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B-133258 Issues Related to U.S. Military Sales and Assistance to Iran

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B-133258 Issues Related to U.S. Military Sales and Assistance to Iran J REPORT TO THE CONGRESS \ Issues Related To U. S. Military Sales And Assistance To Iran E -733258 Department of Defense Department of State BY THE COMPTROLLER GENERAL OF THE UNITED STATES ._ COMPTROLLER GENERAL OF THE UNITED STATES WASHINGTON. n.c. 20~413 5-133 258 4 b a, To the Speaker of the House of Representatives and the President pro tempore of the Senate This is our report on issues related to U.S. military sales and assistance to Iran. The review was made in compliance with the Budget and Accounting Act, 1921 (31 U.S.C. 53), and the Accountincj and Auditing Act of 1950 (31 U.S.C. 57). Copies of this report are being sent to the Director, Office of Management and Budget; the President and Chairman of the Export-Import Bank of the United States; the Secretary of Defense; and the Secretary of State. the Comptroller General A__.of the United States - -- .~ -- .- .- CONTENTS -Page DIGEST i CHAPTER x 1 INTRODUCTION 1 Scope of review 2 *f 2 NATURE AND MAGNITUDE OF ARMS SALES TO IRAN 3 Nature of Iran's military buildup Nature of U.S. arms sales to Iran 5 Makeup._ of U.S. sales 7 Evolution of the U.S. military role in Iran 7 U.S. economic assistance to Iran 11 3 SALE OF TECHNICAL ADVISORY SERVICES TO IRAN 12 EVOlUtiOn of TAFT 13 TAFT relationship to MAAG 15 some skills sold are in short supply in U.S. forces 17 Conclusions 17 GAO proposal . 18 Agency comments 18 4 RATIONALE FOR U.S. FOREIGN MILITARY SALES TO IRAN 19 Consistency with U.S. foreign policy interests 20 Consistency with intent of Foreign Assistance Act of 1961, as amended 24 Consistency with the extent and character of Iran's military re- quir ement 25 consistency with Iran's economic and financial capability 27 strengthen the security of the United States and promote world peace 27 Recipient country must agree not to transfer title or possession of Defense articles furnished it to a third party without prior consent of the President 28 CHAPTER -Page 4 Consideration of proper balance among sales, grant military assistance and economic assistance 29 Impact of such sales on social and economic development programs 29 Impact on existing or incipient arms races 31 Conclusion 38 Matters for consideration of the ,. 1 congress 38 5 FOREIGN MILITARY SALES VERSUS COMMERCIAL SALES 40 Conclusions 41 Recommenda t ion 42 6 INCOMPLETE COST RECOVERY ON ARMS SALES 44 Incomplete recovery of .FMS adminis- trative costs 44 Advantageous Export-Import Bank interest rates 45 TAFT Command costs not recovered 46 Conclusion and recornmendat ion 46 Agency comments 47 7 INCONGRUITY OF PAST-DUE DEBTS WITH CURRENT WEALTH 48 U.S. collection efforts 48 Military mission costs 49 Concl usi on 40 Recommendation 50 Agency comments 51 GAO evaluation 52 8 NEED FOR TERMINATING U. S. RESPONSIBILITIES FOR MILITARY GRANT AID EQUIPMENT IN IRAN 53 Amount of MAP equipment remaining in Iran 53 Lack of visibility and supervision of MAP equipment 54 Inadequate control over MAP material declared excess 56 Need for sale of residual rights of u.S. MAP property 58 Conclusions 59 Recommendation 59 Agency comments 60 GAO evaluation 60 .-___ - -- . APPENDIX - - Page I Letter dated July 19, 1974, from the Deputy Assistant Secretary of State for Budget and Finance 61 I1 Letter dated July 26, 1974, from the Director, Defense Security Assistance Agency 67 I11 Letter dated July 17, 1974, from the Deputy Associate Director for Inter- national Affairs, Office of Management and Budget 75 IV Major Iranian FMS purchases from FY 1970 through February 1974 77 V Iran's past-due debts to the United States 80 VI Ikfense-related private contractors in Iran 81 VI I Principal officials responsible for ad- ministering activities discussed in this report 82 ABBREVIATIONS FMS Foreign Military Sales GAO General Accounting Office MAAG Military Assistance Advisory Group MAP Military Assistance Program 1. TAFT Technical Assistance Field Team t COMPTROLLER GENERAL'S ISSUES RELATED TO U.S. MILITARY REPORT TO THE CONGRESS SALES AND ASSISTANCE TO IRAN Department of Defense Department of State B-133 2 58 ---DIGEST--- WHY THE REVIEW WAS MADE Nature of U.S. arms sales to Iran In conjunction with the Middle East situation and the Arab oil U.S. security assistance to embargo, U.S. arms sales and Iran has changed as Iran has military assistance to Iran-- progressed from grant aid to $1.5 billion, during fiscal credit sales to the present years 1946-69 and $6.9 billion prog.ram of large-scale cash since fiscal year 1970--have sales of hardware and manage- aroused congressional interest ment and technical advisory and concern. services of Department of De- fense personnel. (See p. 5.) In 1973 the Congress amended the Foreign Military Sales Act U.S. grant aid to Iran of mili- to shift arms sales from Gov- tary equipment stopped in fis- ernment to commercial channels cal year 1969 and grant train- to the extent practicable. ing stopped in 1973. , GAO reviewed the nature, pur- pose, and management of the Foreign Military Sales on security assistance program to credit were made from fiscal Iran. years 1965 to 1969 and since then all sales have been cash. FINDINGS AND CONCLUSIONS U.S. military assistance and sales through July 31, 1974, The United States has been and included (1) grant aid $850 remains Iran's principal arms million, (2) credit sales $500 supplier. Other major sup- million, (3) cash sales $7 bil- e. pliers are the United Kingdom, lion, and (4) ship transfers the Soviet Union, Italy, and $13 million, and totaled France. (See p. 4.) $8 .4 billion. c relationship, the United States has sold the following major equipment and services to Iran from fiscal year 1970 through February 1974. (See pp. 8 t and 77.) Classified materials deleted. U.S. military assistance has evolved to a new level in Iran c with the sale of advisory serv- ices of Defense technical and management experts. As of January 1974, 539 such person- .. nel were in Iran--492 uniformed Current U.S. sales are respond- and 47 civilians--to help Iran ing to Iran's determined needs, develop skills to maintain, but the United States does not support, and use its new arms. participate directly with Iran This service is expected to in developing Iranian force peak at 640 personnel. (See goals. pp. 10 and 20.) The U.S. Military Mission with Purpose of U.S. arms sales the Iranian Army and the Mili- to Iran tary Assistance Advisory Group does provide advice which is The United States has important taken into account by Iranian economic and strategic interests planners. Under this new in the Persian Gulf area. (See p. 20.) Classified materials deleted. - --Iran's oil production is the The United States is conducting second largest in the Middle its arms sales program to Iran East. In 1973 roughly at considerable cost to the 7.8 percent of its oil ex- United States, although the law ports went to the United requires recovery of all costs States, 37.2 percent to to the maximum extent possible. Europe, and 33.6 percent to * Japan. Iran has remained The principle of full cost re- nonalined in the Arab-Israeli covery should be implemented conflict. in military sales to countries like Iran which are financially .r --U.S. program planners view capable of paying. To the ex- Iran, in cooperation with its tent that U.S. costs are not neighbors, as responsible for recovered, they become a form insuring peace and stability of invisible grant aid. in the Persian Gulf area and as an important factor in the Indian Ocean area. Unrecovered costs include at least $10.5 million in adminis- Management of U.S. sales and trative costs and $24.2 million assistance Droqrams in unrecovered interest costs on Export-Import Bank loans for A comparison of U.S. arms sales arms purchases. The Bank made to Iran to the criteria of the the loans at lower interest Foreign Military Sales Act rates than it paid on its showed no significant areas of borrowings, some of which were nonconformance. (See p. 38.) from the U.S. Treasury. (See p. 44.) GAO noted that some of the nearly 500 military technical It seems incongruous that, de- assistance field team personnel spite her current great wealth in Iran have skills that are in and massive arms purchases, critically short supply in U.S. Iran still owes the United military units and suggested States $36 million in past-due caution in considering future debts incurred mostly right sales of U.S. advisory serv- after World War 11. (See ices. (See p. 17.) p. 48.) Although the stated preference GAO found that U.S. personnel e of both the legislative and in Iran had not accounted for executive branches is for direct and reported on the location, commercial arms sales, GAO condition, and use of equip- found that commercial sales ment previously given Iran were negligible compared with under the military assistance Government sales. (See p. 40.) program as required by law. \ GAO 6eJieves it would be The Director, Office of desirabLe to sell Iran the Management and Budget, should u.S. residual rights to such fix interest rates and charges equipment remaining in Iran, on long-term capital loans for thus eliminating the need to military purchases at levels 4 closely monitor it. (See sufficient to recover the cost p. 53.) of such financing to the United States. (See p. 46.) s RECOMMENDATIONS The Secretaries of State and Defense should explore with The Secretary of Defense Iran the desirability of its should : buying the residual rights to u.S.
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