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make appropriate inquiries. As is the case with most white collar crime, an enforcement unit must rely on the assurance of continuous scrutiny, public censure, the stiff penalties to be effective.
Even when violations are detected, penalties are not always significant enough to provide an adequate deterrance. American and Braniff each paid a $5,000 fine for their unlawful political contributions. Rarely is an individual, in contrast to the corporation which employs him, penalized for his misdeeds in the corporation's name. Incarceration is virtually unknown. Corporate fines, absent a successful shareholder derivation action, are merely passed along to the consumer as a cost of doing business. However, it should be noted that the Board's order in the American case prohibited the carrier from passing the civil penalty assessed into its rate base.
We do not have answers to all these problems. Some legislative action might be considered, however, to make this type of activity less attractive to corporate management. First, the penalty sections of Federal statutes, having reporting requirements such as the Federal Aviation Act, should be evaluated with an eye towards increasing the maximum fine permitted and making it specifically applicable to those individual officers or employees in the corporation who participate in the act of deception.
Second, administrative agencies, such as the CAB, should be authorized to appear in Federal court directly and in their own name, rather than through the Department of Justice. The agency's priorities and manpower considerations may well be different from those of the Justice Department and the U.S. attorney. Of equal importance is the fact that in most cases the agency's legal staff possesses a greater expertise in the particular area of the law as well as a greater sense of mission for the particular case involved.
Third, legislation prohibiting payments to foreign governmental officials should be considered. U.S. corporations may have more success in resisting requests for such payments if such payments are unlawful under U.S. law and if there exists some reasonable likelihood of detention and prosecution in the United States.
Mr. Chairman, again, I wish to express our appreciation for the opportunity of giving you and your subcommittee an insight into some of our problems in this very complex arena of enforcement.
We would be happy to reply at this time to any questions which you might have for us.
Mr. Nix. Thank you, Mr. Weldon. I deeply appreciate, and I know the subcommittee does, your appearance here today.
I refer to page 6 of your statement, the top of the page. You say:
What troubles us is that, regardless of the use to which certain airline funds might be used in a particular case, the potential exists for corporate funds to be used for any purpose that airline management deems desirable once executives have made a decision to omit or record deceptively the use of funds on the carrier's books of account or in the reports filed with the Board.
Obviously, that is true. That is a conscious decision made by a person in authority to something. Now, you can't anticipate the direction to which a man's mind might take and stop it, of course, but you do have laws on the books that might well be resorted to when such a situation arises; that is true, is it not?
Mr. WELDON. Yes; it is.
Mr. Nix. Now then you say, let us turn to specific cases. This subcommittee is particularly interested in specific cases. Now, I know there is such a thing as a statute of limitations and I suppose it is operative in this field; is that correct?
Mr. WELDON. Not insofar as the reporting requirements, to my knowledge, Mr. Chairman. Our interest primarily is the protection of the integrity of the Board's processes which encompasses the requirement for accurate reporting upon which they predicate their decisions and I do not believe, sir, that there is a statute of limitations with respect to undisclosed or unreported funds.
Mr. Nix. I would agree that there is no statute of limitations that has to do with inquiry but what I am talking about is if your inquiry has been initiated into any given set of actions and that investigation discloses criminal conduct, obviously there must be some statutory period which you cannot go back. That is what I am speaking of.
Mr. WELDON. Well, that would be true, Mr. Chairman, I suppose, with respect to, say, title 18, section 610, which is a criminal statute regarding political campaign contributions within the jurisdiction of the Department of Justice.
Mr. Nix. Now, I mentioned that for this reason. I would like to know when your investigative staff first covered criminal work doing— the year in particular.
Mr. WELDON. Well, in the summer of 1973 when the revelation was made by American Airlines and subsequently Braniff, an investigation or an inquiry was initiated to determine to what extent other airlines may have been involved in political campaign contributions. With respect to the specific cases that I was talking about and which I have mentioned, the American Airlines case and the Braniff case, those started, insofar as we were concerned, at the time we received the information from the Special Prosecutors office in late 1973. It was at that time that we actively were able to start doing something in these cases.
Once we received the information that both American and Braniff had furnished to the Special Prosecutor's office, on the basis of that information, subsequently we programed audits for both of those carriers. I know that in the Braniff case the political campaign contribution involved, I believe, was $40,000. As you can see from my statement, what we have discovered and alleged in our complaint was a fund that was considerably larger than $40,000 involved.
Mr. Nix. Now, in addition to this Pan American, Braniff, TWAthose are the three cases specifically mentioned in your testimony; is that correct, sir?
Mr. WELDON. American Airlines, sir.
Mr. NIX. American Airlines.
Mr. WELDON. And Braniff.
Mr. Nix. How many other cases are actively under investigation to the extent that you are permitted at this time to name them?
Mr. WELDON. Mr. Chairman, I am sure that you can appreciate my not naming the carriers by name but I can assure you and this subcommittee that audit investigations are continuing to this day encompassing a substantial number of carriers. This investigation is one that in some areas we believe will prove fruitful. In other areas
there is a question as to whether they will, but I want to assure you again, Mr. Chairman, and this subcommittee, that everything that can be done is being done insofar as those particular cases are concerned. Mr. Nix. Are you permitted to approximate the number of the organizations, business firms that you are investigating?
Mr. WELDON. Yes; I can approximate it. I would say it is somewhere between 8 and 10.
Mr. Nix. At this time.
Mr. WELDON. If you will permit me to confer with one of my staff members for just a second, maybe I can give you a more specific
I can, of course, understand why the names of those concerns are not spread on the record; you have no right to do that, of course. Mr. WELDON. I appreciate that very much.
Mr. Nix. Now, you say on page 10 that "When top corporate management elects to deliberately circumvent such internal control procedures, however, all protection is lost."
Now, of course, you really don't mean that all protection is lost, you mean in that particular instance you are stymied for the moment. Mr. WELDON. That is correct, sir, yes.
Mr. Nix. And you then proceed to determine whether or not there is not another avenue of investigation.
Mr. WELDON. That is precisely right, Mr. Chairman.
Mr. Nix. Again you say,
As is the case with most white collar crime, an enforcement unit must rely on the assurance of continuous scrutiny, public censure, and stiff penalties to be effective.
I want to compliment your agency because you really are living up to that course of conduct.
You see, I for one on this subcommittee will also take the position that the law enforcement agencies of this Government are dedicated to the performance of the function with which they are charged. I don't have any doubt about it and I am interested and concerned to point up in these hearings the difficulty faced by the investigative authority in routing out violations and bringing them to public notice.
Many people in the country seem to have the idea that those who are investigating wrongdoing must have some superior insight into everything and must intuitively know that a thing is happening but that has not happened. I don't know anyone around who is possessed of those extraordinary qualities. So you go plodding along as all investigatory authorities do. You are not unmindful that a man is not perfect, but you do not assume that all men are crooks and you go along and try to do your duty as best you can. That is correct, isn't it? Mr. WELDON. That is precisely right, sir.
Mr. Nix. Now, I would wish to thank you very much for your appearance here at this time, sir.
Mr. WELDON. Thank you.
Mr. Nix. Our next witness is Mr. Donald I. Baker, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice. Mr. Baker.
Just before you begin, Mr. Baker, I want to just apologize ahead of time if you hear the bells ring because we have Turkey over there on the floor and it is not to eat.
STATEMENT OF DONALD I. BAKER, DEPUTY ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE
Mr. BAKER. Mr. Weldon, I am going to take you up on the second recommendation. I don't know whether you want to be here or not. Mr. WELDON. I will read the transcript.
Mr. BAKER. I just wanted to warn you.
Before I start I would like to thank you for your very kind comments about law enforcement because it seems to me you have a very deep understanding of the difficulties of the problem, and those of us who believe in law enforcement and are fair minded appreciate some recognition of the problems.
Mr. Nix. I might say this. As one who came up at a time when this file of criminal cases was something that was extremely difficult, I had the unhappy task of having to try over 300 of them. It is clear to us the problems associated with law enforcement and the dedicated people involved in it, so therefore I speak with some degree of authority. Mr. BAKER. Thank you very much.
My colleague on my left is Douglas Rosenthal who is the Acting Chief of our Foreign Commerce Section and behind me Thomas Sheldon who is a member of that group and who has been working with me. Mr. Nix. Very well.
Mr. BAKER. I am delighted to be here with this difficult problem. Foreign governments are becoming increasingly involved in the production, distribution and acquisition of goods and services, especially primary commodities, such as oil, bauxite, and coffee. This involvement increases the opportunities and incentives to induce governmental conduct (by bribery and other techniques) in the service of private anticompetitive purposes. It also increases the opportunities and incentives for particular foreign governmental officials-both in their official and personal capacities to extract payments from private firms as a condition for access to products or markets influenced by such governments. These are matters of concern to this administration.
When bribery is used to further conspiracies that restrain the domestic or foreign trade of the United States or conduct that monopolizes or attempts to monopolize such trade, it is a matter of direct concern to the Antitrust Division of the Department of Justice. I therefore welcome the interest of this committee in this question as both timely and relevant.
The basic task of the Antitrust Division is enforcement of the Sherman Act (15 U.S.C. sec. 1, et seq.). As you will recall, this act is also available to private plaintiffs bringing civil treble damage actions (15 U.S.C. sec. 15). And indeed in the foreign area a great many of the cases are brought. It is the particular genius of this statute that in declaring illegal both conspiracies to restrain trade and monopolizing conduct, it does not become necessary to delineate possible means which might be employed to achieve these objectives. This gives the statute not only elegance of form, but extraordinary adaptability to
new situations. Thus, the Sherman Act does not need to and does not in fact declare illegal any specific business practice such as bribery. Rather, it focuses on the purpose and effect of conspiratorial behavior which restrains trade or individual or joint conduct leading to monopolization.
To the extent techniques such as the payment of bribes further such purposes and/or have such effects, the entire pattern or anticompetitive behavior may be subject to prosecution. While bribery has not been explicitly at issue up to now in cases involving international trade, some private inducements to foreign governments to engage in anticompetitive activity have been the subject of litigation. There is no logical reason why bribery of foreign officials may not be involved in future international activities which are the subject of antitrust litigation.
U.S. ANTITRUST LAWS IN FOREIGN COMMERCE
The Sherman Act applies to trade or commerce not only "among the several States," but also "with foreign nations." The Sherman Act is applicable fundamentally to two basic international situations. The first is where imports into the United States are unreasonably restrained--section 1--or monopolized-section 2-thereby injuring our U.S. consumers or those who must buy on less-competitive terms. The second is where export trade opportunities are restrained or monopolized, thereby denying other U.S. businesses the opportunity to compete abroad on their merits. U.S. courts have made it abundantly clear that Sherman Act prohibitions may be applied even to conspiracies formed and pursued abroad and even where such conspiracies are among foreign persons, if such conspiracies have the intended and actual effect of restraining U.S. imports, exports or interstate
A case which illustrates an antitrust violation with respect to U.S. imports is the Government's suit against the quinine cartel which restrained and monopolized worldwide sales of quinine including, specifically, sales to the United States in the 1960's. An example of a violation of the Sherman Act affecting U.S. exports in Senith v. Hazeltine. In the case the U.S. Supreme Court held that it was illegal for American firms to cooperate in a Canadian patent pool which had the intended effect of limiting American exports of electronic products to Canada by nonparticipants in the patent pool.
This is the essence of U.S. antitrust enforcement in international trade. As such it is not particularly hard to understand. What makes international antitrust a complex subject in analyzing situations such as those under consideration by this committee are the collateral considerations which must be taken into account in determining whether or not subject matter jurisdiction may properly be exercised. Four of these constraints are worth particular notice. Their relevance must be analyzed in virtually every international antitrust problem. These
One. The doctrine of sovereign immunity.
Two. The doctrine of act of state.
Three. The doctrine of foreign governmental compulsion, and
1 United States v. Alcoa, 148 F. 2d 416 (2d Cir. 1945).
2 United States v. Nederlandsche Combinatie Voor Chemische Industrie, et al., 68 Cr. 870 (S.D.N.Y.) filed October 25, 1968, File No. 60-21-138.
3395 U.S. 100 (1969).