oversight

U.S. Export-Import Bank: Process in Place to Ensure Compliance With Dual-Use Export Requirements

Published by the Government Accountability Office on 1997-07-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   United States General Accounting Office

GAO                Report to Congressional Committees




July 1997
                   U.S. EXPORT-IMPORT
                   BANK
                   Process in Place to
                   Ensure Compliance
                   With Dual-Use Export
                   Requirements




GAO/NSIAD-97-211
                 United States
GAO              General Accounting Office
                 Washington, D.C. 20548

                 National Security and
                 International Affairs Division

                 B-277356

                 July 17, 1997

                 Congressional Committees

                 Since October 31, 1994, the Export-Import Bank of the United States
                 (Eximbank) has had statutory authority to finance exports of defense
                 articles and services, provided that it determines that these items are
                 nonlethal and for primarily civilian use. These exports, referred to by the
                 Eximbank as “dual-use” exports, include such items as air traffic control
                 systems that have military applications but will be primarily used for
                 civilian purposes.

                 The Eximbank is authorized to use up to 10 percent of its total annual
                 export financing authority to support the sale of dual-use exports. For
                 fiscal year 1997, the Eximbank projects that this 10-percent cap on
                 dual-use financing will amount to about $1.6 billion.

                 The 1994 legislation (P.L. 103-428) that authorizes Eximbank financing of
                 dual-use exports also directs our office to report to the Congress not later
                 than September 1, 1997, on the end uses of dual-use exports financed by
                 the Eximbank. This report responds to our statutory mandate and
                 specifically discusses the results of our efforts to

             •   determine the nature and extent of the Eximbank’s financing of dual-use
                 exports,
             •   identify the actions the Eximbank has taken to help ensure that the
                 dual-use exports it finances are nonlethal and will be primarily used for
                 civilian purposes, and
             •   assess whether the actions provide a sound basis for determining that the
                 dual-use exports it finances are nonlethal and will be primarily used for
                 civilian purposes.


                 The Eximbank supplements and facilitates private sector financing of U.S.
Background       exports of articles and services through its loan, loan guarantee, export
                 credit insurance, working capital guarantee, and project financing




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                   B-277356




                   programs.1 The Eximbank projects that, under these programs, its total
                   export financing commitments for fiscal year 1997 will reach over
                   $16.5 billion.

                   With limited exceptions, the Eximbank is prohibited by law from financing
                   the sale of defense articles and services. Under these exceptions, the
                   Eximbank may provide financing to export (1) items on the U.S. munitions
                   list that will be used for primarily drug interdiction purposes and whose
                   sale the President determines to be in the national interest and
                   (2) nonlethal defense items to be primarily used for civilian purposes, that
                   is, dual-use items.

                   The Eximbank’s support for dual-use exports has increased during the last
Results in Brief   3 fiscal years but has remained well under the annual 10-percent cap
                   established by law. As of June 1997, the Eximbank had made
                   commitments totaling $226.1 million in loans and loan guarantees to
                   support 10 dual-use exports to four countries. However, only one of the
                   dual-use exports—involving aircraft parts and services to Indonesia—has
                   actually been delivered overseas. Also, according to the Eximbank, 1 of
                   the 10 exports will be used by a civil aviation authority; the other nine
                   exports will be used by military organizations for primarily civilian
                   purposes.

                   The Eximbank has established a process to help ensure that it can
                   determine whether the dual-use exports it supports are nonlethal and
                   primarily used for civilian purposes as required by law. For example, this
                   process calls for the Eximbank to (1) review and approve applications for
                   financing dual-use exports; (2) monitor the actual end use of these exports
                   overseas; (3) obtain the views of other federal entities, such as the
                   Departments of State, Treasury, and Commerce, for the purpose of
                   approving the financing of dual-use exports and monitoring their end use;
                   and (4) take appropriate corrective actions if the Eximbank discovers that
                   the dual-use exports have been misused. The Eximbank is using electronic
                   data bases to assist in tracking information on dual-use exports for
                   monitoring purposes.



                   1
                    Loans provide direct financing to foreign buyers of U.S. exports. Loan guarantees provide repayment
                   protection to lenders for loans made to foreign buyers of U.S. exports. Export credit insurance
                   provides repayment protection to lenders and exporters for transactions involving U.S. exports sold to
                   foreign buyers. Working capital guarantees provide repayment protection to lenders that provide
                   working capital to U.S. businesses for the production of exports. Based on the revenues that major
                   overseas capital projects are expected to generate, project financing provides loans, loan guarantees,
                   or both, to finance these projects.



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                                        Our review indicated that the Eximbank process aimed at financing and
                                        monitoring dual-use exports, as currently implemented, should provide a
                                        sound basis for determining whether these exports are nonlethal and
                                        primarily used for civilian purposes. In the spring of 1997, for the one
                                        dual-use export that has taken place, Eximbank officials, assisted by other
                                        U.S. government officials, were able to verify that it was being primarily
                                        used for civilian purposes. Also, the State Department, in response to our
                                        request, obtained information from its pertinent missions overseas
                                        confirming that the other nine dual-use exports financed by the Eximbank
                                        were nonlethal and intended for primarily civilian use.


                                        The Eximbank has used only loans and loan guarantees to finance
Nature and Extent of                    dual-use exports. According to Eximbank officials involved in reviewing,
Eximbank Financing                      approving, and monitoring dual-use exports, the Eximbank could
for Dual-Use Exports                    eventually use other financing programs, such as the working capital
                                        guarantee program, to finance these exports.

                                        The value of the loans and loan guarantees that the Eximbank has
                                        provided to support exports of dual-use items has increased since fiscal
                                        year 1995 but has remained well under the value of the annual dual-use
                                        financing commitment cap. As shown in table 1, the Eximbank’s dual-use
                                        export commitments have grown from $15.4 million in fiscal year 1995 to
                                        $108.3 million in fiscal year 1997, as of June 1997. Despite this growth,
                                        table 1 also indicates that this support has represented less than 1 percent
                                        of the total commitments for those fiscal years.


Table 1: The Eximbank’s Total Export Financing Commitments and Dual-Use Financing Commitments, Fiscal Years
1995-97
Dollars in millions
                                                                                                               Dual-use financing
                                                                      Amount allowed                           commitments as a
                                                      Total export     under dual-use                             percent of total
                                                        financing           financing   Dual-use financing       export financing
Fiscal year                                          commitments      commitment cap         commitments            commitments
1995                                                      $11,864.9          $1,186.5                 $15.4                    0.1
1996                                                       11,516.9           1,151.7                 102.4                    0.9
                                                                  a                                        b
1997                                                       16,521.7           1,652.2                108.3                     0.7
                                        a
                                         Projected.
                                        b
                                            As of June 1997.

                                        Source: Eximbank.




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                                         B-277356




                                         Table 2 shows that the Eximbank has committed to support, through loans
                                         and loan guarantees, 10 dual-use exports to four countries during the last
                                         3 fiscal years. This financing has amounted to $226.1 million. Of this
                                         financing, Romania received $79.5 million, Venezuela obtained
                                         $74.3 million, Indonesia secured $38.3 million, and Brazil got $34.0 million.
                                         Two of the dual-use exports are intended for civil air traffic control,
                                         although one of them will be operated by a military organization. The
                                         other eight dual-use exports are intended for territorial development,
                                         which includes activities such as building schools, roads, and health
                                         facilities, and supporting humanitarian and disaster relief efforts. The
                                         Eximbank has determined that, although this territorial development is
                                         conducted by military organizations, it is still a civilian activity. (See app. I
                                         for further details on individual dual-use loans and loan guarantees.)


Table 2: Type of Eximbank Dual-Use Financing Commitments, Fiscal Years 1995-97
Dollars in millions
                                          Type of Eximbank
                                          financing/              Amount of
                                          description of          Eximbank
Fiscal year          Recipient country    export                   financing     End user             Intended end use
1995                 Indonesia            Loan/aircraft parts         $15.4      Indonesian           Territorial
                                          and services                           Air Force            development
1996                 Romania              Guarantee/air traffic         79.5     Romanian civil       Civil air traffic control
                                          control system                         aviation authority
                     Indonesia            Loan/helicopters              22.9     Indonesian           Territorial
                                                                                 Army                 development
1997                 Venezuela            Guarantee/radio                8.8     Venezuelan           Territorial
                                          systems                                Army                 development
                     Venezuela            Guarantee/radio                3.4     Venezuelan           Civil air traffic control
                                          systems                                Air Force
                     Brazil               Loan/aircraft                 34.0     Brazilian            Territorial
                                          components                             Air Force            development
                     Venezuela            Guarantee/trucks              25.5     Venezuelan           Territorial
                                                                                 Army                 development
                     Venezuela            Guarantee/trucks              14.1     Venezuelan           Territorial
                                                                                 Army                 development
                     Venezuela            Guarantee/aircraft            10.1     Venezuelan           Territorial
                                          parts                                  Army                 development
                     Venezuela            Guarantee/motor               12.4     Venezuelan           Territorial
                                          vehicles                               Army                 development
                                         Source: Eximbank.




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                             As of June 1997, only the first of the 10 dual-use exports financed by the
                             Eximbank had actually been shipped—the 1995 export of aircraft parts
                             and services to Indonesia.


                             The Eximbank has established a process for financing and monitoring
Eximbank Process for         dual-use exports to help ensure that these exports are nonlethal and
Financing and                primarily used for civilian purposes as required by law. This process
Monitoring Dual-Use          involves reviewing and approving applications for financing these exports
                             and monitoring the actual end use of the exports through reporting,
Exports                      certifications, and site visits.


Applications for Financial   The review and approval of each application for supporting dual-use
Support Reviewed and         exports is to start with an examination of the nature of the exports, their
Approved                     intended end use, and their end users. The Eximbank’s Engineering and
                             Environment Division has overall responsibility for determining the
                             eligibility for financing of dual-use exports. In this division, applications
                             for financing these exports are to be reviewed by engineers having
                             expertise in the particular sector—electronics, air transportation,
                             etc.—under which the applications fall. If external assistance is needed,
                             Eximbank staff may obtain additional information on particular
                             transactions from other U.S. agencies, such as the Departments of State,
                             Treasury, and Commerce. For example, before approving the loans to
                             finance dual-use exports to Indonesia, the Eximbank obtained
                             assessments from the Department of State as to the intended use of these
                             exports.

                             According to the Vice President of the Eximbank’s Engineering and
                             Environment Division, in determining that dual-use exports will be
                             primarily used for civilian purposes, Eximbank engineers are to
                             recommend approval of financing for dual-use exports only when their
                             investigations reveal unambiguously that the intended civilian use of the
                             exports is significantly greater than the intended military use.

                             The Eximbank’s Board of Directors is to assess and approve applications
                             for financing dual-use exports based on recommendations for action and
                             technical evaluations prepared by Eximbank staff.2 In addition, as required
                             by the dual-use legislation, the Eximbank must notify the Congress of

                             2
                              The Board of Directors, which manages and sets policy for the Eximbank, is composed of five
                             full-time members appointed for 4-year terms by the President of the United States with the advice and
                             consent of the U.S. Senate. In addition, the Secretary of Commerce and the U.S. Trade Representative
                             serve as ex officio, nonvoting members.



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                         B-277356




                         dual-use transactions at least 15 calendar days before approving them.
                         Also, the Eximbank seeks the advice of the National Advisory Council on
                         International Monetary and Financial Policies (NAC) on dual-use
                         transactions before deciding to support them.3 According to the Vice
                         President of the Engineering and Environment Division and the Eximbank
                         liaison at the Department of State, NAC members regularly receive copies
                         of the memorandums to the Board of Directors that contain the
                         recommendation for action on a dual-use export before the board makes a
                         decision. The Eximbank liaison noted that he normally sends copies of the
                         memorandums to the pertinent country desks for review and makes
                         certain that the appropriate U.S. missions receive a copy for comment.

                         As part of the review and approval process, the Eximbank is to
                         incorporate in financing agreements requirements that must be satisfied
                         by the buyers before and after loans or loan guarantees are ready for
                         disbursement. For example, the financing agreements pertaining to the
                         first three dual-use exports financed by the Eximbank contain provisions
                         that allow it, among other things, to obtain end-use certificates from the
                         buyers before disbursement and to secure access to exports abroad for
                         monitoring purposes.


End Use of Dual-Use      Until the loans or loan guarantees are repaid, the Eximbank process
Exports Monitored, and   requires that the buyers provide periodic reports and certificates about the
Penalties for Misuse     actual usage of the dual-use exports. Also, under this process, the
                         Eximbank retains the right to send its technical staff overseas to monitor
Outlined                 the actual end use of dual-use exports. The Eximbank’s Engineering and
                         Environment Division has overall responsibility for monitoring the actual
                         end use of these exports. If further external support is needed in
                         monitoring these exports, this division may request it from other U.S.
                         government agencies, such as the Department of State. This division
                         recently issued a guideline on work progress reports and technical
                         operating reports to help monitor dual-use exports.

                         If the Eximbank discovers that the intended use of the dual-use exports
                         has been misrepresented, it can take appropriate corrective actions. These
                         actions can include accelerating repayment of a transaction, taking
                         administrative steps or imposing punitive measures according to the


                         3
                          NAC is composed of the following members: the Secretary of the Treasury, who is the Chairman of
                         the Council; the Assistant to the President for Economic Affairs, who is the Deputy Chairman of the
                         Council; the Secretary of State; the U.S. Trade Representative; the Secretary of Commerce; the
                         Chairman of the Board of Governors of the Federal Reserve System; the Director of the International
                         Development Cooperation Agency; and the President of the Eximbank.



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                        nature of the transaction, and/or suspending the buyer from access to
                        future Eximbank financing.


Electronic Data Base    To track information on dual-use transactions for monitoring purposes,
Systems Used for        the Eximbank has enhanced its Application Processing System (APS). The
Monitoring Dual-Use     Eximbank uses this system to record information on all of the
                        export-related transactions, such as dual-use export transactions. The
Exports                 Eximbank recently added a data field in the APS to distinguish its dual-use
                        export transactions from other transactions contained in the system. As a
                        result, the Eximbank can now more readily identify the dual-use export
                        transactions and can regularly produce reports on these transactions for
                        monitoring purposes.

                        The Engineering and Environment Division is also developing a data base
                        system to process progress and operating reports required by many
                        Eximbank transactions, especially dual-use transactions. This system is
                        expected to collect data such as the type of transaction involved, the
                        reporting requirements, the scheduled dates on which the progress and
                        operating reports are due, and the actual dates on which they are received.
                        By allowing easy processing of progress and operating reports, this system
                        is intended to play a major role in tracking information on dual-use
                        exports and in monitoring the civilian end use of these exports. According
                        to the Eximbank’s Vice President of the Engineering and Environment
                        Division, the latter system is scheduled to be fully operational by the end
                        of fiscal year 1997.


                        The Eximbank’s process to manage dual-use exports—as currently
Eximbank Process        implemented—should provide a sound basis for determining whether
Provides a Sound        these exports are nonlethal and will be primarily used for civilian
Basis for Determining   purposes. The Eximbank and the State Department recently verified the
                        civilian end use of the 1995 dual-use export of aircraft parts and services
Whether Dual-Use        delivered to Indonesia.
Exports Will Be
                        The Eximbank’s process is designed to help the Eximbank (1) secure
Primarily Used for      critical information—such as the nature of the dual-use exports and their
Civilian Purposes       intended end use—for the purpose of reviewing and approving
                        applications for financing these exports; (2) obtain access to the dual-use
                        exports overseas to monitor their actual end use; and (3) have a legal
                        basis, based on provisions contained in financial agreements, to take
                        appropriate corrective actions regarding the financing involved if the



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Eximbank discovers that the dual-use exports are not being used as
intended. This process also allows the Eximbank to obtain assistance and
information from other U.S. federal entities, such as NAC and the
Department of State, for reviewing and approving financial applications on
dual-use exports and for monitoring the actual end use of these exports.

In March 1997, Eximbank officials used this process to obtain a civilian
end-use certificate from the user and to verify that the use of the 1995
dual-use export of aircraft parts and services to Indonesia had actually
been for primarily civilian purposes. As part of this verification, Eximbank
officials, accompanied by Department of State and Department of Defense
officials, were able to determine that this export had been used, as
planned, to repair seven aircraft that were being or would be used for
territorial development. In this case, territorial development included
activities such as humanitarian aid efforts and relief, air transport of food,
and transportation of civilians to the country’s outer islands.

These officials ascertained that (1) four of the aircraft were stationed in
Jakarta and three in Malang, (2) two of the aircraft stationed in Jakarta
were certified to fly and the remaining two were undergoing flight
certification testing, (3) flight logs for these two certified aircraft were
available for review in Jakarta, and (4) flight logs for the three aircraft
stationed in Malang were not available for review in Jakarta. The officials
conducted a random review of the flight logs for the two certified aircraft
stationed in Jakarta and obtained a copy of their flight logs for
November 1996. According to Eximbank officials responsible for
monitoring this dual-use export, the Eximbank plans to secure additional
end-use information on all of the certified aircraft by the next reporting
milestone in the spring of 1998.

Also, in the spring of 1997, in response to our request for information on
the end use of the dual-use exports financed by the Eximbank, the State
Department, with information provided by the U.S. embassy in Indonesia,
reported that it had no information indicating that this export had been
misused.

In response to our request, the State Department, with information
provided by the U.S. embassies in Indonesia, Romania, Venezuela, and
Brazil, was able to confirm that the other nine dual-use exports financed
by the Eximbank were intended for primarily civilian purposes.




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              The legislation giving the Eximbank the authority to finance exports of
Scope and     dual-use items required us to report to the Congress on the end uses of the
Methodology   dual-use items financed during fiscal year 1995. In discussions with
              representatives of congressional committees, we agreed not only to report
              on the dual-use export financed in 1995 but also to provide information on
              the other nine exports financed during fiscal years 1996 and 1997. Also, we
              agreed to rely on information collected by the Eximbank and the State
              Department on the actual end use of the 1995 dual-use export to
              Indonesia.

              To determine the nature and extent of the Eximbank financing of dual-use
              items, we reviewed pertinent Eximbank documents and interviewed
              cognizant Eximbank officials, including the Chief Financial Officer, the
              Vice President of the Engineering and Environment Division, and the
              engineers having responsibility for reviewing dual-use export applications
              and monitoring the end use of these exports. To confirm that the
              Eximbank had identified all of the dual-use items for inclusion in our
              review, we performed a comprehensive file review of fiscal year 1995-97
              transactions having potential military implications. We identified these
              transactions in the Eximbank’s export data base system by using the
              standard industrial classifications (SIC) employed by the Eximbank and the
              U.S. Bureau of Labor Statistics to identify articles and services having
              military implications. The latter SICs allowed us to determine whether the
              SICs the Eximbank used in its export data base had missed any
              transactions having military implications. In assessing whether the
              Eximbank had adequately applied its dual-use exports criteria, we
              reviewed a number of its transactions having military implications to learn
              how the Eximbank had distinguished its dual-use exports from its other
              exports.

              To identify the actions taken by the Eximbank for ensuring that the
              dual-use exports are primarily used for civilian purposes, we reviewed
              pertinent government documents and interviewed public officials,
              including the State Department’s Eximbank liaison and, in addition to
              Eximbank officials previously mentioned, the Eximbank’s Associate
              General Counsel, the attorneys responsible for the items financed, the Vice
              President of the Credit Administration, and the contract officers
              responsible for the items financed.

              To assess whether the Eximbank actions previously described provide a
              reasonable assurance that it can determine whether its dual-use exports
              are nonlethal and will be primarily used for civilian purposes, we reviewed



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                  pertinent government documents and interviewed public officials,
                  including the State Department’s official and the Eximbank officials
                  previously mentioned. Also, we asked the State Department to
                  highlight—after querying cognizant U.S. embassies—any concerns it might
                  have regarding the intended end uses of the 10 dual-use exports financed
                  by Eximbank.

                  We conducted our work from September 1996 to June 1997 in accordance
                  with generally accepted government auditing standards.


                  We requested comments on a draft of this report from the Chairman and
Agency Comments   President of the Eximbank, or his designees. On July 8, 1997, we obtained
                  oral comments from Eximbank officials, including the Executive Vice
                  President and the Associate General Counsel. These officials generally
                  agreed with the information presented in the draft report. Also, they
                  provided some technical comments, which we incorporated in the report
                  where appropriate.


                  We are sending copies of this report to other appropriate congressional
                  committees, the Chairman and President of the Eximbank, and the
                  Secretaries of State and Defense. We will also make copies available to
                  others upon request.

                  This review was done under the direction of Jess T. Ford, Associate
                  Director. If you or your staff have any questions concerning this report,
                  please contact Mr. Ford at (202) 512-4268. Major contributors to this
                  report are listed in appendix II.




                  Benjamin F. Nelson
                  Director, International Relations
                    and Trade Issues




                  Page 10                                GAO/NSIAD-97-211 U.S. Export-Import Bank
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List of Recipients

The Honorable Alfonse M. D’Amato
Chairman
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing
  and Urban Affairs
United States Senate

The Honorable Ted Stevens
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate

The Honorable James A. Leach
Chairman
The Honorable Henry B. Gonzalez
Ranking Minority Member
Committee on Banking and
  Financial Services
House of Representatives

The Honorable Bob Livingston
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives




Page 11                            GAO/NSIAD-97-211 U.S. Export-Import Bank
Contents



Letter                                                                                              1


Appendix I                                                                                         14
                        Financial Support for Dual-Use Exports in Fiscal Year 1995                 14
U.S. Export-Import      Financial Support for Dual-Use Exports in Fiscal Year 1996                 14
Bank-Financed           Financial Support for Dual-Use Exports in Fiscal Year 1997                 15
Dual-Use Loans and
Loan Guarantees
Appendix II                                                                                        17

Major Contributors to
This Report
Tables                  Table 1: The Eximbank’s Total Export Financing Commitments                  3
                          and Dual-Use Financing Commitments, Fiscal Years 1995-97
                        Table 2: Type of Eximbank Dual-Use Financing Commitments,                   4
                          Fiscal Years 1995-97




                        Abbreviations

                        APS        Application Processing System
                        NAC        National Advisory Council on International Monetary and
                                        Financial Policies
                        SIC        standard industrial classification


                        Page 12                               GAO/NSIAD-97-211 U.S. Export-Import Bank
Page 13   GAO/NSIAD-97-211 U.S. Export-Import Bank
Appendix I

U.S. Export-Import Bank-Financed Dual-Use
Loans and Loan Guarantees

                        Since fiscal year 1995, the Export-Import Bank of the United States
                        (Eximbank) has provided 10 loans and loan guarantees to finance exports
                        of nonlethal defense articles and services primarily intended for civilian
                        use—referred to by the Eximbank as “dual-use” exports. The following
                        provides a brief description of these loans and loan guarantees.


                        On September 26, 1995, the Eximbank approved a $15.4-million, 10-year
Financial Support for   loan to finance a dual-use export of aircraft parts and overhaul services to
Dual-Use Exports in     Indonesia (Case No. AP 68716). This loan would allow the Indonesian
Fiscal Year 1995        government to refit, refurbish, and overhaul five C-130 and two L-100
                        aircraft that the Indonesian Air Force intended to use for primarily civilian
                        purposes, such as humanitarian aid efforts and relief; air transport of food,
                        water, and medical supplies; search and rescue missions; transportation of
                        civilians to the country’s outer islands; maritime and pollution
                        surveillance; weather monitoring; and air traffic control. Derco Industries,
                        Inc., Milwaukee, Wisconsin; National Airmotive Corp., Oakland, California;
                        and Pacific Propeller, Inc., Kent, Washington, would provide the aircraft
                        parts and services for this dual-use export.


                        On October 26, 1995, the Eximbank approved a $79.5-million, 13-year loan
Financial Support for   guarantee to finance a dual-use export of air traffic control systems to
Dual-Use Exports in     Romania (Case No. AP 68527). This loan guarantee would allow the
Fiscal Year 1996        Romanian government to procure five FPS-117 radar systems for
                        modernizing the air traffic control system operated and maintained by the
                        civil aviation authority. Lockheed Martin Corporation, Liverpool, New
                        York, would provide the radar systems for this dual-use export.

                        On December 5, 1995, the Eximbank approved a $22.9-million, 5-year loan
                        to finance a dual-use export of refurbished Bell helicopters to Indonesia
                        (Case No. AP 69128). This loan would allow the Indonesian government to
                        acquire 21 refurbished Bell 205-A1 helicopters, including spare parts,
                        ground support equipment, and support services, for use by the
                        Indonesian Army for primarily civilian purposes. The army would use the
                        helicopters to promote the Indonesian government’s territorial
                        development mission, which includes building schools, roads, churches,
                        and health facilities, and supporting humanitarian and disaster relief
                        efforts. Southwest Florida Aviation, Punta Gorda, Florida, would provide
                        the refurbished helicopters for this dual-use export.




                        Page 14                                 GAO/NSIAD-97-211 U.S. Export-Import Bank
                        Appendix I
                        U.S. Export-Import Bank-Financed Dual-Use
                        Loans and Loan Guarantees




                        On February 20, 1997, the Eximbank approved an $8.8-million, 7-year loan
Financial Support for   guarantee to finance a dual-use export of high frequency radio systems to
Dual-Use Exports in     Venezuela (Case No. AP 69097). This loan guarantee would allow the
Fiscal Year 1997        Venezuelan government to procure a communications network of high
                        frequency radio systems for use by the Civil Action Communications
                        Division of the Venezuelan Army for primarily civilian purposes in remote
                        areas of the country. The army would use the equipment to provide, for
                        example, disaster relief, environmental protection, medical assistance, and
                        border control in frontier regions, especially along the border with Brazil.
                        Harris Corporation, Rochester, New York, would provide the radio
                        systems for this dual-use export.

                        On February 20, 1997, the Eximbank approved a $3.4-million, 6-year loan
                        guarantee to finance a dual-use export of radio systems to Venezuela
                        (Case No. AP 70876). This loan guarantee would allow the Venezuelan
                        government to upgrade existing radio systems used by the air force in the
                        country’s air traffic control system. This export, as part of the
                        modernization of the Venezuelan air traffic control system, would permit
                        the air force to track and control unauthorized flights and increase the
                        safety of civilian air traffic. Comtech Systems, Inc., St. Cloud, Florida,
                        would provide the radio systems for this dual-use export.

                        On March 4, 1997, the Eximbank approved a $34-million loan to finance a
                        dual-use export of aircraft components to Brazil (Case No. AP 67303). This
                        action amended a loan initially approved on September 30, 1994, to
                        support an infrastructure project for the development and protection of
                        the Amazon region in Brazil. This loan would allow the Brazilian
                        government to procure components for five Embraer 145 aircraft for use
                        by the air force for primarily civilian purposes, such as communication
                        relays for civilian agencies, support for law enforcement and smuggling
                        control activities by federal and local police, and environmental
                        monitoring activities. Raytheon Company, Lexington, Massachusetts,
                        would provide the aircraft components for this dual-use export.

                        On March 4, 1997, the Eximbank approved a $25.5-million, 7-year loan
                        guarantee to finance a dual-use export of trucks to Venezuela (Case
                        No. AP 70223A). This loan guarantee would allow the Venezuelan
                        government to procure 450 remanufactured M-35, 2-1/2 ton trucks for use
                        by the Venezuelan Army for primarily civilian purposes. The army would
                        use the trucks for transporting army personnel in situations involving
                        disaster relief, medical assistance, environmental protection, border




                        Page 15                                     GAO/NSIAD-97-211 U.S. Export-Import Bank
Appendix I
U.S. Export-Import Bank-Financed Dual-Use
Loans and Loan Guarantees




control, and other civilian missions. Commercial Military Systems Co.,
Augusta, Georgia, would provide the trucks for this dual-use export.

On March 20, 1997, the Eximbank approved a $14.1-million, 5-year loan
guarantee to finance a dual-use export of trucks to Venezuela (Case
No. AP 69893). This loan guarantee would allow the Venezuelan
government to procure trucks and other vehicles, including jeeps, tractors,
and construction equipment for use by the Division of Construction and
Maintenance of the Engineering Department of the army for primarily
civilian purposes. These include the construction and maintenance of
roadways, buildings, schools, and construction improvements for the
population living in the frontier regions of the country. ATN Industries
Inc., Miami, Florida, would provide the trucks for this dual-use export.

On March 20, 1997, the Eximbank approved a $10.1-million, 6-year loan
guarantee to finance a dual-use export of aircraft and helicopter spare
parts to Venezuela (Case No. AP 70049). This loan guarantee would allow
the Venezuelan government to refurbish a number of small aircraft, such
as Beechcraft, Cessna, Arava, Augusta, Bell 4125P, UH-1H, and Sikorsky,
for use by the army for primarily civilian purposes. The army would use
the aircraft to provide civilian support in activities related to disaster
relief, medical assistance, border control, water contamination, and
environmental protection. Horizon Aircraft Sales, Inc., Miami, Florida,
would provide the aircraft and helicopter spare parts for this dual-use
export.

On March 20, 1997, the Eximbank approved a $12.4-million, 6-year loan
guarantee to finance a dual-use export of motor vehicles to Venezuela
(Case No. AP 71127). This loan guarantee would allow the Venezuelan
government to procure 720 vehicles—150 cars, 170 trucks, and 400 utility
vehicles—for use by the army for primarily civilian purposes. The army
would use these vehicles to support civilian and humanitarian activities,
such as medical aid, natural disaster relief, protection of the environment,
border patrol, and antinarcotics efforts. ATN Industries Inc., Miami,
Florida, would provide the vehicles for this dual-use export.




Page 16                                     GAO/NSIAD-97-211 U.S. Export-Import Bank
Appendix II

Major Contributors to This Report


                        Virginia C. Hughes
National Security and   Juan F. Tapia-Videla
International Affairs   Arthur L. James, Jr.
Division, Washington,
D.C.
                        Ernie E. Jackson
Office of the General
Counsel, Washington,
D.C.




(711210)                Page 17                GAO/NSIAD-97-211 U.S. Export-Import Bank
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