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How Foreign Firms Use US Shells To Steal Defense Secrets

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How Foreign Firms Use US Shells To Steal Defense Secrets

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Reprinted with permission from DCReport

While Donald Trump declares his policy is “America First,” yet another government watchdog report shreds that claim.

Congress requires that all Defense Department work at home be done by American companies. After all, we wouldn’t want a Shanghai electronics maker, operating as a front for the Chinese military, to put even one transistor in America’s military command-and-control systems. We wouldn’t want a Kremlin front to secretly slip engine kill switches in our fighter-bombers.

But foreign firms often successfully pose as American-owned and -operated, according to a new report by the Government Accounting Office, the investigative arm of our Congress.

This is precisely the kind of policy failure that Trump told voters he would end. But he has not.

This week the GAO warned of “several types of financial and nonfinancial fraud and national security risks posed by contractors with opaque ownership.”

It examined  32 cases that have been settled. It found “price inflation through multiple companies owned by the same entity to falsely create the appearance of competition, contractors receiving contracts they were not eligible to receive, and a foreign manufacturer receiving sensitive information or producing faulty equipment through a U.S.-based company.”

You can read either the full GAO report or the GAO one-page summary.

Significantly the GAO limited its study to cases that have undergone thorough review so the facts are settled. It said nothing about how many cases are pending and whether any show attempts—or successes—by hostile foreign powers planting faulty or spy-worthy equipment in our military hardware and software.

Wall Street Fronts

We know that hostile foreign powers are doing all they can to use Wall Street fronts and other corporate guises to damage our military capacity.

The highest levels of the Chinese military, for example, used Wall Street fronts to acquire and then remove from America neodymium technology that is a necessary component of mobile phones, lightweight car engine starter motors, high tech headsets and many military applications including smart bomb guidance devices.

The failures of two administrations on neodymium were detailed in the chapter Chinese Magnetisism in my 2007 bestseller Free Lunch.  President Bill Clinton’s administration allowed the sale of the rare earth technology companies to a Wall Street firm that turned out to be a front for the Chinese military command. The George W. Bush administration then allowed the buyers, who by then had been unmasked, to remove this technology, making America vulnerable to Chinese control of neodymium supplies.

Since then, Congressional hearings showed, the Chinese have used their lock on s0-called rare earths to advance China’s interests at our expense. And they have wielded the threat of cutting us off in the gratuitous trade war Trump declared would be easy to win.

This is precisely the kind of policy failure that Trump told voters he would end. But he has not. And it’s not surprising given that Trump says that only Einsteins can understand digital technology.

The awful truth is that Trump knows less than most Army privates about geopolitical strategy, as documented herehere and here, among many other places. As Chicago Tribune columnist Steve Chapman wrote in 2016, Trump’s ignorance is bottomless.

Plane Crash

The new GAO report cited the example of “an ineligible foreign manufacturer that illegally exported sensitive military data and provided defective and nonconforming parts that led to the grounding of at least 47 fighter aircraft.”

In fact that case resulted in the crash of a Missouri Air National Guard F-15C Eagle jet fighter because a key airframe support failed during flight. The pilot escaped.

The graphic below explains how that scheme worked.

While the GAO does not identify the contractor, the only known case it fits involved the November 2007 crash of a Missouri Air National Guard F-15C Fighter jet. The pilot survived the failure of a key structural support part during flight.

In all 160 planes required rework at a cost of about $500,000 each. The grounding of those planes for repairs also reduced training and ready-to-fly alert team operations in case of a sneak attack.

Failure to Act

Boeing used the inferior foreign-made parts in maintaining aging F-15s. But there is no reason to believe that such abuses have ended based on the GAO report.

The problem of foreign contractors posing as American firms—and as multiple firms—is not new.

What makes the GAO report significant is that Trump, unlike George W. Bush and Barrack Obama, ran for office on an “America First” platform and a promise to end such abuses.

The GAO report makes clear that through budget year 2018, which ended last fall, nothing has been done to fulfill or even start work on his promise, at least when it comes to Pentagon contracting. That ending time period places the failure to properly safeguard our country squarely on Trump’s watch.

The Defense Department agreed with the GAO findings, the report shows. Most of its comments were withheld on national security grounds.

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David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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