There is a slight bit more to this than is being stated...
In order to apply for the DSP-5 from US State Department the exporter must supply a Purchase Order from the Agency/Department buying the goods, a DSP-83 End-User statement signed by the Agency/Department certifying they are the final end-user and that they will not re-sell, tranship or otherwise dispose of the items without first obtaining approval from US State Department and lastly an IIC (International Import Certificate) from DFAIT in Ottawa wherein the Agency/Department is listed as the End-User and states that the goods are for Police/Government use as opposed to "personal use" or "commercial resale" which are the other typical options for items being imported for civilian market.
If the documents are falsified, it isn't just a "US issue" in respect of the DSP-83, it's also a matter of falsifying the department Purchase Order and the IIC application to Ottawa. This can result in serious charges right here in Canada.
There doesn't seem to be much "issue" with a department that legitimately buys firearms for their own use, uses them for a number of years and then trades them in on replacement kit. Technically they would still need US State Department approval to dispose of the items but I've not heard of State making a big issue over this in legitimate cases.
But falsely issuing these documents with the up front, clear intention of turning around right away and selling/trading the merchandise is definitely a serious offense in both the US and Canada. It's fraud.
Mark