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WASHINGTON -- The Trump administration has used a $17 billion loan fund meant for businesses critical to U.S. national security to help a hodgepodge of little-known companies, including one in Arkansas, with unclear importance to national defense, and the fund remains mostly unspent nearly eight months after Congress approved it as part of a $2 trillion stimulus bill.

Aircraft manufacturers including Boeing were the fund's intended recipients but balked at the terms and did not apply. Instead, the 11 companies that have tapped the fund so far include a company that has pitched its products as an enabling technology for the facial recognition tracking of migrants, a manufacturer of roadblock barriers and surveillance firms.

One company that received a loan is an experimental spaceflight technology firm backed by deep-pocketed venture-capital investors. Others have a history of financial losses.

A manufacturer in Arkansas relies on minimum-wage prison labor to make wire harnesses for military and commercial customers.

The Treasury Department awarded a nearly $2 million loan to SemahTronix of Flippin. The company had earlier received a Small Business Administration loan worth between $350,000 and $1 million as part of a separate coronavirus relief program.

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As of June, the company employed 97 prison inmates through a venture with the Arkansas Department of Correction, according to a report from the National Correctional Industries Association, which reviews prison jobs programs. The company's website says its "innovative partnership" with the state prison system goes back to 2006.

SemahTronix President Travis Atkinson declined to comment. Cindy Murphy, a spokeswoman for the Arkansas Department of Correction, said 66 female inmates and 39 male inmates are currently working for SemahTronix, earning between $10 and $10.21 per hour, which is approximately Arkansas's minimum wage.

Data from the correctional association shows that for the three-month period ending in June, the Department of Correction deducted, in aggregate, around 63% of inmates' pay from SemahTronix to cover expenses including "room and board," taxes, family support and victims' programs.

Several applicants told The Post they spent hundreds of hours on financial due diligence and other paperwork with consultants from Davis Polk and Perella Weinberg, firms that were hired to evaluate companies' applications. But the Treasury Department was rarely a part of the conversation, they said, making it hard for applicants to figure out who in the government was making decisions about their applications and on what criteria. It was unclear to them who determined that they met the national security requirements.

"The only stuff I had to do pertaining to national security were the initial documents, like a handful of pages," said Gareth Block, whose Austin-based drone software company Third Insight, also known as Visual Semantics, received a $1 million loan, and qualified thanks to a certification from the Pentagon. The terms of the Treasury loan, unsecured and at a 5.5% interest rate, are far more favorable than those the company would have received from venture capital funds, Block said.


The Treasury Department announced the first national security loan, $700 million to trucking company YRC Worldwide, in a news release in July. The 10 following loans -- worth about $36 million total -- have been subsequently posted on the department's website in the past month.

It is unclear how the remaining $16.26 billion in appropriated funds will be spent. But some industry experts and congressional aides say they are disappointed with how the program has been administered so far, as billions of dollars intended to save jobs in the fragile aerospace industry went unspent for seven months.

A Treasury Department spokeswoman, Rebecca Miller, declined to comment on the record. Jessica Maxwell, a Defense Department spokeswoman, said the Pentagon, which was involved in the loan approvals, acted in accordance with the Coronavirus Aid, Relief, and Economic Security Act, which established the program.

"It appears again that some misunderstand the intentions of the CARES Act -- to get money into American businesses and to American workers who are dealing with the financial toll of covid in a rapid, efficient and responsible manner," Maxwell said in a statement. "That is what DoD [Department of Defense] did."


The Congressional Oversight Commission, created by the CARES Act, is scrutinizing the national security loans and plans a public hearing next month with officials from Treasury, the Pentagon and the Office of the Director of National Intelligence, said the commission's chief clerk, Amber Venzon.

The defense industry was largely uninterested in the loan terms offered by Treasury. Only 74 companies have submitted applications, standing in stark contrast to the millions that sought loans from the Small Business Administration.

"If they were trying to set up a fund which no one would use, it's not clear to me what else they could have done," said David Berteau, who is president of the Professional Services Council, a trade association for government contractors.

Manufacturers were discouraged by overly restrictive and shifting requirements, Berteau said. Others, including Boeing, may have found the loan terms unattractive: Publicly traded companies had to give stock or stock warrants to the government to receive a loan, something spelled out by Congress in the CARES Act. Firms also faced restrictions with respect to stock buybacks, executive compensation and layoffs.

Information for this article was contributed by Dalton Bennett and Magda Jean-Louis of The Washington Post.


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