B-200992.OM, NOV 19, 1980

B-200992.OM: Nov 19, 1980

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UNDER THE FOREIGN ASSISTANCE ACT A FOREIGN COUNTRY THAT HAS RECEIVED MILITARY EQUIPMENT ON A GRANT BASIS IS REQUIRED TO RETURN THE EQUIPMENT TO THE UNITED STATES WHEN IT IS NO LONGER NEEDED FOR THE PURPOSES FOR WHICH IT WAS FURNISHED. SEC. 2314(A)(4)) WHERE A DISPOSITION IS MADE THROUGH AN AUTHORIZED SALE BY A FOREIGN COUNTRY. THE COUNTRY IS REQUIRED TO RETURN THE NET PROCEEDS TO THE UNITED STATES. (22 U.S.C. IS SUBJECT TO A GENERAL PROHIBITION AGAINST TRANSFER OF THE EQUIPMENT TO PARTIES OUTSIDE THE FOREIGN COUNTRY WITHOUT THE PRESIDENT'S CONSENT. TO FIND OUT WHETHER OUR AUDITS HAVE ADDRESSED THE ISSUE OF COMPLIANCE WITH THE ABOVE STATUTORY REQUIREMENTS. ATTACHED IS A SUMMARY OF ITS AUDIT WORK.

B-200992.OM, NOV 19, 1980

SUBJECT: DISPOSITION OF OBSOLETE U. S. MILITARY EQUIPMENT FURNISHED TO FOREIGN COUNTRIES (B-200992-O.M.)

COMPTROLLER GENERAL:

THIS MEMORANDUM RESPONDS TO YOUR OCTOBER 17 INQUIRY WHETHER THE LAWS GOVERNING THE PROVISION OF U. S. MILITARY EQUIPMENT TO FOREIGN COUNTRIES, EITHER BY SALE OR GRANT, REQUIRE THAT WHEN SUCH EQUIPMENT BECOMES OBSOLETE, THE FOREIGN COUNTRY FIRST MAKE THE EQUIPMENT AVAILABLE TO THE UNITED STATES BEFORE DISPOSING OF IT IN ANY OTHER MANNER.

UNDER THE FOREIGN ASSISTANCE ACT A FOREIGN COUNTRY THAT HAS RECEIVED MILITARY EQUIPMENT ON A GRANT BASIS IS REQUIRED TO RETURN THE EQUIPMENT TO THE UNITED STATES WHEN IT IS NO LONGER NEEDED FOR THE PURPOSES FOR WHICH IT WAS FURNISHED, UNLESS THE PRESIDENT CONSENTS TO SOME OTHER DISPOSITION. (22 U.S.C. SEC. 2314(A)(4)) WHERE A DISPOSITION IS MADE THROUGH AN AUTHORIZED SALE BY A FOREIGN COUNTRY, THE COUNTRY IS REQUIRED TO RETURN THE NET PROCEEDS TO THE UNITED STATES. (22 U.S.C. SEC. 2314(F)) THE ARMS EXPORT CONTROL ACT CONTAINS NO EQUIVALENT PROVISION SPECIFICALLY LIMITING DISPOSITION OF OBSOLETE EQUIPMENT SUPPLIED TO A FOREIGN COUNTRY BY SALE. (22 U.S.C. SECS. 2151 ET. SEQ.)

ALL EQUIPMENT, WHETHER RECEIVED THROUGH GRANT OR SALE, IS SUBJECT TO A GENERAL PROHIBITION AGAINST TRANSFER OF THE EQUIPMENT TO PARTIES OUTSIDE THE FOREIGN COUNTRY WITHOUT THE PRESIDENT'S CONSENT. SPECIFICALLY, THE ARMS EXPORT CONTROL ACT PROHIBITS TRANSFER OF TITLE TO, OR POSSESSION OF, EQUIPMENT ACQUIRED BY SALE TO ANYONE OTHER THAN AN OFFICER, EMPLOYEE, OR AGENT OF THE FOREIGN COUNTRY. (22 U.S.C. SEC. 2753(A)(2)) SIMILARLY, THE FOREIGN ASSISTANCE ACT PROHIBITS UNAPPROVED TRANSFERS "BY GIFT, SALE, OR OTHERWISE" OF EQUIPMENT FURNISHED ON A GRANT BASIS. (22 U.S.C. SEC. 2314(A)(1)(B).)

WE CHECKED WITH THE INTERNATIONAL DIVISION, THE PROCUREMENT SYSTEMS ACQUISITION DIVISION, THE ACCOUNTING AND FINANCIAL MANAGEMENT DIVISION, AND THE DENVER REGIONAL OFFICE (WHICH PERFORMS A GREAT DEAL OF AUDIT WORK IN THE FOREIGN MILITARY SALES AREA), TO FIND OUT WHETHER OUR AUDITS HAVE ADDRESSED THE ISSUE OF COMPLIANCE WITH THE ABOVE STATUTORY REQUIREMENTS. ID HAS PERFORMED THE ONLY WORK RELATING TO THIS QUESTION. ATTACHED IS A SUMMARY OF ITS AUDIT WORK. THE INFORMATION PROVIDED US IS NOT SUFFICIENT TO DETERMINE THE EXTENT OF COMPLIANCE WITH THE STATUTORY REQUIREMENTS.

ATTACHMENT

DISPOSITION OF OBSOLETE U. S. MILITARY EQUIPMENT FURNISHED TO FOREIGN COUNTRIES

ID CONSIDERED THE DISPOSITION OF EQUIPMENT PROVIDED UNDER THE GRANT ASSISTANCE PROGRAM DURING VARIOUS SECURITY ASSISTANCE PROGRAM REVIEWS IN THE EARLY 1970'S. ID FOUND THAT ACTIONS RANGED FROM DOING NOTHING ABOUT OBSOLETE EQUIPMENT, TO OBTAINING PROCEEDS FROM THE SALE OF EQUIPMENT, TO PROPOSING TO THE RECIPIENT COUNTRIES THAT THEY PURCHASE THE RESIDUAL RIGHTS TO THE EQUIPMENT. THE LATTER TECHNIQUE WAS USED IN BRAZIL BASED ON A RECOMMENDATION IN A 1975 GAO REPORT. EVENTUALLY, THE GOVERNMENT OF BRAZIL PAID THE U. S. GOVERNMENT ABOUT $500,000 FOR THE RESIDUAL RIGHTS TO THE OBSOLETE GRANT AID EQUIPMENT.

ALSO, DOD'S HANDLING OF THE DISPOSITION OF GRANT AID FURNISHED EQUIPMENT WAS COVERED IN A REPORT TO THE CHAIRMAN, COMMITTEE ON INTERNATIONAL RELATIONS, DATED AUGUST 15, 1975, CONCERNING U. S. MONITORING OF DEFENSE ARTICLES PROVIDED TO FOREIGN COUNTRIES. BECAUSE THE USEFULNESS OF OLDER EQUIPMENT WAS QUESTIONABLE AND THE SIZE OF THE MILITARY ASSISTANCE PROGRAM WAS TO BE REDUCED, GAO PROPOSED THAT THE COMMITTEE MAY WISH TO AMEND THE FOREIGN ASSISTANCE ACT TO REQUIRE A COUNTRY-BY-COUNTRY PLAN FOR THE EVENTUAL DISPOSITION OF GRANT-PROVIDED EQUIPMENT. GAO SUGGESTED THAT THE PLAN SHOULD INCLUDE A TIME FRAME AND METHOD FOR THE DISPOSITION OF SUCH EQUIPMENT (I.E., RETURN TO U. S. INVENTORY, USE TO MEET MILITARY ASSISTANCE PROGRAM REQUIREMENTS ELSEWHERE, SALE OF REVERSIONARY RIGHTS, SALE OF SCRAP VALUE OR TRANSFER OF TITLE AS A GIFT). NO LEGISLATIVE ACTION HAS BEEN TAKEN.

IN THE 1975 REPORT, ID ALSO CONSIDERED THE QUESTION OF DOD'S COMPLIANCE WITH THE STATUTORY PROHIBITION AGAINST TRANSFER OF EQUIPMENT RECEIVED THROUGH THE GRANT AID OR THE FOREIGN MILITARY SALES PROGRAM TO PARTIES OUTSIDE THE RECIPIENT COUNTRY WITHOUT THE PRESIDENT'S CONSENT. GAO CONCLUDED THAT END-ITEM UTILIZATION INSPECTIONS OF GRANT-PROVIDED DEFENSE ARTICLES HAVE BEEN MADE IRREGULARLY IN MANY COUNTRIES AND WITH NO ACCURATE INVENTORIES OF ITEMS TO BE INSPECTED. GAO ADDED THAT THE DEPARTMENTS OF STATE AND DEFENSE HAVE NO FORMAL PROCEDURES OR MECHANISMS FOR DETECTING WHETHER U. S. FURNISHED DEFENSE ARTICLES ARE TRANSFERRED TO THIRD COUNTRIES. AS A RESULT U. S. PERSONNEL WOULD BECOME AWARE OF ILLEGAL TRANSFERS ONLY THROUGH ACCIDENTAL DISCOVERY. ONCE DISCOVERED, VIOLATIONS ARE TO BE REPORTED TO THE DEPARTMENTS OF STATE AND DEFENSE FOR CORRECTIVE ACTION. THIS ACTION WOULD INVOLVE DIPLOMATIC CONTRACTS OR PERHAPS A NOTE TO THE COUNTRY'S AMBASSADOR EXPLAINING THE SITUATION AND ASKING THAT IT BE STOPPED. FURTHER CORRECTIVE ACTION WOULD INVOLVE TERMINATING ASSISTANCE TO THE TRANSFERRING COUNTRY AS REQUIRED BY SECTION 3(C) OF THE FOREIGN ASSISTANCE ACT. HOWEVER, ID OBSERVED NO INSTANCES WHERE THESE ACTIONS HAD BEEN TAKEN.

FINALLY, THE ABILITY OF DOD TO PREVENT THE TRANSFER OF SECURITY ASSISTANCE PROGRAM EQUIPMENT WAS IN PART THE SUBJECT OF A REPORT TO THE CONGRESS ENTITLED "MANAGEMENT OF SECURITY ASSISTANCE PROGRAMS OVERSEAS NEEDS TO BE IMPROVED," DATED APRIL 21, 1978. GAO NOTED THAT MILITARY ASSISTANCE ADVISORY GROUP OFFICIALS TOOK THE VIEW THAT THERE IS NO WAY TO PREVENT A HOST COUNTRY FROM TRANSFERRING MILITARY ASSISTANCE AND FOREIGN MILITARY SALES EQUIPMENT IF IT SO DESIRED. THESE OFFICIALS STATED THAT FROM TIME TO TIME, THEY REMIND HOST-COUNTRY OFFICIALS OF THE REQUIREMENT TO SEEK U. S. APPROVAL BEFORE TRANSFERRING EQUIPMENT TO THIRD PARTIES AND OF THE POSSIBLE CONSEQUENCES OF UNAUTHORIZED TRANSFER. THE OFFICIALS ALSO SAID THAT THEY HAVE NOT DETECTED OR HAD ANY INDICATIONS THAT UNAUTHORIZED TRANSFERS HAVE OCCURRED.

DIGEST

MEMORANDUM CONCERNS WHETHER THE LAWS GOVERNING THE PROVISION OF U. S. MILITARY EQUIPMENT TO FOREIGN COUNTRIES, EITHER BY SALE OR GRANT, REQUIRE THAT WHEN SUCH EQUIPMENT BECOMES OBSOLETE, THE FOREIGN COUNTRY FIRST MAKE THE EQUIPMENT AVAILABLE TO THE U. S. BEFORE DISPOSING OF IT IN ANY OTHER MANNER. THE FOREIGN ASSISTANCE ACT (APPLICABLE TO GRANTS) REQUIRES THE RETURN OF SUCH EQUIPMENT, WHILE THE ARMS EXPORT CONTROL ACT (APPLICABLE TO SALES) CONTAINS NO EQUIVALENT PROVISION.