ML20137Q262

Informs Commission of Staff Proposed Processes for Making Required Findings Re Certification of United States Enriched Corp or Private Corp Successor

ML20137Q262
Person / Time
Site:	Portsmouth Gaseous Diffusion Plant, 07007001
Issue date:	04/02/1997
From:	Callan L NRC OFFICE OF THE EXECUTIVE DIRECTOR FOR OPERATIONS (EDO)
To:
References
SECY-97-071, SECY-97-071-R, SECY-97-71, SECY-97-71-R, NUDOCS 9704100190
Download: ML20137Q262 (19)

Text

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POLICY ISSUE (Information)

April 2, 1997 secy-97-071 EQR;. The Comissioners ERQlit. L. Joseph Callan Executive Director for Operations

SUBJECT:

INFORMATION PAPER: PROCEDURES TO ENSURE THAT CERTIFICATION OF PRIVATIZED U.S. ENRICHMENT CORPORATION MEETS REQUIREMENTS OF THE USEC PRIVATIZATION ACT RUREQSE:

The Comission instructed the staff, in a staff requirements memorandum dated October 29, 1996, to formulate a process to address certain mandates of the U.S. Enrichment Corporation (USEC) Privatization Act (the Act), regarding certification of USEC, or its private corporation successor. This paper is to inform the Comission of the staff's proposed processes for making the required findings.

BACKGROUND:

The Act, signed into law by President Clinton on April 26, 1996, directs USEC to implement a privatization plan. USEC has plans for two alternative methods of privatizing: (1) a sale through an initial public offering, or (2) a merger and acquisition. USEC, with the approval of the Secretary of the Treasury, will select the alternative that best satisfies the requirements of the Act. The private sector entity that purchases the assets of USEC will be responsible for the operation of the two gaseous diffusion plants, and the development of the atomic vapor laser isotope separation process. The Act g) ',

prohibits the issuance of a certificate of compliance to that entity if the Comission determines that: ,

NOTE: TO BE MADE PUBLICLY AVAILABLE IN 5 WORKING DAYS FROM THE DATE OF CONTACT: Thomas E. Wenck, NMSS/FCSS THIS PAPER 415-8088

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(1) The entity is owned, controlled, or dominated by an alien, a foreign  !

corporation, or a foreign gov 9rnment; or (2) Issuance of a certificate would be inimical to the common defense and security of the United States; or 1

(3) Issuance of a certificate would be inimical to the maintenance of a reliable and economical domestic source of enrichment services.

Before issuance of the Act, foreign ownership, control, or influence (FOCI) in USEC or its private successor was restricted by the National Industrial Security Program Operating Manual (NISP0M), promulgated pursuant to Executive j Order 12829. The NISPOM establishes requirements to safeguard classified 1 information and governs its release to foreign interests by Federal government contractors, licensees, grantees, and certificate holders. The NISP0M

-provides that any entity requiring access to classified information, as does USEC or any privatized USEC successor, must be determined by the U.S.

Government to be free from FOCI that could potentially result in a compromise of classified information. It also sets forth detailed procedures and criteria for making this. determination. The NISP0M was concurred in by the Department of Defense, the Department of Energy (D0E), NRC, and the Director of Central Intelligence.

Also before promulgation of the Act, the Atomic Energy Act of 1954 (AEA), as amended, required that NRC establish standards to govern the gaseous diffusion plants in order to provide for the common defense and security. 'The staff developed and applied NRC regulations and implemented ~a process for the review

. af USEC's application for initial certification that met this requirement.

This process included a review of USEC plans for physical security, the protection of classified matter, and fundamental nuclear material control. ,

The issuance of the initial certificate of compliance was based on the i determination that USEC met the NRC standards that were developed to protect 1 the common defense and security.

The Act requires the Commission to withhold certification if it determines that issuance would be inimical to the maintenance of a reliable and economical domestic source of enrichment services. The Commission has not been previously asked to evaluate whether a proposed action is detrimental to the viability of an industry subject to NRC regulation. Information about the intent of the language is contained in a Senate Committee report on an earlier <

version of the legislation (S. Rpt. No. 104-173 on S.755, November 17,1995), ,

which states that the intent of the provision is to "... guard against the  !

possibility of a foreign enrichment company acquiring the Corporation with the intent of operating it in such a manner inconsistent with its maintenance as an ongoing concern." The Act states that no certificate or license should be issued:

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...if in the opinion of the NRC the issuance of such a license or certificate of compliance would be inimical to the common defense and security of the United States or would be inimical to the maintenance of ,

a reliable and economical domestic source of enrichment services because  !

! of the nature and extent of.the ownership, control, or domination of the l 1

Corporation by a foreign corporation or a foreign government or any 1 j other reievant factors or circumstances. l DISCUSSION-l 1 l

l The staff submitted, for Commission approval, on December 19, 1996,  ;

SECY-96-258, " Direct and Final Rulemaking

USEC Privatization Act - l l Conforming Changes and Revision to the NRC Enforcement Policy (NUREG-1600)."

'i With this paper, the staff proposed amendments to 10 CFR Parts.2, 40, 70, and

.76 to bring them into conformance with the statutory requirements of the Act. )

The requirements for prohibition of issuance of a. certificate, if the 1 Commission makes any of the determinations described above, were proposed for l incorporation as 10 CFR Part 76, Section 76.22, entitled " Ineligibility of -i Certain Applicants." l Any successor to USEC will require access to classified information and thus will be subject to a FOCI determination based on the NISP0M criteria. The ,

NISPOM FOCI requirements (Attachment 1) are being incorporated into NRC ~

regulations through a proposed rule (61 fB 40555), that amends the provisions of 10 CFR Part 95, which contain requirements for access to and protection of classified information. The proposed NISPOM FOCI requirements are more comprehensive and prescriptive than the statutory prohibition of foreign ownership under Section 193 of the AEA. Therefore, the FOCI information that is elicited, and which is sufficient to make a FOCI determination, should also be sufficient to enable NRC to satisfy its statutory responsibility to ensure that the USEC successor is not owned, controlled, or dominated by an alien, a foreign company, or a foreign government.

NRC, DOE, and USEC coordinated closely during the development of the privatization process and USEC has incorporated the NISP0M FOCI requirements in its advance public information package for prospective bidders. DOE and NRC have agreed that DOE will be responsible for performing the FOCI investigations and NRC will be the cognizant security agency responsible for making the final FOCI determination. All FOCI information received from prospective bidders will be forwarded to both DOE and NRC for a preliminary determination allowing such bidders access to information regarding USEC l operations. The time required to make the final FOCI determination for access '

to classified information will depend on the number and complexity of bidder information packages received from USEC. The same FOCI information will then be used to make the statutory de. termination regarding foreign ownership, 4 control, or domination. The statutory determination must be made prior to '

certification of the USEC successor.

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As noted above, the issuance of the initial USEC certification was based upon a finding of compliance with NRC standards to protect the common defense and  ;

security. Subsequent recertification of USEC, or certification of a USEC 1 successor, will be based on the submission of changes to the initial  ;

application and a similar review process. This review will include the Safety Analysis Report, the Physical Securit, Plan, the Security Plan for the Protection of Classified Matter, and the Fundamental Nuclear Material Control Plan. Additional considerations will include the Commission's determination on FOCI, USEC's implementation of the Compliance Plans, accumulated regulatory experience, resident inspector reports, NRC inspection programs and reports dealing with physical protection, transportation protection, material control and accounting, and control of classified information.

The Commission determination regarding the maintenance of a reliable and .

economical domestic source of enrichment services will be based on a review of l the following:

(1) Information required under 10 CFR 676.33 "information known to the  !

applicant concerning the control or ownership, if any, exercised ,

over the applicant by any alien, foreign company, or foreign l government," and FOCI information received pursuant to the NISP0M; (2) Information provided to NRC by the applicant or certificate holder to support its application for a certificate of compliance; (3) Information provided by the applicant or certificate holder to other Federal agencies necessary for their administration and enforcement of uranium delivery limitations, which is made available to NRC; (4) Information provided by DOE to the President for his annual report to the Congress on the effect of the low-enriched uranium deliveries under the Russian High Enriched Uranium Agreement on the domestic uranium mining, conversion, and enrichment industries, and the operations of the gaseous diffusion plants; (5) Reports, projections, and views on the economic effects of privatization solicited from appropriate industry, private, and government scurces; The staff is preparing a standard review plan for recertification of the gaseous diffusion plants. A. chapter has been drafted (Attachment 2) to ensure consistency in, and to formally document, the processes that will be used to make these determinations. Historically, the staff's interest in the financial status of license holders has been of a narrow and specific scope.

This interest has been limited to factors relevant to the ability of licensees

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to operate facilities safely and in accordance with NRC regulations and license / certificate commitments, and to properly perform decontamination and decommissioning activities. The expertise of the staff in matters of finance and economic analysis are correspondingly limited. Therefore, the staff may explore agreements with other government agencies that possess the appropriate expertise and knowledge in these areas. Further, the volume and type of I

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5 information that is obtained concerning this matter may necessitate the s procurement of k contract with an external organization that possesses the appropriate expertise and resources.

! It is expected that the review of the information necessary to make these

. determinations could require a period of time that ranges from weeks to l months. The determination regarding the maintenance of a reliable and economical domestic source of enrichment services, in particular, may require i a lengthy period of review. However, the staff is aware that the process USEC

, plans to pursue for the privatization decision, upon the advice of their

investment advisors, contains some very short deadlines for requesting NRC l input on " preliminary" and " final" statutory determinations. In order to 1 achieve the highest financial return to the U.S. Government from this transaction, there may be pressure for NRC to make these determinations in a

much shorter time period than that discussed above. Under these i circumstances, it may be desirable to seek advance agreements with other-

government agencies to get a quick review and response concerning the

" reliable and economical domestic supply of enrichment services" and other

, statutory criteria. Similarly, the NRC staff may need to consult with the Commission concerning these NRC determinations under more pressured deadlines than are normally imposed. .

COORDINATION:

The Office of the General Counsel has reviewed this paper and has no legal objection to its contents.

This paper was not coordinated with the Offices of the Chief Financial Officer and Chief Information Officer because the paper does not involve budget, resource impacts, financial management, or information management.

L. seph' Callan Executive Director for Operations Attachments: DISTRIBUTION:

1) D00, National Industrial Security Commissioners Program Operating Manual, Chapter 2, OcC Section 3, " Foreign Ownership, Control, OCAA or Influence (FOCI),"D00 5520.22-M, 01G January 1995. OPA OCA

2) Draft GDP Certification SRP, Chapter 1, cIO

• Section 4, " Determination of Foreign CFO Ownership and Control, Common Defense EDO and Security, and Ensured Domestic SECY Supply of Enrichment Services."

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Section 3. Foreign Ownership, Control, or Influence (FOCI) l j 2-300. General, taken as necessary to remove the possibility of unau- i

! thorized access or the adverse affect on classified g a. This Section establishes the policy concetning the contracts.

initial or continued clearance eligibility of U.S. com-

}. panies with foreign invnivement; provides criteria c. The Federal Government reserves the right and has j for determining whether U.S. companies are under the obligation to impose any security method, safe-

{- , foreign ownership, control or influence (FOCI); pre- guard, or restriction it believes necessary to ensure scribes responsibilities in FOCl matters; and outlines that unauthortzed access to classified information is i security measures that may be considered to negate effectively precluded and that performance of classi- l

} or reduce to an acceptable level FOCI-based security fied contracts is not adversely affected.

l l risks .

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d. . Changed conditions, such as a change in ownership,

b. The foreign involvement of U.S. companies cleared indebtedness, or the foreign intelligence threat, may or under consideration for a facility security clear- justify certain adjustments to the security terms j ance (FCL) is examined to ensure appropriate reso- under which a company is operating or, alternatively,

lution of matters determined to be of national that a different FOCI negation method be employed.

security significance. The development of security If a changed condition is of sufficient significance, it 1 measures to negate FOCI determined to be unaccept- might also result in a determination that a company l able shall be based on the concept of risk manage- is no longer considered to be under FOCI or, con-ment. The determination of whether a U.S. company versely, that a company is no longer eligible for an is under FOCI, its eligibility for an FCL, and the FCL.

security measures deemed necessary to negate FOCl shall be made on a case-by-case basis. c. Nothing contained in this Section shall affect the l authority of the Head of an Agency to limit, deny or i 2-301. Policy. Foreign investment can play an important revoke access to classified information under its stat-role in maintaining the vitality of the U.S. industrial - utory, regulatory or contract jurisdiction. For pur-base. "Iherefore, it is the policy of the U.S. Government poses of this Section, the term " agency" has the ,

to allow foreign investment consistent with the r,ational meaning provided at 5 U.S.C. 552(f), to include the security interests of the United States. The following term "DoD Component."

FOCI policy for U.S. companies subject to e TL is intended to facilitate fmeign investmed by en.,uring 2 302. Factors.

that foreign firms cannot undermine U.S. security and export controls to gain unauthorir.J access to critical a. The following factors shall be considered in the technology, classified information and special classes of aggregate to determine whether an applicant com-classified information: pany is under FOCl; its eligibility for an FCL; and

a. A U.S. company is considered under FOCI w' hen-ever a foreign interest has the power, direct or indi- (1) Foreign intelligence threat; rect, whether or not exercised, and whether or not exercisable through the ownership of the U.S. com- (2) Risk of unauthorized technology transfer; pany's securities, by contractual arrangements or other means, to direct or decide matters affecting the (3) Type and sensitivity of theinformation requir-management or operations of that company in a ing protection; manner which may result in unauthorized access to classified information or may affect adversely the (4) Nature and extent of FOCI, to include whether performance of classified contracts. a foreign person occupies a controlling or dominant minority position; source of FOCI,

b. A U.S. company determined to be under FOCl is to include identification of immediate, inter-ineligible for an FCL, or an existing FCL shall be mediate and ultimate parent organizations; suspended or revoked unless security measures are

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(5) Record of compliance with pertinent U.S. (8) Ten percent or more of any class of the appli-j laws, regulations and contracts; and cant's voting securities held in " nominee shares," in " street names," or in some other j (6) Nature of bilateral and multilateral security method that does nct disclose the beneficial I

and information exchange agreements that owner of equitable title;  ;

I may pertain.

(9) Interlocking directors with foreign persons  ;

i b. In addition to the factors shown above, the following and any officer or management official of the I information is required to be furnished to the CSA applicant company who is also employed by a on the CSA-designated form. The information will foreign person; .  ;

, be considered in the aggregate and the fact that some of the below listed conditions may apply does not (10) Any other factor that indicates or demon.

i swa-rily render the applicant compary ineligible strates a capability on the part of foreign per-i for an FCL. sons to control or influence the ope ations or

• j management of the applicant company; and ,

(1) Ownership or beneficial ownership, direct or  ;

j indirect, of 5 percent or more of the applicant (11) Ownership of 10% or more of any foreign 1

company's voting securities by a foreign per- interest.

{ son; 2-303. Procedures.  !

. (2) Ownership or beneficial ownership, direct or indirect, of 2f percent or more of .y class of a. If there are any affirmative answers on the form, or l the applicant company's non-voting securities other information is received which indicates that the i by a foreign person; applicant company may be under FOCI, the CSA l i

shall review the case to determine the relative signif- j j.

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(3) Management positions, such as directors, icance of the informauon in regard to: 1 officers, or executive personnel of the appli- '

cant company held by non U.S. citizens; (1) Whether the applicant is under FOCI, which shall include a review of the factors listed at (4) Foreign person power, direct or indirect, to 2-302; i

control the election, appointment, or tenure of '

directors, officers, or executive personnel of (2) The extent and manner to which the FOCI i the applicant company and the power to con- may result in unauthorized access to classified i trol other decisions or activities of the appli- information or adversely impact classified cant company; contract performance; and (5) Contracts, agreements, understandings, or (3) The type of actions,if any, that would be nec-arrangements between the applicant con pany essary to negate the effects of FOCI to a level and a foreign person; deemed acceptable to the Federal Govern-ment. Disputed matters may be appealed and (6) Details of loan arrangements between the the applicant shall be advised of the govern- j applicant company and a foreign person if the ment's appeal channels by the CSA. {

applicant company's (the borrower) overall j

debt to equity ratio is 40:60 or greater; and b. When a company with an FCL enters into negotia- i details of any significant portion of the appli- tions for the proposed merger, acquisition, or take-  ;

cant company's financial obligations that are over by a foreign person, the applicant shall submit subject to the ability of a foreign person to notification to the CSA of the commencement of demand repayment; such negotiations. The submission shall include the type of transaction under negotiation (stock pur-  ;

(7) Total revenues or net income in excess of 5 chase, asset purchase, etc.), the identity of the poten-  !

percent from a single foreign person or in tial foreign person investor, and a plan to negate the excess of 30 percent from foreign persons in FOCl by a method outlined in 2-306. The company the aggregate; 2-3-2

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l shall submit copies of loan, purchase and share- f. Whenever a company has been determined to be

' holder agreements, annual reports, bylaws, articles under FOCI, the pnmary consideration shall be the of incorporation, partnership agreements and reports safeguarding of classified information. 'Ihe CSA is filed with other federal agencies to the CSA. responsible for taking whatever interim action neces-2 sary to safeguard classified informauon, in coordina-l

c. When a company with an ICL is determined to be tion with other affected agencies as appropriate. If 4

under FOCI, the facility security clearance shall be the company does not have possession of classified suspended. Suspension notices shall be made as fol- material, and does not have a current or impending i lows: requirement for access to classified information, the

, PCL shall be administratively terminated.

, (1) When the company has current access to clas- '

i sified information, the GCAs and prime con- 2-304. Foreign Mergers, Aq ' "' 7 and Takeovers, i tractor (s) of record shall be notified of the sad the CFIUS.

, suspension action along with full particulars j regarding the reason (s) therefor. Cognizant a. Propnsed merger, acquisition, or takeover (transac-l contracting agency security and acquisition . tion) cases voluntarily filed for review by the Com-l'

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officials shall be furnished written, concurrent mittee on Foreign Investment in the United States notice of the suspension action. All such (CFIUS) under Secuon 721 of Title VII of the j notices shall include a statement that the Defense Production Act(DPA)of 1950(P.L 102-99) j award of additional classified contracts is pro- shall be processed on a priority basis. The CSA shall j hibited so long as the FCL remains in suspen- determine whether the proposed transaction involves

j. sion. an applicant subject to this Section and convey its finding to appropriate agency authorities. If the pro-

(2) The company subject to suspension action posed transaction would require FOCI negation men-

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shall be notified that its clearance has been sures to be imposed if consummated, the parties to

suspended, that current access to classified the transaction shall be promptly advised of such

! information and perforn,ance on existing clas- measures and be requested to provide the CSA with L sified contracts may continue unless notified their preliminary =~m or rejection of them as j- by the CSA to the contrary, and that the award promptly as possible, j of new classified contracts will not be permit-i ted until the FCL has been restored to a valid b. The CFIUS myiew and the industrial security review i

status, are carried c.at in two parallel, but separate, pro.

cesses with different time constraints and consider-

] d. When necessary, the applicant rompany shall be ations. Ideally, when industrial security l advised that failure to adopt required sacurity mea- enhancements (see Sections 2-305 and 2-306) are

sures, may result in denial or reyccation of the PCL required to resolve industrial security concerns of a When final agreement by the parues with regard to case under review by CFIUS, there should be agree-the security measures required by the CSA is ment before a recommendauon on the matter is for-attained, the applicant shall be declared eligible for mulated. As a technical ma'ter, however, a security an PCL upon implementation of the required secu- agreement cannot be signed until the proposed for-rity measures. When a previously suspended FCL eign investor legally completes the transaction, usu-has been restored to a valid status, all recipients of ally the date of closing. When the required security previous suspension nouces shall be notified. arrangement, (1) Has been rejected; or (2) When it appears agreement will not be attained regarding _,

e. A counterintelligence threat assessment and technol- material terms of such an arrangement; or (3) The ogy transfer risk naaemammar shall be obtained by the company has failed to comply with the reporting

' CSA and considered prior to a final decision to grant requirements of this Manual, industrial security an PCL to an applicant company under POCI or to authorities may recommend that the Department restore an FCL previously suspended. 'these assess- position be an investigation of the proposed transac-ments shall be updated penodically under circum- tion by CFIUS to assure that national security con-stances and at intervals considered appropnate by cerns are protected.

the CSA.

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I 1305. FOCl Negatio- 4 tion Plans. If it is deter- owned shares; acknowledge the applicant's obliga- l

- mined that an applicant o any may be ineligible for tion to comply with all industrial security program l an FCL cr that additiorL ion would be necessary to and export control requirements; certify that the for-negate the FOCI, the applicant shall be promptly l eign shareholder shall not require, shall not have, advised and requested to submit a negation pisn. and can be effectively precluded from unauthorized access to all classified and export-controlled infor. '

a. In those cases where the FOCI stems from foreign mation ryitrusted to or held by the applicant com-ownership, a plan shall consist of one of the methods pany; wih not be permitted to hold positions that prescribed at 2-306. Amendments to purchase and may enable them to influence the performance of i shareholder agreements may also serve to remove classified contracts; and pmvide for an annual certifi- I FOCI concerns. cation to the CSA acknowledging the continued effectiveness of the resolution. The company shall be

b. When factors not related to ownership am present, required to distribute to members of its board of the plan shall provide positive measures that assure directors and its principal officers copies of such res-that the foreign person can be effectively denied olutions and report in the company's corporate access to classified information and cannot otherwise records the completion of such distribution.

adversely affect performance on classified contracts.

Examples of such measures include: modification or b. Voting Trust Agreement and Proxy Agreement.

termination of loan agreements, contracts and other The Voting Trust Agreement and the Proxy Agree-understandings with foreign interests; diversification ment are substantially identical arrangement:,

or reduction of foreign source income; demonstra- whereby the voting rights of the foreign owned stock  ;

tion of financial viability independent of foreign per- are vested in cleared U.S. citizens approved by the  !

sons; elimination or resolution of problem debt; Federal Government. Neither arrangement imposes assignment of specific oversight duties and responsi- any restrictions on a company's eligibility to have bilities to board members; formulation of special access to classified information or to compete for executive-level security committees to consider ard classified contracts.

oversee matters that impact upon the performance of classified contracts; physical or organizational sepa- (1) Estab!ishment of a Voting Trust or Proxy ration of the facility component performing on clas- Agreement involves the selection of three sified contracts; the appointment of a technology trustees or proxy holders respectively, all of  !

control officer; adoption of special board resolutions; whom must become directors of the cleared I and other actions that negate foreign control or influ- company's board. Both arrangements must l ence. provide for the exercise of all prerogatives of ownership by the votis.g trustees or proxy i 2 306. Methods to Negate Risk in Foreign Ownmhip holders with complete freedom to act inde-Cases. Under normal circumstances, foreign ownership pendently from the foreign person stockhold-of a U.S. company under consideration for an FCL ers. The arrangements may. however. limit the becomes a concern to the U.S. Government when a for- authority of the trustees or proxy holders by eign shareholder has the ability, either directly or indi- requiring that approval be obtained from the sectly, whether exercised or exiteisable, to contml or foreign person stockholder (s) with respect to influence the election or appointment of one or r'nore matters such as: (a) The sale or disposal of the members to the applicant company's board of directors corporation's assets or a substantial part by say means (equivalent equity for unincorporated thereof; (b) Pledi mortgages, or other

' companies). Foreign ownership which cannot be so encumbrances on the apital stock; (c) Corpo-manifested is not, in and ofitself, considered significant. rate mergers, consolidations, or reorganiza-tions; (d) The dissolution of the corporation;

a. Board Resolution. When a foreign person does not and (e) The filing of a bankruptcy petition.

own voting stock sufficient to elect, or otherwise is However, nothing herein prohibits the trustees not entitled to representation to the applicant com- or proxy holders from consulting with the for-pany's board of directors, a resolution (s) by the eign person stockholders, or vice versa, where applicant's board of directors will normally be otherwise consistent with U.S. laws, regula-adequate. The Board shail identify the foreign share- tions and the terms of the Voting Trust or holder and describe the type and number of foreign Proxy Agreement.

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(2) The voting trustees or proxy holders must agency with jurisdiction over the information assume full responsibility for the voting stock involved. A determination to disclose pro-

, and for exercising all management preroga- scrSed information to a company cleared tives relating thereto in such a way as to under an SSA requires that a favorable ensure that the foreign stockholders, except National Interest Determination (see 2-309) for the approvals enumerated in (1) above, be rendered prior to contract award. Addition-shall be insulated from the cleared company ally, the Federal Government must have and continue solely in the status of beneficia- entered into a Geners! Security Agreement ries. The company shall be organized, struc- with the foreign government involved.

tured, and financed so as to be capable of operating as .' viable business entity indepen- (2) A company not effectively owned or' con-dent from the foreign stockholders, trolled by a foreign person may be cleared under the SCA arrangement. Limitations on (3) Individuals who serve as voting trustees or access to classified information are not proxy holders must be: (a) U.S. citizens resid- required under an SCA.

ing within the United States, who are capable of assuming full responsibility for voting the d. Limited Facility Clearance. ' Die Federal Govern-stock and exercising management preraga- ment has entered into Industrial Security Agreements tives relating thereto in a way that ensures that with certain foreign governments. 'Ihese agreements the foreign person stockholders can be effec- establish arrangements whereby a foreign-owned tively insulated from the cleared company;(b) U.S. company may be considered cligible for an Completely disinterested individuals with no FCL Access limitations are inherent with the grant-prior involvement with the applicant com- ing oflimited FCLs.

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pany, the corporate body with which it is affil-isted, or the foreign person owner; and (c) (1) A limited FCL may be granted upon satisfac-Eligible for a PCL at the level of the FCL. tion of the following criteria: (a) There is an Industrial Security Agreement with the for-(4) Management positions requiring personnel eign government of the country from which security clearances in conjunction with the the foreign ownership is derived; (b) Access FCL must be filled by U.S. citizens residing in to classified information will be limited to the United States. performance on a contract, subcontract or pro-gram involving the government of the country

c. Specix ' Security Agreement and Security Con- from which foreign ownership is derived; and trol A,gement. The Special Security Agreement (c) Release of classified information must be (SSA) and the Security Contml Agreement (SCA) in conformity with the U.S. National Disclo-are substantially identical arrangements that impose sure Policy, substantial industrial security and export control measures within an institutionalized set of corporate (2) A limited FCL may also be granted when the practices and pmcedures; require active involvement criteria listed in paragraph (1) above cannot of senior management and certain Board members in be satisfied, provided there exists a compel-security matters (who must be cleared. U.S. citi- ling need to do so consistent with national zens); provide for the establishment of a Govern- security interests.

ment Security Committee (GSC) to oversee classified and export contml matters; and preserve 2 307. Annual Review and Certification, the foreign person shareholder *s right to be repre-sented on th: Board with a direct voice in the busi- a. Annual Review. Representatives of the CSA shall ness management of the company while denying meet at least annually with senior management offi-unauthorized access to classified information. cials of companies operating under a Voting Trust, Proxy Agreement, SSA, or SCA to review the pur-(1) A company effectively owned or controlled pose and effectiveness of the clearance arrangement by a foreign person may be clea ed under the and to establish common understanding of the oper-SSA arrangement. However, access to " pro- ating requirements and their implementation. These scribed information" is permitted only with reviews will also include an examination of the fol-the written permission of the cognizant U.S. lowing:

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• l (1) Acts of ccmplirace or noncompliar. 5h t b. De members of the GSC are required to ensure that '

, _ the approved security arrangement, stanoard the company maintainc policies and procedures to rules, and applicable laws and regulations. safeguard export controlled and classified informa- i tion entrusted to it.

(2) Problems or impediments associated with the practical application or utility.of the security c. The GSC shall also take the nectasary steps to ,

arrangement.

ensure that the company complies with U.S. export  ;

control laws and argulations and does not take action  !

(3) Whether security controls, practices, or proce- deemed adverse to performance on classified con-dures warrant adjustment.

tracts. His shall include the appointment of a Tech- '

- nology Control Officer (TCO) and the development,

b. Annual CertiSeation. Depending upon the security approval, and implementation of a Technology Con-arrangement in place, the % ting trustees, Proxy trol Plan (TCP).

holders or the Chairman of the GSC shall submit annually to the CSA an implementation and compli- d. The Facility Security Officer (FSO) shall be the prin-

. ance report. Such reports shall include the following: , cipal advisor to the GSC and attend GSC meetings.

De Chairman of the GSC, muni concur with the (1) A detailed description of the manner in which appointment of replacement FSOs selected by man-the company is carrying out its obligations agement. FSO and TCO functions shall be carried under the arrangement. out under the authority of the GSC.

(2) Changes to security procedures, implemented 2-309. National Interest Deteradaation.

or proposed, and the reasons for those changes. a. A company cleared under an SSA and its cleared -

employees may only be afforded access to " pro-(3) A detailed description of any acts of noncom- scribed information" with special authorization. This pliance, whether inadvertent or intentionai, special authorization must be manifested by a favor-with a discussion of steps that were taken to able national interest determination (NID) that must prevent such acts from recurring. be program / project / contract-specific. Access to pro-scribed informahon must be predicated on compel-(4) Any changes, or impending changes, of senior ling evidence that release of such informahon to a management officials, or key Board members, company cleared under the SSA arrangement

,- including the reasons therefor. advances the national security interests of the United States. De authority to make this determination (5) Any changes or impending changes in the shall not be permitted below the Assistant Secretary organizational structure or ownership, includ- or comparable level of the agency concerned ing any acquisitions, mergers or divestitures. 1

b. A proposed NID will be prepared and sponsored by l

. (6) Any other issues that could have a bearing on the GCA whose contract or program, is involved and l the effectiveness of the applicable security it shall include the following information:

clearance arrangement. *  !

l (1) Identification of the proposed awardee along l 2-308. Government Security Committee (GSC). with a synopsis of its foreign ownership I (include solicitation and other reference num-Under a Wting Trust, Proxy Agreement, SSA and SCA, bers to identify the action);

an applicant company is required to establish a perma-

. nent committee ofit's Board of Directors, known as the (2) General description of the procurement and GSC. performance requirements;

a. De GSC normally consists of Voting Trustees, (3) Identification of national security interests Proxy Holders or Outside Directors, as applicable, involved and the ways in which award of the and those officers / directors who hold PCLs. contract helps advance those interests;  !

2-3-6

I .

l '

(4) The availability of any other U.S. company and the senior official (s) responsible for rendering l with the capacity, espability, and technical final approval of NID's shall be contained in the i

expenise to satisfy acquisition, technology implementing regulations of the U.S. agency whose j base, or industrial base requirements and the contract is involved.

reasons any such company should be denied the contract; and 2 310. Technology Control Plan. A TCP approved by the CSA shall be developed and implemented by those (5) A description of any alternate means available companies cleared under a Voting Trust Agreement, to satisfy the requirement, and the reasons Proxy Agreement, SSA and SCA and when otherwise alternative means are not acceptable. deemed appropriate by the CSA. 'Ihe TCP shall pre-

. scribe all security measures determined necessary to

c. An NID shall be initiated by the GCA. A company reasonably foreclose the possibility of inadvenent may assist in the preparation of an NID, but the GCA access by non-U.S. citizen employees and visitors to is not obligated to pursue the matter further unless it information for which they are not authorized. 'Ihe TCP believes further consideration to be warranted. 'Ihe shall also prescribe measures designed to assure that GCA shall,ifit is supportive of the NID, forward the access by non-U.S. citizens is strictly limited to only case through appropriate agency channels to the ulti- that specific information for which appropriate Federal mate approval authority within that agency. If the Government disclosure authorization has been obtained; proscribed information is under the classification or e.g., an approved expon license or technical assistance control jurisdiction of another agency, the appmval agreement. Unique badging, escort, segregated work of the cognizant agency is required; e.g., NSA for area, security indoctrination schemes, and other mea-COMSEC, DCI for SCI, DOE for RD and FRD, the sures shall be, included, as appropriate.

Military Departments for their TOP SECRET infor- .

mation, and other Executive Branch Departments 2-311. Compliance. Failure on the pan of the company and Agencies for classified information under their to ensure compliance with the terms of any approved cognizance. security arrangement may constitute grounds for revo-cation of the company's FCL

d. It is the responsibility of the cognizant appmval authority to ensure that pertinent security, counterin.

telligence, and acquisition interests are thoroughly examined. Agency-specific case processing details l

1 i

i i

2-3-7 1

l

. _ _ _ - _ . _ _ _ - _. ~ ___ __ _ _ - _ . _ _

DRAFT U.S. NUCLEAR REGULATORY COMMISSION STANDARD REVIEW PLAN  !

OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS 1.4 DETERMINATION OF FOREIGN OWNERSIIIP AND CONTROL, COMMON DEFENSE AND SECURITY, AND ENSURED DOMESTIC SUPPLY OF .

ENRICHMENT SERVICES CONTENTS 1.4.1 PURPOSE OF REVIEW . . . . . . . . . . . . . . . . . ..................... 1.4-2 1.4.2 RESPONSIBILITY FOR REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 't 1.4.3 AREAS OF REVIEW . . . . . . . . . . . . . . . . . . . . . . . ................ 1.4-2 1.4.4 ACCEPTANCE CRITERI A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4-4

,1.4.4.1 Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1-4 1.4.4.2 Regulatory Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1-4 1.4.4.3 Regulatory Acceptance Criteria ........................... 2.1-5 1.4.5 REVI EW PROCED U RES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4-6 '

l 1.4.6 EVALU ATION FINDING S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4-6 1.

4.7 REFERENCES

............................................. 1.4-7 I

SRP 1.4-1

i

. . DRAFT

. U.S. NUCLEAR REGULATORY COMMISSION I l

STANDARD REVIEW PLAN  ;

OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS l l 1.4 DETERMINATION OF FOREIGN OWNERSIIIP AND CONTROL, COMMON l DEFENSE AND SECURITY, AND ENSURED DOMESTIC SUPPLY OF ENRICHMENT SERVICES ,

1.4.1 PURPOSE OF REVIEW i

The purpose of this review is to determine that an applicant for certification is not owned,

controlled, or dominated by an alien, a foreign corporation, or a foreign government; that issuance of a certiGcate would not be inimical to the common defense or security of the United States; and that issuance of a certificate would not be inimical to the maintenance of a reliable and i economical domestic source of enrichment services.

i ,

{ l.4.2 RESPONSIBILITY FOR REVIEW Primary: Plant Project Manager I

Secondary: Facilities Security Specialist / Safeguards Technical Analyst ,

Sunnortinc

Material Control and Accounting Inspector / Resident inspector i

1.4.3 AREAS OF REVIEW

l. Foreien Ownership. Control. or Domination Information submitted by the applicant, or obtained by other means, as specified in the National Industrial Security Program Operating Manual (NISPOM)'. This information includes, but is not limited to:

a. Portions of securities held by foreign entities or held by means that prevent the identification of the beneficial owner 2

The proposed NISPOM requirements are more comprehensive and prescriptive than the statutory prohibition of foreign ownership in Section 193 of the Atomic Energy Act of 1954, as amended. Therefore the information submitted pursuant to the NISPOM requirements will also be sufficient to satisfy NRC's statutory and regulatory re g nsibilities to determine that the applicant is not owned, controlled or dor. inated by an alien. a foreign company, or a foreign government.

SRP 1.4-2

DRAFT U.S. NUCLEAR REGULATORY COMMISSION STANDARD REVIEW PLAN OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS

b. Management positions held by non-U.S. citizens i l

c. Ability of foreign entities to control assignment of management positions l l

d. Contracts and other agruments with foreign entities  !

e. Finance and revenue sources involving foreign entities

2. Common Defense and Security NRC staff will review the following for compliance with regulatory requirements to protect the common defense and security:

a. Physical Security Plan l

b. Security Plan for the Protection of Classified Matter

c. Fundamental Nuclear Material Control Plan

d. Inspection, event, and resident inspector reports dealing with physical protection, transportation security, material control and accounting, facility security programs, and control of classified information

3. Ensured Domestic Source of Enrichment Services The NRC staff will review the following material for indications that cenification of the applicant would be inimical to the maintenance of a reliable and economical domestic source of enrichment services:

a. Information required under Section 76.33 "information known to the applicant concerning the control or ownership, if any, exercised over the applicant by any alien, foreign company, or foreign govemment" and FOCl information received pursuant to NISPOM requirements

b. Information provided to the NRC by the applicant or certificate holder to support their application for a cenificate of compliance

c. Information provided by the applicant or certificate holder to other federal agencies necessary for their administration and enforcement of uranium delivery limitations, which is made available to NRC SRP 1.4-3

DRAFT I l

l l -

U.S. NUCLEAR REGULATORY COMMISSION STANDARD REVIEW PLAN OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS

d. Information provided by DOE to the President for his annual report to the Congress on the effect of the low-enriched uranium deliveries under the Russian High Enriched ,

Uranium Agreement on the domestic uranium mining, conversion and enrichment industries, and the operations of the gaseous diffusion plants l

l e. Reports, projections, and views on the economic effects of privatization solicited from j appropriate industry, private, and governmental sources

)

l 1.4.4 ACCEPTANCE CRITERIA i

1.4.4.1 Regulatory Requirements i

10 CFR 76.22 addresses the ineligibility of applicants for certification if the Commission determines that:

1. The Corporation is owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government; or

2. The issuance of such a certificate of compliance would be inimical to

a. The common defense and security of the United States; or

b. The maintenance of a reliable and economical domestic source of enrichment services 10 CFR { 76.33 provides for NRC to require the applicant to supply additional information as necessary.

10 CFR f 95.15 addresses the collection ofinformation necessary to determine that the applicant is not owned, controlled, or dominated by an alien, foreign corporation, or foreign government.

10 CFR Parts 76 and 95 untain and reference applicable regulatory requirements necessary to protect the common defense and security.

1.4.4.2 Regulatory Guidance Regulatory guidanc.e applicaHe to the areas of review in this chapter are:

1. U.S. Department of Defense, " National Industrial Security Program Operating Manual (NISPOM)," DOD 5520.22-M, Jan.1995

2. U.S. Department of Energy, U.S. Nu-lear Regulatory Commission, and United States Enrichment Corporation, Draft "Re ' ions on Foreign involvement in USEC's Privatization", February 21,1997.

SRP 1.4-4 i

DRAFT l

U.S. NUCLEAR REGULATORY COMMISSION STANDARD REVIEW PLAN OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS

(

j 3. U.S. Nuclear Regulatory Commission, Reg Guide 5.67, " Material Control and Accounting l for Uranium Enrichment Facilities Authorized to "roduce Special Nuclear Material of Low l

Strategic Significance," Dec.1993, i

4. U.S. Nuclear Regulatory Commission, NUREG-1456, "An Alten e <e Format for l Category i Fuel Cycle Facility Physical Protection Plans," June 1>y2

5. U.S. Nuclear Regulatory Commission, " Security Plan Format and Content G:.:ide for NRC l Licensees, Certificate Holders, and Related Organizations," March 1994 1.4.4.3 Regulatory Acceptance Criteria The application is acceptable if the following criteria are met:

Foreien Ownership. Control. or Domination A determination is made, using the information as specified in the N'ISPOM, and criteria set forth l

in " Restrictions on Foreign involvement in USEC's Privatization", that tb applicant is free from foreign ownership, control, or influence.

Common Defense and Security

1. The applicant's Physical Security plan has been reviewed and approved.

2. The applicant's Security Plan for the Protection of Classified Matter has been reviewed and approved.

3. The applicant's Fundamental Nuclear Material Control Plan has been reviewed and approved.

4. A review of NRC inspection reports and resident inspector reports does not indicate a general failure to protect the common defense and security interests of the United States.

Ensured Domestic Source of Enrichment Services A review of the information collected, including the views of other interested Federal government entities, does not indicate that certification would be inimical to the maintenance of a reliable and economical domestic source of enrichment services.

I I

SRP 1.4-5

i DRAFT  ;

1 U.S. NUCLEAR REGULATORY COMMISSION -

I STANDARD REVIEW PLAN 1 OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS j i

1.4.5 REVIEW PROCEDURES I I

The reviewer should determine that there is no indication that the applicant is subject to any of ]

the criteria set forth in 10 CFR Part 76.22, " ineligibility of Certain Applicants." l l

l' Foreicn Ownershin. Control. or Domination The reviewer should consult with the Division of Security to determine that a FOCl investigation )

has been completed and that no information was collected that indicates the Corporation is owned,  ;

controlled, or dominated by an alien, a foreign corporation, or a foreign government.

Common Defense and Security l

l

1. The reviewer should determine that the applicant's Physical Security plan and Fundamental Nuclear Material Control Plan has been reviewed and approved by the appropriate NMSS personnel. l

2. The reviewer should consult with the Division of Security to determine that the applicant's Security Plan for the Protection of Classified Matter has been reviewed and approved.

3. The reviewer should ensure that NRC inspection reports and resident inspector reports do not indicate a general failure to protect the common defense and security interests of the United States.

i Ensured Domestic Source of Enrichment Services )

l The reviewer should consult with Executive Branch entities, such as the following, to obtain their  ;

views on the economic impacts of certification:

Department of Energy Department of Commerce Department of Labor Department of State Department of Treasury Defense Intelligence Agency National Economic Council Securities and Exchange Commission Central Intelligence Agency Board of Governors of Federal Reserve System Office of the Comptroller of the Currency Drug Enforcement Administration Bureau of Economic Analysis SRP 1.4-6

DRAFT U.S. F uEAR REGULATORY COMMISSION STANDARD REVIEW PLAN OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS Federal Energy Regulatory Commission General Accounting Office Council of Economic Advisors Defense Special Weapons Agency Export Import Bank of the US Federal Bureau ofInvestigation Internal Revenue Service 1.4.6 EVALUATION FINDINGS After evaluating the application and the supporting information, and determining the information to be adequate, the reviewer will be able to write a statement of the following type for inclusion

in the CER

On the basis of the sta!Ts review and evaluation of the application for certifica: ion, and the views of conc.erned Federal government entities, the staff concludes that there is no indication of the following:  ;

1. The applicant is owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government.'

2. Issuance of a certifiate of ccmpliance would be inimical to the common defense or

security of the Uniteo States.

3. Issuance of a certificate o rcompliance would be inimical to the maintencnce of a

, reliable and economical do:nestic source of enrichment services.

1.

4.7 REFERENCES

l. U.S. Nuclear Regulatory Commissior. NUREG/CR-5734, " Recommendations to the NRC on Acceptable Standard Format and Latent for the Fundamental Nuclear Material Control (FNMC) Plan Required for Low-Enriched Uranium Enrichment Facilities," Nov.1991

2. Nuclear Regulatory Commission, NUREG-1322, " Acceptance Criteria for the Evaluation  !

of Category i Fuel Cycle Facility Physical Security Plans," Jan.1991 l 1

4 SRP 1.4-7