B-223893, DEC 2, 1986

B-223893, DEC 2, 1986

MISCELLANEOUS TOPICS - NATIONAL SECURITY/INTERNATIONAL AFFAIRS - FOREIGN AID PROGRAMS - FUNDING RESTRICTIONS - MILITARY ASSISTANCE DIGEST: SECTION 722(D) OF THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 (ISDCA) PROHIBITS CONDITIONING OF FOREIGN ASSISTANCE, EXPRESSLY OR IMPLIEDLY, THE PROVISION OF FOREIGN ASSISTANCE ON THE RECIPIENT'S PROVISION OF ASSISTANCE TO THE NICARAGUAN DEMOCRATIC OPPOSITION. THE PROHIBITION APPLIES ONLY TO AID UNDER THE 1985 ISDCA OR UNDER THE ARMS EXPORT CONTROL ACT. GAO DOES NOT CONSIDER THE PROHIBITION APPLICABLE TO DISBURSEMENTS OF FUNDS TO THE GOVERNMENT OF HONDURAS AUTHORIZED UNDER LEGISLATION PREDATING THE 1985 ISDCA. IN ADDITION, GAO FINDS NO EVIDENCE TO INDICATE THAT THE DISBURSEMENTS OF FUNDS TO HONDURAS WERE PURSUANT TO AN ARRANGEMENT RELATING TO HONDURAN ASSISTANCE TO THE NICARAGUAN DEMOCRATIC OPPOSITION.

THE HONORABLE CLAIBORNE PELL:

THIS RESPONDS TO YOUR JULY 1, 1986, REQUEST THAT WE PROVIDE YOU WITH OUR VIEWS AS TO WHETHER TWO DISBURSEMENTS OF ECONOMIC SUPPORT FUNDS TO THE GOVERNMENT OF HONDURAS EARLIER THIS YEAR VIOLATED SECTION 722(D) OF THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985. THAT PROVISION CONTAINS A LEGAL PROHIBITION ON THE CONDITIONING OF FOREIGN ASSISTANCE ON THE RECIPIENT'S PROVISION OF ASSISTANCE TO PERSONS ENGAGED IN INSURGENCY AGAINST THE GOVERNMENT OF NICARAGUA. AS DISCUSSED IN DETAIL BELOW, WE HAVE FOUND NO BASIS FOR CONCLUDING THAT THE TRANSACTIONS IN QUESTION WERE MADE IN VIOLATION OF SECTION 722(D).

BACKGROUND

ECONOMIC SUPPORT FUND MONIES (ESF), PROVIDED TO FOREIGN GOVERNMENTS AND ORGANIZATIONS UNDER AUTHORITY OF SECTION 531 OF THE FOREIGN ASSISTANCE ACT OF 1961, AS AMENDED, ARE INTENDED TO BE USED TO PROMOTE ECONOMIC OR POLITICAL STABILITY. 22 U.S.C. SEC. 2346 (1982). ORDINARILY, SUCH FUNDS ARE AVAILABLE ON SUCH TERMS AND CONDITIONS AS THE PRESIDENT MAY DETERMINE NECESSARY TO ACHIEVE THOSE GOALS. ASSISTANCE IS FREQUENTLY CONDITIONED UPON ECONOMIC REFORMS BY RECIPIENT NATIONS, BUT SUCH CONDITIONS MAY BE WAIVED FOR POLITICAL OR SECURITY REASONS.

DURING THE PERIOD MARCH THROUGH JULY 1985, THE AGENCY FOR INTERNATIONAL DEVELOPMENT (AID) OBLIGATED $147.5 MILLION IN SUPPLEMENTAL FISCAL YEAR 1984 AND FISCAL YEAR 1985 APPROPRIATIONS FOR ESF PAYMENTS TO THE GOVERNMENT OF HONDURAS. DURING THE SAME TIME PERIOD, AID AND THE GOVERNMENT OF HONDURAS AGREED ON ECONOMIC REFORM MEASURES TO BE TAKEN IN CONNECTION WITH THE PAYMENT OF THESE FUNDS, RELATING TO MARKET EXPANSION, TARIFF REFORM, AND EXCHANGE RATE LIBERALIZATION. IN ACCORDANCE WITH THESE AGREEMENTS, $80 MILLION OF THE $147.5 MILLION OBLIGATED WAS DISBURSED IN APRIL AND JUNE, 1985. AFTER THOSE DISBURSEMENTS WERE MADE, AID INFORMED THE HONDURAN GOVERNMENT THAT THE REMAINING $67.5 MILLION IN FISCAL YEAR 1984 AND 1985 FUNDS WOULD BE DISBURSED AFTER THE ECONOMIC REFORM MEASURES WERE TAKEN.

ON AUGUST 8, 1985, THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 WAS ENACTED. PUB.L. NO. 99-83, 99 STAT. 190. SECTION 201 OF THE ACT AUTHORIZED THE APPROPRIATION OF $3.8 BILLION FOR ESF FOR EACH OF FISCAL YEARS 1986 AND 1987. 99 STAT. 211. SECTION 722 OF THE ACT, AMONG OTHER THINGS, PROVIDED A COMPREHENSIVE STATEMENT OF CONGRESSIONAL POLICY TOWARDS NICARAGUA, AUTHORIZED THE IMMEDIATE APPROPRIATION OF $27 MILLION IN HUMANITARIAN ASSISTANCE TO THE NICARAGUAN DEMOCRATIC RESISTANCE, AND PROHIBITED ASSISTANCE (OTHER THAN THE $27 MILLION IN HUMANITARION AID) TO GROUPS ENGAGING IN INSURGENCY AGAINST NICARAGUA. 99 STAT. 254. SECTION 722 ALSO CONTAINED IN SUBSECTION (D) THE PROHIBITION AT ISSUE IN THE PRESENT CASE, WHICH STATES THAT THE PROVISION OF ASSISTANCE UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985, OR UNDER THE ARMS EXPORT CONTROL ACT (22 U.S.C. SECS. 2751-96C), MAY NOT BE CONDITIONED, EXPRESSLY OR IMPLIEDLY, ON THE RECIPIENT'S PROVISION OF AID TO GROUPS ENGAGING IN INSURGENCY AGAINST NICARAGUA. ID.

IN DECEMBER 1985, THE U.S. GOVERNMENT DECIDED TO REVISE THE CONDITIONS UNDER WHICH FISCAL YEAR 1984 AND 1985 FUNDS WOULD BE DISBURSED, AGREEING THAT $35 MILLION IN ASSISTANCE WOULD BE RELEASED AFTER THE GOVERNMENT OF HONDURAS MADE A COMMITMENT TO FORMULATE A COMPREHENSIVE ECONOMIC STABILIZATION PLAN, AND THAT $32.5 MILLION WOULD LATER BE DISBURSED UPON COMPLETION OF THE PLAN. IN JANUARY, 1986, THE NEW GOVERNMENT OF PRESIDENT AZCONA AGREED TO FORMULATE A COMPREHENSIVE PLAN, AND ON JANUARY 31, 1986, $35 MILLION IN FISCAL YEAR 1984 AND 1985 FUNDS WERE DISBURSED. A FINAL DISBURSEMENT OF FISCAL YEAR 1984 AND 1985 FUNDS (AMOUNTING TO $32.5 MILLION) WAS MADE ON MAY 7, 1986. FISCAL YEAR 1986 ESF FUNDS (AMOUNTING TO $61.3 MILLION) WERE OBLIGATED ON JUNE 19, 1986, AND $20 MILLION OF THOSE FUNDS WERE DISBURSED ON AUGUST 7, 1986. YOU QUESTION WHETHER THE DISBURSEMENTS OF FISCAL YEAR 1984 AND 1985 FUNDS IN JANUARY AND MAY 1986 WERE MADE AS A RESULT OF HONDURAN COMPLIANCE WITH THE ECONOMIC CONDITIONS IMPOSED BY THE U.S. GOVERNMENT, OR INSTEAD WERE MADE AS A QUID-PRO-QUO FOR HONDURAN ASSISTANCE, IN APPARENT VIOLATION OF SECTION 722(D) OF THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985.

SECTION 722(D)

1. LANGUAGE AND LEGISLATIVE HISTORY

SECTION 722(D) OF THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 PROVIDES AS FOLLOWS:

"(D) PROHIBITION RELATING TO MILITARY OR PARAMILITARY OPERATION IN NICARAGUA.-- NOTWITHSTANDING ANY OTHER PROVISION OF LAW, NO FUNDS AUTHORIZED TO BE APPROPRIATED OR OTHERWISE MADE AVAILABLE BY THIS ACT (EXCEPT THE FUNDS AUTHORIZED TO BE APPROPRIATED BY THIS SECTION RELATING TO HUMANITARIAN ASSISTANCE FOR THE NICARAGUAN DEMOCRATIC OPPOSITION), BY THE FOREIGN ASSISTANCE ACT OF 1961, OR BY THE ARMS EXPORT CONTROL ACT SHALL BE USED TO PROVIDE ASSISTANCE OF ANY KIND, EITHER DIRECTLY OR INDIRECTLY, TO ANY PERSON OR GROUP ENGAGING IN AN INSURGENCY OR OTHER ACT OF REBELLION AGAINST THE GOVERNMENT OF NICARAGUA. THE UNITED STATES SHALL NOT ENTER INTO ANY ARRANGEMENT CONDITIONING, EXPRESSLY OR IMPLIEDLY, THE PROVISION OF ASSISTANCE UNDER THIS ACT OR THE PURCHASE OF DEFENSE ARTICLES AND SERVICES UNDER THE ARMS EXPORT CONTROL ACT UPON THE PROVISION OF ASSISTANCE BY A RECIPIENT TO PERSONS OR GROUPS ENGAGING IN AN INSURGENCY OR OTHER ACT OF REBELLION AGAINST THE GOVERNMENT OF NICARAGUA." PUB.L. NO. 99-83, SEC. 722(D), 99 STAT. 190, 254 (1985).

SECTION 722(D) ORIGINATED AS A COMMITTEE AMENDMENT TO S. 960, LATER ENACTED AS THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985. THE AMENDMENT, WHICH YOU INTRODUCED, WAS SIMILAR IN FORM TO THE PROVISION EVENTUALLY ENACTED, BUT WAS SOMEWHAT BROADER IN SCOPE. /1/ ACCORDING TO PRESS REPORTS AT THE TIME, THERE WAS CONCERN THAT THE ORIGINAL PROVISION WOULD HAVE PREVENTED UNITED STATES OFFICIALS FROM TAKING ANY ACTION THAT COULD BE CONSTRUED AS ENCOURAGING A FOREIGN NATION TO USE ITS OWN RESOURCES TO ASSIST THE NICARAGUAN DEMOCRATIC OPPOSITION. SEE CHANGE IN BILL MAY HELP CONTRAS, WASH. POST, SEPT. 15, 1985, AT A9, COL. 1. THIS CONCERN IS REFLECTED IN THE EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE ON S. 960, WHICH DESCRIBES THE PURPOSE OF THE PROHIBITION, IN ITS REVISED FORM:

"THE CONFERENCE SUBSTITUTE FOR SECTION 405 OF THE SENATE BILL IS THE SAME AS THE SENATE PROVISION WITH A TECHNICAL CHANGE FOR THE SAKE OF CLARITY.

"THE PURPOSE OF THE SECOND SENTENCE OF THIS SECTION IS TO PROHIBIT THE UNITED STATES FROM FURNISHING ECONOMIC OR MILITARY ASSISTANCE OR SELLING U.S. MILITARY EQUIPMENT ON THE CONDITION, EITHER EXPRESSLY OR IMPLIEDLY, THAT THE RECIPIENT OR PURCHASER PROVIDE ASSISTANCE TO INSURGENTS INVOLVED IN THE STRUGGLE IN NICARAGUA. THIS SECTION DOES NOT PROHIBIT U.S. GOVERNMENT OFFICIALS FROM DISCUSSING U.S. POLICY IN CENTRAL AMERICA WITH RECIPIENTS OF U.S. ASSISTANCE OR PURCHASERS OF U.S. MILITARY EQUIPMENT. NOR DOES IT PROHIBIT RECIPIENTS OF U.S. ASSISTANCE FROM FURNISHING ASSISTANCE TO ANY THIRD PARTY ON THEIR OWN VOLITION AND FROM THEIR OWN RESOURCES." H.R. REP. NO. 237, 99TH CONG., 1ST SESS. 143 (1985).

2. APPLICABILITY

AS INDICATED ABOVE, SECTION 722(D) CONTAINS TWO SPECIFIC PROHIBITIONS. THE FIRST, RELATING TO THE USE OF FOREIGN ASSISTANCE (OR ARMS EXPORT CONTROL ACT) MONIES TO SUPPORT NICARAGUAN INSURGENTS, APPLIES TO FUNDS AUTHORIZED OR OTHERWISE MADE AVAILABLE UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985, THE FOREIGN ASSISTANCE ACT OF 1961, AND THE ARMS EXPORT CONTROL ACT. BECAUSE ESF IS AUTHORIZED BY PART II, CHAPTER 4 OF THE FOREIGN ASSISTANCE ACT OF 1961, THIS PROHIBITION APPLIES GENERALLY TO ANY USE OF ESF MONIES.

THE SECOND PROHIBITION OF SECTION 722(D), RELATING TO THE CONDITIONING OF ASSISTANCE TO FOREIGN COUNTRIES ON THE PROVISION OF SUPPORT BY THOSE COUNTRIES TO NICARAGUAN INSURGENTS, APPLIES ONLY TO THE PROVISION OF ASSISTANCE UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 AND THE ARMS EXPORT CONTROL ACT. UNLIKE THE FIRST PROHIBITION, IT DOES NOT, BY ITS OWN TERMS, SPECIFICALLY APPLY TO ASSISTANCE PROVIDED UNDER THE FOREIGN ASSISTANCE ACT OF 1961 (EXCEPT TO THE EXTENT THAT SUCH ASSISTANCE IS ALSO AUTHORIZED UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985). CONSEQUENTLY, THIS SECOND PROHIBITION DOES NOT APPEAR TO BE APPLICABLE TO ALL DISBURSEMENTS OF ESF FUNDS, BUT ONLY THOSE AUTHORIZED UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 (I.E., FISCAL YEAR 1986 AND 1987 ESF FUNDS).

BECAUSE OF THE FOREGOING, IT IS OUR VIEW THAT THE PROHIBITION CONTAINED IN THE SECOND SENTENCE OF SECTION 722(D) DID NOT APPLY TO THE DISBURSEMENT OF FISCAL YEAR 1984 AND 1985 ESF FUNDS IN JANUARY AND MAY OF 1986, AS THOSE DISBURSEMENTS WERE AUTHORIZED UNDER EARLIER LEGISLATION AND WERE THE RESULT OF OBLIGATIONS MADE DURING THOSE FISCAL YEARS. BECAUSE OF YOUR INTEREST IN THE MATTER, HOWEVER, WE HAVE REVIEWED THE DISBURSEMENTS IN LIGHT OF THE PROHIBITION, BUT HAVE FOUND NO BASIS FOR CONCLUDING THAT THE DISBURSEMENTS WERE MADE AS A "QUID-PRO QUO" FOR HONDURAN ASSISTANCE TO NICARAGUAN INSURGENTS.

DISBURSEMENT OF FISCAL YEAR 1984 AND 1985 FUNDS TO HONDURAS

AS DISCUSSED IN THE CLASSIFIED APPENDIX TO THIS LETTER, OUR REVIEW FOUND NO EVIDENCE OF AN EXPRESS ARRANGEMENT CONDITIONING THE PROVISION OF ASSISTANCE TO HONDURAS ON HONDURAN SUPPORT FOR THE NICARAGUAN DEMOCRATIC RESISTANCE. THE PRINCIPAL QUESTION, THEREFORE, IS WHETHER DISBURSEMENTS OF ESF FUNDS TO HONDURAS WERE SUBJECT TO AN "IMPLIED" ARRANGEMENT TO THE SAME EFFECT. /2/

IN INTERPRETING THE LANGUAGE OF SECTION 722(D), WE HAVE REGARDED THE TERM "IMPLIED ARRANGEMENT" CONDITIONING ASSISTANCE IN THE SAME LIGHT AS OTHER TYPES OF AGREEMENTS "IMPLIED IN FACT." SUCH AGREEMENTS, ALTHOUGH NOT EMBODIED IN AN EXPRESS FORM, ARE INFERRED AS A FACT FROM THE CONDUCT OF THE PARTIES INVOLVED. SEE E.G., 55 COMP.GEN. 768, 777 (1976). ESTABLISH THAT AN IMPLIED AGREEMENT EXISTS, IT IS NOT SUFFICIENT TO SHOW THAT TWO PARTIES HAVE TAKEN ACTIONS THAT ARE INTERRELATED; THERE MUST BE SOME EVIDENCE IN THE CONDUCT OF EACH PARTY TO SHOW AN INTENTION TO BE BOUND BY THE ACTIONS OF THE OTHER. SHAW V. UNITED STATES, 8 CL.CT. 796, 799 (1985). IN THE PRESENT CASE, THEREFORE, THE EXISTENCE OF AN "IMPLIED ARRANGEMENT" UNDER SECTION 722(D) MAY ONLY BE PROVEN BY EVIDENCE OF SOME ACTION TAKEN BY THE U.S. GOVERNMENT INDICATING THAT IT HAD COMMITTED ITSELF TO DISBURSE ESF MONIES IF THE HONDURAN GOVERNMENT ASSISTED THE NICARAGUAN DEMOCRATIC OPPOSITION, AND EVIDENCE THAT THE HONDURAN GOVERNMENT HAD AGREED TO SUCH AN ARRANGEMENT. SECTION 722(D), AS THE CONFERENCE REPORT INDICATES, DOES NOT PROHIBIT U.S. OFFICIALS FROM DISCUSSING THE NICARAGUAN INSURGENCY WITH HONDURAN OFFICIALS, NOR DOES IT PROHIBIT THE HONDURAN GOVERNMENT FROM ASSISTING NICARAGUAN INSURGENTS FROM ITS OWN RESOURCES. SEE H.R. REP. NO. 237, SUPRA.

THE DETAILS OF OUR FACTUAL REVIEW OF THE CIRCUMSTANCES SURROUNDING THE DISBURSEMENT OF ESF FUNDS IN JANUARY AND MAY OF 1986 ARE DESCRIBED AT LENGTH IN THE CLASSIFIED APPENDIX. IN SUMMARY, WE FOUND NO EVIDENCE THAT WOULD PERMIT US TO CONCLUDE THAT THE DISBURSEMENTS IN QUESTION WERE MADE PURSUANT TO AN IMPLIED ARRANGEMENT RELATING TO THE PROVISION OF ASSISTANCE TO THE NICARAGUAN DEMOCRATIC OPPOSITION BY HONDURAS. INSTEAD, IT APPEARS THAT THE DISBURSEMENTS IN QUESTION WERE BASED ON A VARIETY OF POLITICAL AND ECONOMIC FACTORS. ALTHOUGH THERE IS NO CLEAR EVIDENCE THAT HONDURAN SUPPORT FOR THE NICARAGUAN DEMOCRATIC OPPOSITION WAS ONE OF THE POLITICAL FACTORS UPON WHICH THE DECISION TO DISBURSE WAS MADE, NOTHING IN SECTION 722(D) PROHIBITS SUCH A FACTOR FROM BEING CONSIDERED IN MAKING THAT DECISION; SECTION 722(D) DOES NOT CHANGE THE GENERAL RULE OF SECTION 531 OF THE FOREIGN ASSISTANCE ACT OF 1961, AS AMENDED, THAT BOTH POLITICAL AND ECONOMIC OBJECTIVES MAY BE CONSIDERED IN THE ESF PROGRAM. SEE 22 U.S.C. SEC. 2346.

CONCLUSION

BASED ON THE FOREGOING, IT IS OUR VIEW THAT SECTION 722(D) OF THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 DID NOT APPLY TO DISBURSEMENTS OF FISCAL YEAR 1984 AND 1985 ECONOMIC SUPPORT FUNDS TO THE GOVERNMENT OF HONDURAS IN JANUARY AND MAY OF 1986. IN ADDITION, OUR REVIEW OF THOSE DISBURSEMENTS HAS PRODUCED NO EVIDENCE TO INDICATE THAT THE ASSISTANCE IN QUESTION WAS PROVIDED IN ACCORDANCE WITH ANY IMPLIED AGREEMENT OR ARRANGEMENT RELATING TO THE PROVISION OF ASSISTANCE BY HONDURAS TO THE NICARAGUAN DEMOCRATIC OPPOSITION.

WE HOPE THAT THE FOREGOING IS OF ASSISTANCE TO YOU. UNLESS RELEASED EARLIER BY YOU OR YOUR STAFF, THIS LETTER (WITHOUT THE CLASSIFIED APPENDIX) WILL BE AVAILABLE FOR PUBLIC RELEASE AFTER 30 DAYS.

/1/ FOR EXAMPLE, THE PROVISION WAS LIMITED IN APPLICABILITY TO ASSISTANCE PROVIDED UNDER THE INTERNATIONAL SECURITY AND DEVELOPMENT COOPERATION ACT OF 1985 OR THE ARMS EXPORT CONTROL ACT. IN ADDITION, THE ORIGINAL PROVISION WOULD HAVE PROHIBITED THE UNITED STATES FROM ENTERING INTO ANY TYPE OF UNDERSTANDING UNDER WHICH A FOREIGN AID RECIPIENT NATION WOULD PROVIDE BACKING TO NICARAGUAN INSURGENTS. IN CONTRAST, THE PROVISION EVENTUALLY ENACTED ONLY PROHIBITED THOSE UNDERSTANDINGS OR ARRANGEMENTS WHICH WOULD CONDITION THE PROVISION OF U.S. FOREIGN ASSISTANCE OR ARMS TO THE RECIPIENT NATION ON ITS WILLINGNESS TO ASSIST NICARAGUAN INSURGENTS. /2/ ON AUGUST 12, 1986, WE REQUESTED THE VIEWS OF THE STATE DEPARTMENT AND THE AGENCY FOR INTERNATIONAL DEVELOPMENT AS TO THE SCOPE OF THE PROHIBITION CONTAINED IN THE SECOND SENTENCE OF SECTION 722(D). WE ASKED WHAT CIRCUMSTANCES WOULD CONSTITUTE AN IMPLIED "ARRANGEMENT" CONDITIONING ASSISTANCE UNDER THE TERMS SPECIFIED IN THE PROHIBITION. WE ALSO ASKED WHETHER THE TWO AGENCIES CONSIDERED SECTION 722(D) AS PROHIBITING THE UNITED STATES FROM GIVING ANY CONSIDERATION TO ASSISTANCE PROVIDED BY A POTENTIAL ESF RECIPIENT TO NICARAGUAN INSURGENTS WHEN MAKING THE DECISION ON WHETHER TO RELEASE FUNDS. BOTH AGENCIES DECLINED TO COMMENT ON WHAT THEY CONSIDERED TO BE "HYPOTHETICAL" QUESTIONS.