oversight

Foreign Military Sales: Review Process for Controlled Missile Technology Needs Improvement

Published by the Government Accountability Office on 1999-09-29.

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

                   United States General Accounting Office

GAO                Report to the Chairman, Committee on
                   International Relations, House of
                   Representatives


September 1999
                   FOREIGN MILITARY
                   SALES

                   Review Process for
                   Controlled Missile
                   Technology Needs
                   Improvement




GAO/NSIAD-99-231
Contents



Letter                                                                                   3


Appendixes   Appendix I Military Departments’ Disclosure and Foreign
               Military Sales Agreement Process                                         24
             Appendix II   Comments From the Department of Defense                      26
             Appendix III Comments From the Department of State                         29


Figure       Figure 1: National Disclosure Policy Exception Process                      8




             Abbreviations

             DOD       Department of Defense
             FMS       Foreign Military Sales
             MTCR      Missile Technology Control Regime



             Page 1                                 GAO/NSIAD-99-231 Foreign Military Sales
Page 2   GAO/NSIAD-99-231 Foreign Military Sales
United States General Accounting Office                                                        National Security and
Washington, D.C. 20548                                                                  International Affairs Division



                                    B-281640                                                                              Leter




                                    September 29, 1999

                                    The Honorable Benjamin A. Gilman
                                    Chairman, Committee on International Relations
                                    House of Representatives

                                    Dear Mr. Chairman:

                                    The U.S. government and the defense industry face growing challenges as
                                    they attempt to maximize the benefits of international weapon sales while
                                    operating within the statutory requirements that control defense exports to
                                    protect national security and advance foreign policy. Over the years, the
                                    U.S. government has sold certain sensitive military items through the
                                    Foreign Military Sales program partly because the items are presumed by
                                    some to be better controlled by the program than through direct
                                    commercial sales.1 However, the process for making decisions about what
                                    technology may be transferred under the program is not readily
                                    understood. As part of a broad request to review the Foreign Military Sales
                                    program, you asked us to look at how the program safeguards technology
                                    and arms transfers. Specifically, we (1) identified the process for deciding
                                    what technology may be transferred as part of a sale through the program,
                                    (2) assessed the controls for ensuring that technology transfer
                                    considerations have been weighed when reviewing requests and
                                    agreements, and (3) examined the Department of Defense’s proposals to
                                    improve technology transfer procedures.



Results in Brief                    The U.S. government relies on a complex process with many participants to
                                    determine what technology may be transferred as part of a sale through the
                                    Foreign Military Sales program. Technology transfer decisions begin with
                                    an interagency National Disclosure Policy Committee process. When
                                    making overall policy decisions, the committee provides authority for the
                                    government to transmit classified information associated with military
                                    items but does not approve the actual transfer of those items. It does not
                                    typically address whether systems must be sold through the Foreign


                                    1
                                     Other potential advantages of the Foreign Military Sales program include promoting
                                    interoperability with allies and encouraging military to military contacts.




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             Military Sales program or a direct commercial sale. The committee has a
             process for reviewing exceptions to the National Disclosure Policy. Within
             the National Disclosure Policy framework, separate organizations within
             the military departments recommend whether the requested items under
             their jurisdiction may be sold and manage the sales.

             The U.S. government has not established a process for ensuring that certain
             controlled items are fully and systematically identified when reviewing
             requests or approving agreements under the Foreign Military Sales
             program. As a result of weaknesses in the review process, items controlled
             by an international missile nonproliferation agreement have been
             transferred under the program without proper review and approval.

             As currently structured, the Department of Defense’s proposals to reform
             the Foreign Military Sales program are primarily focused on reducing time
             for making technology transfer decisions. In considering the Department’s
             efforts to shorten the processing time, officials acknowledge the need to
             properly assess the national security risks and benefits of proposed
             transfers. A Department of Defense and industry working group proposes
             more rigorously implementing current requirements to make technology
             transfer assessments early in the planning of a weapon program. Such
             assessments are a means of expediting technology transfer decisions when
             responding to foreign customers’ requests.

             We have included recommendations in this report aimed at providing
             proper review and approval of transfers of controlled technologies through
             the Foreign Military Sales program.



Background   The United States generally exports military items and services either
             through (1) U.S. government sales under the Foreign Military Sales (FMS)
             program or (2) direct commercial arms sales by individuals and business
             entities. The Arms Export Control Act authorizes the President to control
             the export of all defense articles and services and to designate items that
             are to be controlled under the U.S. Munitions List.2 The President delegated




             2
                 Section 38 (a) of the Arms Export Control Act (22 U.S.C. 2778 (a)).




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the control of exports of Munitions List items to the Secretary of State3 and
the implementation of the FMS program to the Secretary of Defense. As
part of its responsibilities, the State Department regulates direct
commercial arms sales through export licenses and reviews and approves
arms sales under the FMS program.4 Within the Department of Defense
(DOD), the Defense Security Cooperation Agency is responsible for overall
administration of the FMS program, while the military departments
implement individual sales under the program. The Arms Export Control
Act generally excludes sales under the FMS program from the requirement
for munitions export licenses.5

Specific policies and controls have been established for the transfer of
classified military intelligence and critical military technology and defense
articles. A presidential executive order prescribed a uniform system for
classifying, safeguarding, and declassifying national security information.
The National Disclosure Policy was established to provide a framework for
the approval or denial of the transfer of classified military information to
foreign governments and international organizations.6 A decision to
disclose or transmit information must satisfy several criteria. These include
that the transmission of information be consistent with U.S. foreign policy
and U.S. military and security objectives and result in benefits to the United
States. In addition, the foreign recipient must afford the information
substantially the same degree of protection as the United States provides it,
and the information must be limited to what is necessary to fulfill the
prescribed purpose. Although the policy prohibits the transmission of
certain classified information, technology, and defense articles to foreign
countries, it provides a process by which exceptions may be granted.
Procedures established under the National Disclosure Policy are also used
to consider the release of unclassified military information to foreign
entities.


3
 The Secretary of State must have concurrence of the Secretary of Defense for items or
categories of items that shall be considered as defense articles or services subject to export
control.
4
 The Department of Commerce, through the Commerce Control List, regulates and reviews
export licenses for “dual-use” items, which have both military and civilian applications.
5
    22 U.S.C. 2778(b)(2).
6
 Classified military information includes military materiel, arms, and munitions, as well as
military research and development information, military production information, and
military operations planning and readiness information.




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                              The United States and other nations have agreed to limit the spread of
                              certain types of arms and technologies by establishing various international
                              agreements, or regimes. For example, in 1987 the United States and several
                              major trading partners created the Missile Technology Control Regime
                              (MTCR) to control the proliferation of missiles and related technology. This
                              regime, implemented through national legislation in each of the member
                              countries, consists of common export policy guidelines that include a list
                              of controlled items. There are two categories of controlled items. Category
                              I items are rarely approved for export. They include complete missile
                              systems and subsystems such as rocket engines and guidance sets.
                              Category II items comprise a wide range of commodities, including test
                              equipment and propellants. These items are evaluated on a case-by-case
                              basis and typically denied for sale if destined for use in weapons of mass
                              destruction. The U.S. government controls the two categories of items
                              through the U.S. Munitions List or through the Commerce Control List. The
                              Missile Technology Export Control committee is a U.S. interagency
                              working group that reviews proposed U.S. exports of missile technology
                              and evaluates them in terms of MTCR and U.S. nonproliferation policy.



FMS Program Relies on         The U.S. government has a complex process with many participants to
                              determine what technology may be transferred as part of a proposed sale.
the Disclosure Process        An interagency committee oversees the National Disclosure Policy and
to Determine What             considers exceptions to the policy when classified military information is
                              involved in the proposed transfer. The committee does not approve actual
Technology May Be             foreign military sales but provides authority to transmit the classified
Transferred                   information associated with sales. In addition, military departments with
                              responsibility over certain weapon systems and technologies have
                              administrative processes to make disclosure decisions within their
                              jurisdictions. Each military department has its own process for making
                              disclosure decisions within its authority and for preparing proposed FMS
                              agreements.


National Disclosure Process   The National Disclosure Policy Committee is responsible for formulating,
Involves Multiple Agencies    issuing, administering, and monitoring the implementation of the National
                              Disclosure Policy, as well as considering exceptions to the policy. Although
                              the committee is responsible for determining what classified military
                              information may be transmitted to a foreign government, it does not
                              approve the actual sale that transfers the information. The committee may
                              discuss actual sales in the context of considering exceptions to the policy.




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The committee consists of general members and special members who
represent heads of various federal agencies, DOD components, and each
military department. General members vote on all issues and include the
Secretaries of State, Defense, Army, Navy, and Air Force and the Chairman
of the Joint Chiefs of Staff. Special members usually vote only on those
issues in which they have a direct interest.7 The committee is co-chaired by
the State Department and DOD.

The committee has a process for reviewing exceptions to the National
Disclosure Policy. As illustrated in figure 1, the committee’s executive
secretary distributes any request for an exception to policy to all relevant
members. The committee’s procedures allow a 30-day time frame for
reaching final decisions. The members present a position within
10 working days. If there is not unanimous agreement on the proposed
exception, the committee members work on achieving consensus. If they
are unable to do so, the committee chairman formulates a position and
informs the members within 10 working days. The chairman’s decision
becomes final unless appealed to the Secretary or the Deputy Secretary of
Defense by the cognizant department or agency within 10 working days.




7
 Special members include the Secretary of Energy; the Directors of the Central Intelligence
Agency and the Defense Intelligence Agency; the Under Secretaries of Defense for Policy,
for Acquisition and Technology, and for Command, Control, Communications, and
Intelligence; the Assistant to the Secretary of Defense (Atomic Energy); and the Director of
the Ballistic Missile Defense Organization.




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Figure 1: National Disclosure Policy Exception Process

                                   Executive Secretariat
       Committee member              Executive Secretariat                                            Committee members work
         Committee member           refers the exception         Each committee                        Committee members work
           sponsors an                refers the exception        Each committee                       on resolving differences. If
             sponsors an           to general and special        member prepares                        on resolving differences. If
          exception to the           to general and special       member prepares                     no resolution, the chairman
           exception to the        committee members as             a position                         no resolution, the chairman
     National Disclosure Policy     committee members as             a position                          makes final decision
      National Disclosure Policy         appropriate                                                       makes final decision
                                          appropriate




                                                                                         No
                                                                     Unanimous
                                                                      Unanimous
                                                                     agreement
                                                                      agreement
                                                                                                 No
                                                                                                              Appeal the
                                                                                                               Appeal the
                                                                            Yes                                decision
                                                                                                                decision

                                                              Decision on the exception
                                                                Decision on the exception
                                                              to the National Disclosure
                                                                to the National Disclosure                   Yes
                                                                   Policy is accepted
                                                                     Policy is accepted
                                                                      and recorded
                                                                       and recorded

                                                                                                              Secretary
                                                                                                               Secretary
                                                                                                        or Deputy Secretary
                                                                                                          or Deputy Secretary
                                                                                                         of Defense decides
                                                                                                           of Defense decides
                                                                                                                appeal
                                                                                                                 appeal




                                          Unlike in earlier times, when the FMS program was often favored over
                                          commercial sales as the method of transfer for some sensitive weapon
                                          systems, some committee representatives told us that today they typically
                                          do not recommend that systems be sold through the FMS program and
                                          often do not address the method of sale. According to several officials, both
                                          methods of sale are equally secure in protecting technology. For example,
                                          in early 1999 the committee agreed to change a long-standing policy that
                                          required an advanced missile system to be sold through the FMS program.
                                          The revised policy allows the system to be sold either through the FMS
                                          program or directly by the contractor with State Department approval.
                                          Irrespective of the method of sale, the purchasing country must agree to
                                          security requirements, such as inventory of the equipment, and U.S.
                                          government verification that the requirements have been met.

                                          DOD’s policy is to remain generally neutral regarding the method of sale.
                                          However, the policy allows for exceptions to permit FMS-only



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                            recommendations based on criteria such as presidential directives,
                            legislation, and national or military department policies. While military
                            departments have recommended that certain weapon systems be sold only
                            through the FMS program, military officials we met with had widely
                            varying opinions about whether the FMS program affords greater control
                            than direct commercial sales. Some officials prefer selling sensitive items
                            through the FMS program because DOD officials are involved in
                            implementing every aspect of the sale under that program. Other officials
                            stated that defense contractors have strong incentives to adhere to export
                            control laws and will ensure that sensitive items are properly controlled
                            when sold directly by the contractor.


Military Departments Have   Each military department has its own process for implementing the
Separate Disclosure and     National Disclosure Policy and for preparing FMS agreements. The
                            Secretary of Defense has delegated authority to implement the National
FMS Agreement Processes
                            Disclosure Policy to military departments and other defense agencies for
                            information originated by or under the control of their organizations,
                            provided such information is in compliance with disclosure policy. The
                            military departments, in turn, have delegated some disclosure authority to
                            the heads of commands, agencies, and major staff elements within their
                            organizations. Major military commands we visited have delegated certain
                            authority to disclosure officers who work with weapon program offices on
                            international sales. Appendix I provides additional information on the
                            differences between military departments’ disclosure and FMS agreement
                            preparation processes. For example, the Army generally handles FMS
                            agreement preparations at the command level with higher level approval,
                            while the Air Force prepares FMS agreements at the Secretary level with
                            input from other headquarters and program offices. The Army maintains
                            disclosure as a security policy function held by the Deputy Chief of Staff for
                            Intelligence, while the Air Force and the Navy consider disclosure an
                            international function located with the Deputy Under Secretary of the Air
                            Force for International Affairs and the Navy International Programs Office,
                            respectively.

                            DOD organizations prepare Delegation of Disclosure Authority Letters or
                            component regulations to provide authority to disclosure officers to
                            transmit classified military information to foreign nationals as part of




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                             weapon sales or other military activities.8 The disclosure letter explains
                             classification levels, categories, scope, and limitations on information,
                             including unclassified technical data, that may be disclosed to a foreign
                             recipient. Some FMS program officials, in consultation with disclosure
                             officers, refer to the disclosure letter as guidance when preparing FMS
                             agreements. Each military department has a mechanism for verifying that
                             the agreements do not exceed disclosure authority before referring them to
                             the Defense Security Cooperation Agency and State Department for final
                             approval.

                             Disclosure letters can be subject to interpretation. In matters that require
                             interpretation, disclosure officers contact program managers or engineers
                             for technical assistance. At military commands we visited, the disclosure
                             officers were in separate organizations from the FMS program
                             management offices. For weapon systems programs that had large
                             international sales, the disclosure officers were co-located in the program
                             offices to facilitate decisions. Some disclosure officers told us that they
                             want to retain a separate chain of command from the program offices so
                             they will remain independent from those who manage the sales.



Certain Controlled           The U.S. government has not established a process for ensuring that certain
                             controlled items are fully and systematically identified when reviewing
Technology Is Not            country requests for information or approving agreements to purchase
Properly Identified and      items through the FMS program. While the State Department and many
                             DOD components review proposed FMS agreements, no one organization
Reviewed Under the           is responsible for ensuring that all controlled items have been identified
FMS Program                  and reviewed. As a result, controlled missile-related technology has been
                             transferred under the FMS program without proper review and approval.


DOD Focal Point for FMS      While the Defense Security Cooperation Agency is the principal
Not Responsible for Making   organization through which DOD carries out its security assistance
                             responsibilities, including administering the FMS program, it does not have
Technology Transfer          the mission or expertise to identify controlled technology and make
Decisions                    technology transfer decisions for DOD. The Defense Security Cooperation


                             8
                              DOD directives require DOD components to prepare Delegation of Disclosure Authority
                             Letters and other documents such as the Program Protection Plan and Technology
                             Assessment/Control Plan to ensure that release of technology is considered early on for
                             weapon systems.




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Agency is responsible for raising issues, through appropriate channels,
when higher decision-making authority is required. It relies on the military
departments, as well as other DOD organizations, to identify technology
transfer concerns. A DOD directive requires certain DOD components to
conduct policy reviews, technical evaluations, operational and military
impact assessments, and intelligence assessments of all proposed
technology transfer cases. However, Defense Security Cooperation Agency
officials said they do not assess whether the military departments have
complied with this directive for controlled technology.

As required by policy, the Defense Security Cooperation Agency refers FMS
requests and agreements for major defense equipment to the Director,
Office of the Joint Chiefs of Staff, and the Office of the Under Secretary of
Defense for Acquisition and Technology.9 Joint Staff, in coordination with
the unified commands and the military departments, provides operational
and military mission impact assessments on technology transfers. DOD’s
Acquisition and Technology office is responsible for ensuring that the
proposed technology to be transferred does not threaten U.S. weapon
superiority. Security assistance policy requires coordination with these
organizations for all new security assistance requests and FMS agreements
for major defense equipment, including requests and agreements that are
expected to result in a notification to Congress or determined to be of a
sensitive nature. Defense Security Cooperation Agency country managers
determine whether or not to refer FMS requests and agreements that meet
major defense equipment criteria to the Joint Staff and the Acquisition and
Technology office. Items that do not meet the criteria are only occasionally
referred to these organizations.

The Defense Security Cooperation Agency is also responsible for notifying
the State Department of all requests for purchases through the FMS
program and for obtaining the Department’s approval for FMS agreements.
The State Department must provide its approval before any arms can be
transferred, including arms sold under the FMS program, but it relies on
DOD to provide information describing the proposed sale and the
sensitivity of the technology.




9
 Major defense equipment is defined as sensitive defense articles and services identified on
the U.S. Munitions List where the U.S. government has incurred either a nonrecurring
research and development cost for the item of more than $50 million or the item has a total
production cost of $200 million.




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The Defense Security Cooperation Agency refers FMS requests and
agreements to the Defense Threat Reduction Agency on an ad hoc basis.
The Director of the Defense Threat Reduction Agency stated that the
Agency does not generally review FMS requests or agreements. However,
Defense Threat Reduction Agency officials told us they should be given the
opportunity to respond officially on all FMS major defense equipment or
sensitive items. Currently, the Defense Security Cooperation Agency does
not formally refer FMS requests or agreements to the Defense Threat
Reduction Agency and furnishes information copies on a limited number of
cases.10 Because one of the Defense Threat Reduction Agency’s principal
functions is to provide DOD’s recommendations on license applications, it
utilizes technical experts and intelligence sources to determine the
advisability of exporting a particular controlled item. The Defense Threat
Reduction Agency, in reviewing licenses, will examine the legitimacy of
foreign companies involved in the sale by using intelligence sources as well
as the State Department’s Watch List of export violators. Defense Security
Cooperation Agency officials stated that they informally discuss
intelligence assessments about FMS cases with Defense Threat Reduction
Agency officials. Defense Security Cooperation Agency officials told us
that they have an opportunity to review the Defense Threat Reduction
Agency’s intelligence assessments because most FMS cases have
associated commercial sales components that require an export license. 11
The export license review process identifies foreign companies that may be
involved in the sale.

The Defense Security Cooperation Agency also does not routinely refer
FMS requests or agreements to intelligence organizations such as the
Defense Intelligence Agency for review. According to DOD directives, the
Defense Intelligence Agency upon request provides intelligence reviews on
technology, goods, services, and munitions transfer cases to the Defense


10
  According to DOD policy, each time the Defense Security Cooperation Agency
coordinates FMS requests and agreements with the Joint Chief of Staff and the Office of the
Under Secretary, Acquisition and Technology, it also provides information copies to various
DOD components, including the Defense Threat Reduction Agency.
11
   According to Defense Security Cooperation Agency officials, direct commercial sales are
often associated with FMS agreements because of foreign buyer offset requirements and
customer preference. Offsets are the entire range of industrial and commercial
compensation practices provided to foreign governments and firms as inducements or
conditions for the purchase of military goods and services. Offsets can include
coproduction, technology transfer, training, investment, marketing assistance, and
commodity trading.




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                             Threat Reduction Agency for munitions licenses and to the National
                             Disclosure Policy Committee for exceptions.


Gaps in the FMS Review       The lack of clearly established responsibilities for FMS technology transfer
Process Led to Exports of    review has led to certain controlled items being transferred without proper
                             review and approval. For example, MTCR-controlled equipment has been
Missile Technology Without   transferred under the FMS program without proper review and approval
Approval                     for MTCR concerns. The State Department and DOD have no assurance
                             that MTCR-controlled items are routinely being reviewed for
                             nonproliferation concerns. As a result, both departments have begun
                             discussions to improve the review of MTCR items. The State Department
                             and DOD have organizations with expertise in reviewing MTCR-controlled
                             technology for export licenses but are not fully using them to review
                             proposed FMS agreements.

                             The State Department must provide its approval before any arms, including
                             those sold under FMS agreements, can be transferred. The Defense
                             Security Cooperation Agency submits proposed FMS agreements or
                             summaries to the State Department’s Bureau of Political-Military Affairs,
                             Office of Regional Security and Arms Transfer Policy (Regional Security
                             Office), for approval. When an FMS agreement involves missiles or
                             components that may fall under the MTCR, the Regional Security Office
                             refers the agreement to the State Department’s Office of Chemical,
                             Biological, and Missile Nonproliferation for review. However, because the
                             Regional Security Office does not have technical experts and may not know
                             which items are MTCR-controlled, officials told us that they rely on DOD to
                             identify whether or not MTCR-controlled items are included in an
                             agreement.

                             State Department Regional Security Office officials identified a deficiency
                             in the FMS review process for MTCR-controlled items in May 1999, when
                             reviewing a follow-on FMS agreement to a co-production agreement to
                             produce the M1A1 tank with a foreign government. The U.S. government
                             sold equipment under a series of FMS agreements beginning in 1989,
                             including a filament winding machine controlled by the MTCR, to this
                             foreign government to build a tank factory.12 Regional Security Office
                             officials reviewed this follow-on agreement and forwarded it to the MTCR


                             12
                               A filament winding machine is used to produce lightweight, high-strength structures for a
                             variety of weapon systems parts and commercial products such as liquid natural gas tanks.




                             Page 13                                          GAO/NSIAD-99-231 Foreign Military Sales
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experts within the State Department for review. The MTCR experts initially
denied approval of the FMS agreement because they thought it was for the
sale of the filament winding machine. Because this machine is controlled
under category II of the MTCR, they were concerned that this export could
contribute to the foreign government’s missile production capabilities.
However, when State Department officials learned that the agreement was
for the sale of spares for a filament winding machine that had already been
exported, they approved the sale of the spares. State Department officials
told us that the original FMS agreements were not referred to the missile
experts for review because the filament winding machine was not
specifically listed in the information provided by the Defense Security
Cooperation Agency and was identified as test and support equipment.
Information was not provided that would have allowed a missile
technology expert to know that the agreement involved MTCR-controlled
technology.

State Department officials told us that several years ago there was another
incident involving a sale to the same country under the same series of FMS
agreements. The U.S. government sold an MTCR-controlled item, an
accelerator, without proper review by MTCR experts. 13 According to State
Department officials, a subsequent export license application to sell an
accelerator to the same country was denied by the State Department
because the item was MTCR-controlled. The contractor questioned the
denial because the U.S. government had already sold an accelerator to the
same country. The State Department advised DOD officials about the
problem but does not know what corrective measures DOD took at that
time to ensure that MTCR-controlled items under FMS agreements were
being properly reviewed. DOD officials responsible for the M1A1 tank FMS
agreements said they were not contacted or made aware of the problem.

Sufficient information about weapon system components and equipment in
FMS agreements is necessary to identify MTCR-controlled items. Many
MTCR-controlled items may not be obvious−even to a technical expert−
unless the items in an agreement are reviewed against the list of MTCR-
controlled equipment. Some MTCR-controlled items are dual-use and
controlled by the Commerce Control List, resulting in confusion over who


13
 An accelerator, controlled by category II of the MTCR, is an X-ray machine that can be
used to inspect missiles and other weapon system components for cracks and voids or
welded assemblies used in automotive, shipbuilding, aerospace, and power production
component manufacturing.




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is responsible for identifying and controlling these items. 14 Regional
Security Office officials assumed that DOD had identified all of the
technology issues in FMS agreements−including whether or not the
agreements covered MTCR-controlled technology. Although State
Department officials have discovered two such cases, they do not know
how many MTCR-controlled items may have been transferred under the
FMS program without proper review because there are no procedures in
place to identify such items. In addition to missile-related technology
proliferation concerns, State Department officials are concerned about the
transfer of sensitive technologies, such as medical testing equipment that
can be used to develop biological weapons, that are controlled by other
nonproliferation regimes.15

Technical experts in the military departments, however, told us that they do
not review FMS agreements specifically for compliance with the MTCR.
Officials at various military departments, commands, and program offices
told us that they do not compare items to be transferred under FMS
agreements against the list of MTCR-controlled items. They stated that
MTCR compliance is the responsibility of either the State Department or
the Defense Security Cooperation Agency. According to State Department
and Defense Security Cooperation Agency officials, the military
departments also have technical experts who know what a particular item’s
capabilities are and exactly what equipment is being transferred under an
FMS agreement.

Defense Security Cooperation Agency officials said their agency does not
have the technical experts to identify sensitive technologies such as those
controlled by the MTCR. Since the Defense Security Cooperation Agency
learned of this coordination deficiency for missile-related technology, it has
taken steps to have military departments identify missile-related items in
proposed FMS agreements. The Defense Security Cooperation Agency sent
draft guidance to the military departments, in August 1999, advising them
of their responsibility to identify missile-related technology that is included
in proposed agreements and to certify that MTCR concerns have been


14
  The Arms Export Control Act does not specifically address the export of dual-use items
under the FMS program.
15
  Other nonproliferation control regimes include the Australia Group to discourage the
spread of chemical and biological weapons and the Nuclear Suppliers Group to control
enrichment materials and reprocessing plant assistance to countries of nuclear proliferation
concern.




Page 15                                          GAO/NSIAD-99-231 Foreign Military Sales
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resolved. The Defense Security Cooperation Agency also plans to amend an
internal coordination document to ensure that agreements have been
properly reviewed for MTCR issues.

The State Department routinely reviews proposed FMS agreements that
meet the dollar threshold for congressional notification.16 However, State
Department officials said that many MTCR-controlled items are valued
below this dollar threshold. The State Department uses a list of FMS
agreements that the Defense Security Cooperation Agency provides and
that gives a general description of the item being sold as the basis for
approving the low dollar value agreements. The current process for
approving low dollar value agreements does not identify MTCR-controlled
items unless the State Department requests additional information to
identify such items.

The State Department and DOD currently do not fully utilize their
organizations that have expertise in reviewing MTCR-controlled items. For
example, the State Department established the Missile Technology Export
Control committee, an interagency working group, to review export license
applications involving MTCR-controlled items. However, while the State
Department committee representative reviews FMS agreements referred
by the Regional Security Office, the full committee does not review FMS
agreements for nonproliferation concerns. Defense Threat Reduction
Agency reviewers have technical expertise in weapon systems, as well as
knowledge of the types of items controlled by the MTCR, but they generally
do not identify MTCR-controlled items in agreements because the Defense
Security Cooperation Agency does not formally refer FMS agreements to
the Defense Threat Reduction Agency.




16
 Section 36(b) of the Arms Export Control Act (22 U.S.C. 2776(b)) requires the President to
notify Congress of FMS agreements to sell any defense articles or services for $50 million or
more, any design and construction services for $200 million or more, or any major defense
equipment for $14 million or more before such agreements are issued.




Page 16                                           GAO/NSIAD-99-231 Foreign Military Sales
                        B-281640




DOD’s Reinvention       DOD has several ongoing reinvention initiatives that attempt to address
                        foreign customer and industry complaints about the FMS program,
Initiatives Focus on    including the perception that the technology transfer review process takes
Shortening Technology   too long. These initiatives contain proposals focused on shortening the
                        technology transfer review time, for example, by more rigorously
Transfer Approval       implementing DOD requirements for program documentation that assesses
Time                    what technology may be transferred.

                        The Defense Security Cooperation Agency organized a working group
                        comprised of DOD and industry officials to address complaints about the
                        technology transfer process. One of the group’s proposals is to encourage
                        National Disclosure Policy Committee members to make decisions in a
                        timely manner when acting on exception cases. Although aware of DOD’s
                        initiatives to make disclosure decisions more quickly, some committee
                        representatives said they need to research a case and assess the merits of a
                        proposed transfer from a national security perspective. Some officials
                        responsible for disclosure and releasability decisions also told us they have
                        been asked to make decisions more quickly.

                        Some of the initiatives address the need to improve information to support
                        technology transfer decisions. For example, the DOD and industry working
                        group is proposing more rigorous implementation of current requirements
                        to prepare weapon systems program documents that include technology
                        transfer assessments. This proposal is aimed at addressing technology
                        transfer considerations early in the development of the weapon system to
                        facilitate decision-making when export requests are received. In addition,
                        the Navy recommended pursuing an electronic policy distribution and
                        coordination system to facilitate the work of its internal technology
                        transfer review board and speed disclosure processing.17 The Army is also
                        sponsoring an initiative to develop an integrated classified database of
                        relevant records and documents such as the National Disclosure Policy and
                        weapon-specific program protection plans to support technology transfer
                        decisions. Air Force headquarters officials told us the Air Force recently
                        reviewed its approximately 800 Delegation of Disclosure Authority Letters
                        to ensure disclosure guidance for all Air Force programs was current. They
                        said one benefit of the review was to reduce the need to consult



                        17
                         The Navy Reinvention Laboratory issued reports in October 1998 and June 1999
                        documenting its first two phases of reform work and recommendations for improvement.




                        Page 17                                       GAO/NSIAD-99-231 Foreign Military Sales
                  B-281640




                  headquarters staff when making disclosure decisions related to Air Force
                  programs, since officials in the field have current guidance.

                  The DOD and industry working group proposes that DOD conduct a
                  technical review of the U.S. Munitions List to identify items and
                  technologies that should be decontrolled because they are low-risk or
                  already widely available. However, the State Department has authority over
                  the U.S. Munitions List and, with DOD concurrence, is responsible for
                  determining what items are to be controlled.

                  Beside the FMS reinvention initiatives, DOD has chartered three high-level
                  advisory groups to study international industrial base issues in the context
                  of U.S. national security. These studies are ongoing, but the findings are
                  likely to have an impact on technology transfer policy and procedures.

                  To date, none of DOD’s initiatives specifically addresses the gaps in the
                  FMS technology transfer review process. For example, the DOD/industry
                  working group’s proposals address the need to establish disclosure and
                  technology transfer guidelines for controlled unclassified information. The
                  group emphasizes removing unnecessary restrictions. However, the
                  proposals do not address the need to establish clear responsibilities for
                  ensuring that certain controlled items, like those we found, are fully and
                  systematically identified and reviewed.



Conclusions       The Foreign Military Sales program does not have a systematic process to
                  identify and review certain controlled technologies. As a result, items
                  controlled by an international missile nonproliferation agreement were
                  sold through the Foreign Military Sales program without proper review and
                  approval.



Recommendations   To provide for proper review and approval of proposed exports of
                  controlled technologies through the Foreign Military Sales program, we
                  recommend that the Secretaries of State and Defense establish a process to

                  • identify all items on a proposed Foreign Military Sales agreement that
                    are controlled under the Missile Technology Control Regime or other
                    nonproliferation agreements by taking full advantage of the expertise
                    that resides in the Defense Threat Reduction Agency, the military
                    services, or elsewhere;



                  Page 18                                  GAO/NSIAD-99-231 Foreign Military Sales
                  B-281640




                  • refer the information to the State Department;
                  • direct the Missile Technology Export Control group or other
                    nonproliferation groups to review missile technology-related items or
                    other controlled items to ensure compliance with the nonproliferation
                    agreements; and
                  • reflect this process in ongoing reinvention efforts.



Agency Comments   In commenting on a draft of this report, DOD generally concurred that it
                  must develop and implement the processes necessary to strengthen
                  technology transfer controls over MTCR-controlled items proposed for
                  export under the FMS program. However, DOD did not agree with the title
                  of our draft report or our conclusion that responsibilities are unclear under
                  the FMS program. DOD pointed out that the material weaknesses we
                  identified occurred only in technology transfer cases involving MTCR-
                  controlled items. We agree and modified the title and text to be more
                  precise. However, as we note in the report, the DOD and industry
                  reinvention working group recognized that confusion exists about the rules
                  governing the use and transfer of controlled unclassified information under
                  the FMS program. Such confusion goes beyond the transfer of MTCR-
                  controlled items.

                  DOD concurred with the intent of our recommendation but solicited relief
                  from what it characterized as the daunting task of listing MTCR-controlled
                  items on all FMS documents, which it believes would impede the flow of
                  goods to foreign customers. Our recommendation does not limit DOD’s
                  flexibility in how it identifies MTCR-controlled items, as we recognize that
                  there may be different means of doing so. However, identifying controlled
                  items is the first step to ensuring that such items are reviewed for
                  nonproliferation concerns in compliance with U.S. export control laws.
                  Therefore, we have not modified our recommendation. The comments
                  from DOD are reprinted in appendix II. DOD also provided some technical
                  suggestions, which we have incorporated in the text where appropriate.

                  In commenting on a draft of this report, the State Department agreed with
                  our conclusions and stated that it is working with the Defense Security
                  Cooperation Agency to establish better procedures. The comments from
                  the State Department are reprinted in appendix III. The State Department
                  also provided technical suggestions, which we have incorporated in the
                  text where appropriate.




                  Page 19                                  GAO/NSIAD-99-231 Foreign Military Sales
              B-281640




Scope and     To identify the process for making technology transfer decisions under the
              FMS program, we determined which organizations were involved in the
Methodology   FMS disclosure and approval processes and interviewed officials from
              these organizations about their roles and responsibilities and the criteria
              and guidance they used in performing their duties. Specifically, we spoke
              with officials from the State Department’s Political Military Bureau and
              multiple DOD offices, including the Office of the Under Secretary of
              Defense for Acquisition and Technology, the Office of the Under Secretary
              of Defense for Policy, the Defense Security Cooperation Agency, the
              Defense Threat Reduction Agency, and the Defense Intelligence Agency.
              We also spoke with officials from the Joint Chiefs of Staff, the U.S. Central
              Command, the Central Intelligence Agency, and each of the military
              departments as follows:

              • Department of the Army
                • Deputy Under Secretary of the Army (International Affairs)
                • U.S. Army Security Assistance Command
                • Tank-automotive and Armaments Command
                • Aviation and Missile Command
                • Apache Program Office
                • Program Executive Office, Tactical Missiles
                • Short Range Air Defense Office
              • Department of the Air Force
                • Deputy Under Secretary of the Air Force (International Affairs)
                • Air Force Materiel Command
                • Air Force Security Assistance Center
                • F-16 and F-15 System Program Offices
                • Advanced Medium Range Air-to-Air Missile Joint System Program
                  Office
              • Department of the Navy
                • Naval International Programs Office
                • Naval Air Systems Command
                • E2C Program Office
                • F-18 Program Office

              At the military departments, we examined export weapons policy papers,
              Delegation of Disclosure Authority Letters, Technology
              Assessment/Control Plans, Program Protection Plans, FMS agreements,
              and/or export licenses for selected weapons programs. In addition, we
              reviewed the laws, regulations, DOD directives, and policies that govern
              technology transfer and disclosure of information.




              Page 20                                  GAO/NSIAD-99-231 Foreign Military Sales
B-281640




To assess controls for reviewing technology transfer considerations, we
examined coordination documentation from various DOD offices, Joint
Staff, and military departments. We reviewed the Defense Security
Cooperation Agency’s coordination requests to the Joint Chiefs and the
Office of the Under Secretary of Defense for Acquisition and Technology
and their responses from 1994 to 1998. The Defense Security Cooperation
Agency did not have these requests centrally maintained, so we relied on
the records of the recipient offices. In addition, we discussed with DOD
and State Department officials how they identified controlled technology
and reviewed it in accordance with relevant DOD policies and procedures,
governing laws and regulations, and MTCR guidelines. We compared the
coordination practices for FMS items with those for export licenses to
identify any similarities or differences among the reviewing organizations
and their level of expertise in making decisions. By comparing practices
with export control laws and policies, we identified areas of weaknesses
and discussed these with DOD and State Department officials.

To examine DOD’s proposals to improve technology transfer practices, we
obtained documents from the Defense Security Cooperation Agency and
the military departments regarding their FMS reinvention initiatives. We
spoke with government officials involved in these initiatives about their
proposed plans, the status of implementation of recommendations, and/or
the extent of coordination with other reinvention projects.

We performed our review between January and August 1999 in accordance
with generally accepted government auditing standards.


We are sending copies of this report to Representative Sam Gejdenson,
Ranking Minority Member, House International Relations Committee, and
Senator Jesse Helms and Senator Joseph Biden in their capacities as
Chairman and Ranking Minority Member of the Senate Foreign Relations
Committee. We are also sending copies to the Honorable Madeleine K.
Albright, Secretary of State; the Honorable William S. Cohen, Secretary of
Defense; and the Honorable Jacob J. Lew, Director, Office of Management




Page 21                                 GAO/NSIAD-99-231 Foreign Military Sales
B-281640




and Budget. We will make copies available to others on request. Please
contact me at (202) 512-4841 if you have any questions concerning this
report. Key contributors to this assignment were Anne-Marie Lasowski,
Anne Howe, and John Neumann.

Sincerely yours,




Katherine V. Schinasi
Associate Director
Defense Acquisitions Issues




Page 22                                GAO/NSIAD-99-231 Foreign Military Sales
Page 23   GAO/NSIAD-99-231 Foreign Military Sales
Appendix I

Military Departments’ Disclosure and Foreign                                                                                  Appenx
                                                                                                                                   de
                                                                                                                                    is




Military Sales Agreement Process                                                                                              Appendx
                                                                                                                                    Ii




  Air Force Disclosure Process:


  The Air Force’s central focal point for making disclosure decisions is the Deputy Under Secretary of the Air Force

  for International Affairs. The level of coordination depends on the complexity of the case. For major weapon sales,

  the International Affairs Disclosure Division coordinates a position through an internal process known as Topline

  coordination. If the Air Force does not have disclosure authority, it requests an exception from the National

  Disclosure Policy Committee. The division is responsible for notifying staff of disclosure decisions and issuing

  disclosure guidance.



  Air Force Delegation of Disclosure Authority:


  The International Affairs Disclosure Division delegates certain disclosure authority for major weapon sales to major

  commands. Commanders of major commands, field operating agencies, and direct reporting units are responsible

  for designating disclosure officers and ensuring that the command disclosure program is effective.



  Air Force Foreign Military Sales Agreement Preparation:
  The International Affairs Policy Division generally prepares Foreign Military Sales agreements for major weapon

  systems with input from the program offices.




  Army Disclosure Process:


  The Office of the Deputy Chief of Staff for Intelligence has exclusive authority for making disclosure decisions for

  classified military information under the Army’s jurisdiction. The Office prepares proposed exceptions to the

  National Disclosure Policy in consultation with the sponsoring Army agency and the Deputy Under Secretary of

  the Army, International Affairs. In addition, International Affairs prepares export policies as needed.



  Army Delegation of Disclosure Authority:


  The Deputy Chief of Staff for Intelligence has delegated portions of its disclosure authority to selected Army

  components. The commander of the U.S. Army Security Assistance Command, under the Army Materiel Command,

  has the authority to make disclosure determinations for security assistance programs. Major system commands

  have an information security directorate that is responsible for providing a disclosure assessment for information

  under their jurisdiction.



  Army Foreign Military Sales Agreement Preparation:


  Each command’s security assistance management directorate, in consultation with program offices, prepares

  Foreign Military Sales agreements that are reviewed by the U.S. Army Security Assistance Command.




                                           Page 24                                      GAO/NSIAD-99-231 Foreign Military Sales
                                        Appendix I
                                        Military Departments’ Disclosure and
                                        Foreign Military Sales Agreement Process




Navy Disclosure Process:


The Navy International Programs Office, which reports to the Assistant Secretary of the Navy (Research,
Development, and Acquisition), is the central focal point for making disclosure decisions. The Office heads an
internal working group, the Technology Transfer and Security Assistance Review Board, which makes technology
transfer decisions. The Office drafts a policy memorandum and coordinates it with various Navy components,
including systems commands. Once a consolidated position is obtained, the Office transfers the policy to the Vice
Chief of Naval Operations and the Assistant Secretary of the Navy (Research, Development, and Acquisition) to
make a final decision on the disclosure policy. If the Navy does not have disclosure authority, the Office requests an
exception from the National Disclosure Policy Committee.




Navy Delegation of Disclosure Authority:


The International Programs Office has delegated limited disclosure authority to the systems commands. The
commands have a security branch responsible for disclosure decisions under their jurisdiction.


Navy Foreign Military Sales Agreement Preparation:


The International Programs Office, in conjunction with the commands and program offices, generally prepares
Foreign Military Sales agreements. The Office also validates the agreements before they are signed.




                                        Page 25                                     GAO/NSIAD-99-231 Foreign Military Sales
Appendix II

Comments From the Department of Defense                           Appendx
                                                                        Ii




              Page 26       GAO/NSIAD-99-231 Foreign Military Sales
Appendix II
Comments From the Department of Defense




Page 27                                   GAO/NSIAD-99-231 Foreign Military Sales
Appendix II
Comments From the Department of Defense




Page 28                                   GAO/NSIAD-99-231 Foreign Military Sales
Appendix III

Comments From the Department of State                                  AppendxIi




(707399)       Leter   Page 29   GAO/NSIAD-99-231 Foreign Military Sales
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