Pentagon Backs Contractors to Limit Disclosing Foreign Discounts

(Bloomberg) -- The Pentagon and major defense contractors are opposing a congressional effort to force more complete disclosure of discounts that are given to foreign governments for weapons purchases at the expense of U.S. taxpayers.

A provision in the House version of the annual defense policy bill would require detailed reporting whenever the Defense Department exempts such foreign military sales from a law that says the buyers should pay a portion of initial development costs for the equipment they buy.

“It would give Congress the information it needs” before a sale is final “to safeguard taxpayer dollars by stopping the DoD from letting wealthy Gulf nations off the hook when it comes to the money they owe the U.S. for our valuable research and development,” said Representative Jackie Speier, a California Democrat who serves on the House Armed Services Committee.

The Pentagon’s Defense Security Cooperation Agency approved $16 billion, or 99 percent, of waiver requests for various reasons from 2012 through 2017, according to the Government Accountability Office.

The provision offered by Speier in the defense bill (H.R. 2500) drew bipartisan support from Republicans including Mark Meadows of North Carolina.

‘Affluent’ Partners

“Our negotiators appear not to realize that they work for the U.S. taxpayer, not our affluent foreign partners,” Speier said.

In a policy statement to House and Senate negotiators who are currently working to reconcile their versions of the annual defense authorization bill, the Pentagon said it “strongly objects” to the disclosure requirement because the provision would “significantly slow” the Foreign Military Sales process and place the U.S. at “a significant competitive disadvantage.”

The provision would “require a report on information that is not available and be counterproductive” in “regard to building partnerships and enhancing alliances,” according to the Defense Department.

The Aerospace Industries Association also urged rejection of the disclosure provision, saying in a September letter that it “would significantly disrupt the existing Foreign Military Sales process, increase costs for the defense industrial base, hinder a fundamental tool of U.S. foreign policy and erode trust with key partners and allies.”

Dak Hardwick, the industry group’s assistant vice president for international affairs, said in an interview that “we would be concerned that the Congress would want to weigh in during the discussion between the U.S. government and whatever country” was preparing to buy weapons. He said professionals on military sales in the Pentagon and the State Department should be permitted to “do all of their work, especially on the financial end, before that evaluation is done by the Congress.”

‘Loss of Sale’

Lawmakers backing the disclosure provision say the Defense Security Cooperation Agency’s most questionable rationale for granting a waiver is that a country is threatening to walk away from a sale unless it receives a discount. This falls into a category the agency calls a potential “loss of sale.”

Over the years that the GAO examined in its 2018 report, the Pentagon approved $8.73 billion in such loss of sales waivers to Middle East allies, including a $3.5 billion waiver in 2017 for Saudi Arabia’s $15 billion purchase of the Thaad air defense system from Lockheed Martin Corp.

Saudi Arabia was granted 57 of those waivers totaling about $4.8 billion, out of a total of 192 approved during those years.

Some of the waiver requests are modest in scope.

Last year, Saudi Arabia requested loss of sales waivers of $65.07 each on three M240 machine guns, $1,524 each on 713 TOW-2B wire-guided anti-armor weapons, $6,600 each on 16 Hellfire laser-guided air-to-ground missiles and $24,211 for one T-700 helicopter engine, according to Defense Security Cooperation Agency data.

In late 2017, the kingdom requested a $1.82-per-weapon waiver for 159 .50-caliber machine guns that are part of an approved sale of M1A2 tanks.

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, John Harney

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