8I7 ABUSES OF CORPORATE POWER HEARINGS BEFORE TIE SUBCOMMITTEE ON PRIORITIES AND ECONOMY IN GOVERNMENT OF, THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FOURTH CONGRESS FIRST AND SECOND SESSIONS JANUARY 14 AND 15, MARCH 2 AND 5, 1976 Printed for the use of the Joint Economic Committee 0I. U.S. GOVERNMENT PRINTING OFFICE 78-547 WASHINGTON: 1976 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $1.95 -t t %, JOINT ECONOMIC COMMITTEE (Created pursuant to see. 5(a) of Public Law. 304, 79th Cong.) HUBERT H. HUMPHREY, Minnesota, Chairman WRIGHT PATMAN, Texas, Vice Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama RICHARD BOLLING, Missouri WILLIAM PROXMIRE, Wisconsin HENRY S. REUSS, Wisconsin ABRAHAM RIBICOFF, Connecticut WILLIAM S. MOORHEAD, Pennsylvania LLOYD M. BENTSEN. JR., Texas LEE H. HAMILTON, Indiana EDWARD M. KENNEDY, Massachusetts GILLIS W. LONG, Louisiana JACOB K. JAVITS, New York CLARENCE J. BROWN, Ohio CHARLES H. PERCY, Illinois GARRY BROWN, Michigan ROBERT TAFT, JS., Ohio MARGARET M. HECKLER, Massachusetts PAUL J. FANNIN, Arizona JOHN H. ROUSSELOT, California JOHN R. STARK, Executive Director SSENIoa STAFF ECONOMISTS JERaY J. JjSINOWSKI JOHN R. KARLIK LOATGLIrTN P. MCHUGH COURTENAT M. SLATER -RICHARD F. KAUFMAN, General Counsel EcONOMISTS WILLIAM R. BUECHNER WILLIAM A. Cox Lucy A. FALCONE ROBERT D. HAMRIN SARAH JACKSON L. DOUGLAS LEE RALPH L. SCHLOSSTEIN GEORGE R. TYLER LARRY YusPEH MINORITY GEORGE D. KRuMEHAAR, Jr. (Counsel) M. CATHERINE MILLER (Economist) SUBCOMMITTEE ON PRIORITIES AND ECONOMY IN GOVERNMENT WILLIAM PROXMIRE, Wisconsin, Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama WRIGHT PATMAN, Texas ABRAHAM RIBICOFF, Connecticut LEE H. HAMILTON, Indiana HUBERT H. HUMPHREY, Minnesota GILLIS W. LONG, Louisiana EDWARD M. KENNEDY, Massachusetts JOHN H. ROUSSELOT, California CHARLES H. PERCY, Illinois CLARENCE J. BROWN, Ohio ROBERT TAFT, JIt, Ohio GARRY BROWN, Michigan (II) CONTENTS WITNESSES AND STATEMENTS WEDNESDAY, JANUARY 14, 1976 Proxmire, Hon. William, chairman of the Subcommittee on Priorities and Page Economy in Government: Opening statement- 1 Hills, Hon. Roderick M., Chairman, Securities and Exchange Commission, accompanied by Stanley Sporkin, Director, Division of Enforcement-- 2 THURSDAY, JANUARY'15, 1976 Proxmire, Hon. William, chairman of the Subcommittee on Priorities and Economy in Government: Opening statement -39 Gutmann, Richard W., Director, Procurement and Systems Acquisition Division, General Accounting Office, accompanied by John F. Flynn, Deputy Director; Robert H. Hunter, Jr., Office of General Counsel; and Francis M. Doyal, Field Operations Division -40 Nader, Ralph, consumer advocate, accompanied by Mark Green -90 TUESDAY, MARCH 2, 1976 Proxmire, Hon. William, chairman of the Subcommittee on Priorities and Economy in Government: Opening statement -111 Pickle, Hon. J. J., a U.S. Representative in Congress from the 10th Con- gressional District of the State of Texas -112 Carden, William R., president, Translinear, Inc -113 Crook, William H., chairman of the board, 'Translinear, Inc., and former Ambassador to Australia 120 FRIDAY, MARCH 5, 1976 Proxmire, Hon. William, chairman of the Subcommittee on Priorities and Economy in Government: Opening statement -151 Ingersoll, Hon. Robert S., Deputy Secretary of State -152 SUBMISSIONS FOR THE RECORD WEDNESDAY, JANUARY 14, 1976 Hills, Hon. Roderick M., et al.: Prepared statement - 13 THURSDAY, JANUARY 15, 1976 Gutmann, Richard W., et al.: Prepared statement of Hon. Robert F. Keller, Deputy Comptroller General of the United States, with an attachment - 59 Nader, Ralph: Prepared statement -__- 9S TUESDAY, MARCH 2, 1976 Crook, William H.: Report entitled "Summary of Relationships Between the Republic of Haiti and Translinear, Inc -125 (HI) IV FRIDAY, MARCH 5, 1976 Ingersoll, Hon. Robert S.: Page Letter from Hon. Henry A. Kissinger, Secretary of State, to Hon. Edward H. Levi, Attorney General, dated November 28, 1975, requesting the Attorney General to exercise his authority under section 516 of title 28 of the United States Code to file a suggestion of interest of the United States in a matter now pending before Judge John H. Pratt, U.S. District Court. for the District of Colum- bia, Securities and Ezchange Commission v. Lockheed Aircraft Corp. et al _------------------ 164 Regulation of the Department of Defense, promulgated in a telegram, to insure that governments who make purchases under the foreign military sales program are fully informed of any agent's fees that are included in the price of the goods sold - 168 Response to Chairman Proxmire's request to comment on various documents provided by the subcommittee staff regarding the Department of State's or the Department of Defense's assistance in negotiating or expediting the payment of agent's fees under the foreign military- sales program - _--- _-_- _- __ 174 APPENDIX Letter, with an enclosure, from Hon. Robert S. Ingersoll, Deputy Secretary of State, to Chairman-Proxmirej dated March: 31, 1976, clarifying two points of discussion at the time of the hearing -187 Letter from Robert J: McCloskey, Assistant Secretary for Congressional Relations, Department of State, to Chairman Proxmire, dated April 21, 1976, clarifying one point regarding the Department's role in the matter of agent's fees in Saudi Arabia - 191 Letter, with an enclosure, from William R. Carden, president, Translinear, Inc., to Hon. Emmanuel Bros, Minister of Finance and Economic Affairs, Department of Finance, Port-au-Prince, Republic of Haiti, West Indies, dated May 12, 1976, regarding a claim against the Republic of Haiti because of breach of contract - 192. ABUSES OF CORPORATE POWER WEDNESDAY, JA2lUARY 14, 1976 $ CONGRESS OF THE UNITED STATES, SUBCOM3MrEE ON PRIORIurES AND ECONOMY IN GovERNMENTr OF THE JOINT EcoNohuc COMMIi'PrEE, Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 1318, Dirksen Senate Office Building, Hon. William Proxmire (chair- man of the subcommittee) presiding. Present: Senator Proxmire. Also present: Richard F. Kaufman, general counsel; Loughlin F. McHugh, professional staff member; 'George D. Rrumbhaar, Jr., minority counsel; and M. Catherine Miller, minority economist. OPENING STATEMENT OF CHAIRMAN PROXMIRE Chairman PROXMIRE. The subcommittee will come to order. Good morning, Mr. Hills. We are happy to have you here. Today we begin the first in what I expect will be an -extended series of -hearings on -the subject -of abuses of corporate power. The focus will be on official corporate crimes and improper behavior: Bribes, kickbacks, illegal campaign contributions, and other -improper uses of corporate funds. I use -the phrase, "official corporate crimes," to draw an important distinction. We are not talking about petty theft or embezzlement within the firm, an official who steals money from the corporation. That is something we know about and something that we all deplore and something that of course crops up at any time under any cir- cumstances. We are talking about something else other than what is generally referred to as white-collar crime. We intend to concentrate on cases where corporations -have wrong- fully used their funds as a matter of policy, with the approval and active participation of top corporate management. The numerous disclosures that have been made so far-involving some of the largest and most prestigious firms in America-suggest that at least an important part of the private sector is a house of marked cards, composed of kings of corruption, jacks of all illicit trades, and aces of political influence. We need look no further to understand the loss of consumer con- fidence than the companies that have been involved in these kinds of excesses. Private -enterprise seems unable to monitor itself. Instead, it is undermining itself. (1) 2 In the hearings we will ask the following questions: One, what is the extent and seriousness of corporate abuses? Are the cases isolated and exceptional or do they indicate pervasive, deep-rooted problems? Two, how seriously is economic policy being distorted to serve the demands of private companies? Three, what are the estimated costs of corporate abuses to the tax- payer, the consumer and the shareholder? Four, are new solutions, including new legislation, needed to deal with these problems? If corporate abuses of power have become pervasive, then all of us need to consider, where do we co from here? Our first witness is Eon. Roderick M. Hills, Chairman of the Securities and Exchange Commission. Mr. Hills, we are very happy to have you here. You have a very interesting statement. Go right ahead. STATEMENT OF HON. RODERICK M. HILLS, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION, ACCOMPANIED BY STANLEY SPORKIN, DIRECTOR, DIVISION OF ENFORCEMENT Mr. HEELS. Thank you, Mr. Chairman. I am particularly pleased to be before this subcommittee on this subject. Based on the 60 plus days I have served at the Commnission. I am pleased to say, on behalf of all the Commissioners, that nothing makes us quite so proud as the efforts of a relatively small number of people in this area. The effects they have had on American business I think will prove to be a major asset to American business. We don't know thc arns''crs to all y our questions, Senator. We do know that our program is progressing. and I hope that in my testi- mony which I shall give in large part this morning, and in my prepared statement, we can say something that is relevant to those questions. I will attempt to describe our voluntary program, that is our effort to elicit from corporations throughout the country a willingness to come in and tell us they will give us answers to many of the questions you have asked. I think it is instructive, as sad as we may be about some of the practices that have 'been uncovered, to see how the corpo- rate apparatus will react once it faces up to the problems of the past. The very distinguished lawyer from New York, John J.