That is a pretty broad provision giving us rather strong protection, we believe, în the case of a situation where a bribe or extortion was instrumental in obtaining a significant benefit in the investment.

Another section of the contract, which I had referred to in the prepared statement, is section 18.01 on page 24. This section says that "Upon application and subject to the terms and conditions hereof, OPIC agrees to pay compensation to the Investor in the amount provided in Article 20 for any Expropriatory Action."

The key words there, Mr. Chairman, are "Expropriatory Action," and we therefore have to refer to section 1.13 on pages 4 and 5 of the contract to see what is meant by "Expropriatory Action."

On page 4, the beginning of the definition reads: "Expropriatory action' means any action which is taken, authorized, ratified, or condoned by the Government of the Project Country ***," and perhaps I can skip to part (b) which summarizes the essence of the general definition of "Expropriatory Action," which is action taken by the Government of the Project Country which directly results in preventing "the Investor from effectively exercising its fundamental rights with respect to the Foreign Enterprize either as shareholder or as creditor." Now, that is the general definition of "Expropriatory Action."

If you turn to the first full paragraph on page 5, it says: "Notwithstanding the foregoing" which means notwithstanding the general definition "no such action"-which means no such expropriatory action-"shall be deemed an Expropriatory Action if it occurs or continues in effect*** as a result of (1) any law, decree, regulation, or administrative action of the Government of the Project Country which is not by its express terms for the purpose of nationalization, confiscation, or expropriation *** is reasonably related to constitutionally sanctioned governmental objectives, is not arbitrary, is based upon a reasonable classification of entities to which it applies and does not violate ***principles of international law."

We do take the position that any action to enforce penalties for bribery, extortion, and the like by this provision are excluded from the definition of "Expropriatory Action."

Also excluded from the definition of "Expropriatory Action" is, in paragraph (4) any action taken as a result of "provacation or instigation by the Investor or the Foreign Enterprise."

So if, in some unusual circumstances, a bribe, in fact, provoked the foreign country into expropriation: that is, the payment of the bribe was not used as a pretext and it indeed was the action that provoked the expropriation. the host government's action would be excluded from the definition of "Expropriatory Action," and OPIC would then not be liable to pay compensation.

A third section of the contract which also would protect our position is section 2.12, on page 15. This is again in the article entitled "Representations and Warranties." and in that article "The Investor agrees and covenants *** that the Investor will take all reasonable measures to pursue and preserve any and all administrative or judicial remedies which may be available in connection with the Damage or Expropriatory Action."

This also would protect us in a situation in which, for example, a company official was trying to bribe a judge in connection with an

expropriation claim and, in so doing, he was barred from local courts by a doctrine of unclean hands, and thus the investor was not able to pursue all judicial or administrative remedies. In such a case he would be in violation of this covenant in the contract.

This is a curable defect in the contract and he would have an opportunity to put himself in compliance with this provision; but, if he could not, then it is a default.

This is much more detail than I had used in the prepared statement, but Mr. Kennedy had suggested that you might be interested in following the precise contract language.

That concludes my presentation, Mr. Chairman, and I would, of course, be delighted to attempt to answer any questions that you or other members may have.

Mr. Nix. Can you tell the committee how long the provisions you have referred to have been a part of your contract?

Mr. BUTLER. This present contract is the one that we have been using since 1970, but I believe that the essence of these terms have been in the standard OPIC insurance contract for many, many years. They may not be precisely in these words but the essence of them has been in the contract for a long time.

Mr. Nix. Now, of course, we assume that these practices are not new-that is, the bribery and all of that sort of thing. As far as I am concerned, I can't force myself to believe that mankind has not indulged in these practices for a long time.

What, in effect, has brought it to the attention-or what provoked action on the part of your organization?

Mr. BUTLER. I think the provisions that are in our contract are really not dissimilar from principles that are applied in insurance law generally. Previously, however, I don't think we focused specifically on what to do if somebody is engaged in a bribe. But, as an example, the provisions here about the representations by the insured investor that he gives to us at the time we decide whether or not to issue a contract to insure an investment are not dissimilar from the idea of health insurance policies for which someone is asked to tell the insurance company about the state of one's health. If he lies about a heart condition or some other serious condition and fraudulently induces the insurance company to provide insurance that it might not otherwise provide, then the contract is void. Our provision here is really applying these same general legal concepts, and they would be applicable not only in the situation of bribery but in many other kinds of provisions as well.

Mr. Nix. Let me ask you this last question, Mr. Butler: Do you think that these disclosures seriously or adversely affected the interests of the United States in its dealings with other countries?

Mr. BUTLER. I can't really give you a complete answer to that, Mr. Chairman. Certainly they haven't helped. The harm that they may have done. I, myself, really can't assess. In some situations and in some foreign countries they haven't been publicized and haven't been regarded as serious. In other countries I think that they may have been. These are not necessarily the countries where these payments were made.

Mr. WHALEN. Mr. Butler, there are at least five companies, as I understand it, whose illegal activities overseas have been revealed.

Does OPIC insure any of these companies and do you have contracts with them?

Mr. BUTLER. I am not sure which five companies you have in mind. Mr. WHALEN. Let me indicate them for the record: United Brands Corp., which allegedly bribed the President of Honduras for $1,250,000; second, Northrop Aircraft; third, Ashland Oil; fourth, Gulf Oil; and fifth, Braniff Airlines. I was wondering if you have contracts with any of these corporations.

Mr. BUTLER. I don't believe we have contracts with Northrup or Braniff. We do have contracts for Gulf, United Brands, and Ashland. We specifically have contracts for Gulf in Korea, but we do not have contracts with United Brands in Honduras. I am not familiar with the allegations in the Ashland case as to the countries, if any, in which they were supposed to have been involved.

Mr. WHALEN. In those instances where you do have contracts, have you done anything to review those as to whether or not they should be canceled?

Mr. BULTER. We have taken a look at them. I would prefer not to comment about the one that perhaps has the closest tie-in, the Gulf Oil situation, since this is a specific contract that we have. I beg your indulgence on that, please.

Mr. WHALEN. It is my understanding that you are reviewing it? Mr. BUTLER. Yes, sir.

Mr. WHALEN. To use a more popular term, "reassessing" it.

Mr. BUTLER. Yes.

Mr. WHALEN. There is an important political figure who resigned his office a year or two ago and, in doing so, he indicated that the practice of which he was accused was common in the State in which he served as chief executive. Now we hear the same reaction from corporate officials who indicate that the actions with which they are charged are a very common practice in that particular country.

Now, is OPIC making any determination, prior to the extension of contracts in particular countries, as to whether indeed these practices are common or accepted?

Mr. BUTLER. Do you mean in regard to whether we would decide to insure in country "X" because it is a corrupt country?

Mr. WHALEN. It is entirely possible that a new government may take over and may uncover evidences of corruption on the part of the previous officials. That being the case, then it would be very possible that all OPIC contracts might have to be canceled. I wonder if you have any way of analyzing whether these practices are commonly accepted.

Mr. BUTLER. It would be very difficult to do that. Instead we prefer to look to the individual projects. In assessing the problem of bribery, I think it may be helpful to distinguish between situations, on the one hand where it is involved in the sale of goods which may be a one-shot transaction or a continuing series of transactions, and situations on the other hand which involve an investment where you are committing significant amounts of capital and expect to be there for a long period of time. It may be easier for someone making a sale to rationalize that "All right, we have to pay the money, and it will increase the sales price to do it and we don't like to do it but we are going to make a profit on it." It is not the same as making a payment to a public official know

ing full well he may be out of office in 3 years and you plan to be there for 20 or 50 years. So I think there may be a much stronger incentive, if you will, for the investor not to pay than for someone in the sales department.

Mr. DILL. We do check with our Embassy with respect to an investor and the project, but we do not really make an investigation of the general level of morality in a particular foreign country.

Mr. WHALEN. One may view a particular act as bribery and someone else may view it as extortion or, to put it mildly, arm-twisting. As I recall the statement of one of the officials before a Senate subcommittee, he indicated that if he or his firm did not come through with a sum of money, that indeed the entire investment might be lost.

Is there any way in which you can distinguish between these two? Do you have any criteria, in other words, by which you can judge such cases?

Mr. BUTLER. I don't claim to be an expert on the nuances or distinctions between extortion on one hand and bribery on the other. Our experience is that the U.S. companies that get involved in these kinds of situations are very unhappy about it. My feeling would be that the instigation does not come from the investor and that, for one reason or another, they feel that they have to do it either because of a very direct threat or a very real apprehension that if they don't something adverse is going to happen to their interest.

Mr. WHALEN. Now, OPIC, of course, makes an initial investigation, as you have indicated. Do you have any continuing investigation once a contract has been made with an American investor?

Mr. BUTLER. Yes, we do. We have a project monitoring committee that has developed some standards and procedures for us on all socalled large or sensitive projects. We plan to visit those projects approximately once every 3 years and we have a checklist of questions to be used by the particular OPIC official who visits the project. In addition, we sit down with Embassy officials to discuss with them their analysis of how the project is going.

In addition, we expect and do receive good information from the diplomatic posts abroad on a regular reporting basis. There is extensive cable traffic about one thing and another.

In addition to this ongoing activity by the Department of State and the specific project monitoring we have for the large and sensitive projects, we have still a third aspect of monitoring. Whenever OPIC officials are traveling abroad we make it a practice that they visit as many of the existing projects as they can within the time constraints and other purposes of the trip.

Mr. WHALEN. Do you have any consultation or coordination with other Federal agencies, such as the SEC or the Internal Revenue Service, on the ongoing contracts?

Mr. BUTLER. We have not done so to date.

Mr. WHALEN. I am not an accountant but in examining these contracts is it possible to determine costs that might indeed have been payments to foreign officials?

Mr. BUTLER. Yes, but my guess is that it would take a very skilled and indepth detailed accountant's audit to do so. I think that is probably beyond what we would normally do in our project monitoring. The imagination and skills of people who want to hide these kinds of payments, I think, are pretty high.

Mr. WHALEN. Mr. Chairman, I have one final question and I raise it realizing that no one from the Securities and Exchange Commission is here.

Do you have any idea or information as to how the SEC uncovered at least four of these instances of payments to foreign officials?

Mr. BUTLER. I don't have any information beyond what I read in the paper, and I gather it would be an outgrowth of some campaign contributions in this country.

Mr. WHALEN. Thank you, Mr. Chairman.

Mr. SOLARZ. Mr. Butler, you indicated in your testimony that the OPIC was not aware that any significant amount of American corporations were engaged in making illegal payments to the officials of foreign governments. That implies that you were aware of at least some of them, and I wonder if you could tell the committee which ones they are.

Mr. BUTLER. I am not aware, and I don't know that OPIC is aware, of anything other than the cases that have been heavily publicized in recent weeks.

Mr. SOLARZ. So the implication in your statement would not be correct, because when you say you "are not aware that any significant number of," the suggestion is that you are aware of "several.” The only ones you are aware of are those reported in the press?

Mr. BUTLER. That I am personally aware of. There may be some knowledge around OPIC of other situations but not that I am aware of.

Mr. SOLARZ. How many American firms doing business overseas have insurance with OPIC?

Mr. BUTLER. I think our current portfolio covers perhaps 700 or 800 investors and the number of projects would be more than that. Mr. SOLARZ. And you are not aware that any of them except those reported in the press have engaged in illegal activities along these lines?

Mr. BUTLER. Well, remember, my statement said: "in connection with investments." There may be the kinds of things I was talking about with sales commissions or something of that sort in a country where they don't have a significant capital investment.

Perhaps I should have made clear the words "significant illegal payments" in the sense there may be the actions such as $10 paid to some very junior clerk to process some papers through more quickly than he might otherwise or there may be the kind of situation in which without the payment of $10 papers could sit on a file cabinet until they get very dusty.

Mr. SOLARZ. Do you have any idea how many American firms have enterprises abroad that would theoretically qualify for insurance from OPIC? You indicated about 700 or 800 have taken out insurance with you.

Mr. BUTLER. I don't. We might be able to furnish you some very, very rough estimates of that but I am not even sure that there is any particularly valid source of that kind of information.

Mr. SOLARZ. What I am trying to get at is the extent to which you insure the great majority of American firms doing business abroad or whether or not your experience is, in effect, limited to a rather modest percentage of the total amount of American overseas business activity.

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