Financial and Legal Implications of Iran's Cancellation of Arms Purchase Agreements

July 25, 1979

Earlier this year, the Iranian government cancelled and/or the Defense Department reduced about $10.6 billion of Iran's $12.6 billion in undelivered foreign military sales orders.  Senators Max Baucus and Donald W. Riegle questioned GAO about the effects of Iran's actions.

In summary, GAO said that one way to protect the financial interests of the United States, would be for the Congress to amend the Arms Export Control Act to require purchasers to deposit, in advance, enough funds to cover potential costs of a cancelled contract.  Until the Congress considers legislative changes, the Department of Defense should take the initiative to collect potential termination costs on all foreign military sales.