valid for access to classified information at the level of the interim PCL granted, except for Sensitive Compartmented Information, Restricted Data, COMSEC Information, SAP, and NATO information. An interim TOP SECRET PCL is valid for access to TOP SECRET information and Restricted Data, NATO Information and COMSEC information at the SECRET and CONFIDENTIAL level.

b. An interim PCL granted by the CSA negates any existing contractor-granted CONFIDENTIAL clearance. When an interim PCL has been granted and derogatory information is subsequently developed, the CSA may withdraw the interim pending completion of the processing that is a prerequisite to the granting of a final PCL.

c. When an interim PCL for an individual who is required to be cleared in connection with the FCL is withdrawn, the interim FCL will also be withdrawn, unless action is taken to remove the individual from the position requiring access.

d. Withdrawal of an interim PCL is not a denial or revocation of the clearance and is not appealable during this stage of the processing.

2-213. Consultants.

A consultant is an individual under contract to provide professional or technical assistance to a contractor or GCA in a capacity requiring access to classified information. The consultant shall not possess classified material off the premises of the using (hiring) contractor or GCA except in connection with authorized visits. The consultant and the using contractor or GCA shall jointly execute a consultant certificate setting forth respective security responsibilities. The using contractor or GCA shall be the consumer of the services offered by the consultant it sponsors for a PCL. For security administration purposes, the consultant shall be considered an employee of the hiring contractor or GCA. The CSA shall be contacted regarding security procedures to be followed should it become necessary for a consultant to have custody of classified information at the consultant's place of business.

2-214. Concurrent PCLs.

A concurrent PCL can be issued if a contractor hires an individual or engages a consultant who has a current PCL (LOC issued to another contractor). The gaining contractor must be issued an LOC prior to the employee having access to classified information at that facility. Application shall be made by the submission of the CSA designated form.

2-215. Converting PCLs to Industrial Clearances.

PCLs granted by government agencies may be converted to industrial clearances when: (a) A determination can be made that the investigation meets standards prescribed for such clearances; (b) No more than 24 months has lapsed since the date of termination of the clearance; and, © No evidence of adverse information exists since the last investigation. Contractors employing persons eligible for conversion of clearance may request clearance to the level of access required by submitting the CSA designated form to the CSA. Access may not be granted until receipt of the LOC. The following procedures apply.

a. Former DOE and NRC Personnel. A Q access authorization can be converted to a TOP SECRET clearance. An L access authorization can be converted to a SECRET clearance. Annotate the application: "DOE (or NRC) Q (or L) Conversion Requested."

b. Federal Personnel. Submit a copy of the "Notification of Personnel Action" (Standard Form 50), which terminated employment with the Federal Government with the application.

c. Military Personnel. Submit a copy of the "Certificate of Release or Discharge From Active Duty" (DD Form 214).

d. National Guard and Reserve Personnel in the Ready Reserve Program. Include the individual's service number, the identity and exact address of the unit to which assigned, and the date such participation commenced on the application. For those individuals who have transferred to the standby or retired Reserve, submit a copy of the order effecting such a transfer.

2-216. Clearance Terminations.

The contractor shall terminate a PCL (a) Upon termination of employment; or (b) When the need for access to classified information in the future is reasonably foreclosed. Termination of a PCL is accomplished by submitting a CSA-designated form to the CSA.

2-217. Clearance Reinstatements.

A PCL can be reinstated provided (a) No more than 24 months has lapsed since the date of termination of the clearance; (b) There is no known adverse information; © The most recent investigation must not exceed 5 years (TS, Q) or 10 years (SECRET, L); and (d) Must meet or exceed the scope of the investigation required for the level of PCL that is to be reinstated or granted. A PCL can be reinstated at the same, or lower, level by submission of a CSA- designated form to the CSA. The employee may not have access to classified information until receipt of the LOC.

2-218. Procedures for Completing the Application Form.

The application forms shall be completed jointly by the employee and the contractor. Contractors shall inform employees that page 5 of the DD Form 398-2 and the DD Form 398 or part 2 of the SF-86 may be completed in private and returned to security personnel in a sealed envelope. The contractor shall not review any information that is contained in the sealed envelope. The contractor shall review the remainder of the application to determine its adequacy and to ensure that necessary information has not been omitted. The contractor shall ensure that the applicant's fingerprints are authentic, legible, and complete to avoid subsequent clearance processing delays. An employee of the contractor shall witness the taking of the applicant's fingerprints to ensure that the person fingerprinted is, in fact, the same as the person being processed for the clearance. All PCL forms required by this Section are available from the CSA.

2-219. Records Maintenance.

The contractor shall maintain a current record at each facility (to include uncleared locations) of all cleared employees. Records maintained by a HOF and/or PMF for employees located at subordinate facilities (cleared and uncleared locations) shall include the name and address at which the employee is assigned. When furnished with a list of cleared personnel by the CSA, contractors are requested to annotate the list with any corrections or adjustments and return it at the earliest practical time. The reply shall include a statement by the FSO certifying that the individuals listed remain employed and that a PCL is still required.

Section 3. Foreign Ownership, Control, or Influence (FOCI)

2-300. General.

a. This Section establishes the policy concerning the initial or continued clearance eligibility of U.S. companies with foreign involvement; provides criteria for determining whether U.S. companies are under foreign ownership, control or influence (FOCI); prescribes responsibilities in FOCI matters; and outlines security measures that may be considered to negate or reduce to an acceptable level FOCI-based security risks .

b. The foreign involvement of U.S. companies cleared or under consideration for a facility security clearance (FCL) is examined to ensure appropriate resolution of matters determined to be of national security significance. The development of security measures to negate FOCI determined to be unacceptable shall be based on the concept of risk management. The determination of whether a U.S. company is under FOCI, its eligibility for an FCL, and the security measures deemed necessary to negate FOCI shall be made on a case-by-case basis.

2-301. Policy.

Foreign investment can play an important role in maintaining the vitality of the U.S. industrial base. Therefore, it is the policy of the U.S. Government to allow foreign investment consistent with the national security interests of the United States. The following FOCI policy for U.S. companies subject to an FCL is intended to facilitate foreign investment by ensuring that foreign firms cannot undermine U.S. security and export controls to gain unauthorized access to critical technology, classified information and special classes of classified information:

a. A U.S. company is considered under FOCI whenever a foreign interest has the power, direct or indirect, whether or not exercised, and whether or not exercisable through the ownership of the U.S. company's securities, by contractual arrangements or other means, to direct or decide matters affecting the management or operations of that company in a manner which may result in unauthorized access to classified information or may affect adversely the performance of classified contracts.

b. A U.S. company determined to be under FOCI is ineligible for an FCL, or an existing FCL shall be suspended or revoked unless security measures are taken as necessary to remove the possibility of unauthorized access or the adverse affect on classified contracts.

c. The Federal Government reserves the right and has the obligation to impose any security method, safeguard, or restriction it believes necessary to ensure that unauthorized access to classified information is effectively precluded and that performance of classified contracts is not adversely affected.

d. Changed conditions, such as a change in ownership, indebtedness, or the foreign intelligence threat, may justify certain adjustments to the security terms under which a company is operating or, alternatively, that a different FOCI negation method be employed. If a changed condition is of sufficient significance, it might also result in a determination that a company is no longer considered to be under FOCI or, conversely, that a company is no longer eligible for an FCL.

e. Nothing contained in this Section shall affect the authority of the Head of an Agency to limit, deny or revoke access to classified information under its statutory, regulatory or contract jurisdiction. For purposes of this Section, the term "agency" has the meaning provided at 5 U.S.C. 552(f), to include the term "DoD Component."

2-302. Factors.

a. The following factors shall be considered in the aggregate to determine whether an applicant company is under FOCI; its eligibility for an FCL; and the protective measures required:

(1) Foreign intelligence threat;

(2) Risk of unauthorized technology transfer;

(3) Type and sensitivity of the information requiring protection;

(4) Nature and extent of FOCI, to include whether a foreign person occupies a controlling or dominant minority position; source of FOCI, to include identification of immediate, intermediate and ultimate parent organizations;

(5) Record of compliance with pertinent U.S. laws, regulations and contracts; and

(6) Nature of bilateral and multilateral security and information exchange agreements that may pertain.

b. In addition to the factors shown above, the following information is required to be furnished to the CSA on the CSA-designated form. The information will be considered in the aggregate and the fact that some of the below listed conditions may apply does not necessarily render the applicant company ineligible for an FCL.

(1) Ownership or beneficial ownership, direct or indirect, of 5 percent or more of the applicant company's voting securities by a foreign person;

(2) Ownership or beneficial ownership, direct or indirect, of 25 percent or more of any class of the applicant company's non-voting securities by a foreign person;

(3) Management positions, such as directors, officers, or executive personnel of the applicant company held by non U.S. citizens;

(4) Foreign person power, direct or indirect, to control the election, appointment, or tenure of directors, officers, or executive personnel of the applicant company and the power to control other decisions or activities of the applicant company;

(5) Contracts, agreements, understandings, or arrangements between the applicant company and a foreign person;

(6) Details of loan arrangements between the applicant company and a foreign person if the applicant company's (the borrower) overall debt to equity ratio is 40:60 or greater; and details of any significant portion of the applicant company's financial obligations that are subject to the ability of a foreign person to demand repayment;

(7) Total revenues or net income in excess of 5 percent from a single foreign person or in excess of 30 percent from foreign persons in the aggregate;

(8) Ten percent or more of any class of the applicant's voting securities held in "nominee shares," in "street names," or in some other method that does not disclose the beneficial owner of equitable title;

(9) Interlocking directors with foreign persons and any officer or management official of the applicant company who is also employed by a foreign person;

(10) Any other factor that indicates or demonstrates a capability on the part of foreign persons to control or influence the operations or management of the applicant company; and

(11) Ownership of 10% or more of any foreign interest.

2-303. Procedures.

a. If there are any affirmative answers on the form, or other information is received which indicates that the applicant company may be under FOCI, the CSA shall review the case to determine the relative significance of the information in regard to:

(1) Whether the applicant is under FOCI, which shall include a review of the factors listed at 2-302;

(2) The extent and manner to which the FOCI may result in unauthorized access to classified information or adversely impact classified contract performance; and

(3) The type of actions, if any, that would be necessary to negate the effects of FOCI to a level deemed acceptable to the Federal Government. Disputed matters may be appealed and the applicant shall be advised of the government's appeal channels by the CSA.

b. When a company with an FCL enters into negotiations for the proposed merger, acquisition, or takeover by a foreign person, the applicant shall submit notification to the CSA of the commencement of such negotiations. The submission shall include the type of transaction under negotiation (stock purchase, asset purchase, etc.), the identity of the potential foreign person investor, and a plan to negate the FOCI by a method outlined in 2-306. The company shall submit copies of loan, purchase and shareholder agreements, annual reports, bylaws, articles of incorporation, partnership agreements and reports filed with other federal agencies to the CSA.

c. When a company with an FCL is determined to be under FOCI, the facility security clearance shall be suspended. Suspension notices shall be made as follows:

(1) When the company has current access to classified information, the GCAs and prime contractor(s) of record shall be notified of the suspension action along with full particulars regarding the reason(s) therefor. Cognizant contracting agency security and acquisition officials shall be furnished written, concurrent notice of the suspension action. All such notices shall include a statement that the award of additional classified contracts is prohibited so long as the FCL remains in suspension.

(2) The company subject to suspension action shall be notified that its clearance has been suspended, that current access to classified information and performance on existing classified contracts may continue unless notified by the CSA to the contrary, and that the award of new classified contracts will not be permitted until the FCL has been restored to a valid status.

d. When necessary, the applicant company shall be advised that failure to adopt required security measures, may result in denial or revocation of the FCL. When final agreement by the parties with regard to the security measures required by the CSA is attained, the applicant shall be declared eligible for an FCL upon implementation of the required security measures. When a previously suspended FCL has been restored to a valid status, all recipients of previous suspension notices shall be notified.

e. A counterintelligence threat assessment and technology transfer risk assessment shall be obtained by the CSA and considered prior to a final decision to grant an FCL to an applicant company under FOCI or to restore an FCL previously suspended. These assessments shall be updated periodically under circumstances and at intervals considered appropriate by the CSA.

f. Whenever a company has been determined to be under FOCI, the primary consideration shall be the safeguarding of classified information. The CSA is responsible for taking whatever interim action necessary to safeguard classified information, in coordination with other affected agencies as appropriate. If the company does not have possession of classified material, and does not have a current or impending requirement for access to classified information, the FCL shall be administratively terminated.

2-304. Foreign Mergers, Acquisitions and Takeovers, and the CFIUS.

a. Proposed merger, acquisition, or takeover (transaction) cases voluntarily filed for review by the Committee on Foreign Investment in the United States (CFIUS) under Section 721 of Title VII of the Defense Production Act (DPA) of 1950 (P.L. 102-99) shall be processed on a priority basis. The CSA shall determine whether the proposed transaction involves an applicant subject to this Section and convey its finding to appropriate agency authorities. If the proposed transaction would require FOCI negation measures to be imposed if consummated, the parties to the transaction shall be promptly advised of such measures and be requested to provide the CSA with their preliminary acceptance or rejection of them as promptly as possible.

b. The CFIUS review and the industrial security review are carried out in two parallel, but separate, processes with different time constraints and considerations. Ideally, when industrial security enhancements (see Sections 2-305 and 2-306) are required to resolve industrial security concerns of a case under review by CFIUS, there should be agreement before a recommendation on the matter is formulated. As a technical matter, however, a security agreement cannot be signed until the proposed foreign investor legally completes the transaction, usually the date of closing. When the required security arrangement, (1) Has been rejected; or (2) When it appears agreement will not be attained regarding material terms of such an arrangement; or (3) The company has failed to comply with the reporting requirements of this Manual, industrial security authorities may recommend that the Department position be an investigation of the proposed transaction by CFIUS to assure that national security concerns are protected.

2-305. FOCI Negation Action Plans.

If it is determined that an applicant company may be ineligible for an FCL or that additional action would be necessary to negate the FOCI, the applicant shall be promptly advised and requested to submit a negation plan.

a. In those cases where the FOCI stems from foreign ownership, a plan shall consist of one of the methods prescribed at 2-306. Amendments to purchase and shareholder agreements may also serve to remove FOCI concerns.

b. When factors not related to ownership are present, the plan shall provide positive measures that assure that the foreign person can be effectively denied access to classified information and cannot otherwise adversely affect performance on classified contracts. Examples of such measures include: modification or termination of loan agreements, contracts and other understandings with foreign interests; diversification or reduction of foreign source income; demonstration of financial viability independent of foreign persons; elimination or resolution of problem debt; assignment of specific oversight duties and responsibilities to board members; formulation of special executive-level security committees to consider and oversee matters that impact upon the performance of classified contracts; physical or organizational separation of the facility component performing on classified contracts; the appointment of a technology control officer; adoption of special board resolutions; and other actions that negate foreign control or influence.

2-306. Methods to Negate Risk in Foreign Ownership Cases.

Under normal circumstances, foreign ownership of a U.S. company under consideration for an FCL becomes a concern to the U.S. Government when a foreign shareholder has the ability, either directly or indirectly, whether exercised or exercisable, to control or influence the election or appointment of one or more members to the applicant company's board of directors by any means (equivalent equity for unincorporated companies). Foreign ownership which cannot be so manifested is not, in and of itself, considered significant.

a. Board Resolution. When a foreign person does not own voting stock sufficient to elect, or otherwise is not entitled to representation to the applicant company's board of directors, a resolution(s) by the applicant's board of directors will normally be adequate. The Board shall identify the foreign shareholder and describe the type and number of foreign owned shares; acknowledge the applicant's obligation to comply with all industrial security program and export control requirements; certify that the foreign shareholder shall not require, shall not have, and can be effectively precluded from unauthorized access to all classified and export-controlled information entrusted to or held by the applicant company; will not be permitted to hold positions that may enable them to influence the performance of classified contracts; and provide for an annual certification to the CSA acknowledging the continued effectiveness of the resolution. The company shall be required to distribute to members of its board of directors and its principal officers copies of such resolutions and report in the company's corporate records the completion of such distribution.

b. Voting Trust Agreement and Proxy Agreement. The Voting Trust Agreement and the Proxy Agreement are substantially identical arrangements whereby the voting rights of the foreign owned stock are vested in cleared U.S. citizens approved by the Federal Government. Neither arrangement imposes any restrictions on a company's eligibility to have access to classified information or to compete for classified contracts.

(1) Establishment of a Voting Trust or Proxy Agreement involves the selection of three trustees or proxy holders respectively, all of whom must become directors of the cleared company's board. Both arrangements must provide for the exercise of all prerogatives of ownership by the voting trustees or proxy holders with complete freedom to act independently from the foreign person stockholders. The arrangements may, however, limit the authority of the trustees or proxy holders by requiring that approval be obtained from the foreign person stockholder(s) with respect to matters such as: (a) The sale or disposal of the corporation's assets or a substantial part thereof; (b) Pledges, mortgages, or other encumbrances on the capital stock; © Corporate mergers, consolidations, or reorganizations; (d) The dissolution of the corporation; and (e) The filing of a bankruptcy petition. However, nothing herein prohibits the trustees or proxy holders from consulting with the foreign person stockholders, or vice versa, where otherwise consistent with U.S. laws, regulations and the terms of the Voting Trust or Proxy Agreement.

(2) The voting trustees or proxy holders must assume full responsibility for the voting stock and for exercising all management prerogatives relating thereto in such a way as to ensure that the foreign stockholders, except for the approvals enumerated in (1) above, shall be insulated from the cleared company and continue solely in the status of beneficiaries. The company shall be organized, structured, and financed so as to be capable ofoperating as a viable business entity independent from the foreign stockholders.

(3) Individuals who serve as voting trustees or proxy holders must be: (a) U.S. citizens residing within the United States, who are capable of assuming full responsibility for voting the stock and exercising management prerogatives relating thereto in a way that ensures that the foreign person stockholders can be effectively insulated from the cleared company; (b) Completely disinterested individuals with no prior involvement with the applicant company, the corporate body with which it is affiliated, or the foreign person owner; and © Eligible for a PCL at the level of the FCL.

(4) Management positions requiring personnel security clearances in conjunction with the FCL must be filled by U.S. citizens residing in the United States.

c. Special Security Agreement and Security Control Agreement. The Special Security Agreement (SSA) and the Security Control Agreement (SCA) are substantially identical arrangements that impose substantial industrial security and export control measures within an institutionalized set of corporate practices and procedures; require active involvement of senior management and certain Board members in security matters (who must be cleared, U.S. citizens); provide for the establishment of a Government Security Committee (GSC) to oversee classified and export control matters; and preserve the foreign person shareholder's right to be represented on the Board with a direct voice in the business management of the company while denying unauthorized access to classified information.

(1) A company effectively owned or controlled by a foreign person may be cleared under the SSA arrangement. However, access to "proscribed information" is permitted only with the written permission of the cognizant U.S. agency with jurisdiction over the information involved. A determination to disclose proscribed information to a company cleared under an SSA requires that a favorable National Interest Determination (see 2-309) be rendered prior to contract award. Additionally, the Federal Government must have entered into a General Security Agreement with the foreign government involved.

(2) A company not effectively owned or controlled by aforeign person may be cleared under the SCA arrangement. Limitations on access to classified information are not required under an SCA.

d. Limited Facility Clearance. The Federal Government has entered into Industrial Security Agreements with certain foreign governments. These agreements establish arrangements whereby a foreign-owned U.S. company may be considered eligible for an FCL. Access limitations are inherent with the granting of limited FCLs.

(1) A limited FCL may be granted upon satisfaction of the following criteria: (a) There is an Industrial Security Agreement with the foreign government of the country from which the foreign ownership is derived; (b) Access to classified information will be limited to performance on a contract, subcontract or program involving the government of the country from which foreign ownership is derived; and © Release of classified information must be in conformity with the U.S. National Disclosure Policy.

(2) A limited FCL may also be granted when the criteria listed in paragraph (1) above cannot be satisfied, provided there exists a compelling need to do so consistent with national security interests.

2-307. Annual Review and Certification.

a. Annual Review. Representatives of the CSA shall meet at least annually with senior management officials of companies operating under a Voting Trust, Proxy Agreement, SSA, or SCA to review the purpose and effectiveness of the clearance arrangement and to establish common understanding of the operating requirements and their implementation. These reviews will also include an examination of the following:

(1) Acts of compliance or noncompliance with the approved security arrangement, standard rules, and applicable laws and regulations.

(2) Problems or impediments associated with the practical application or utility of the security arrangement.

(3) Whether security controls, practices, or procedures warrant adjustment.

b. Annual Certification. Depending upon the security arrangement in place, the Voting trustees, Proxy holders or the Chairman of the GSC shall submit annually to the CSA an implementation and compliance report. Such reports shall include the following:

(1) A detailed description of the manner in which the company is carrying out its obligations under the arrangement.

(2) Changes to security procedures, implemented or proposed, and the reasons for those changes.

(3) A detailed description of any acts of noncompliance, whether inadvertent or intentional, with a discussion of steps that were taken to prevent such acts from recurring.

(4) Any changes, or impending changes, of senior management officials, or key Board members, including the reasons therefore.

(5) Any changes or impending changes in the organizational structure or ownership, including any acquisitions, mergers or divestitures.

(6) Any other issues that could have a bearing on the effectiveness of the applicable security clearance arrangement.

2-308. Government Security Committee (GSC).

Under a Voting Trust, Proxy Agreement, SSA and SCA, an applicant company is required to establish a permanent committee of it's Board of Directors, known as the GSC.

a. The GSC normally consists of Voting Trustees, Proxy Holders or Outside Directors, as applicable, and those officers/directors who hold PCLs.

b. The members of the GSC are required to ensure that the company maintains policies and procedures to safeguard export controlled and classified information entrusted to it.

c. The GSC shall also take the necessary steps to ensure that the company complies with U.S. export control laws and regulations and does not take action deemed adverse to performance on classified contracts. This shall include the appointment of a Technology Control Officer (TCO) and the development, approval, and implementation of a Technology Control Plan (TCP).

d. The Facility Security Officer (FSO) shall be the principal advisor to the GSC and attend GSC meetings. The Chairman of the GSC, must concur with the appointment of replacement FSOs selected by management. FSO and TCO functions shall be carried out under the authority of the GSC.

2-309. National Interest Determination.

a. A company cleared under an SSA and its cleared employees may only be afforded access to "proscribed information" with special authorization. This special authorization must be manifested by a favorable national interest determination (NID) that must be program/project/contract-specific. Access to proscribed information must be predicated on compelling evidence that release of such information to a company cleared under the SSA arrangement advances the national security interests of the United States. The authority to make this determination shall not be permitted below the Assistant Secretary or comparable level of the agency concerned.

b. A proposed NID will be prepared and sponsored by the GCA whose contract or program, is involved and it shall include the following information:

(1) Identification of the proposed awardee along with a synopsis of its foreign ownership (include solicitation and other reference numbers to identify the action);

(2) General description of the procurement and performance requirements;

(3) Identification of national security interests involved and the ways in which award of the contract helps advance those interests;

(4) The availability of any other U.S. company with the capacity, capability, and technical expertise to satisfy acquisition, technology base, or industrial base requirements and the reasons any such company should be denied the contract; and

(5) A description of any alternate means available to satisfy the requirement, and the reasons alternative means are not acceptable.

c. An NID shall be initiated by the GCA. A company may assist in the preparation of an NID, but the GCA is not obligated to pursue the matter further unless it believes further consideration to be warranted. The GCA shall, if it is supportive of the NID, forward the case through appropriate agency channels to the ultimate approval authority within that agency. If the proscribed information is under the classification or control jurisdiction of another agency, the approval of the cognizant agency is required; e.g., NSA for COMSEC, DCI for SCI, DOE for RD and FRD, the Military Departments for their TOP SECRET information, and other Executive Branch Departments and Agencies for classified information under their cognizance.

d. It is the responsibility of the cognizant approval authority to ensure that pertinent security, counterintelligence, and acquisition interests are thoroughly examined. Agency-specific case processing details and the senior official(s) responsible for rendering final approval of NID's shall be contained in the implementing regulations of the U.S. agency whose contract is involved.

2-310. Technology Control Plan.

A TCP approved by the CSA shall be developed and implemented by those companies cleared under a Voting Trust Agreement, Proxy Agreement, SSA and SCA and when otherwise deemed appropriate by the CSA. The TCP shall prescribe all security measures determined necessary to reasonably foreclose the possibility of inadvertent access by non-U.S. citizen employees and visitors to information for which they are not authorized. The TCP shall also prescribe measures designed to assure that access by non-U.S. citizens is strictly limited to only that specific information for which appropriate Federal Government disclosure authorization has been obtained; e.g., an approved export license or technical assistance agreement. Unique badging, escort, segregated work area, security indoctrination schemes, and other measures shall be included, as appropriate.

2-311. Compliance.

Failure on the part of the company to ensure compliance with the terms of any approved security arrangement may constitute grounds for revocation of the company's FCL.

Chapter 3.

Security Training and Briefings

Section 1. Security Training and Briefings

3-100. General

Contractors shall provide all cleared employees with security training and briefings commensurate with their involvement with classified information.

3-101. Training Materials.

Contractors may obtain defensive security, threat awareness, and other education and training information and material from their CSA or other sources.

3-102. FSO Training.

Contractors shall be responsible for ensuring that the FSO, and others performing security duties, complete security training deemed appropriate by the CSA. Training requirements shall be based on the facility's involvement with classified information and may include an FSO orientation course and for FSOs at facilities with safeguarding capability, an FSO Program Management Course. Training, if required, should be completed within 1 year of appointment to the position of FSO.

3-103. Government-Provided Briefings.

The CSA is responsible for providing initial security briefings to the FSO, and for ensuring that other briefings required for special categories of information are provided.

3-104. Temporary Help Suppliers.

A temporary help supplier, or other contractor who employs cleared individuals solely for dispatch elsewhere, shall be responsible for ensuring that required briefings are provided to their cleared personnel. The temporary help supplier or the using contractor may conduct these briefings.

3-105. Classified Information Nondisclosure Agreement (SF 312).

The SF 312 is an agreement between the United States and an individual who is cleared for access to classified information. An employee issued an initial PCL must execute an SF 312 prior to being granted access to classified information. The contractor shall forward the executed SF 312 to the CSA for retention. If the employee refuses to execute the SF 312, the contractor shall deny the employee access to classified information and submit a report to the CSA. The SF 312 shall be signed and dated by the employee and witnessed. The employee's and witness' signatures must bear the same date.

3-106. Initial Security Briefings.

Prior to being granted access to classified information, an employee shall receive an initial security briefing that includes the following:

a. A Threat Awareness Briefing.

b. A Defensive Security Briefing.

c. An overview of the security classification system.

d. Employee reporting obligations and requirements.

e. Security procedures and duties applicable to the employee's job.

3-107. Refresher Briefings.

The contractor shall conduct periodic refresher briefings for all cleared employees. As a minimum, the refresher briefing shall reinforce the information provided during the initial briefing and inform employees of appropriate changes in security regulations. Contractors may satisfy this requirement by use of audio/video materials and by issuing written materials on a regular basis.

3-108. Debriefings.

Contractors shall debrief cleared employees at the time of termination of employment (discharge, resignation, or retirement); when an employee's PCL is terminated, suspended, or revoked; and upon termination of the FCL.

Chapter 4.

Classification and Marking

Section 1. Classification

4-100. General.

Information is classified pursuant to E.O. 12356 by an original classification authority and is designated and marked as TOP SECRET, SECRET, or CONFIDENTIAL. The designation UNCLASSIFIED is used to identify information that does not require a security classification. Except as provided by statute, (see Chapter 9) no other terms may be used to identify classified information. An original classification decision at any level can be made only by a U.S. Government official who has been delegated the authority in writing. Original classification decisions may require a security classification guide to be issued for use in making derivative classification decisions. Contractors make derivative classification decisions based on the guidance provided by the Contract Security Classification Specification that is issued with each classified contract.

4-101. Original Classification.

A determination to originally classify information may be made only when: (a) The information falls into one or more of the categories set forth in E.O. 12356, and (b) The unauthorized disclosure of the information, either by itself or in context with other information, reasonably could be expected to cause damage to the national security.

4-102. Derivative Classification Responsibilities.

Contractors who, extract, or summarize classified information, or who apply classification markings derived from a source document, or as directed by a classification guide or a Contract Security Classification Specification, are making derivative classification decisions. The FSO shall ensure that all employees authorized to perform derivative classification actions are sufficiently trained and that they possess, or have ready access to, the pertinent classification guides and/or guidance necessary to fulfill these important actions. Any specialized training required to implement these responsibilities will be provided by the CSA upon request.

a. The manager or supervisor at the operational level where material is being produced or assembled shall determine the necessity, currency, and accuracy of the classification applied to that material.

b. The manager or supervisor whose signature or other form of approval is required before material is transmitted outside the facility shall determine the necessity, currency, and accuracy of the security classification applied to that material.

c. Individual employees who copy or extract classified information from another document, or who reproduce or translate an entire document, shall be responsible for

(1) Marking the new document or copy with the same classification markings as applied to the information or document from which the new document or copy was prepared and

(2) Challenging the classification if there is reason to believe the information is classified unnecessarily or improperly.

d. Questions on the classification assigned to reference material are referred as indicated in paragraph 11-206.

e. Commensurate with their involvement, security classification guidance, shall be provided to all employees, including but not limited to, other cleared locations, sales, marketing, technical, production, accounting, clerical, and overseas personnel who have access to classified information in connection with performance on a classified contract.

f. Appropriate security classification guidance shall be provided to subcontractors in connection with classified subcontracts. Subcontractors assume the security classification responsibilities of prime contractors in relation to their subcontractors. (See Chapter 7 for Subcontracting.)

4-103. Security Classification Guidance.

The GCA is responsible for incorporating appropriate security requirements clauses in a classified contract and for providing the contractor with the security classification guidance needed during the performance of the contract. This guidance is provided to a contractor by means of the Contract Security Classification Specification. The Contract Security Classification Specification must identify the specific elements of classified information involved in the contract which require security protection. Contractors shall, to the extent practicable, advise and assist in the development of the original Contract Security Classification Specification. It is the contractor's responsibility to understand and apply all aspects of the classification guidance. Classification guidance is, not withstanding the contractor's input, the exclusive responsibility of the GCA, and the final determination of the appropriate classification for the information rests with that activity. The Contract Security Classification Specification is a contractual specification necessary for performance on a classified contract. If a classified contract is received without a Contract Security Classification Specification, the contractor shall advise the GCA.

a. The GCA is required to issue an original Contract Security Classification Specification to a contractor in connection with an IFB, RFP, RFQ, or other solicitation; and with the award of a contract that will require access to, or development of, classified information in the performance of the classified contract.

b. The GCA is required to review the existing guidance periodically during the performance stages of the contract and to issue a revised Contract Security Classification Specification when a change occurs to the existing guidance or when additional security classification guidance is needed by the contractor.

c. Upon completion of a classified contract, the contractor must dispose of the classified information in accordance with Chapter 5, Section 7. If the GCA does not advise to the contrary, the contractor may retain classified material for a period of 2 years following completion of the contract. The Contract Security Classification Specification will continue in effect for this 2-year period. If the GCA determines the contractor has a continuing need for the material, the GCA must issue a final Contract Security Classification Specification for the classified contract. A final specification is provided to show the retention period and to provide final disposition instructions for the classified material under the contract.

4-104. Challenges to Classification.

Contractors who believe

(a) That information is classified improperly or unnecessarily; or

(b) That current security considerations justify downgrading to a lower classification or upgrading to a higher classification; or

© That the security classification guidance provided is improper or inadequate, are required to discuss such issues with the pertinent GCA for remedy. If a solution is not forthcoming, and the contractor believes that corrective action is still required, a formal challenge shall bemade to the agency that originally classified the information. Such challenges shall include a description sufficient to identify the issue, the reasons why the contractor believes that corrective action is required, and any recommendations for appropriate corrective action. In any case, the information in question shall be safeguarded as required by this Manual for its assigned or proposed level of classification, whichever is higher, until action is completed. If no answer is received within 45 days, the CSA may be requested to provide assistance in obtaining a response. The fact that a contractor has initiated such a challenge will not, in any way, serve as a basis for adverse action by the Government. If a contractor believes that adverse action did result from a classification challenge, full details should be furnished promptly to the ISOO for resolution.

4-105. Contractor Developed Information.

Whenever a contractor develops an unsolicited proposal or originates information not in the performance of a classified contract, the following rules shall apply:

a. If the information was previously identified as classified, it shall be classified in accordance with an appropriate Contract Security Classification Specification, classification guide, or source document and marked as required by this Chapter.

b. If the information was not previously classified, but the contractor believes the information may, or should, be classified, the contractor should protect the information as though classified at the appropriate level and submit it to the agency that has an interest in the subject matter for a classification determination. In such a case, the following marking, or one that clearly conveys the same meaning, may be used: CLASSIFICATION DETERMINATION PENDING- Protect as though classified (TOP SECRET, SECRET, or CONFIDENTIAL).This marking shall appear conspicuously at least once on the material but no further markings are necessary until a classification determination is received. In addition, contractors are not precluded from marking such material as company-private or proprietary information. Pending a final classification determination, the contractor should protect the information. It should be noted however, that E.O. 12356 prohibits classification of information over which the

Government has no jurisdiction. To be eligible for classification, the information must

(1) Incorporate classified information to which the contractor was given prior access, or

(2) The Government must first acquire a proprietary interest in the information.

4-106. Classified Information Appearing in Public Media.

The fact that classified information has been made public does not mean that it is automatically declassified. Contractors shall continue the classification until formally advised to the contrary. Questions as to the propriety of continued classification in these cases should be brought to the immediate attention of the GCA.

4-107. Downgrading or Declassifying Classified Information.

Information is downgraded or declassified based on the loss of sensitivity of the information due to the passage of time or on occurrence of a specific event. Contractors downgrade or declassify information based on the guidance provided in a Contract Security Classification Specification, upon formal notification, or as shown on the material. These actions constitute implementation of a directed action rather than an exercise of the authority for deciding the change or cancellation of the classification. At the time the material is actually downgraded or declassified, the action to update records and change the classification markings shall be initiated and performed. Declassification, either automatically or by individual review, is not automatically an approval for public disclosure.

Section 2. Marking Requirements

4-200. General.

Physically marking classified information with appropriate classification markings serves to warn and inform holders of the degree of protection required to protect it. Other notations facilitate downgrading, declassification, and aid in derivative classification actions. Therefore, it is essential that all classified information and material be marked to clearly convey to the holder the level of classification assigned, the portions that contain or reveal classified information, the period of time protection is required, and any other notations required for protection of the information or material.

4-201. Marking Requirements for Information and Material.

As a general rule, the markings specified in paragraphs 4-202 through 4-208 are required for all classified information, regardless of the form in which it appears. Some material, such as documents, letters, and reports, can be easily marked with the required markings. Marking other material, such as equipment, AIS media, and slides, will be more difficult due to size or other physical characteristics. Since the principal purpose of the markings is to alert the holder that the information requires special protection, it is essential that all classified material be marked to the fullest extent possible to ensure that it is afforded the necessary safeguards.

4-202. Identification Markings.

All classified material shall be marked to show the name and address of the facility responsible for its preparation, and the date of preparation. These markings are required on the face of all classified documents.

4-203. Overall Markings.

The highest level of classified information contained in a document is its overall marking. The overall marking shall be conspicuously marked or stamped at the top and bottom on the outside of the front cover (if any), on the title page (if any), on the first page, and on the outside of the back cover (if any). If the document does not have a back cover, the outside of the back or last page, which may serve as a cover, may also be marked at the top and bottom with the overall classification of the document. All copies of classified documents shall also bear the required markings. Overall markings shall be stamped, printed, etched, written, engraved, painted, or affixed by means of a tag, sticker, decal, or similar device on classified material, other than documents, and on containers of such material, if possible. If marking the material or container is not practical, written notification of the markings shall be furnished to recipients.

4-204. Page Markings.

Interior pages of classified documents shall be conspicuously marked or stamped at the top and bottom with the highest classification of the information appearing thereon, or the designation UNCLASSIFIED, if all the information on the page is UNCLASSIFIED. Alternatively, the overall classification of the document may be conspicuously marked or stamped at the top and bottom of each interior page, when necessary to achieve production efficiency, and the particular information to which classification is assigned is adequately identified by portion markings in accordance with 4-206. In any case, the classification marking of a page shall not supersede a lower level of classification indicated by a portion marking applicable to information on that page.

4-205. Component Markings.

The major components of complex documents are likely to be used separately. In such cases, each major component shall be marked as a separate document. Examples include: (a) each annex, appendix, or similar component of a plan, program, or project description; (b) attachments and appendices to a letter; and © each major part of a report. If an entire major component is UNCLASSIFIED, the first page of the component may be marked at the top and bottom with the designation UNCLASSIFIED and a statement included, such as: "All portions of this (annex, appendix, etc.) are UNCLASSIFIED." When this method of marking is used, no further markings are required on the unclassified major component.

4-206. Portion Markings.

Each section, part, paragraph, or similar portion of a classified document shall be marked to show the highest level of its classification, or that the portion is unclassified. Portions of documents shall be marked in a manner that eliminates doubt as to which of its portions contain or reveal classified information. For the purpose of applying these markings, a portion or paragraph shall be considered a distinct section or subdivision of a chapter, letter, or document dealing with a particular point or idea which begins on a new line and is often indented. Classification levels of portions of a document shall be shown by the appropriate classification symbol placed immediately following the portion's letter or number, or in the absence of letters or numbers, immediately before the beginning of the portion. In marking portions, the parenthetical symbols (TS) for TOP SECRET, (S) for SECRET, (C) for CONFIDENTIAL, and (U) for UNCLASSIFIED shall be used.

a. Portions of U.S. documents containing foreign government information shall be marked to reflect the foreign country of origin as well as the appropriate classification, for example, (U.K.-C).

b. Portions of U.S. documents containing extracts from NATO documents shall be marked to reflect "NATO" or "COSMIC" as well as the appropriate classification, for example, (NATO-S) or (COSMIC-TS).

c. When illustrations, photographs, figures, graphs, drawings, charts, or similar portions are contained in classified documents they shall be marked clearly to show their classified or unclassified status. These classification markings shall not be abbreviated and shall be prominent and placed within or contiguous (touching or near) to such a portion. Captions of such portionsshall be marked on the basis of their content alone by placing the symbol (TS), (S), (C), or (U) immediately preceding the caption.

d. If, in an exceptional situation, parenthetical marking of the portions is determined to be impractical, the classified document shall contain a description sufficient to identify the exact information that is classified and the classification level(s) assigned to it. For example, each portion of a document need not be separately marked if all portions are classified at the same level, provided a full explanation is included in the document.

4-207. Subject and Title Markings.

Unclassified subjects and titles shall be selected for classified documents, if possible. An unclassified subject or title shall be marked with a (U) placed immediately following and to the right of the item. A classified subject or title shall be marked with the appropriate symbol (TS), (S), or (C) placed immediately following and to the right of the item.

4-208. Markings for the "Classified by," "Downgrade to," or "Declassify on" Lines.

All classified information shall be marked to reflect the source of the classification; downgrading instructions, if appropriate; and declassification instructions. The markings used to show this information are as follows: CLASSIFIED BY DOWNGRADE TO ON DECLASSIFY ON Documents shall show the required information either on the cover, first page, title page, or in another prominent position. Other material shall show the required information on the material itself or, if not practical, in related or accompanying documentation.

a. The "CLASSIFIED BY" Line. The purpose of the "Classified by" line is to provide justification for the classification applied to the material by the contractor and to trace it to the contract under which it was prepared. In completing the "Classified by" line, the contractor shall identify the applicable guidance that authorizes the classification of the material. Normally this will be a Contract Security Classification Specification for a contractor. However, many Contract Security Classification Specifications cite more than one security guide and many times the contractor is extracting information from a classified source document. In these cases, the contractor may cite the Contract Security Classification Specification, use the phrase "multiple sources" or cite the specific guide or source document that authorizes the classification. When the phrase "multiple sources" is used, the contractor shall maintain records that support the classification for the duration of the contract under which the material was created. These records may take the form of a bibliography identifying the applicable classification sources and be included in the text of a document or they may be maintained separately. When identifying the Contract Security Classification Specification on the "Classified by" line, always include the date of the Contract Security Classification Specification and the specific contract number for which it was issued. The "Classified by" line is not required on electronic messages.

b. The "DECLASSIFY ON" Line. The purpose of the "Declassify On" line is to provide any declassification instructions appropriate for the material. When completing this line, the contractor shall use the information specified in the Contract SecurityClassification Specification or guide furnished with a classified contract or cite the source document. Material containing Restricted Data or Formerly Restricted Data shall not have a "Declassify On" line.

c. The "DOWNGRADE TO" Line. The purpose of the "Downgrade To" line is to provide any downgrading instructions appropriate for the material. When completing this line, the contractor shall insert SECRET or CONFIDENTIAL and an effective date or event as indicated in the Contract Security Classification Specification, a guide, or the source document.

4-209. Extracts of Information.

Most classified material originated under recent Executive orders contains overall, portion, paragraph, and appropriate downgrading and declassification markings that will provide sufficient guidance for the classification of extracted information. However, some classified material may not have these markings. If contractors encounter source documents that do not provide the needed markings the following procedures apply.

a. Information extracted from a classified source document shall be classified according to the classification markings on the source.

(1) If the source document contains portion markings, the classification of the extracted portions shall be carried forth to the new material.

(2) If the source document does not contain portion markings, the overall classification of the source document shall be carried forth to the extracted information in the new document.

(3) If the new material is classified based on "multiple sources," the highest level of classification contained in the document shall be shown as the overall classification on the new material.

b. Downgrading and declassification markings shown on the source shall be carried forth to the new material.

(1) If only one source is used, the downgrading and declassification markings shown on the source shall be carried forth to the new material. If no date or event is shown on the source, the new material shall show "Originating Agency's Determination Required" or "OADR" on the "Declassify on" line.

(2) If the new material is classified based on "multiple sources," the most remote date or event for declassification shown on any source shall be assigned to the new material. If any source shows "OADR," or no date of event is shown, the "Declassify on" line on the new document or material shall show "Originating Agency's Determination Required" or "OADR."

c. If the contractor requires more definitive guidance, the originator of the source document, or the GCA that provided the document, may be contacted and requested to provide appropriate markings or an appropriate security classification guide. In any case, the classification markings for a source document are the responsibility of the originator, and not the contractor extracting the information. Contractors are encouraged to contact the originator to avoid improper or unnecessary classification of material.

4-210. Marking Special Types of Material.

The following procedures are for marking special types of material, but are not all inclusive. The procedures cover the types of materials that are most often produced by contractors and may be varied to accommodate the physical characteristics of the material, organizational and operational requirements, and ultimate use of the item produced. The intent of the markings is to ensure that the classification of the item, regardless of its form, is clear to the holder.

a. Files, Folders, or Groups of Documents. Files, folders, binders, envelopes, and other items, containing classified documents, when not in secure storage, shall be conspicuously marked with the highest classification of any classified item included therein. Cover sheets may be used for this purpose.

b. Messages. Electronically transmitted messages shall be marked in the same manner required for other documents except as noted herein. The overall classification of the message shall be the first item of information in the text. A "Classified By" line is not required on messages. When messages are printed by an automated system, all markings may be applied by that system, provided the classification markings are clearly distinguished from the printed text. Included in the last line of text of the message is the date or event for declassification or the notation Originating Agency's Determination Required or OADR, and the downgrading action, if applicable. In record communications systems, electronically transmitted messages shall be marked in accordance with JANAP 128 format requirements.

c. Microforms. Microforms contain images or text in sizes too small to be read by the unaided eye. The applicable markings specified in 4-202 through 4-208 shall be conspicuously marked on the microform medium or its container, to be readable by the unaided eye. These markings shall also be included on the image so that when the image is enlarged and displayed or printed, the markings will be conspicuous and readable. Further markings and handling shall be as appropriate for the particular microform involved.

d. Translations. Translations of U.S. classified information into a language other than English shall be marked to show the U.S. as the country of origin, with the appropriate U.S. markings as specified in 4-202 through 4-208, and the foreign language equivalent thereof. (See Appendix B).

4-211. Marking Transmittal Documents.

A transmittal document shall be marked with the highest level of classified information contained therein and with an appropriate notation to indicate its classification when the enclosures are removed. An unclassified document that transmits a classified document as an attachment shall bear a notation substantially as follows: Unclassified when Separated from Classified Enclosures. A classified transmittal that transmits higher classified information shall be marked with a notation substantially as follows: CONFIDENTIAL (or SECRET) when Separated from Enclosures. In addition, a classified transmittal itself must bear all the classification markings required by this Manual for a classified document.

4-212. Marking Wholly Unclassified Material.

Normally, wholly UNCLASSIFIED material will not be marked or stamped UNCLASSIFIED unless it is essential to convey to a recipient of such material that: (a) The material has been examined specifically with a view to impose a security classification and has been determined not to require classification; or (b) The material has been reviewed and has been determined to no longer require classification and it is declassified.

4-213. Marking Compilations.

a. Documents. In some instances, certain information that would otherwise be unclassified when standing alone may require classification when combined or associated with other unclassified information. When classification is required to protect a compilation of such information, the overall classification assigned to the document shall be conspicuously marked or stamped at the top and bottom of each page and on the outside of the front and back covers, if any. The reason for classifying the compilation shall be stated at an appropriate location at or near the beginning of the document. In this instance, the portions of a document classified in this manner need not be marked.

b. Portions of a Document. If a classified document contains certain portions that are unclassified when standing alone, but classified information will be revealed when they are combined or associated, those portions shall be marked as unclassified, the page shall be marked with the highest classification of any information on the page, and a statement shall be added to the page, or to the document, to explain the classification of the combination or association to the holder. This method of marking may also be used if classified portions on a page, or within a document, will reveal a higher classification when they are combined or associated than when they are standing alone.

4-214. Marking Miscellaneous Material.

Unless a requirement exists to retain material such as rejects, typewriter ribbons, carbons, and similar items for a specific purpose, there is no need to mark, stamp, or otherwise indicate that the material is classified. (NOTE: Such material developed in connection with the handling, processing, production, and utilization of classified information shall be handled in a manner that ensures adequate protection of the classified information involved and destruction at the earliest practical time.)

4-215. Marking Training Material.

Unclassified documents or material that are created to simulate or demonstrate classified documents or material shall be clearly marked to indicate the actual UNCLASSIFIED status of the information. For example: SECRET FOR TRAINING PURPOSES ONLY, OTHERWISE UNCLASSIFIED or UNCLASSIFIED SAMPLE, or a similar marking may be used.

4-216. Marking Downgraded or Declassified Material.

Classified information, which is downgraded or declassified, shall be promptly and conspicuously marked to indicate the change. If the volume of material is such that prompt remarking of each classified item cannot be accomplished without unduly interfering with operations, a downgrading and declassification notice may be attached to the inside of the file drawers or other storage container in lieu of the remarking otherwise required. Each noticeshall specify the authority for the downgrading or declassification action, the date of the action, and the storage container to which it applies. When documents or other material subject to downgrading or declassification are withdrawn from the container solely for transfer to another, or when the container is transferred from one place to another, the transfer may be made without remarking, if the notice is attached to the new container or remains with each shipment. When the documents or material are withdrawn for use or for transmittal outside the facility, they shall be remarked in accordance with a or b below.

a. Automatic Downgrading or Declassification Actions. Holders of classified material may take automatic downgrading or declassification actions as specified by the markings on the material without further authority for the action. All old classification markings shall be canceled and the new markings substituted, whenever practical. In the case of documents, as a minimum, the outside of the front cover (if any), the title page (if any), the first page, and the outside of the back cover (if any), shall reflect the new classification markings, or the designation UNCLASSIFIED. Other material shall be remarked by the most practical method for the type of material involved to ensure that it is clear to the holder what level of classification is assigned to the material. Old markings shall be canceled, if possible, on the material itself. If not practical, the material may be marked by affixing new decals, tags, stickers, and the like to the material or its container.

b. Other than Automatic Downgrading or Declassification Actions. When contractors are notified of downgrading or declassification actions that are contrary to the markings shown on the material, the material shall be remarked to indicate the change. All old classification markings shall be canceled and the new markings substituted, whenever practical. In the case of documents, as a minimum, the outside of the front cover (if any), the title page (if any), the first page, and the outside of the back cover (if any), shall reflect the new classification markings or the designation UNCLASSIFIED. In addition, the material shall be marked to indicate the authority for the action, the date of the action, and the identity of the person or contractor taking the action. Other holders shall be notified if further dissemination has been made by the contractor.

4-217. Upgrading Action.

When a notice is received to upgrade material to a higher level, for example from CONFIDENTIAL to SECRET, the new markings shall be immediately entered on the material in accordance with the notice to upgrade, and all the superseded markings shall be obliterated. The authority for, and the date of, the upgrading action shall be entered on the material. As appropriate, other holders shall be notified if further dissemination of the material has been made by the contractor. (See 4-218 below).

4-218. Miscellaneous Actions.

If classified material is inadvertently distributed outside the facility without the proper classification assigned to it, or without any markings to identify the material as classified, the contractor shall, as appropriate:

a. Determine whether all holders of the material are cleared and are authorized access to it.

b. Determine whether control of the material has been lost.

c. If recipients are cleared for access to the material, promptly provide written notice to all holders of the proper classification to be assigned. If control of the material has been lost, if all copies cannot be accounted for, or if unauthorized personnel have had access to it, report the compromise to the CSA.

4-219. Documents Generated Under Previous Executive Orders.

Documents classified under previous executive orders need not be remarked to comply with the marking requirements of E.O. 12356. Any automatic downgrading or declassification action specified on such documents may be taken without further authority. Information extracted from these documents for use in new documents shall be marked for downgrading or declassification action as specified on the source document. If automatic markings are not included on the source documents, the documents shall remain classified until authority is obtained from the originating agency for downgrading or declassification action. Information extracted from such documents for use in new documents shall specify "Originating Agency's Determination Required" on the "Declassify on" line.

Chapter 5.

Safeguarding Classified Information

Section 1. General Safeguarding Requirements

5-100. General.

Contractors shall be responsible for safeguarding classified information in their custody or under their control. Individuals are responsible for safeguarding classified information entrusted to them. The extent of protection afforded classified information shall be sufficient to reasonably foreclose the possibility of its loss or compromise.

5-101. Safeguarding Oral Discussions.

Contractors shall ensure that all cleared employees are aware of the prohibition against discussing classified information over unsecured telephones, in public conveyances or places, or in any other manner that permits interception by unauthorized persons.

5-102. End of Day Security Checks.

a. Contractors that store classified material shall establish a system of security checks at the close of each working day to ensure that all classified material and security repositories have been appropriately secured.

b. Contractors that operate multiple work shifts shall perform the security checks at the end of the last working shift in which classified material had been removed from storage for use. The checks are not required during continuous 24-hour operations.

5-103. Perimeter Controls.

Contractors authorized to store classified material shall establish and maintain a system to deter and detect unauthorized introduction or removal of classified material from their facility. The objective is to discourage the introduction or removal of classified material without proper authority. If the unauthorized introduction or removal of classified material can be reasonably foreclosed through technical means, which are encouraged, no further controls are necessary. Employees who have a legitimate need to remove or transport classified material should be provided appropriate authorization media for passing through designated entry/exit points. The fact that persons who enter or depart the facility are subject to an inspection of their personal effects shall be conspicuously posted at all pertinent entries and exits.

a. All persons who enter or exit the facility shall be subject to an inspection of their personal effects, except under circumstances where the possibility of access to classified material is remote. Inspections shall be limited to buildings or areas where classified work is being performed. Inspections are not required of wallets, change purses, clothing, cosmetic cases, or other objects of an unusually personal nature.

b. The extent, frequency, and location of inspections shall be accomplished in a manner consistent with contractual obligations and operational efficiency. Inspections may be done using any appropriate random sampling technique. Contractors are encouraged to seek legal advice during the formulation of implementing procedures and to surface significant problems to the CSA.

5-104. Emergency Procedures.

Contractors shall develop procedures for safeguarding c