A corporation caught in Congressional oversight crosshairs is a serious matter. Even routine Congressional inquiries can lead to serious legal problems, loss of reputation in the marketplace and, depending on the size of the company, can destroy a business or otherwise bankrupt a business. Even larger businesses that can usually weather repeated Congressional oversight daggers, the matter becomes especially tricky when the Congress is taking the side of the little guy. This is exactly what appears to happening in the case of the militarized crop-duster from Mooresville, North Carolina.
This David versus Goliath story, broken by Kristina Wong of Breitbart, pits IOMAX USA Inc., a veteran-owned small business, against one of the top-10 U.S. defense contractors, L-3 Technologies (“L-3”). The transactions in question involve the sale, or a series of sales to the government of Kenya of an aircraft, aptly called, the Archangel. Based on the public accounts of the matter, as well as experience advising clients on export control matters, I suspect that the contract also includes maintenance, training as well as other defense services.
Under the Arms Export Control Act (“AECA”), and its implementing regulations, the International Traffic in Arms Regulations (“ITAR”), persons subject to U.S. law who export arms, also called defense articles, or train foreign government officials how to use them, also known as a sort of defense services, must register with the State Department as well as secure licenses or other authorizations from Uncle Sam before exporting the defense articles or providing a defense service. The Department of Defense can plays a role in this process, especially when dealing with the Foreign Military Sales programs, among others.
In case you’re wondering why these laws exist, this is not some anti-second amendment law. In the foreign policy and national security arena, the federal government must know who is selling what to whom in foreign lands. In addition to licensing matters, the AECA requires that the agencies provide Congressional Notifications (“CN” for short) for exports of defense articles and defense services that meet certain dollar thresholds, and also where certain weapon systems are manufactured somewhere other than the United States. The Archangel contract, according to Breitbart, is valued at $418 million, so it at least meets the dollar threshold CN reporting requirement.
When Breitbart first broke the story, it seemed as if Congress was concerned that the CN had not been provided properly, the implication being that the Obama administration, in its final hours, was trying to pull a fast one on the Congress. Why would the executive branch seek to do that? Congress can, and in some cases routinely does, puts legislative holds on arms transfers to foreign governments. These legislative “holds” allow the Congress to further scrutinize the transaction for policy reasons or, yes, even purely political reasons (rare). However, there seems to be a lot more than political machinations at play here.
IOMAX’s representative in the House, Rep. Ted Budd (R-North Carolina) told Breitbart last year that he questioned why L-3 was being awarded a $237 million contract for a plane that is manufactured by his constituent, IOMAX, at half that price?
“It looks like politics,” Budd said in a phone interview with Breitbart News on Monday. “Why are they sending it to someone that’s produced zero, for twice the price? This is inappropriate.”
Without reviewing the contract it would be complete speculation; there are may be many legitimate reasons for the cost increase, including modifications to the aircraft made after delivery from IOMAX to L-3 to Kenya, assuming there is subcontracting relationship. However, this does not appear to be the case since Breitbart reported last month that a senior Kenyan official at their Washington, D.C. Embassy was “flabbergasted” that the small African nation was “potentially paying almost $200 million more than necessary.” And the Congressman issued this statement late last month:
We have a duty to American businesses as well as our allies to make sure that contracts like this are awarded fairly and without favoritism … [a]fter looking at the facts, I am very concerned that a veteran-owned small business in North Carolina wasn’t even allowed to compete in this process. It raises some serious questions when you consider that these planes could be delivered for $181 million less than the current deal, which was approved on the last full day of the Obama Administration.
This is shaping up to be a lot more than just a routine “CN” foul up or Congressional Notification story. Again, we’d need a lot more facts to piece together this legal and political puzzle; however, based on Wong’s latest article published yesterday, it is becoming increasingly clear that procurement fraud or misrepresentation may also be at issue (if the latter turns out to be the case, U.S. laws and regulations may require the matter to be transferred from DoD or State to the Department of Justice for a criminal investigation). Wong reports:
Breitbart News has obtained photos of L-3 Technologies using marketing materials at a recent international defense conference featuring a small plane produced by IOMAX USA, Inc., a small, disabled-veteran owned company based in North Carolina. The photos show an L-3 banner and poster at their booth at the 2017 International Defence Exhibition and Conference (IDEX) in February featuring IOMAX’s “Archangel” aircraft — an armed crop-duster-like aircraft used by U.S. partner militaries for border patrol, surveillance, and close air support.
Why was L-3 passing off the Archangel as an L-3 plane at a trade show? Did L-3 and IOMAX have a marketing agreement that allowed it? Did the Kenyans know? Stay tuned. There many more questions that I’m certain the Congress will and should ask about this proposed transaction. I doubt we’ve heard the last of this one. I predict many oversight daggers in the weeks and months ahead. If it does turn out that IOMAX was wronged by L-3, DoD, Kenya, or a combination thereof, judging from the early political support IOMAX has already amassed, my money is on the men and women with the weaponized crop-duster.