Appropriateness of Procedures for Leasing Defense Property to Foreign Governments

ID-81-36: Published: Apr 27, 1981. Publicly Released: Apr 27, 1981.

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The Senate Foreign Relations Committee requested a review of the implementation of the defense property leasing authority contained in 10 U.S.C. 2667 which enables the Secretaries of the military departments to lease nonexcess property when it is determined to be in the public interest or will promote national defense. Originally, the law was intended to aid the industrial facilities standby programs of the military services after World War II by authorizing the lease of defense plant production equipment and real property to domestic private enterprises. However, in recent times, the law has been used to transfer military equipment to foreign countries.

The transfer of military equipment to a foreign government on this basis is tantamount to providing grant aid which should only be authorized under the Foreign Assistance Act (FAA). The alternative is to sell the equipment under the Arms Export Control Act, if the provisions of that Act are otherwise met. Military equipment has been transferred to foreign countries primarily on a grant basis under FAA or through sales made under the Arms Export Control Act. When property is leased to foreign governments under 10 U.S.C. 2667, the restrictions on eligible countries contained in FAA and the Arms Export Control Act have been avoided. Adoption of the Arms Export Control Act dollar threshold in the International Security and Development Cooperation Act of 1980 will prevent further avoidance of the reporting requirements. Often the value of leased property is based upon an acquisition cost that is several years old and not equivalent to the property's replacement cost should it not be returned to the United States. Neither the military departments nor the Department of Defense has established procedures or instructions requiring leases to be managed in such a way as to ensure that lessee countries comply with the terms and conditions contained in lease agreements. As a result, the use, care, and maintenance of leased property are not routinely verified during the lease time. Because there is no established standard policy for the billing and collection of lease-associated payments, officials cannot always determine the status of lease payments.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should amend 10 U.S.C. 2667 to prohibit the lease of defense property to foreign governments on a rent-free or nominal-rent basis. Equipment transferred on this basis should be done exclusively under the authority of the Foreign Assistance Act.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should direct the Secretaries of the Army, Navy, and Air Force to establish management control and accountability procedures over leased property. These procedures should require the monitoring of lessee compliance with the terms in lease agreements as well as the assurance that all lease payments are made when due.

    Agency Affected: Department of Defense


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