oversight

U.S. Export-Import Bank's Financing of Dual-Use Exports

Published by the Government Accountability Office on 1999-09-01.

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

c        Accountability   * Integrity * Reliability

United States General Accounting Office                                                                     National Security and
Washington, DC 20548                                                                              International Affairs Division



           B-283474                                                                                                      .

           September 1,1999

           Congressional Committees

           Subiect: U.S. ExoorHmnort                       Bank’s Financing of Dual-Use Exports

           Since October 1994, the Export-Import Bank of the United States (Eximbank) has had
           statutory authority’ to provide loans and guarantees to help finance U.S. exports of defense
           articles and services, provided that it determines 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 wilI 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. This letter responds to our
           statutory mandate to report on the end uses of such dual-use exports supported by the
           Eximbank, in order to assure that they have been employed primarily for civilian purposes.

           In September 1998, we reported on the Eximbank’s financing and end uses of dual-use
           exports approved in fiscal year 1996,’ as required. That report also summarized dual-use
           commitments for fiscal years 1997-98. This letter provides information regarding the extent
           of financing and end uses of dud-use exports approved during fiscal year 1997. It also
           summarizes the commitments to tiance dual-use exports made in fiscal years 1998 and 1999
           to date. Our enclosure lists the specific export items, recipients, and amounts of Eximbank
           dual-use financing for fiscal years 1997-99.

           RESULTS IN BRIEF

           In fiscal year 1997, the Eximbank financed one dual-use export to Brazil and six dual-use
           exports to Venezuela, using less than 7 percent of its financing authority to support dual-use
           exports. According to Eximbank officials and documents, items provided by five of the six
           exports have been delivered to Venezuela and are being used for primarily civilian purposes.
           The items supported by the export to Brazil and one of the exports to Venezuela have not yet
           been delivered.

           During fiscal year 1998, the Eximbank financed one dual-use export to Venezuela and one
           such export to Indonesia. The items provided by these exports are currently in use,
           according to the Eximbank. In fiscal year 1999 to date, the Eximbank has financed one dual-
           use export to Brazil and two such exports to Croatia. According to the Eximbank, none of
           the items supported by these three dual-use exports is in use yet.

          ‘The Export-Import Bank Reauthorization Act of 1997(P.L. 105-121,Nov. 26,199’7) extended through 2001 provisions in 1994
          legislation (P.L. 103-428,Oct. 31,1994) authorizing the Eximbank to finance certain dual-use exports. It also extended through
          2001 a provision requiring us to report annually not later than September 1 on the dual-use exports financed by the Eximbank
          during the second preceding fiscal year-which, for this letter, corresponds to fiscal year 1997.

                                       art Bank 7s Fmanc
                                                    .



                                                                 GAO/NSIAD-99-241R Eximbank’s Financing of Dual-Use Exports
B-283474


DUAL-USE EXPORTS FINANCED IN FISCAL YEAR 1997

In fiscal year 1997, the Eximbank financed seven dual-use exports totaling $108.3 mihion.
This amounted to less than 7 percent of the Eximbank’s fiscal year 1997 financing authority
to support the sale of dual-use exports3

The seven dual-use exports approved for fiscal year 1997 were for Brazil and Venezuela. One
export, totaling $34 million, was for the refurbishment of cargo airplanes and the purchase of
transport helicopters to be used by the Brazilian Air Force in supporting rural economic
development. According to Eximbank officials and documents, these dual-use items are not
in use yet. The other six exports, totaling $74.3 million, were for the purchase of radio
systems, trucks and other vehicles, and aircraft parts to be used by the Venezuelan military
for supporting air traffic control modernization, civilian and humanitarian assistance, and
development activities in rural areas. In July 1999, Eximbank officials undertook a trip to
Venezuela to monitor the end use of these dual-use exports. Based on the information
collected during this trip, the Eximbank reported that it had determined that five of the six
dual-use exports had been delivered and were being used for primarily civilian purposes,
including air traffic control modernization and territorial protection and development. The
sixth dual-use export of aircraft parts had not been delivered yet.

DTJALUSE EXPORTS FINANCED IN FISCAL YEARS 1998-99

For fiscal year 1998, the Eximbank financed two dual-use exports totaling $9.4 million. This
amounted to less than 1 percent of the Eximbank’s fiscal year 1998 financing authority to
support the sale of dual-use exports4 One of these exports, totaling $7.7 miIIion, was for the
procurement of trucks to be used by Venezuela’s Army in civilian construction activities in
the country’s frontier regions. The other export, totaling $1.7 million, was for the purchase of
aircraft parts to be used in aircraft belonging to the Indonesian Air Force. These aircraft are
intended primarily for civilian activities, such as humanitarian aid and relief efforts.
According to Eximbank officials and documents, the items provided by these two dual-use
exports are in use.

So far in fiscal year 1999, the Eximbank has financed three dual-use exports totaling $153.8
million. This amounts to less than 10 percent of the Eximbank’s fiscal year 1999 financing
authority to support the sale of dual-use exports5 The first export, totaling $86.2 million, is
for the procurement of equipment to be used by Croatia’s Air Force in civil air traffic control
activities. The second export, totaling $14.6 rnihion, is for the purchase of radar equipment to
be used by Croatia’s Navy in coastal surveillance efforts. The third export, totaling $53
miIlion, is for the refurbishment and the procurement of aircraft to be used by the Brazilian
Air Force in support of territorial protection and development. According to Eximbank
officials and documents, none of the items provided by these three dual-use exports has been
delivered.




‘In fiscal year 1997,the Eximbsnk’s N-percent cap on dual-use fimncing amounted to $1,652.2million
‘In f!iscalyear 1998,the Eximbank’s lo-percent cap on dual-use iinancing amounted to $1,716.4million.
‘In fiscal year 1999,the Eximbank’s lo-percent cap on dual-use jinancing will amount to $1,575.4million.


 2                                              GAOMSIAD-99-241R                Eximbank’s F’inancing of Dud-Use Exports
B-283474

AGENCY COMMENTS

We obtained oral comments on a draft of this letter from the Eximbank’s Vice President of
the Engineering and Environment Division, which is responsible for monitoring end-user
compliance with dual-use requirements. He generally agreed with the information presented
in this report and suggested two technical changes. We have incorporated these changes.

SCOPE AND METHODOLOGY

To determine the end uses of the items provided by the dual-use exports financed in fiscal
year 1997 and to identify the extent of Eximbank financing of dual-use exports in fiscal years
 1998 and 1999, we reviewed pertinent Eximbank documents, such as memorandums to the
Board of Directors and engineering reports and evaluations regarding actual use of export
items. We also interviewed Eximbank officials who monitor end-user compliance with dual-
use requirements, including the Vice President of the Engineering and Environment Division.
We did not independently verify the end use of these products.

We conducted our work during July and August 1999 in accordance with generally accepted
government auditing standards.



We are sending copies of this letter to interested congressional Committees; James A.
Harmon, the Chairman and President of the Eximbank; the Honorable William S. Cohen, the
Secretary of Defense; and the Honorable Madeleine K. Albright, the Secretary of State. We
will also make copies available to others upon request.

Please contact me on (202) 512-4128 if you have any questions concerning this letter. The
major contributors to this letter were Virginia C. Hughes and Juan F. Tapia-Videla.




Benja&n F. Nelson
Director, International Relations
 and Trade Issues

Enclosure




3                                   GAO/NSIAD-99-241R Eximbank’s Financing of Dud-Use Exports
B-283474

List of Recipients

The Honorable Phil Gramm
Chairman
The Honorable Paul S. Sarbanes
Ranking Minority Member
Committee on Banking, Housing, and Urban Affairs
United StatesSenate

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 John J. LaF’alce
Ranking Minority Member
Committee on Banking and
  Financial Services
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives




 4                                GAON3AD-99-241R   Eximbank’s Financing of Dual-Use Exports
        ENCLOSURE                                                                 ENCLOSURE


                               DUAL-USE EXPORTS FINANCED BY
                 THE U.S. EXPORT-IMPORT BANK CEximbank), FISCAL YEARS 1997-99

        Dollars in millions

                              Type of Eximbank        Amount of
FiSCd           Recipient     financing/description   Eximbank                 Intended end
Y               country       of export items         financing   End user     use/status
1;:                                                                            Territorial
                              Loan/aircraft and                   Brazilian    development/not in
                Brazil        aircraft components       $34.0     Air Force    use
                              Guarantee/radio                     Venezuelan   Territorial
                Venezuela     systems                    08.8     Army         development/in use
                              Guarantee/radio                     Venezuelan   Civil air traffic
                Venezuela     systems                    03.4     Air Force    contrdlh use
                                                                  Venezuelan   Territorial
                Venezuela     Guaranteehucks             25.5     Army         development/in use
                                                                  Venezuelan   Territorial
                Venezuela     Guarantee/trucks           14.1     Army         development/in use
                                                                               Territorial
                              Guarantee/aircraft                  Venezuelan   development/not in
                Venezuela     parts                      10.1     Army         use
                              Guarantee/motor                     Venezuelan   Territorial
                Venezuela     vehicles                   12.4     Army         development/in use
1998                                                              Venezuelan   Territorial
                Venezuela     Guarantee/trucks           07.7     Army         development/in use
                                                                  Indonesian
                Indonesia     Loan/Aircraft parts        01.7     Air Force    Relief efforts/in use
1999                                                                           Territorial
                              Loan/aircraft and                   Brazilian    development/not in
                Brazil        aircraft components        53.0     Air Force    use
                                                                  Croatian     Coastal surveillance/
                Croatia       Loan/Radars                14.6     Navy         not in use
                                                                  Croatian     Civil air traffic
                Croatia       Guarantee/Radars           86.2     Air Force    control/not in use

        Source: GAO analysis of Eximbank data.




      (711444)


      5                                 GAO/NSIAD-99-241R Embank’s Financing of Dud-Use Exports
          ,_   -’




:
    ,.
     :;
               ..,




                     :




                ‘,.
Ordering     Information

The first copy of each GAO report and testimony is free.
Additional   copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent     of Documents, when
necessary. VISA and Mastercard      credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting    Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting  Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony.   To receive facsimile copies of the daily list or any
list from the past 30 days, please caB (202) 512-6000 using a
touchtone phone. A recorded menu wiil provide information         on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with “info” in the body to:

info@www.gao.gov

or visit    GAO’s World Wide Web Home Page at:

http:/Ywww.gao.gov
United States
General Accounting  Office
Washington, D.C. 20548-0001


Official   Business-
Penalty    for Private   Use $300

Address    Correction    Requested




                                     .