New Disclosure Requirements for Defense Tech Investors and Contractors

New Disclosure Requirements for Defense Tech Investors and Contractors

Private equity and venture capital play a critical role in funding defense and national security technology companies, but according to an article by Cooley attorneys Grant Schweikert and Umer Chaudhry, these companies are also exposed to national security risks.

Foreign actors exploit complex ownership structures in venture and private equity deals to gain access to sensitive technologies. In response, US regulators have expanded national security risk assessments and disclosure requirements for defense tech firms involved in classified and unclassified government programs.

The recent disclosure requirements now apply to all “covered contractors and subcontractors” under Section 847 of the National Defense Authorization Act. These entities are required to disclose foreign beneficial ownership and update their disclosures if circumstances change. Considering recent trends in defense contracting, the Department of Defense (DoD) is expected to introduce a new FAR supplement clause, which is likely to impact over 100,000 companies.

Startups and small businesses seeking funding through programs like SBIR and STTR will face similar requirements. Proposals must now include foreign disclosure forms, adding to the burden on early-stage companies to comply with national security rules. The forthcoming Cybersecurity Maturity Model Certification (CMMC) will also integrate these new disclosure mandates, impacting potentially 300,000 companies in the defense sector.

The article suggests that investors should anticipate more thorough scrutiny of foreign funding sources. Startups should focus on seeking legal advice regarding foreign influence when raising capital. The changing regulatory environment requires proactive steps from defense and national security stakeholders to ensure compliance with disclosure requirements for defense tech firms and to uphold strong national security protections.

As the Department of Defense moves forward with these changes, other federal agencies are expected to follow suit. Preparing for these shifts is critical for companies and investors alike.