ments to see whether we can evolve a set of principles which would be helpful rather than damaging to the international economic system. We are prepared to consider that possibility in an active way. We have made no final determinations whether this can succeed.

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Mr. SOLARZ. On page 7 of your testimony, Mr. Feldman, you said: such a code might include a specific provision to the effect that foreign investors should neither make nor be solicited to make payments to government officials or contributions to political parties or candidates." Has there been any response at all to that suggestion from other countries?

Mr. FELDMAN. I was trying to say that we have not yet put forward that proposal. We are articulating it here and this is the first time that there has been any public reference to this possibility, so that there has been no occasion up to now for any foreign government to respond to that.

I have a feeling that this hearing will draw attention to the issue; and, as I say, we will be having informal discussions of it and we will be getting some reactions over the next months.

Mr. SOLARZ. There were some recent revelations to the effect that the Defense Department had advised American arms people doing business to the effect that payoffs were a traditional way in that part of the world of facilitating the kind of transactions which they were interested in.

What is your view of an agency of the U.S. Government advising American private corporations and concerns to engage in these activities? Do you think Congress ought to do anything to prevent it?

Mr. FELDMAN. If I may say, first of all, I do not know precisely what may have been said or what may not have been said by anybody in another agency on this subject. I do know that this issue presents painful dilemmas not only for the companies but for the agencies concerned. There are trade interests in terms of sales and there are some very serious dilemmas.

In my own personal opinion, whatever the dilemmas, the U.S. Government has to stand for propriety, and for the rule of law, particularly in foreign relations, for strict compliance with foreign law on the part of all of our citizens doing business abroad.

I personally would not think that there is any option. All State Department officers have no alternative but to follow the position that we have taken; we condemn these payments. And let us hope there is a beneficial impact from all of these disclosures and these hearings. One would hope it would be to alert all U.S. businessmen onerating abroad and foreigners with whom they may relate that there are serious penalties for going down this kind of a route.

Mr. SOLARZ. What do you think the response ought to be of the official of an American corporation who is confronted with an extortionate demand by a foreign official in a country in which his corporation is an enterprise to the effect that if an illegal payment is not made, the corporation with which he is associated would suffer some severe consequences as a result?

I don't know if you heard our previous witness but his advice was that they should not make the payment. Later a question was asked "if it involved access to a commodity which was essential to our own economy." I wonder if you could respond to that basic question.

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Mr. FELDMAN. I prefer to respond to the question of what the State Department's attitude should be in such a situation and what our personnel might be called to say to a foreign businessman who shares that kind of a problem with us.

I think I have answered that question. It is a very difficult problem but I think we have no alternative but to stand for correct behavior. Frankly, I have never had the responsibility of managing any kind of a business enterprise. I do know that those who have been confronted with that dilemma have made different judgments and some of those who have made judgments to pay now regret it very seriously. That is clear.

Mr. SOLARZ. Do you have any sense whatsoever about the extent to which illegal payments by American corporations overseas are widespread or the extent to which they are relatively limited? I am not talking about the $5 and $10 kind of transaction at the border but the more substantial payments revealed in recent weeks.

Mr. FELDMAN. It is a fact that I do not have any information as to the extent to which this problem permeates the environment abroad, but I would make one qualified judgment. We would prefer to believe-and I believe it to be true-that cases like the United Brands case are rare in our times.

I believe most American businessmen going abroad who are seeking concession agreements with foreign countries negotiate those concession agreements in a straightforward manner. Some of the more complicated matters that we may come across it is hard to generalize about.

Mr. SOLARZ. Do you think there is anything that we can do which we are not doing now which would effectively discourage American corporations from engaging in these illegal activities in the future, either on their own initiative or in response to demands of foreign officials who want to extract whatever they can from us?

Mr. FELDMAN. I would have to go back to my statement. It is not an easy problem to deal with. The steps that the SEC has taken under the authority it has should have a deterrent effect. These hearings and the publicity attendant on present disclosures should have a deterrent effect.

All of the agencies have a responsibility to look at programs under their administration which may provide temptation. We have some possibilities of making improvements in the foreign military sales program and there may be other programs.

I think we have done the best we can. The State Department has taken the position that it will not intervene with U.S. law enforcement agencies to try to avert the disclosure of matter which is under investigation by such agencies in respect to possible violations of U.S. law.

There are no easy solutions. We don't have a great solution which promises a fundamental change in practice, I am sorry to say.

Mr. SOLARZ. I have one final question. Do I understand your position to be that you would be opposed to any prohibition against the bribery of foreign officials by American corporations on the grounds, first, that that would be resented by the governments of other countries as an unwarranted intrusion in their affairs and, second, you would be opposed to it on the grounds that it is, by definition, unenforceable

since we would be unable, in cases where such allegations had been made, to obtain the testimony of foreign officials for the judicial proceedings that would have to ensue? Would that be a fair statement of your position?

Mr. FELDMAN. It is a generally correct statement of our position, and I would like to give our reasons with more precision. I think that we would be opposed to any legislation that would be directed to the conduct of U.S. citizens abroad in their relations with foreign officials which is based on a general proposition that U.S. citizens should behave well abroad.

We would defer to other agencies on the authorities they need to protect specific U.S. interests-Internal Revenue or otherwise. They seem to have adequate authority to protect those interests.

But I am drawing a distinction based on the purpose of the legislation, whether the legislation would protect specific U.S. interests such as disclosure of material to protect shareholders, or a moral purpose, relating to activities in foreign societies.

That kind of legislation we would oppose, not because we differ with the moral imperatives involved but we feel that the enforcement of such legislation would involve us in the surveillance of activities taking place in foreign countries, including the behavior of foreign officials, and would fundamentally intrude our moral views into foreign societies which may have different conditions.

Mr. SOLARZ. I will yield the balance of my time, Mr. Chairman. I just want to make the final comment that, in view of the fact that virtually all of these other countries, according to your own testimony, probably have their own prohibitions against bribery, I am not at all sure that the establishment of prohibitions on our own citizens with respect to bribery in their country would be imposing a standard of morality on them that they haven't already imposed on themselves.

I can see more of a problem with the enforcement aspect of it but I don't see a problem with the imposition of American morality on other countries in the way in which you have described it, because they have already programed that for themselves.

Thank you very much.

Mr. BIESTER. It seems to me that these hearings have been very instructive and emphasize once again that political systems tend to move a way behind the process of the rest of man's systems.

Obviously there are apparent problems which you have touched on, Mr. Feldman, with respect to American law governing these situations. But equally obviously, as you have stressed and as the witness of OPIC has stressed and as the chairman has stressed and as my colleague from New York has stressed and as I have stressed, we cannot condone behavior on the part of American businessmen responding to outright extortion or, in fact, engaging in outright bribery.

The question lies not in simply moralizing and wringing our hands. The question lies in creating institutions which will enable decent businessmen to be protected in their competition in a multiplicity of

countries.

Now, when I say political systems tend to run behind the rest of man's systems, we have transnational companies; the American transnational companies are larger, in terms of their capital and gross product, than many of the major economies of the world; and the French have transnational companies, and the Italians and the Ger

mans and the Japanese. Obviously some system of regulation of the conduct of those companies, of the conduct of their administrators as administrators is essential if we are going to get some order out of potential chaos in the world.

That means that we have to achieve not just exploring with other countries but to determining that, as part of our international economic policy, we will point toward the creation of an international legal system which will enable all persons and companies to know what the rules of the game are.

It is going to have to come through the U.N. or some sort of multiparty treaty. It will have to be adhered to not only by host countries but also by the countries that are the parent countries.

It is fostering that development that ought to occupy our attention, it seems to me, from here on in. I am pleased to see representation with respect to that in your testimony and I would like to see energetic movement on the part of our Government with respect to the creation of that system.

As I understand it, there has already been laid out a series of recommendations on the part of some companies, as long ago as 2 or 3 years ago. Some host countries, in fact, have made certain recommendations as long ago as 2 or 3 years.

It seems to me, if we are going to find a mechanism for policing that situation, that is the way to police it. That would get past the distinction between extortion and bribery, because we can find an instrument that deals with both. I think we are going to be scrambling around the edge of this problem until we get that.

Mr. FELDMAN. That is a very thoughtful and challenging concept. I am going next week to a meeting of a drafting group established by the Investment Committee of the OECD, where work is going forward on the preparation of principles of conduct for multinational companies.

It is a very difficult problem, not the least of which is the resistance of the developing world and questions in other developed countries as to whether any code or statement of principles should include the responsibilities of governments as well as the responsibilities of companies. The problems we are talking about here require a balance, and we are talking about state cooperation as well as moral behavior by companies.

Mr. BIESTER. There is no question about that.

Mr. FELDMAN. We have had a lot of difficulty getting acceptance of this.

Another issue which is not easy to deal with is the problem of discrimination-or differentiation, between TNE's and local enterprise. To what extent is it justified, if ever, to impose a specific burden on TNE's that is not applied to other types of foreign or local enterprise. This is a controversial issue.

Part of the problem, as you all know, is because the work that is going on has political motivations as well as economic motivations. The questions of definition are profoundly difficult at every phase and particularly here when we start talking about illicit payments. A number of the most developed legal systems in the international community, such as the Canadian and United Kingdom systems, permit corporate political contributions.

Now, are we to consider an international principle that corporate political contributions, per se, should be discouraged and, if so, just for TNE's? Those are not easy questions.

The issue of regulation is important. I am not addressing myself to a regulatory approach but possibly a statement of principles that would be nonbinding and, when you go beyond that, I think you are anticipating by some years a degree of convergence of national interest.

Our main purpose in this exercise is to try to define those problems arising out of the activities of transnational enterprises that really require new measures, different from the measures adopted by national governments in the past and, at the same time, to protect what we think is an extremely creative and vital institution from overregulation either intentional or inadvertent. Overregulation could deprive these international corporations of the opportunity to contribute to the development process.

Corruption is a terrible burden on the standing of the free enterprise system and it is becoming an issue which can affect the larger interests of the United States.

That is why we are happy to testify here today. We share the deep concern of all of you. We don't have a facile solution to the problem.

Mr. Nix. Thank you very much, Mr. Feldman. I express the thanks of all of the members of the subcommittee for your thoroughness and your testimony. It is one of the most interesting presentations I have heard. Thank you very much.

[Whereupon, at 4:15 p.m. the subcommittee adjourned.]