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General FISH. Yes, sir. I would like to point out, in the first instance, that the dollar value of the foreign military sales includes defense articles and services. A survey that I have had run indicates that about 40 percent of that could be characterized as weapons, that is combat aircraft, guns, ammunition, and things of that nature. The remainder of 60 percent is for spare parts, services, and such things as teaching English because they need to understand English in order to be able to read our technical orders, and things of that nature.
So it is an important distinction to make that not all of that is
Now in the commercial sales that have been licensed by the International Traffic in Arms Regulations through the State Department, if I recollect the figure correctly, it is about a $500 million for the year. Mr. SOLARZ. Commercially, what was the figure for the foreign military sales?
General FISH. It is about $7 billion sales agreements signed.
Mr. SOLARZ. Of that, 40 percent was for weapons. So, $2.8 billion was for weapons in foreign military sales and around $500 million were bought commercially.
Mr. FORMAN. No, he is not saying that, sir. The figures that he is giving you on the foreign military sales are orders, and the figure that he is giving you on commercial are exports and not orders. We have no figures on commercial orders. That data is not available.
Mr. SOLARZ. What are the figures on actual sales as distinguished from orders?
General FISH. We have no way of determining how many commercial orders are placed.
Mr. SOLARZ. I don't want to compare apples and oranges.
General FISH. We would have to get the FMS deliveries to make it comparable. It would be approximately $1.2 billion.
Mr. SOLARZ. It is $1.2 billion delivered, and of that $1.2 billion, roughly 40 percent.
General FISH. The total FMS was $2.936 billion, and I took out the 40 percent which would be the $1.2 billion.
Mr. SOLARZ. What incentive does a country have for purchasing weapons through foreign military sales as distinguished from purchasing them privately through the private sector?
General FISH. I think that there is a series of reasons, which includes, first of all, if they go through foreign military sales, they get the advantage of the procurement activity of the U.S. Department of Defense.
Many of these countries really do not have as sophisticated procurement expertise. Second, the U.S. Government is standing in their stead to make sure they are getting a reasonable deal.
Also, they have a greater assurance in their mind that the continued support of the U.S. Government will stand behind, and will warrant the continued performance.
Mr. SOLARZ. As I gather, the $500 million commercial sales were virtually all for weapons. Was there also a substantial amount of that for services?
General FISH. I don't know. Given the nature, I would say that the content would be higher than 40 percent, but something less than 100 percent.
Mr. SOLARZ. Do you have any figures on how many of the foreign military sales contracts required the use of agents?
General FISH. No, sir, I do not.
Mr. SOLARZ. You don't know, then, the figures for how many of the commercial contracts require agents?
General FISH. I don't have any information.
Mr. SOLARZ. I understand the justification, as you explained it, for agents with respect to private sales where a company is out, drumming up business for itself. What is the justification for the use of agents in foreign military sales where presumably the host government has made a determination that it wants a weapon, or a weapon system, and it comes to your office and says: "We would like to purchase such and such."
You, then, go out and do the procuring for them. You don't need the agent, I suppose, who does?
General FISH. As I pointed out earlier, such transactions that are concluded under the Foreign Military Sales Act do not necessarily begin as foreign military sales transactions. It is not uncommon for a foreign government to contract for an FMS case for service after lengthy negotiations that have been conducted between the government and American and foreign firms in expectation of a direct commercial sale.
Second, assuming that the transaction is initiated at the outset as an FMS transaction, the foreign government may actively consider the product or the system of several competing companies, any one of which could meet its requirements. So, you can see that it is not, as I believe your question implies, that they may know initially what they finally determine that they want to buy.
Mr. SOLARZ. If they have negotiated on their own with the private companies, and have made a determination as a consequence of that that they want the system or the weapons that the company manufactures, why at that point do they go to you and ask for the purchase to be made through the foreign military sales program?
General FISH. I am back to stating the generalization that I stated before. They prefer to have a detailed pricing to be determined by the Armed Services Procurement Regulations, and the U.S. Department of Defense expertise and the contracting process.
Also, there is the military relationship which gives them full continued training, and not only training but follow-on support.
Mr. SOLARZ. I am referring now to the provisions of ASPR 1-500, which is the first page in your supplement, the General Provisions, Part 5, Contingent or Other Fees.1
You have in here a definition under 1-504 of "Improper Influence," which is,
*** influence which induces or tends to induce consideration or action by any employee or officer of the United States with respect to any government contract on any basis other than the merits of the matter.
Clearly, the definition of improper influence under your contracts does not apply to improper influence with respect to foreign governments as distinguished from our own Government. Does that mean, in effect, that agent fees, according to your contracts, not permissible if the agent, in effect, uses his influence to affect the decisions of our Government.
1 See appendix 2, p. 198.
It is perfectly legal, insofar as our contracts are concerned, if he makes legitimate efforts to affect the decisions of the Government.
Mr. BIESTER. To expand that section, because he is in an area that I was interested in also, even in 1-500, the scope of part, all of this deals only with contracts from the Department of Defense.
Mr. SOLARZ. The gentleman's point is well taken.
If you could respond to these questions. Let me briefly summarize it and say that I was under the impression that most of the work these agents did, according to your description, was in the foreign countries where the purchases are made, but we seem to have contracts here prescribing the activities of in the countries where they do their work, but in our own country where, presumably, they do relatively little.
Mr. FORMAN. If I may answer that question, Mr. Solarz, and Mr. Biester. We do not have a separate procurement regulation for the guidance of the contracting officers for foreign military sales.
A number of years ago, when the sales program started and began to get larger, we debated internally within the building as to whether there should be a separate procurement regulation comparable to the ASPR, or whether we should use the ASPR.
The decision was made that it was administratively more convenient to use the ASPR. In effect, the foreign military sales ride piggyback on the ASPR's as incorporated by reference.
There are very few references in the ASPR to foreign military sales as such. I think that there may be about 10. All the main provisions of the ASPR dealing with foreign military sales are contained in ASPR section 6-705, part of which we have attached here.
Basically, what we tell the contracting officer is that you use these ASPR clauses as if they were written for a foreign government. So, notwithstanding the fact, for example, that the definition of "improper influence" is written here in terms of the U.S. Government, we are applying that definition to the foreign governments in our dealing with the foreign governments.
Mr. SOLARZ. In other words, you are saying that you are interpreting these contracts to mean that these agents cannot use improper influence with respect to foreign governments as well as our own Government.
Mr. FORMAN. He would not be a bona fide agent.
Mr. SOLARZ. I am not an attorney, but it would seem to me that someone could legitimately argue that your interpretation of the contract could mean something that on its face it does not mean.
Would it not, perhaps, make sense to change the wording of these contracts so as to make clear the fact that it does apply to foreign governments as well as to our own Government?
Mr. FORMAN. When we write the contract, the contractor is advised that it is for a foreign military sale for a foreign country, and he knows he has not been selected for the United States, but for a foreign country.
Mr. SOLARZ. The interpretation of your department is in the event an agent uses what you define as "improper influence" with respect to the officials of a foreign government. It is a violation of the contract in precisely the same way as it would be if the improper influence was used in our own country.
Mr. FORMAN. Exactly.
Mr. SOLARZ. Do you, in fact, think that these agents are using improper influence in the work which they do for the company which retains their services?
Mr. FORMAN. Other than the disclosures which have been previously mentioned in this hearing and, of course, in other congressional hearings with regard to the alleged payments by Northrop to the Saudi Arabian, generals of $450,000, we have had no information coming to us, nothing concrete of that nature.
Mr. SOLARZ. I was very interested in the laundry list of services that you read off that these fellows presumably perform. It sounded like those agents were like Fuller Brush men, driving around with missiles in their valises rather than hair brushes.
Do they have, to your knowledge, staff to help them carry out these tremendous responsibilities which they have undertaken? Do they have offices? I mention this, by the way, because going through that report which was submitted to Senator Church, I was struck by the fact that many of these agents seem to operate out of a post office box.
General FISH. I think I should hasten to qualify that the listing I read out with the initial qualifications that it was the view of one member of industry. I do not have personal knowledge as to what the agents do. I thought that the question might come, so I asked one of the aerospace companies that deals overseas to give me an example of what these agents do in a general way. This is what I got and read off.
Now, as to how they operate in detail, I think that there are much better sources than myself, or Mr. Forman, because we have no personal knowledge, and we don't deal in promoting the sales, contrary to what has been said in some quarters.
We specifically have the policy out in all the MAAG's, we do not promote foreign military sales. It is not our job to do so.
Mr. SOLARZ. Do you know if those agents have supporting staff that work for them, or are they basically a one-man operation?
General FISH. I don't know. I would speculate that both are true, but I am not sure.
Mr. SOLARZ. If they have assistants, you don't know how many they have?
General FISH. No, sir.
Mr. SOLARZ. With respect to the missile sale to Jordan, there was supposed to be an agent fee for this. We went over this at another hearing, but I am not quite clear who the recipients of the agent fee was supposed to be. Kermit Roosevelt was one individual mentioned. Do you have any information indicating who the agents were in this sale?
General FISH. Yes, I think we do. I do not recall his name, but I know that it was not Kashoggi, and I have never heard Mr. Roosevelt's name mentioned in connection with the sale, except at the committee hearing that we were both at.
Mr. SOLARZ. Could you submit the agent's name for the record? General FISH. Yes. His name is Mr. Munir Attallah, Near East Engineering Co.
Mr. SOLARZ. He was supposed to get a 2-percent commission which came to some $2 million.
General FISH. $6 million.
have in front of you on the ASPR's of what is allowable, or his judg ment of what is allowable. That is why we furnished the ASPR's.
The recitation that I gave you makes no judgment as to whether they were proper or improper.
Mr. SOLARZ. One last question. There were allegations that the Department of Defense had hinted at bribery in a publication prepared for Americans seeking to do business in the Middle East. Is this any reference to that speech by Mr. Hoenig to which you referred earlier? General FISH. That is what they are talking about.
Mr. SOLARZ. Could you possibly submit that to the committee so that it could be included, if there is no objection. Mr. Whalen, would you obiect?
Mr. WHALEN. Is that what the chairman put in the record?
General FISH. That is Mr. Hoenig's view of the situation. Incidentally this was prior to my tenure in this office. Mr. Hoenig has made the point elsewhere that it is based upon his considerable experience in the industry, and not necessarily the 5 years that he has worked in the Agency.
Mr. SOLARZ. Thank you very much, Mr. Chairman.
Mr. Nix. The Chair recognizes Mr. Biester.
Mr. BIESTER. Mr. Chairman, I would like to track and see exactly what kind of rules and regulations really do apply here.
I will start with part 5L, ASPR 1-500, et seq. I think we have agreed that that particular ASPR is limited to the contracts for the Department of Defense of the U.S. Government. Is that correct?
General FISH. Counsel will correct me if I am wrong, but what we do in writing a foreign military sales contract, by reference we incorporate.
Mr. BIESTER. I will get to that. I want to start this way. My mind has limitations, and I cannot embrace the whole thing in one fell swoop like that. I want to go on a step-by-step basis.
General FISH. Yes, sir.
Mr. BIESTER. ASPR 1-500 et seq. all deal with contracts for the Department of Defense. Is that correct?
Mr. FORMAN. Basically, that is correct. This is correct for all ASPR. As I mentioned, there are only 10 provisions scattered throughout the ASPR dealing specifically with, or mentioning specifically FMS.
Mr. BIESTER. One of the items that this particular ASPR seeks to get at is the contingent fee, which is based upon the solicitation and acquiring of certain contracts. It seems to me that the ASPR tends to separate actual work done from a contingent fee arrangement. Is that a fair characterization of the position?
In ASPR 1-505-4(a) appear the phrases, in the second sentence and in the third sentence: "In evaluating reasonableness of the fee, there should be considered services of the agent other than actual solicitation."
(b) States that the selling agency should have adequate knowledge of the products and the business of the concern represented, as well as other qualifications necessary to sell the products or services on their merits.
Basically, the concern expressed in that ASPR is the vice of the contingent fees based upon the success of the agent's work in obtaining the contract. Would that be a fair characterization?