Mr. BIESTER. I would like to close with the comment that this does not need to be a problem, but the way it is perceived now, it is open to perceptions which are most unpleasant in terms of the point of the extent to which American policy interests may be swayed by matters that are really unrelated or only marginally related to direct American foreign policy interests.

That is our concern, and it is my concern. We hope that we can find some way of discouraging this kind of agency activity, and finding some more direct, as you indicated, develop a mechanism of direct country to country contact.

General FISH. May I comment, Mr. Chairman.

I certainly agree with the Congressman and much of what he says. Agents' fees has become a pejorative term. It is unfortunate because I believe firmly that there are legitimate uses for agents. To the extent that these fees become very large, there is the proclivity for possible abuse, which we would certainly want to discourage in any way by all control possible.

I think that full and complete disclosure is one of the possible ways that would help this situation. I also believe that there are adequate controls right now to prevent any possible steering of our foreign policy because of agents running of foreign governments for a sale.

The sales are very closely examined, in my area particularly. We examine them in my office, and we make recommendations. The State Department makes recommendations. The Arms Control and Disarmament Agency makes recommendations. We do it to make sure that they meet the foreign policy objectives of the United States.

If they don't, we would not permit the sale, even though it is often argued by others that the sale would go forward anyhow. That would still not sway us. Let the sale go to some other government, for instance.

I think that those controls are adequate. I think that it is important that we get the pejorative notion of agents' fees put to rest and get the marter out in the open.

Mr. BIESTER. In that connection, this information is classified confidential, and I gather that it is of a propietary nature rather than for national security reasons.

General FISH. Both.

Mr. BIESTER. What would be your thought or your position on legislation which would order this kind of information to be made public?

General FISH. I think it is important that any legislation protect the rights of all concerned. You have to make sure that you protect the competitive position of the U.S. firms and the workingman, who is working in these industries.

I think there should be ways of using public disclosure. I think there are ways of making sure that there is full and open disclosure, much as the SEC does, which does not necessarily go in the public realm but still gets plenty of visibility.

Mr. BIESTER. Thank you very much, General.

Mr. Nix. There is one question that plagues me. I would like to clarify your responsibility, your authority. Now I understand that as Director of the Defense Security Assistance Agency, you are charged

with directing and administering, supervising approved security assistance plans and programs.

The assumption is inescapable that when they come to you they have already been approved.

General FISH. I also advise in the approval process.

Mr. Nix. With whom?

General FISH. When a proposed sale comes or is made, the State Department is going to be the final deciding authority, but the Department of Defense also gives its views. In this case of the Department of Defense, there are various agencies of the Department of Defense that will contribute to the Department of Defense's position as to whether a sale should be made or not. I am one of them.

Mr. FORMAN. Mr. Nix, may I add to this?

I presume what you are reading from is directly what is stated in the DOD charter for the Defense Security Agency. It should be borne in mind that that Agency was set up to administer programs and manage them, but not to make the policy.

The policy within the Department of Defense, below the Secretary of Defense, is in the hands of the Assistant Secretary of Defense for International Security. General Fish happens to be a two-hatted general. With one hat he is the Director of the Defense Security Assistance Agency, and in that capacity he is managing the program, and not making the policy.

He also wears another hat as Deputy Assistant Secretary of Defense, International Security Affairs, for Security Assistance. Wearing that hat, he advises the Assistant Secretary on the policy matters, and from time to time represents him in interagency meetings on policy matters.

Mr. Nix. Therefore, “approval” should be deleted, because it is not applicable.

Mr. FORMAN. It is not applicable to other staff, but it is to him because he wears two hats, and it depends on what hat he is wearing. Mr. Nix. In your view, on the occasions when these affairs are submitted to you, you wear the hat where you must approve.

General FISH. Only recommend. The ultimate approval is by the State Department. The State Department is the one that has ultimate approval of whether there will be a program or not, whether there will be a sale or not.

Mr. Nix. Thank you very much, gentlemen.

The subcommittee stands adjourned.

[Whereupon, at 5 p.m., the subcommittee adjourned, subject to call of the Chair.]

THE ACTIVITIES OF AMERICAN MULTINATIONAL

CORPORATIONS ABROAD

THURSDAY, SEPTEMBER 11, 1975

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERNATIONAL RELATIONS,
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY,

Washington, D.C.

The subcommittee met at 2:10 p.m. in room H-236, the Capitol, Hon. Robert N. C. Nix (chairman of the subcommittee) presiding. Mr. Nix. The subcommittee will come to order.

Since the subcommittee's last meeting on July 29, 1975, additional facts have been established in reference to the payment of bribes to foreign officials by multinational corporations.

Secretary of the Treasury Simon, in his capacity as Chairman of the Emergency Loan Guarantee Board which oversees the $195 million Federal loan guarantee program for Lockheed, testified that Lockheed has paid out $22 million in bribes since 1970, out of a total payment in agents' commissions of $147 million. In addition, Secretary Simon testified that Lockheed has kept the bribes secret from the Board until 2 months ago.

Second, a front page Washington Post news story stated that the Defense Department, on July 9, disallowed $59 million in commissions which were contracted for by Northrop with Adnan Khashoggi for business in Saudi Arabia.

The commissions disallowed by Defense were in three parts: $5 million as a commission for a maintenance contract for the F-5 plane, $9 million for 60 new planes, and $45 million for a new ground-support package.

The total sales of these contracts involved a billion dollars. Khashoggi, the agent, stated that testimony from Northrop as to bribes to Saudi generals was incorrect. He said that he pocketed $250,000 of the $400,000 total himself, since he felt one of the generals had not earned the fee.

These facts would indicate that legislation requiring the listing of agents' fees in a monthly report to the Congress would be beneficial and that administrative action by Federal agencies such as the July 9 disallowance of fees is necessary.

Our witnesses today will, I hope, be able to set out in detail for us the responsibilities of agencies within the Department of Defense as to the supervision of these contracts. In addition, we would like to learn what actions have been taken in the past in disallowing agents' fees and what changes in procedures, if any, have been instituted in the last few months.

Mr. SOLARZ. The paper reported that it was on a $350 million sale. We were told that this gentleman voluntarily decided to forego the $6 million in agents fees, which would have been his due. Do you know if he voluntarily decided to forego the fee?

General FISH. As I recall, he gave up the fee because he was moved by patriotism, according to the report I got, by a requirement not to have an agent fee on a defense requirement of this nature.

Mr. SOLARZ. Do you have any knowledge of what work he did to get that fee. Did he do any work?

General FISH. I don't know, sir.

You have to understand that we are talking about a potential letter of offer, and a potential agent's fee. The Department of Defense had not examined the reasonableness or the allowability of that agent's fee.

We would not have examined it until the Congress cleared the letter of offer to be presented, and the Jordanian Government signed it. At that time, we would go to the contractor, which in this case would be Raytheon. If they listed the agent's fee on the standard form 119, which they are required to do, at that time the contracting officer would examine it and see if it is reasonable. We would also find out what he did for it.

Mr. SOLARZ. Assuming that you had found it unreasonable, what would have happened then?

General FISH. We would have gone to the Jordanian Government to see if this fee was reasonable, since they are the ones that would have to pay it. We would furnish it for their consideration.

Mr. SOLARZ. The Jordanian Government would have had to pay the fee?

General FISH. In any case, it would have had to pay it.

Mr. SOLARZ. It would have been up to them to determine whether it was reasonable or not.

General FISH. Yes. There is one important qualification, if we had knowledge that improper influence would be used for any reason, it would be disallowed anyhow without even asking them.

Mr. SOLARZ. The Defense Department circular 117, which was issued on November 23, 1973, states in part:

Notwithstanding any other provision of this contract, the direct or indirect costs of agents' fees, commissions for contractor's sales agents involved in FMS to the Government of Iran shall be considered as an unallowable item of cost under this contract.

However, the Defense Contract Audit Agency reported that a substantial commission was received by an agent for the sale of certain electronics equipment. This would appear to be an apparent conflict. I wonder if you could, perhaps, resolve it.

General FISH. I would have to check it for you.

Mr. FORMAN. If you could identify what you are talking about in an unclassified matter.

General FISH. I am looking at the cases, and I don't see any agent fees listed in the report that we rendered to the committee.

Mr. WHALEN. Would the gentleman yield?

The same company sold a Hawk to Israel and there was an agents fee in there. Do you know what the agent, who was apparently a resident of the United States, did in that particular instance of selling a Hawk to Israel?