As the United States Government has indicated publicly on several occasions, we do not condone illegal activities of American business and industrial firms abroad. Any American firm making unlawful payments to officials of foreign governments cannot look to the Department of State for protection from legitimate law enforcement actions by the responsible officers of either the foreign country in question or the United States. At the same time, we assume that the investigation and prosecution of United States nationals will be nondiscriminatory, that the penalties will be proportionate to the offense, and that persons or firms charged with improper conduct will be treated fairly and in accordance with the minimum requirements of international law.

The Securities and Exchange Commission of the United States is an independent government entity with specific responsibilities and investigative authority relating to the protection of United States shareholders. Political contributions abroad and payments to foreign officials are not violations of United States law, but failure to disclose such payments may violate Securities and Exchange Commission regulations in certain circumstances. The Securities and Exchange Commission initially began an investigation of Gulf Oil Company because of allegations that undisclosed payments might have been made. In an agreement approved by the Federal District Court, the Securities and Exchange Commission, and the Gulf Oil Corporation, Mr. John McCloy was designated to undertake an internal investigation of the Gulf Oil Corporation, directed at uncovering possible illegal actions that would adversely affect the rights of that corporation's stockholders under United States law. On completion of the investigation, a report will be submitted to the Federal District, the Securities and Exchange Commission, and the Board of Directors of the Gulf Oil Corporation. The Department of State has been advised by the Securities and Exchange Commission that the Commission has no information on the nature and extent of the payments or the identity of the persons to whom they were allegedly made in Bolivia, going beyond that which has already been communicated to the Government of Bolivia by the Gulf Oil Company.

The Government of the United States remains fully cognizant of the deep and serious concern your Government attaches to this issue and wishes to express the desire to be as helpful as possible to it, consistent with the requirements of United States law and regulations and the responsibilities of the affected United States Government agencies. The Department of State has been in touch with officials of the Gulf Oil Company, and they have assured us that an intensive investigation is under way and that Gulf will provide complete information to the Government of Bolivia at the earliest possible moment.

Dept. of State File No. P75 0089-272. The note was in reply to a note of May 8, 1975, from the Bolivian Ambassador in Washington which stated that the

Government of Bolivia had decided to summon Gulf Oil Corp. to declare, within 48 hours, if the testimony involved Bolivia, and if so, to identify the names of the officials involved. Dept. of State File No. P75 0079-1580.

Mark B. Feldman, Deputy Legal Adviser of the Department of State, set forth policy guidelines for dealing with reported political contributions and other payments by U.S. firms to foreign government officials, in a statement on June 5, 1975, before the Subcommittee on International Economic Policy of the House Committee on International Relations. He strongly condemned such activities, but advised against attempts to legislate the permissible conduct of U.S. firms abroad. He also recommended review of executive agency procedures in administering programs abroad and indicated U.S. Government willingness to examine the possibility of developing an international code of conduct for multinational corporations. Excerpts from Mr. Feldman's testimony follow:

In recent weeks, the media have carried a number of stories dealing with reported political contributions and other payments by U.S. firms to foreign government officials. Such payments and their disclosure can have important ramifications for our foreign relations and economic interests

the Department of State cannot and does not condone illegal activities by American firms operating in other countries. We condemn such actions in the strongest terms. Illicit contributions and their disclosure can adversely affect governments, unfairly tarnish the reputation of responsible American businessmen, and make it more difficult for the U.S. Government to assist U.S. firms in the lawful pursuit of their legitimate business interests abroad.

Let me give a few examples of events related to the disclosures of the last weeks which have impacted on our foreign relations:

-The head of a friendly government has been removed from office and other friendly leaders have come under political

attack.

-Both multinational enterprises and U.S. Government agencies have been accused of attempting to subvert foreign govern

ments.

-A firm linked with payments in one country has had property in another country expropriated, not because of any alleged improprieties in that country, but simply on the grounds that it was an “undesirable firm.”

-Several governments have presented firms suspected of making payments with ultimatums of economic retaliation or criminal prosecution.

These are... disturbing developments. They underscore the reason that the U.S. Government urges our enterprises to respect the laws of all the nations in which they operate and to conduct themselves as good corporate citizens of those nations.

Yet companies cannot operate in a vacuum, and it is the responsibility of host governments to set out the rules under which firms and public officials deal with each other.

Regrettably, governments, as well as firms, have not always exercised their responsibilities in this area. Investors frequently find themselves in countries where the laws dealing with political contributions, agents' fees, or other payments are unclear or unenforced. In countries where small payments are a necessity for getting things done at the lowest echelons of the bureaucracy, larger payments may be solicited or demanded by highlevel officials. It should also be noted that these problems are not confined to American enterprises. Foreign competition frequently contributes to these pressures.

By describing such conditions, I am not trying to excuse improper activities by U.S. firms. Far from it. Corruption weakens the fabric of government, erodes popular support, and jeopardizes the important interests we share with our friends abroad.

The free enterprise system is a vital factor in world economic growth upon which social progress, economic justice, and perhaps world peace depends. There are many opponents eager to restrict free enterprise, and every American businessman who invests or sells abroad holds an important trust for the integrity of the system.

What, then, should be done?

First, it is important that all U.S. investors and foreign governments clearly understand that we condemn payments to foreign government officials and that any investor who makes them cannot look to the Department of State to protect him from legitimate law enforcement actions by the responsible authorities of either the host country or the United States.

Second, the U.S. agencies investigating these cases should cooperate with responsible foreign authorities seeking information consistent with the requirements of our laws and procedural fairness. However, these agencies cannot act on the basis of rumor or speculation.

Third, the U.S. Government will provide appropriate diplomatic protection to American nationals abroad who are not treated fairly in accordance with international law. We are concerned at threats of extrajudicial sanctions which may be disproportionate to the offense and based on unproved allegations. We do not believe that economic retaliation is an appropriate response to payments which, although controversial, are either lawful under the foreign law concerned, or if unlawful, are subject to specific civil or criminal penalties prescribed by that law.

Beyond these clear statements of policy, however, I believe that we need to move carefully. Some have suggested that we should enact legislation making it a criminal act for U.S. companies to engage abroad in what we regard as improper activities here at home, such as corporate political contributions. Although investors operating in foreign lands would be wise to

avoid even the appearance of impropriety in those countries, we believe it would not be advisable for the United States to try to legislate the limits of permissible conduct by our firms abroad. It would be not only presumptuous but counterproductive to seek to impose our specific standards in countries with differing histories and cultures. Moreover, enforcement of such legislation would involve surveillance of the activities of foreign officials as well as U.S. businessmen and would be widely resented abroad. Extraterritorial application of U.S. law, which is what such legislation would entail, has often been viewed by other governments as a sign of U.S. arrogance or even as interference in their internal affairs. U.S. penal laws are normally based on territorial jurisdictions, and with rare exceptions, we believe that is sound policy.

There are other actions that can be taken, however. The Securities and Exchange Commission and other regulatory agencies have the authority to protect specific American interests in foreign transactions, such as the disclosure of material information necessary to protect the investment of shareholders in public companies. The SEC has demonstrated that it is prepared to act forcefully in these cases, and that demonstration should have a positive effect on U.S. businessmen and on those they deal with abroad.

In addition, the executive agencies responsible for administering programs abroad which may provide temptations for such activities need to review their procedures to see whether additional measures might be effective. The Department of State and the Defense Department have begun such a review of the foreign military sales program, and we expect improved procedures to result that should be helpful.

Another possible approach could be to reflect our position in a code of conduct concerning multinational corporations (MNC's). The U.S. Government has indicated in a number of international fora that it is willing to examine the possibility of development of guidelines relative to MNC's, provided that such guidelines take into account the responsibilities of host states as well as those of enterprises. If other governments are agreeable, 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. This would be a modest step, but international acceptance of this principle might help to relieve pressures for questionable payments.

. . . Corruption of friendly foreign governments undermines the most important objectives of our foreign relations. But experience shows the United States cannot police foreign societies. In the final analysis the only solution to corruption lies in the societies concerned.

For the full text of Mr. Feldman's statement, see Dept. of State Bulletin, Vol. LXXIII, No. 1880, July 7, 1975, pp. 39-41. Hearings before the Subcommittee on International Economic Policy of the House Committee on International Relations, 94th Cong., 1st Sess., June 5-Sept. 30, 1975, pp. 22-33.

On June 12, 1975, Phillip R. Trimble, Assistant Legal Adviser for Economic and Business Affairs, announced that the Department of State had established an Advisory Committee on Transnational Enterprises, to be comprised of approximately 30 public members drawn from private industry, the academic community, labor, the private bar, and other areas. The announcement stated that it had been determined, with the approval of the Director, Office of Management and Budget, to be in the public interest to have such a committee to advise on major issues and problems relating to transnational enterprises and perform the following functions:

(a) To provide information and advice on both public and private aspects of current foreign affairs issues involving transnational enterprises;

(b) To provide information and advice on the business and economic implications, as well as the technical feasibility, of various proposals made with respect to codes of conduct covering such matters as restrictive business practices, technology transfer, labor relations, information sharing, political activities, socio-cultural effects and other matters involving transnational enterprises, and to provide advice and assistance in the formulation of United States policy, positions, and proposals for multilateral and bilateral negotiations on these subjects; and

(c) In furtherance of the objectives referred to in paragraphs (a) and (b), through working groups and subcommittees, to provide advice and assistance and to carry out special studies and research in particular areas related to transnational enterprises, as the Committee may deem advisable, with a view to the promotion of the best interests of the United States in these fields.

Fed. Reg., Vol. 40, No. 115, June 13, 1975. See also Dept. of State Press Release No. 329, June 12, 1975. The Advisory Committee was established pursuant to § 9(a)(2) of the Federal Advisory Committee Act (P.L. 92-463; 5 U.S.C. app. I, 9(a)(2)), approved Oct. 6, 1972.

On July 10, 1975, the Permanent Council of the Organization of American States (OAS) unanimously adopted a resolution entitled "Behavior of Transnational Enterprises Operating in the Region and Need for a Code of Conduct to be Observed by Such Enterprises." The resolution referred, inter alia, to the Charter of Economic Rights and Duties of States, the need for respect for the sovereignty and laws of the countries in which transnational enterprises operate, and illegal activities on the part of some transnational enterprises. It declared that transnational enterprises should be subject to the legislation and jurisdiction of national courts of countries in which such enterprises operate and should conform to those countries' development policies, and it called for a study of the principles to be included in a code of