The Export-Import Bank (Ex-Im) often fails in its legally-required duty to monitor the end uses of the dual-use exports it finances, according to a congressional watchdog.
The Government Accountability Office (GAO) said in an Aug. 28 report (GAO-14-719) that although Ex-Im vetted dual-use transactions before approving them and incorporated policies and procedures for such monitoring, bank officials often did not make timely efforts to obtain missing documents and documentation of such efforts was often lacking.
Ex-Im is required by law to annually report on the end uses of exports financed during the second preceding fiscal year that can have both civilian and military capability, like satellites. Ex-Im has the authority to finance United States exports of defense articles and services, but it must determine that these items are nonlethal and primarily meant for civilian use. Dual-use items also include items such as aircraft used by foreign militaries mainly for civilian or humanitarian uses.
For the first time in nine years, Ex-Im in fiscal year 2012 financed three dual-use exports: a geosynchronous satellite for French company Eutelsat, manufactured by Space Systems/Loral (SSL); a fleet of three geosynchronous telecommunications satellites and services from Boeing [BA] and Orbital Sciences [ORB] for the Mexican government; and 150 pieces of new and used construction equipment from U.S. manufacturers for the government of Cameroon.
GAO said there are three types of documentation for dual-use items: progress reports on construction and delivery of the exported item, technical operating reports once the item is in use and an annual certification and report on end use. Ex-Im may also conduct end-use inspections.
Unfortunately, GAO said Ex-Im has not been receiving the required paperwork from financed parties nor actively pursuing them. In the Eutelsat deal, GAO said monthly progress reports on construction and delivery of the financed export were due between June 2012 and November 2013, but reports were received late–two reports arrived in July 2013.
Ex-Im officials told GAO they made efforts to obtain the missing paperwork, but ultimately felt because of prior vetting of transactions with the State or Defense departments, and the details received, they didn’t think the missing documentation risked the exports being used in a lethal manner or for primarily military purposes. Ex-Im has policies and procedures for monitoring the end uses of dual-use items, GAO said, but there are no policies for what specific actions Ex-Im officials should take of they don’t receive the documents required in the agreements.
GAO found lack of official documentation to be pervasive among the Ex-Im Bank’s inability to properly monitor the end uses of its dual-use exports. Ex-Im officials told GAO one reason why they didn’t pursue the Eutelsat monthly status updates was they felt monthly reports were not necessary and that detailed reports that summarize information over a several-month period were more useful than a series of monthly reports. But the agency said Ex-Im officials failed to document neither this decision nor its efforts to obtain late, or missing, reports.
Ex-Im also failed to receive necessary paperwork from the Mexican government, but GAO said it sprang into action once the agency started investigating the matter. GAO said Ex-Im received only a few of the reports from the Mexican government required from the July 2012 credit agreement, and some of the information was over a year late. An Ex-Im official told GAO Mexico acknowledged that it had been delinquent in submitting the required documentation and that it was working with Ex-Im to make sure it fulfills the agreement’s documentation requirements.
GAO recommended Ex-Im strengthen its guidance for monitoring end-uses in cases where borrowers do not submit required documentation within specified time frames to help improve oversight for monitoring dual-use items. An Ex-Im official told GAO the bank agreed with the recommendation that steps be established in case borrowers do not submit required end-use documentation.
The Ex-Im Bank’s authorization ends Sept. 30 and is subject to congressional approval.