ML20203G153
| ML20203G153 | |
| Person / Time | |
|---|---|
| Issue date: | 10/23/1998 |
| From: | Cyr K NRC OFFICE OF THE GENERAL COUNSEL (OGC) |
| To: | |
| References | |
| SECY-98-246, SECY-98-246-01, SECY-98-246-1, SECY-98-246-R, NUDOCS 9902190152 | |
| Download: ML20203G153 (27) | |
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i oc$ Loo OSo' POLICY ISSUE (Notation Vote)
October 23.1998 SECY-98-246 FOR:
The Commissioners FROM:
Karen D. Cyr General Counsel
SUBJECT:
STANDARD REVIEW PLAN REGARDING FOREIGN OWNERSHIP, CONTROL, OR DOMINATION OF APPLICANTS FOR REACTOR LICENSES PURPOSE:
To provide the Commission a draft standard review plan (SRP) regarding foreign ownership, control, or domination, to be used in evaluating applicants for facility licenses under sections 103 and 104 of the Atomic Energy Act. The SRP would be published for comment and incorporated in the staff's SRP on Power Reactor Licensing Financial Qualifications and Decommissioning Funding Assurance (See Attachment 1, p.32, to SECY 98-153).
BACKGROUND:
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Sections 103 and 104 of the Atomic Energy Act of 1954, as amended (AEA), preclude the issuance of a reactor license to an entity that the Commission knows or has reason to believe is owned, controlled, or dominated by an alien, a foreign corporation, or foreign government.
h5 There is limited Commission precedent that serves as guidance in this area, and no standard review plan presently exists to ensure uniform application of this guidance. In light of an expected increase in the number of license transfer applications potentially involving foreign interests, the issuance of a standard review plan appears timely.
CONTACT: Steven R. Hom (301) 415-1537 190056 708d6 9902190152 981023 K
PDR SECY 98-246 R.
PDR.
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f The Commissioners !
i DISCUSSION:
1 i
Under sections 103 and 104 of the AEA, no license may be issued to:
- any corporation or other entity if the Commission knows or has reason to believe it is owned, controlled, or dominated by an alien, i
foreign corporation,~ or a foreign government. In any event, no I
license may be issued to any person within the United States if, in
' the opinion of the Commission, the issuance of a license to such person would be inimical to the common defense and security or l
to the health and safety of the public.
j The proposed SRP, attached to this memorandum, would address the foregoing foreign control prohibition, and apply to applications for licenses for new facilities, as well as applications for j
the approval of direct or indirect license transfers for existing plants. Although the Atomic Energy Commission in General Electric Co. and Southwest Atomic Energy Associates, Docket No. 50-231,3 AEC 99 (1966), stated that the foreign control prohibition should be given an orientation toward safeguarding the national defense and security, the attached SRP is not l
designed to address the general requirement regarding common defense and security, such as physical security and safeguards.'
I Under 10 C.F.R. 6 50.33(d), if an applicant is a corporation, it is required to state where it is incorporated and does business, the citizenship of its directors and principal officers, and j
whether it is owned, controlled, or dominated by an alien, a foreign corporation, or foreign i
government. The SRP provides that if, based on a threshold review of such information, there is some reason to believe that the applicant may be subject to some degree of foreign control, the reviewer may gather additional information that bears on foreign ownership, control, or i
domination.
The review procedures set forth in the SRP contemplate that if there is still some reason to l
believe, following the receipt of additional information, that the applicant may be under foreign i
control, a negation action plan is to be submitted by the applicant. The reviewer will then i
evaluate whether the plan will ensure that any foreign interest is effectively denied control or i
domination over the applicant. In making a final determination the staff will consider whether there are conditions that should be imposed in connection with granting of any application so as to effectively deny foreign control of the applicant.
i The SRP shares some features with the Gaseous Diffusion Plant Certification Standard Review I
Plan, Chapter 1.4, which addresses section 193(f) of the AEA. That section contains a similar, but not identical foreign control prohibition. To the extent deemed appropriate, the attached SRP overlaps the Gaseous Diffusion Plant Certification review document -
COORDINATION -
The Office of Nuclear Reactor Regulation concurs in the proposed SRP, and recommends that the attached SRP be combined with the SRP on Power Reactor Licensee Financial Qualifications and Decommissioning Funding Assurance which is presently before the
- Commission (Attachment 1 to SECY 98-153, dated June 29,1998). The title of the latter SRP l'
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~i The Commissioners would be expanded to reflect ownership transfers and be issued in final form following resolution of any comments received on the foreign ownership SRP attached to this paper.
' RECOMMENDATION it is recommended that the Commission approve issuance of the attached SRP for comment.
The draft woula be placed in the Public Document Room and noticed in the Federal Register.
W l
Karen D. Cyr i
General Counsel
Attachment:
Standard Review Plan on Foreign Ownership, Control and Domination Commissioners' completed vote sheets / comments should be provided directly to the Office of the Secretary b ; COB' Tuesday, November 10, 1998.
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Commission Staff Office comments, if any, should be submitted to the Commissioners l
NLT Novembu 3,1998, with an information copy to the Office of the Secretary, If the paper is of such a nature that it requires additional review and comment,
.the Commissioners and the Secretariat should be apprised'of when comments may be expected.
DISTRIBUTION:
Commissioners OGC.
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DRAFT 10/23/98 Standard Review Plan on Foreign Ownership, Control and Domination l
- 1. AREAS OF REVIEW l-1.1 General The NRC is issuing this Standard _ Review Plan (SRP) to describe the process it uses to.
review the issue of whether an applicant for a nuclear facility license under sections 103
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or 104 of the Atomic Energy Act of 1954, as amended (AEA or Act), is owned,
. controlled, or dominated by an alien, a foreign corporation or a foreign govemment.
This SRP will be used as the basis for such reviews in connection with license applications for new facilities, or applications for approval of direct or indirect transfers I-of facilitylicenses.
Where there are co-applicants, each intending to own an interest in a new facility as co-licensees, each applicant must be reviewed to determine whether it is owned, controlled, or dominated by an alien, foreign corporation or foreign govemment.' If a co-licensee of an existing facility owns a partial interest in the facility and is transferring l:
that interest, the acquirer must be reviewed to determine whether it is owned, controlled, or dominated by an. alien, foreign corporation or foreign govemment.
. The foreign control determination is to be made with an orientation toward the common defense and security. However, this SRP does not address other common defense and security matters, such as physical security and safeguards.
.This SRP reflects current NRC regulations and policy.
1.2 Relevant Statutory And Reaulatory Provisions Sections 103d and 104d of the Act provide, in relevant part, that no license may be
. issued to:
any corporation or other entity if the Commission knows or has reason to believe it is owned, controlled, or dominated by an j
l alien, a foreign corporation, or a foreign govemment, in any event, no license may be issued to any person within the United j
States if, in the opinion of the Commission, the issuance of a l
license to such person would be inimical to the common defenne
- and security or to the health and safety of the public.
(Section 103d also states that no license may be issued to an alien.)
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Section 184 of the Act provides,in relevant part:
No license granted hereunder and no right to utilize or produce special nuclear material granted hereby shall be transferred, assigned or in any manner disposed of, either voluntarily or involuntarily, directly or indirectly, through transfer of control of any license to any person, unless the Commission shall, after securing full information, find that the transfer is in accordance with the provisions of this Act, and shall give its consent in writing.
10 CFR 50.33(d), in relevant part, provides:
Each application shall state:
(d)(1) If' applicant is an individual, state citizenship.
(2) If applicant is a partnership, state name, citizenship and address of each partner and the principal location where the partnership does business.
(3) If applicant is a corporation or an unincorporated association, state:
(i) The state where it is incorporated or organized and the principal location where it does business; (ii) The names, addresses and citizenship of its directors and of its principal officers; (iii) Whether it is owned, controlled, or dominated by an alien, a foreign corporation, or foreign govemment, and, if so, give details.
(4) If the applicant is acting as agent or representative of another person in filing the application, identify the principal and fumish information required under this paragraph with respect to such principal.
10 CFR @ 50.38 provides:
Any person who is a citizen, national, or agent of a fo'eign r
country, or any corporation, or other entity which the Commission 2-
i knows or has reason to believe is owned, controlled, or i
dominated by an alien, a foreign corporation, or a foreign govemment, shall be ineligible to apply for and obtain a license.
10 CFR @ 50.80 provides, in pertinent part:
l (a) No license for a production or utilization facility, or any right i
thereunder, shall be transferred, assigned, or in any manner disposed of, either voluntarily or involuntarily, directly or indirectly, through transfer of control of the license to any person, unless the Commission shall give its consent in writing.
l (c)... [T]he Commission will approve an application for the transfer of a license, if the Commission determines:
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(2) That the transfer of the license is otherwise consistent with applicable provisions of the law, regulations, and orders of the Commission pursuant thereto.
- 2. INFORMATION TO BE SUBMITTED BY APPLICANT l
2.1 Information Reauired By_Reaulation At the time the applicant submits its application for a license or for approval of the l
transfer of a license, the applicant must submit information sufficient to comply with 10 CFR o 50.33(d).
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2.2 Additionalinformation if the reviewer, based on the infonnation required to be submitted by 10 C.F.R.
@ 50.33(d), has reason to believe that the applicant may be owned, controlled, or dominated by foreign interests, the reviewer may request and obtain the following additionalinformation:
l 1.
If the applicant's equity securities are of a class which is registered pursuant to the Securities Exchange Act of 1934, copies of all current Securities and l
Exchange Commission Schedules 13D and 13G, which are required to be filed by owners of more than 5% of such a class with the Securities and Exchange Commission, the security issuer (applicant), and the exchange on which the issuer's securities are traded.
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Management positions held by non-U.S. citizens.
3.
The ability of foreign entities to control the appointment of management personnel.
'2.3 Neaation Action Plan if applicable under Section 4.4 infra, the applicant should also submit a Negation Action
, Plan, which is described in detail in Section 4.4.
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- 3. ACCEPTANCE CRITERIA 3.1 Basic Statutory and Reaulatorv Limitations License applications for new facilities or applications for approval of transfers of i
licenses required in the case of proposed new ownership of existing facilities may involve foreign entities proposing to own all or part of a reactor facility. Sections 103d and 104d of the AEA prohibit the NRC from issuing a license to an applicant if the NRC knows or has reason to believe that the applicant is owned, controlled, or dominated by t
i an alien, a foreign corporation, or a foreign govemment (or is an alien, in the case of section 103d).
l Likewise, under 10 CFR 50.38, i
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Any person who is a citizen, national, or agent of a foreign country, or any corporation, or other entity which the Commission i
knows or has reason to believe is owned, controlled or dominated by an alien, a foreign corporation, or a foreign s
govemment, shall be ineligible to apply for and obtain a license.
3.2 Suidance On Apolvina Basic Limitations An applicant is considered to be foreign owned, controlled, or dominated whenever a foreign interest has the " power," direct or indirect, whether or not exercised, to direct or decide matters affecting the management or operations of the applicant. The Commission has stated that the words " owned, controlled, or dominated" mean relationships where the will of one party is subjugated to the will of another. General Electric Co.,3 AEC at 101.
t A foreign interest is defined as any foreign government, agency of a foreign govemment, or representative of a foreign govemment; any form of business enterprise or legal entity organized, chartered, or incorporated under the laws of any country other 1
that the U.S. or its possessions and trust territories; any person who is not a citizen or
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national of the U.S.; and any U.S. interest effectively controlled by one of the above
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- foreign entities.
The Commission has stated that the foreign control limitation should be given an orientation toward safeguarding the national defense and security. Thus, an applicant that may pose a risk to national security by reason of even limited foreign ownership would be ineligible for a license.
Even though 'a foreign entity contributes 50% of the costs of constructing a reactor, I
participates in the project review, is consulted on policy and cost issues, and is entitled to designate personnel to design and construct the reactor, subject to the approval and i
direction of the non-foreign applicant, these facts alone do not require a finding that the applicant is under foreign control.
An applicant that is up to 50% owned by a foreign entity may still be eligible for a license if certain conditions are imposed, such as requiring that officers and eraployees of the applicant responsible for special nuclear material must be U.S. citizens.
t Where an applicant is wholly owned by a U.S. company that is wholly ownec by a foreign corporation, the applicant will not be eligible for a license, unless the l
- Commission knows that the foreign parent's stock is "largely" owned by U.S. citizens. If the foreign parent's stock is owned by U.S. citizens, and certain conditions are l
- imposed, such as requiring that only U.S. citizens within the applicant organization be responsible for special nuclear material, the applicant may still be eligible for a license, notwithstanding the foreign control limitation.
- 4. REVIEW PROCEDURES 4.1 Threshold Review and Determination i
The reviewer should first analyze all of the information submitted by the applicant sufficient to comply with 10 C.F.R. 6 50.33(d), as well as other relevant information of which the reviewer is aware, to determine whether there is any reason to believe that the applicant is an alien or citizen, national, or agent of a foreign country, or an entity that is owned, controlled, or dominated by an alien, a foreign corporation, or foreign govemment. If there is no such reason to believe based on the foregoing information, no further review is required and the reviewer should proceed to make a recommendation regarding whether there is any foreign control obstacle to granting the application. On the other hand, if there is any reason to believe that the applicant may be owned, controlied, or dominated by foreign interests, the reviewer should request and obtain the additional information specified in Section 2.2.
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'4.2 Suoolementarv Review l-7 If it is necessary to obtain the additional information specified in Section 2.2, the
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0 reviewer should consider the acceptance criteria above, and consult with the Office of the General Counsel on Commission precedent. Information related to the items listed below may be sought and may be taken into consideration in determining whether the applicant is foreign owned, controlled, or dominated. The fact that some of the below listed conditions may apply does not necessarily render the applicant ineligible for a license.
1.
Whether any foreign interests have management positions such as directors, officers, or executive personnel in the applicant's organization.
2.
Whether any foreign interest controls, or is in a position to control the election, appointment, or tenure of any of the applicant's directors, officers, or executive personnel. If the reviewer knows that a domestic corporation applicant is held in part by foreign stockholders, the percentage of outstanding voting stock so held should be quantified. The Commission has not determined a specific threshold above which it would be conclusive that an applicant is controlled by foreign interests.
3.
Whether the applicant is indebted to foreign interests or has contractual or other agreements with foreign entities that may affect control of the applicant.
4.
Whether the applicant has interlocking directors or officers with foreign corporations.
5.
Whether the applicant has foreign involvement not otherwise covered by items 1-4 above.
4.3 Supolementarv Determination After reviewing the additionalinformation specified in Section 2.2, if the reviewer continues to conclude that the applicant may be an alien or owned, controlled, or l
dominated by foreign interests, or has some reason to believe that may be the case, l
the reviewer shall determine:
i 1.
The nature and extent of foreign ownership, control, or domination, to include l
whether a foreign interest has a controlling or dominant minority position.
2.
The source of foreign ownership, control, or domination, to include identification of immediate, intermediate, and ultimate parent organizations.
l 3.
The type of actions, if any, that would be necessary to negate the effects of foreign ownership, control, or domination to a level consistent with the Atomic Energy Act and NRC regulations.
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On the other hand, if the reviewer determines after reviewing the additional information specified in Section 2.2 that there is no further reason to believe that the applicant is an alien or owned, controlled, or dominated by a foreign person or entity, no additional review is necessary.
4.4 Neaation Action Plan If the reviewer continues to conclude following the Supplementary Determination that an applicant may be considered to be foreign owned, controlled, or dominated, or that additional action would be necessary to negate the foreign ownership, control, or domination, the applicant shall be promptly advised and requested to submit a negation action plan. When factors not related to ownership are present, the plan shall provide positive measures that assure that the foreign interest can be effectively denied control or domination. Examples of such measures that may be sufficient to negate foreign control or domination include:
1.
Modification or termination of loan agreements, contracts, and other understandings with foreign interests.
2.
Diversification or reduction of foreign source income.
3.
Demonstration of financial viability independent of foreign interests.
4.
Elimination or resolution of problem debt.
5.
Assignment of specific oversight duties and responsibilities to board members.
6.
Adoption of cpecial board resolutions.
- 5. EVALUATION FINDINGS The reviewer should verify that sufficient information has been provided to satisfy the regulations and this Standard Review Plan. In consideration of the guidance of this Standard Review Plan, the reviewer should then draft an analysis and recommendation, based on the applicable information specified in Sections 2 and 4 above, concerning whether the reviewer knows, or has reason to believe that the applicant is an alien, or is a corporation or other entity that is owned, controlled, or dominated by an alien, a foreign corporaticn, or foreign govemment, and whether there are conditions that should be imposed before granting the application so as to effectively deny foreign control of the applicant. I
- 6. REFERENCES
- 1. Sections 103,104, and 184 of the Atomic Energy Act of 1954, as amended (42 USC 2133,2134, and 2234).
- 2. Part 50 " Domestic Licensing of Production and Utilization Facilities" of Title 10 of the 1
Code of Federal Reaulations (10 CFR Part 50).
j
- 3. General Electric Co. and Southwest Atomic Energy Associates, Docket No. 50-231, 3 AEC 99 (1966).
- 4. Letter from W. Dircks to J. MacMillan (Dec.17,1982) (Re: Babcock &
j Wilcox/McDermott)(Attached).
- 5. Letter from N. Palladino to A. Simpson (Sept. 22,1983) w/ attachment (Re: Union 1
Carbido/Cintichem) (Attached).
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UNITS 0 STATES NUCLEAR REGULATORY CIMMISSION '
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- s DEC171981 I t
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Mr; John H. MacMillan Senior Vice President and j
i Group Executive Advanced Technology Group Babcock & Wilcox 2250 Murrell Road J
l P.O. Box 1260 Lynchburg, Virginia 24505 i
Dear Mr. MacMillan:
concerning the proposed 20, 1982, We have reviewed your. letter of October reorganization of McDermott which will result in Babcock & Wilcox, holder of Facility License CX-10, being wholly owned by McDerm j
l Section 104d. of the Atomic a corporation organized under the laws of Panama.
Energy Act which prohibits foreign domination and control of a licensed facility, is somewhat ambiguous and could be read to preclude the continued l
holding of a facility license by Babcock & Wilcox, as the, subsidiary of a i
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foreign corporation.
We have concluded, on the basis of the representations in your letter and th j
information regarding. stock ownership in the enclos However, in order to ensure continuing 3.
qualify for a facility license.
compliance with the provision of section 104d of the Atomic Energy Act of i
1954,- as amended, prohibiting foreign ownership,' control or domination of l
a licensed facility (and as we have discussed with Mr. George Ellis and j
Mr. James Jones). Babcock & Wilcox's Facility License CK-10 is her(oy a
. to insert the following conditions:
f Bobcock &
Wilcox having~ direct responsibility 'y officers o the president of ~abcock & Wilcox, anor the contro*4, and any 8
1.
employees of Babcock & Wilcox having direct custody, of special nuclear material, as defined in the Atomic Energy A citizens of the United States; Babcock & Wilcox alone shall be responsible for the custody and con of such special nuclear material; and the officer o 2.
president of Babcoct & Wilcox; the president of Babcock & Wilcox shall be charged with the ras;:,ns either acting dirr:tly or bility and have the exclusive authority (ing directly to him) of
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through persons designated by and report e
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.t Mr. Jonn H. MacMillan s
ensuring;that the business and activities of Babcock & Wilcox shall at all times be conducted in a manner which shall be consistent with the protection of the common defense and security of the United States; Babcock & Wilcox shall report to the Commission any action by the h
. Government of the Re>ublic of Panama or any change 4.
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Wilcox or any action by that Government regarding the operation of McDermott International that would affect the activities of Babcock &
Wilcox licensed by the Comission.
the foregoing provisions shall apply to Babcock & Wilcox and any entities in which Babcock & Wilcox shall have voting control; and 5.
the foregoing conditions will continue to be binding on Babcock &
Wilcox unless amended or rescinded by the Director of the Office of 6.
Nuclear Reactor Regulation or the Director of the Office of Nuclear' Material Safety and Safeguards, of the Comission, as appropriate (or the person holding any equivalent successor positions with the Comission or any agency of the United States which shall be the successor of the Comission).
The Comission has found that:
The change in Babcock & Wilcox's parent from McDermott incorporated to McDermott International is not inconsistent with the provisions A.
of the Atomic Energy Act of 1954, as amended, and the Comission's regulations in 10 CFR Chapter I; The change will not be inimical to the common defense and security or 8.
to the health and safety of the public; Babcock & Wilcox continues to be qualified to be the holder of Facility C.
License CX-10.
It should be stressed that our conclusion that Babcock & Wilcox my continue to hold Facility License CX-10 is based upon the facts of this case cr.d the It does not constitute a precedent, since representations made to us. conclusions as to whether a facility will be owned, by a foreign' entity requires a factual determination based upon the circum-stences of the particular case._
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- s !4 Mr. Jotin H. MacMillan i
l Since the foreign ownership, dominatiori and control issues raised by section 104d.~of the Atomic Energy Act do not. apply to materials licenses.
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l no action to amend nuclear materials licenses will be required.
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FOR THE NUCLEAR REGULATORY COMMISSION William J. Dircks Executive Director for Operations cc: Davis Polk & Wardwell l
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NUCLEAR REGULATORY COMMISSION
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September 22, 1983 CHAIRMAN The Honorable Alan Simpson, Chairman Subcor:cittee on Nuclear Regulation Comittee on Environment and Public Works
'Jnited States Senate Washington, DC 20515
Dear Mr. Chairman:
This is in r.esponsc to the questions posed in your September 1,1983 letter concerning the p_roposed retransfer of Facility Operating License No.
R-81 on behalf of Union Carbide Subsidiary "B" Inc. and Cintichem, Inc.
Your three initial quest;i.ons generally involve legal issues of foreign control and domination under the Atomic Energy Act of 1954, as amended.
As.
background, I am enclosing an analysis of those issues by our staff legal office.
Briefly, let me sumarize the pertinent parts of that analysis as it relates to each of the first three questions.
The legal basis for the conclusion that'the application for transfer is pr.ecluded by Sections 103d. and 104d. is the explicit wording of these sections.
The first sentence in"hach bf these sections provides that no license shall be issued by the, Commission if the Comission knows or has reason to believe that the proposed licensee is owned, controlled or domi-nated by an alien, a. foreign corporation or' a foreign government.
No dis-cretion is p'rovided for the application of this statutory prohibition, either in its terms or in its legislative history. This means that if the conclu-sion that the ultimate ownership of a proposed licensee is in foreign hands cannot be avoided, then these sections prohibit the Comission from issuing the required license.
Such a conclusion cannot be avoided for the proposed transfer of Facility Operating License No. R-81. The parent corporation, F. Hoffman-LaRoche and Co., Ltd., is r.egistered in Switzerland.
We are aware of no information which suggests that the foreign parent is not owned, controlled or dominated by foreign nationals.
Therefore, under the circumstances, although the.._
proposed transferee, Cintichemi-Inc;,-is a United States corporation, the i
Commission necessarily "has reason to believe" that it is owned, controlled or dominated by an alien, or a foreign' corporation.
As long as this element of foreion control is present, Sections 103d. and 104d. prohibit our approval i
of the transfer, o
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2 In determining whether there is foreign ownership, control and domination, in the past the Comission has considered the relationships which could lead to the ultimate power of an alien, a foreign corporation or a foreign government to direct the actions of the licensee in the conduct of licenses activities.
Question 2 implies that the " owned, controlled or dominated" by an alien, a foreign corporation or a foreign government prohibition in the Atomic Energy Act can be overcome by a finding that issuance of a license under such circunstances would not be inimical to the common defense and security or to the henith and safety of the public.. Even assuming, for the sake of dis-cussion, that we were able to make favorable f}ndings in that regard, the prohibition in Sections 103d. and 104d. against licensing anyone "if the l
Comission knows or has reason to believe it is owned, controlled or domi-3 nated by :n alien, a foreign corporation or a foreign government" is an entirely separate and absolute one.
Because the 2bsolute prohibition lan-guege applies to the circumstances revealed in the application to transfer i
Facility Operating Lice.nse No. R-81, there is no need to consider, and the Comission has not considered, whether foreign ownership, control or domina-tion in this case would be inimical to-the comon defense and security or to_
the public health and saf.aty. The Comission has not developed any standards or criteria for determining when foreign control, ownership, or domination would also be inimical to the comon defense and security or to the health
.and safety of.the public.
As the' background attachment reveals'in some detail, this case is distin-
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guishable from the three earlier proceedings referred to in Question 3.
In this case, the conclusion that t,be ultimate ownership and control of the transferee, whether through the Yoreign registered parent company or the shareholders, is in foreign hands cannot be avoided.
In each of the earlier eases the facts did not dictate' that conclusion, and thus none of them fall T
within tht scope' of the abs 51ute prohibition against foreign ownership, control or domination.
Question 4 asks for our views on matters which generally coner.rn legislative changes to Sections 103d. and 104d.
If the Congress wishes the NRC to have the authority to approve the transfer of a license under circumstances such t
as present in this case, then Sections 103d. and 104d. would have to be amended to provide the Comission with some discretion to approve license issuance 'even though it knows or has reason to believe there is foreign ownership, control or domination. We have not had the occasion to examine whether there is a compelling public interest for legislation which would allow licensee transfers in. this particular case.
However, as a general proposition, the Comission would not oppose added flexibility in this area.
These sections, however, should continue to give authority to prevent the 1
issuance of any license which in the opinion of the Comission would be inimical to. the comon defense and security or health and safety of the public.
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If you should decide to proceed with the legislative process, you may be assured of our cooperation and support.
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I trust that these responses will'be helpful.
Sincerely, Original signed by
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Nunzio J. Palladino.
Nunziop.Palladino 1
Enclosure:
Legal Analysis i
cc:
Senator Gary Hart 1
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Distribution:
WJDircks JMurray JRoe WParler TRehm SECY-83-2235 VStello CA
' GCunningham EDO 13531 JDavis
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1 Originating Office: ED0/ ELD /Parler J,.,
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ATTACHiiENT
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l OELD LEGAL ANALYSIS Lecal Questions of Foreign Control and Domination Raised by Proposed Transfer of. Facility Operating License No. R-81 from Union Carbide l
Subsidiary B" Inc. to Cintichem. Inc.
l A.
Prcoosed Transfer of Facility Operating License from Union l
Carbide Subsidiary B. Inc. to Cintichem. Inc.
l i
Union Ctrbide Subsidiary "B," Inc. holds' Facility License R-81 for a research reactor located at Sterling Park, Tuxedo, New York. Cintichem, Inc. is stated to be a wholly-owned Delaware subsidiary of Medi-Physics, Inc., a Delaware Corporation. Medi-Physics, Inc. is a wholly owned subsidiary of Hoffmann-LaRoche Inc., a New Jersey Corporation, which is owned by Curacao i
Pharmholding, N.V.. a curacao corporation. Curacao Pharm-holding N.V. is l
wholly owned by Sapac, Ltd., a New Brunswick (Canada) corporation. Sapac,
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Ltd. is publicly owned with its shares traded as a unit with the shares of F.
j Hoffmann-LaRoche and Co., Ltd., a corporation registered in Switzerland. In i
L the absence of any information to the contrary, it is assumed that the stock-i holders of F. Hoffmann-LaRoche and Co., Ltd., are Swiss nationals or nationals -
l-of other foreign countries.
The transfer' application indicates that all.of the directors and principal officers of Cintichem, Inc. and Medi-Physics, Inc. are U.S. citizens.
It also indicates that Cintichem agrees to accept all license conditions and terms of Facility Operating License No. R-BI, as amended, including any pending. applications for amendment or renewal of the license. Moreover, Cintichem agrees to accept the following additional license conditions if the license transfer is approved by NRC:
A.. The president'of Cintichem, or. any officers of Cintichem having direct
. responsibility for the control of, and any employees of Cintichem having direct custody of special nuclear material, as defined in the Atomic Energy Act of 1954, as amended, stored, used, or produced at the, Sterling Forest facility, sh.'11 be citizens of the United States.
B.
Cintichem alone shall be respoisible for the custody and control of such special nuclear material; and the officer of Cintichem in charge of such special nuclear mater al shall report directly to the president of Cintichem.
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C.-
The president of Cintienein shall be charged with the responsibility and have the exclusive authority'(either acting)directly or through persons oesignated by and reporting directly to him of ensuring that the business and activities of Cintichem shall at all times be conducted in a manner which shall be consistent with the protection of the coimon l
defense and security of the Untied States.
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2-D.
Cintichem shall report to the Huclear Regulatory Comission (liRC) any action by the Goverriment of Switzerland or any other government that would affect ownership or control of Cintichem or any action by the Government of Switzerland regarding the operation of Hoffmann-LaRoche that would affect the activities of Cintichem licensed by the Comission.
E.
The by-laws of Cintichem shall be amended to provide for a Board of Directors consisting of three persons all of whom shall be citizens and
' residents of the United States at all times.
F.
The initial Board of Directors of Cintichem would be subject to approval by the NRC for the purpose of assuring that the members are U.S. citizens.
l G.
No more than one of the three directors of Cintichem may be an officer.
director, or employee of any shareholder affiliate.
H.
All officers of Cintichem will be elected solely by the Cintichem Board l
of Directors, and no officer of Cintichem (except the secretary and/or treasurer) may be an officer, director, or employee of a shareholder affiliate already covered.
-I.
In recognition of the fact that the Comission's primary concern is with the possibility that shareholder foreign interests could seek to control Cintichem's activities in a manner detrimental to the public interest, any comunications from shareholder interests in specifically designated ~
areas relevant to the Comission's concern would be promptly reported to the Comission.
J.
'The operating license will be conditioned on a prohibition against communication by Cintichem and its personnel of specific types of information designated by the NRC and pertaining to operation of the reactor to any shareholder affiliate or its personnel. The NRC should not have any interest in limiting the comunication of information about the reactor that is clearly available to the general public, or that may be necessary solely for the purposes of financial planning.
Similarly, such a prohibition should not preclude communications between Cintichem and its legal counsel where, as is contemplated, legal services for Cintichem will be provided by counsel to Hoffmann-LaRoche Inc., a New Jersey corporation. Such a prohibition
.should be further limited to specific types of information designated by the Comission.
Advance approval would be obtained by Cintichem with respect to the comunication by Cintichem to shareholder affiliates of other designated types of information.
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Cintichem will promptly notify the Commission Df any economic, finan-i ciel, or other circumstances that may adversely affect Cintichem's K.
ability to discharge its responsibilities uncer the Atomic Energy Act, 1
HRC rules and regulations, and the terms of the license.
i Cintichem will submit periodic evidence as to its initial financial and technical qualifications and any naturally adverse changes thereto the l
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i Commission.
The foregoing provisions shall apply to Cintichem and any entities in M.
which Cintichem shall have voting control.
The foregoing conditions will continue to be binding on C N.
Reactor Regulation of the Commission, as appropriate (or the person holding any equivalent successor positions with the Commission or any agency of the United States which shall be the successor of the Commission).
Cintichem agrees to adopt all currently approved emergency response plans, including those of state and local government authorities.
O.
Cintichem proposes no change in the personnel organization of theAll pe P.
Sterling Forest Research Reactor facility.
l employed by Sub B to manage and operate the Sterling Forest Research The Reactor facility will be offered employment with Cintichem.
l technical qualifications of Cintichem will thereby become the same as Sub B now possesses.
i Cintichem agrees to limit access to restricted data such that no indi-vidual will have access to restricted data until such individual ha Q.
been investigated and given security clearance.
The change that will result from'the proposed license tr will be a Swiss corporation contro11ef by foreign nationals.
Statutory Provisions Pertainino to Ownership and Control of Facilities B.
Section 103d. of the Act provides, in pertinent part:
No license [for a commercial production or utilization *
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f acility) * *ity if the Commission knows or has reason to or other ent believe it is owned, controlled or dominated by an alien, In any a foreign cerporation, or a foreign government.
l event, no license may be issued to any person within the United States if, in the opinion of the Commission, the t
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issuance of a license to such person would be inimical to the ccm.on defense 'and security or to the health and safety.of the public.
-Section 104d., pertaining to licenses for research and development facilities, provides, in pertinent part:
No license may be issued to any corporation or other entity if the Commission knows or has reason to believe that it is owned, controlled or dominated by an alien, a foreign corporation or i
a foreign governnent.
In any event, no license may be issued to any person within the United States if, in the opinion of i
the Comission, the issuance of a license to such a person would be inimical to the comon defense and security or to the health and safety of the public.
Section IS4. of the Act provides, in pertinent part:
No license granted hereunder and no right to utilize or produce special nuclear material granted hereby shall l
be transferred, assigned or in any manner disposed of, either voluntarily or involuntarily, directly or indirectly, through transfer of control of any license to any person, unless the Comission shall, after securing full information, find that the transfer is in 3
accordance with the provisions of this Act, and shall give its consent in writing.
C.
Discussion In 'the absence of criteria in sections 103d. and 104d. for determining
" ownership", " control" or " domination", the legislative history of those sections and cases construing the provisions have been examined.
It appears that. earlier drafts of the bill that eventually was enacted as the Atomic Energy Act of 1954 would have prohibited the issuance of licenses" to a corporation or association owned or controlled by a foreign corporation or governnent, or if more than 5 percent of the voting stock was owned by aliens, or if any officer, director, or trustee was not a citizen of the United States.1/ After objection on the grounds that other statutes permitted a higher percentage of alien ownership (20-25%), thc4 many stockholders, for reasons of convenience, leave their securities in the j
names of brokers or nominees or in street nares and thus the real ownership n.ay not often be easily known, and that there are no feasible neans by which 1/
H.R. 8062, April 15,1954; 5. -3323, April 19,1954.
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- a corporation could prevent 5 percent of its stock from being purchased by aliens,2/ the final version of the provision was passed substantially in its present form. The Conference Reports do not reveal Congress' express reason for changing the proposed version and there seems to have been no debate on the provision.
The first Atomic Energy Com$ission decision construing the foreign control or domination provision of sections 103d. and 104d. was In the Matter of General Electric Company and Southwest Atomic Energy Associates (the SEFOR case).3/ That case involved a construction permit application filed b i
GeneraT Electric Company and Southwest Atomic Energy Associates (SAEA)y
, an association of utility companies organized under Arkansas law.. Pursuant to a contract between the Commission and SAEA, a program for construction and.e.
operation of the SEFOR test reactor for research and. development as part of the AEC fast breeder reactor program was to be conducted.
Under a separate contract between SAEA and Gesellschaft fur Kernfurschung (GFK), a non-profit association formed under the laws of the Federal Republic and in part by the land (State) of Baden - Wurttenberg, GFK agreed to contribute 50 percent of the costs of construction of the SEFOR reactor.
Under the contract, GFK was entitled to participation in the project review and technical policy committees with SAEA and GE respectively, and SAEA was required to consult with GFK on all matters of policy and questions affecting costs.
Furthermore, GFK was entitled to designate scientists and engineers to participate in the design and construction of the reactor and the conduct of the program, subject to approval and direction of GE.
GFK did not own any stock in GE and SAEA or any legal interest in the physical assets of the project. Other contracts between SAEA and GE provided for construction and conduct of the research program.
s In a supplemental initial decision, the atomic safety and licensing board res'cinded a provisional construction permit that had been conditionally granted, because the project was found to be significantly and substantially under the control and domination of GFK.
The Atomic Energy Commission reversed, reinstating the construction permit.
InitsdecisiontheCommissionsaid(p.101):
4 In context with the other provisions of Section 104(d),
the limitation'should be given an orientation toward safeguarding the national defense and security. We believe that the words ' owned, controlled, or dominated ~ ~ - -
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1 2/
Leoislative History of the Atomic Energy Act, p. 1698, 1961-2.
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3AECgg(1966).
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refer to relationships where the will of one party is i
subjugated to the will of another, and that the Congres-
\\l sional intent was to prohibit such relationships where an 1
alien has the. power to direct the actions of the licensee.
l The board erred in failing to take into consideration the many aspects of corporate existence and activity in which control or domination by another would j
nomally.be manifested in giving undue significance i
to the voice and influence afforded contractually to i
Gesellschaft in the matters of participation in project planning and review of program execution. The ability to restrict or inhibit compliance with the security and
- e-other relations of AEC, and the capacity to control the use of nuclear fuel and to dispose of special nuclear material generated in the reactor, would be of greatest significance.
The Comission went on to note that GFK had no legal ownership or interest in the physical assets of the SEFOR project, no voice in the financial affairs of the applicants and no power to restrict compliance with the safety and security requirements of the Commission.
Itconcluded(p.102):
"We believe that the board failed to giver proper considera-tion to the provisions of the contracts other than the SAEA-Gesellschaft contract in reaching the* finding of alien domina-
- tion. The effect-of those contracts is to retain positive control of the project in the Comission and in General Electric I
Company, and it is provided that nothing in them is intended to
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confer upon Gesellschaft any measure of control over SEFOR or the related research and development program."
TherationaleoftheSEFORcasewasreaffirmedintheZioncase.j4 The
- subsequent case of the Gulf-Royal Dutch /Shell partnership resulting in the creation of General Atomic Company involved more complicated considerations.
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By an agreement dated November 19,1973, Gulf 011 Corporation (" Gulf") and Royal Dutch /Shell entered into a joint venture in the nuclear energy and related fields to conduct the business presently conducted by Gulf Energy and Environmental Systems Company, Gulf General Atomic Company and Gulf Environmental Systems Company, divisions of Gulf. The joint venture took 4/
In the Matter of.Cormonwealth Edison Cenpany, (Zion Station, Units 1 and 2); 4 AEC 231, April 9, 1969.
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- the form of' two partnerships, both situated in the United States, one to conduct'the U.S. business of the joint venture. The partnership cond.ucting i
the U.S. business was organized under the California Uniform Partnership Act, owned 50/50 by Gulf and Scallop Nuclear, Inc., a Delaware corporation i
whose shares were owned by Scallop Holding, Inc., whose shares in turn were j
owned by Shell petroleue K.V., a Hetherlands company which was owned 40%
by Shell Transprt and Trading, a British group and 60% by Royal Dutch Petroleum, a Dutch group.
Gulf proocsed to transfer to the U.S. partnership its interests in and rights under various AEC facility licenses issued under Section 1D4 of the Act, including licer.ses for (1) three TRIGA reactors. (2) the Barnwell
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nuclear fuel reorocessing plant then being constructed at Barnwell, South Carolina, by Allied Chemical Products. Inc., and (3) the export of certain reactor components required for a TRIGA reactor to be constructed in Re.ania.
Gulf applied to the Atomic Energy Comission for the transfer of these licenscs to the U.S. partnership. Gulf had also acquired 100% of the stoch of the Guif United Nuclear Fuels Corporation (" Gulf United"), fonnerly i
owned 51% by Guif and 43% by United Nuclear Corporation, liquidated such j
corporation into Gulf, and proposed to transfer to the U.S. partnership two resarch reactors then held by Gulf United (either through the parent corporation, Gulf, or directly to the partnership).
The property, including the physical assets of Gulf Energy, Gulf General Atomic, and Gulf Environmental Systems, was also to be transferred to the U.S. partnership. The contribution of Scallop, the Delaware corporation set.
up by the Royal Dutch /Shell Group to enter into the joint venture, was to be primarily in the form of money.
- Siiice the U.S. partnership would be 50% owned by Scallop, a company of the Royal Dutch /P.eil Group, a foreign " group", questions arose as to whether the partnership to which the Gulf licenses would be transferred would be owned, controlled or dominated by an alien or a foreign corporation.
The AEC approved the transfer, in a letter dated December 14,1973 from the" Director of Eegulation to General Atomic Company. The approval was subject to certain concitions:
(1) the presicent and any officers of the partnership having direct responsibility for.the control, and any employees having direct custody ef, special r.uclear material must be U.S. citizens.
(2) a separate department of General Atomic nust be responsible for special n:.: lear material, and the head of the department must report directly to the president.
(3) the president shall be charged with the responsibility and exclu-sive authcrity of ensur,ing that the business and activities of e
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' 8-the partr.ership are at all times conducted 'in a manner consistent with the protectjen of the common defense and security of the United States.
(4) the foregoing conditions apply to the partnership and any entities in which the partnership shall have voting control.
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(5) General Atomit will not change any of.the foregoing conditions without approval of the Director of Regulation of the AEC or of the person holding any equivalent successor position with the Comission or its successor.
Subsequently, a foreign-domination and control question arose in connection **
with the preposed acquisition of a research reactor owned by a New Jersey corporation, Industrial Research Laboratories, by HLR Radiopharmaceutical (HLRR).
HLRR was in turn, a wholly-owned subsidiary of Hoffmann-LaRoche',
Inc. (HLR), the same Delaware corporation involved here, and accordingly, ultimately controlled by Hoffmann-LaRoche & Company, Ltd., a Swiss corporation, the ultimate foreign owner as in the instant case.
It was then argued by counsel for HLRR that the corporate veil should not be pierced to the foreigh-dominated holding company.
However, the AEC sta N infornally advised counsel for HLRR that the staff would oppose the transfer,,
on the basis of the section 104d. prohibition against issuance of a license to an entity owned, controlled or dominated by an alien, foreign' corporation or foreign government. No letter or other writing was sent to HLRR concerning
. the matter.
However, a letter dated March 17, 1975 to Senator Williams of New Jersey in response to his letter inquiring into the matter, confimed this conclusion.
In the instant case, Cintichcm, Inc., seeks to insulate itself from the prohibitions in sections 103d. and 104d. against foreign control and domination of a licensed facility by proposing the license conditions set out above, some of which are si;nilar to those imposed by the Comission on Babcock & Wilcox when it became a subsidiary of McDermott International, a Panamanian corporation.
However, in the Babcock & Wilcox case, the Com-mission was provided with information as to the stockholders of McDermott International,. the proposed parent company, which sh6wed that the great majority of the stockholders were U.S. citizens.
No such information has been provided by Cintichem, Inc. or Hoffmann-LaRoche.
The submission by the applicant for transfer of the facility operating license argues, in Attachment 5 to the application, that approval of the retransfer would not " violate the prescribed NRC tests for avoiding foreign ownership, de.ination or control of a U.S. production or utilization e
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facility." however, the attachment relies on the SEFOR case, 3 AEC 99, the Ger.eral Atomic case and i 27 of the Restatement of the Foreign Relations Law of the United States, comment d.
The SEFOR case is not s'pplicable to the instant request.
In that case, the fereign associatiert involved, GFK, had no ownership interest, direct or indirect, in the license applicants, General Electric Company and Southwest Atomic Energy Associates.
GFK had agreed to contribute 50% of the costs of construction of the SEFOR reactor, was entitled to participate in project review and technical policy committees, to be consulted on matters of policy and ouestions affecting costs, and was entitied to designate scientists and engineers to participate in the design and construction of the program, subject to. approval and direction of GE.
It did not own any stock in GE or e SAEA or any legal interest in the physical assets of the project.
Its participation could roughly be characterized as capital contributor and consultant.
Her is the Restatement of the Foreign Relations Law of the United States, i 27, comment d. supportive of the applicant's case.
The comment states:
' "d.
Corooration owned or controlled by nationals of another state.
When the nationality of a corpora-tion is cifferent from the nationality of the persons (individual or corporate) who own or control it, the state of the nationality of such' persons has juris-diction to prescribe, and to enforce in its territory, rules of law governing their conduct.
It is thus in a position to control the conduct of the corporation even
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though it does not have jurisdiction to prescribe rules j
directly applicable to~the corporation."
f While that coment. supports the view that mere foreign incorporation does not preclude the state of the nationality of the persons who own or control it
. from prescribing and enforcing rules of. law governing the conduct of such persons, it coes not stand for the proposition that the foreign incorporation of the ultimate parent of Medi-Physics does not preclude the transfer of the license where the ultimate parent foreign corporation is owned and controlled by aliens, foreign corporations or a foreign government.
The General Atomic case involved a partnership in which one partner was a subsidiary of a foreign corporation....The facts pertaining to foreign domination in that case are sufficiently different from the instant proposal so as to preclude approval' of the proposed license transfer on the basis of that precedent.
In that case, a United States corporation had a fifty per cent interest in the partnership. The AEC, in consenting to the transfer of the facility license to the partnership, imposed conditions that assured freedom from foreign control.
In the instant case, however, while license
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conditions might prevent foreign control, the conclusion that the' ultimate ownership of the transfer'ee, whether a corporate entity or the shareholders, is in foreign hands cannot be avoided.
Conclusion The proposed trans'fer of Facility Operating License No. R-81 to Cintichem. Inc.,
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a subsidiary of a foreign corporation, is precluded by Sections 103d. and 104d.
of the Atomic Energy Act of 1954, as amended.
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