A portion of funds for the procurement of US arms totaling approximately NT$24.4 billion is being held up in the US, a report by the National Audit Office said.
The total amount for the procurement included a certain percentage that US authorities would set aside in case Taiwan terminated the contract midway, which was in line with regulations stipulated in section C9.9.1.5.4 of the US Department of Defense Security Assistance Management Manual, the office said.
“We have switched to providing that percentage through a letter of guarantee from a bank. However, if the issuing bank is not a US bank, it must obtain a license from the US Federal Reserve, according to US regulations,” it said. “Since the US branches of Taiwan’s banks have failed to secure that license, the funds are being held up.”
Photo courtesy of the Taiwan Military News Agency via AP
The National Audit Office asked the ministry at the end of 2022 to have the contract-termination funds provided to the US contractor through a letter of guarantee issued by a bank that complies with US regulations, rather than transferring the funds from the ministry’s budget.
In response, the Ministry of National Defense said that its representatives to the US were communicating with the US department’s Defense Security Cooperation Agency (DSCA) on getting the US Federal Reserve to provide a Taiwanese bank with a license.
The ministry in February last year formed a task force to look at how to issue letters of guarantee that comply with US regulations, and had aimed to meet the requirements by the end of this year, the audit office said.
However the banks the ministry had been working with failed to receive licenses by the end of last year as planned, it said.
“The Ministry of National Defense contacted the DSCA twice last year to evaluate relaxing the eligibility criteria for banks to issue credit,” it said. “However, the DSCA said this was not possible since it involved policy adjustments which could harm the rights and interests of the US.”
The US Department of State, the US Department of the Treasury and other US agencies are evaluating rules for arms procurement from US contractors, and hope to find a consistent solution for all global purchasers, it said.
However, it is unknown when this can be completed, it added.
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