What Is Offset Contract
Since offsets typically include military departments of sovereign nations comparable to the U.S. Department of Defense, many countries have compensation laws, public regulations, or formal internal compensation policies. The most common types of direct/indirect compensation are: Nation P also assigns a credit value for each type of compensation offered by Company S. The credit value for clearing obligations is not the „real value” but the „real value” by a multiplier that expresses the degree of interest of nation P (buyer) for the proposed offsets. In other words, something considered very valuable by nation P will have a high multiplier that expresses the importance and value of this type of compensation for nation P. The multiplier (e.B. 2 or 5 or 7) translates the attached value of nation P into credit value, which ultimately constitutes the fulfillment of the agreed sum of $480 million (120% of the compensation). It is obvious that without multipliers, a compensation of 120% would be nonsense. Most offset packages are divided into direct and indirect offsets.
Here is a hypothetical and complex compensation offer, divided into direct and indirect compensations in nation P. In terms of transparency, the entrepreneur and the purchasing government (or company) should have a monitoring system in place to ensure that the entity complies with its clearing obligations as set out in the settlement agreement. Follow-up should also be carried out at clearing partners, with extensive due diligence throughout the partnership. Brazil`s compensation policy was officially introduced in 1990, but this practice has been used continuously since at least 1975. Resolution 764, 2002, dictates the Defense Ministry`s current compensation policy, which calls for compensation for purchases related to thresholds above $5 million per year. Derived from the MD policy, the Air Force, Navy, and Army have separate specific compensation policies. The request for full compensation is 100% if possible. Multipliers are generally between 1 and 4, exceptionally between 5.
Brazil`s compensation policy focuses on the technological development of the defence industry, particularly aerospace, through technology transfer and training.  For a sale to the Department of Defense of a foreign country, a U.S. defense contractor must be licensed. It is reviewed by the Department of Defense and the State Department, and in the case of relevant sales, even approved or rejected by the U.S. Congress. Commercial direct sales are highly regulated for security, political and commercial reasons. Even from the perspective of indirect and non-military clearing agreements, U.S. defense contractors and their subcontractors (clearing payers) must submit a detailed report of their clearing activities to the Department of Commerce, Bureau of Industry and Security (BIS).  2) U.S. funds allocated by U.S. Foreign Military Financing (FMF) that may be linked to foreign military sales (FMS) cannot be used for any type of compensation if they are non-repayable funds.
On the other hand, FMF funds can be used to balance costs when it comes to loans. In any case, „U.S. government agencies cannot enter into a clearing agreement with U.S. companies.”  The two main players in clearing agreements are importing countries that purchase the equipment and require a compensation package with it, and suppliers of the equipment or service that agree on a particular compensation package. There are also many third-party companies such as brokers, consultants, external executors, as well as beneficiaries of compensation agreements, including local companies, research and development centers and sometimes the armed forces. These myriads of actors increase the risk of corruption, as it is more difficult to control and monitor all elements and activities of clearing agreements.  The Ministry of Industry, Trade and Labour is responsible for the policy and implementation of compensation. The threshold is $100,000.
The minimum compensation requirement is 35%, the multipliers are either 1 or 2. The main point about Israel and its compensation policy is the fact that Israel has long been the largest recipient of US foreign military funding (FMF), receiving more than 50% of the total available budget of US FMFs.  This condition sets a limit for Israeli compensation claims in the United States. The compensation regulation is contained in Official Government Procurement Law 3433/2006. The Greek Ministry of Defence is responsible through the Department of General Armament (GAD) and the Department of Compensation (DO). The threshold for the request for compensation is EUR 10 million. The minimum compensation requirement is between 80 and 120%. The multipliers are from 1 to 10. Greece does not accept indirect compensation because it focuses on strengthening its military capabilities. According to SIPRI data for 2006-2010, Greece is the 5th largest arms importer in the world with a global quota of 4%, about half of India (9%) and two-thirds of Chinese imports (6%). It should be noted that China`s GDP is about 20 times larger than Greece`s nominal GDP.  Greece is the EU`s largest arms importer and the largest US defence customer in the European Union. According to K.
Vasileios, publisher of EPICOS, „There are currently 122 open compensation contracts that were signed between 1997 and 2010 but were not executed due to various problems.”  The legal department must be involved at an early stage to examine how to structure the underlying agreement and the clearing obligations. This may require separation or restructuring to address issues related to transparency, accountability or revenue recognition, or for due diligence to be a condition of the agreement. A clearing agreement is an agreement between a foreign supplier and a company that requires the supplier to purchase a certain quantity of goods from that country in exchange for a contract. These agreements can be direct or indirect, depending on the raw materials available to the country. These agreements are often necessary to award a foreign contract to a large company that produces valuable goods. The two main global organizations in the United States that deal with compensation are: The universe of this military niche of clearing trade is sophisticated and less harmless than is generally assumed. In 2000, Daniel Pearl wrote an article on the world of offsets: „The sale of the United States […].