Discounted U.S. Weapons Sales Under Scrutiny by Key Lawmakers

(Bloomberg) -- The Pentagon’s arms sales agency would have to tighten discounts it has awarded wealthy Middle East nations and disclose their rationale to Congress under proposed legislation that’s united a liberal California Democrat and the conservative head of the House Freedom Caucus.

U.S. law requires foreign purchasers of American weapons to pay part of the Defense Department’s “non-recurring,” or one-time, costs in developing them. Yet the Pentagon’s Defense Security Cooperation Agency approved $16 billion, or 99 percent of waiver claims, for various reasons from 2012 through 2017, according to the U.S. Government Accountability Office.

That’s too high, according to Democratic Representative Jackie Speier and Republican Mark Meadows.

“Our defense relationships with these countries are important, but these nations have the interest and ability to pay these small added costs,” Speier said in a statement Thursday.

Saudis, Qatar

The Pentagon agency waived $8.5 billion in reimbursements to Saudi Arabia, Qatar, the United Arab Emirates and Kuwait from 2012-2017, Speier and Meadows say.

Saudi Arabia was granted a $3.5 billion waiver, or discount, last year as part of a $15 billion sale for Lockheed Martin Corp.’s Thaad anti-missile system, Bloomberg News reported in March. A congressional aide familiar with defense agency data given to the Government Accountability Office said it showed Saudi Arabia had won waivers totaling $4.82 billion, including the Thaad sale. Other waivers included $2.6 billion to Qatar.

A waiver is issued almost routinely when a customer claims the sale will be lost without it, according to the GAO. In other cases, a potential NATO or other alliance customer can make a case that the sale will improve “commonality” with the U.S. military through the use of standard weapons and systems.

Meadows, a North Carolina fiscal hawk, said he supports the proposal because it “ensures that allies -- particularly allies who are among the richest in the world -- undergo a thorough analysis of their ability to reimburse the taxpayer for defense development costs before receiving any waiver of their responsibility to pay.”

The proposed legislation, which will be referred for action to the House Foreign Affairs committee, limits countries’ eligibility for “loss of sales” waivers when they “demonstrate consistent or high-value purchasing patterns,” according to Speier. It also requires the Defense Security Cooperation Agency to provide Congress detailed justifications for approving waivers that are granted.

“The waiver approval process is inadequate to make” a loss-of-sales determination so it must be tightened, Speier said. “At the very least, our negotiators shouldn’t be giving away billions of dollars without asking hard questions,” she said.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert

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