cooperating with the Department of Defense in seeing that we button down the hatches in this particular area?

Could you supply now or later a ballpark figure as to your best estimate as to what the potential savings are if we improve our operating procedures?

Mr. JOHNSON. I heard this morning's testimony from Secretary BeLieu that if we were able to increase our profit by 1 percent a year I think the increase in return would be some $50 million more a year to the U.S. Government if sales were effectively managed. If we could increase by 1 percent we would have $50 million more revenue.

Senator PERCY. I thank you very much indeed.
Chairman MCCLELLAN. Thank you very much.

Now let us go to the prepared statement which you omitted.
Do you have any other questions?

Mr. CONSTANDY. No, sir.

Mr. JOHNSON. Mr. Chairman, we would like to summarize our testimony here and these six cases we spoke of.

Chairman MCCLELLAN. Do you have a summary of this testimony? Mr. JOHNSON. Yes, sir. We have a prepared statement of it. Chairman MCCLELLAN. You may proceed.

Mr. CONSTANDY. May I just say this will be material contained within the prepared statement that runs from page 6 to page 47. Is that correct?

Chairman MCCLELLAN. Do you want to give that summary after you give that testimony?

Mr. JOHNSON. I am sorry, sir. I misunderstood.

Chairman MCCLELLAN. I was going to have you proceed with your prepared statement beginning on page 6.

Mr. JOHNSON. Yes, sir.

Chairman MCCLELLAN. Then you want to summarize it after you conclude, I suppose, not before.

Mr. JOHNSON. Yes, sir.

Chairman MCCLELLAN. I understand that this material dealing with the cases and so forth is to follow your overall statement and conclusions which you presented this morning, and about which you have been interrogated, that this will now follow and that you will only read a part of it.

Mr. JOHNSON. That is true, sir.

Chairman MCCLELLAN. The rest of it, that which is not read, Mr. Reporter, will be printed in the record as if read at the proper places. Now you may read just that part if it that you want to read. If you want to stop and comment you may do so.

Mr. JOHNSON. Mr. Graham will read the first case, Mr. Chairman. Chairman MCCLELLAN. Mr. Graham, you are recognized.

Mr. GRAHAM. The Nike-Ajax guided air defense missile is a twostage surface-to-air military rocket with a payload of three highexplosive fragmentation-type warheads.

Its first stage powered by solid propellant, its second by liquid, NikeAjax is 34 feet 1 inch long, 18 inches in diameter, weighs 2,259 pounds equipped and fueled and can be tracked from ground-based radar

stations.

Four hundred eight excess Nike-Ajax missiles and components were turned in to the Germersheim property disposal yard from March 10, 1965, to September 16, 1965. Nike-Ajax missiles had been declared

obsolete in terms of America's defenses and were being phased out of U.S. air defense units.

However, Nike-Ajax missiles were not obsolete for other nations. There is demand for them and for components and parts. This consideration, and the fact that the missiles were potentially dangerous, led Army officers to apply strict demilitarization requirements for the rockets, their components and parts.

The demilitarization of the 408 Nike-Ajax missiles became the focus of an Army CID investigation, which showed:

First, demilitarization procedures failed. The missiles were disassembled into components and parts which were taken out of the PDO depot. On the armament black market, they were sold and resold an uncertain number of times.

Chairman MCCLELLAN. Is this the weapon referred to here?

Mr. CONSTANDY. I was going to ask if the photographs of the material about which they are testifying could be printed in the record. Chairman MCCLELLAN. You may make that request now so that we have it before us. Is this a photograph of the weapon that you are referring to?

Mr. GRAHAM. Yes, sir. And the model appears on the table.

Chairman MCCLELLAN. I can't put the model in the record. If these are correct, I would like to put these pictures in the record. They may be made exhibits at this point, as exhibit No. 90.

(The photographs referred to were marked "Exhibit No. 90" for reference. One of the photographs follows and the other one may be found in the files of the subcommittee.)

Chairman MCCLELLAN. I would like to ask you at this point, so that I can keep it in mind as we proceed, what is the original cost of one of these weapons?

Mr. GRAHAM. $21,000.

Chairman MCCLELLAN. You will be able to point out what was received for them and what the contractor, the purchaser, received for them?

Mr. GRAHAM. Yes, sir.

Chairman McCLELLAN. You may proceed.

Mr. GRAHAM. Second, the end-use assurances from contractors are valueless. The contractors for the scrap from the Nike-Ajax missiles asserted on the end-use certificate that the materiel would be sold as scrap. The owners of the Nike-Ajax components and parts engaged in some scrap sales, but undemilitarized missile components and parts were what they bought-and what they intended to sell.

Third, the United States can hope to exercise control over the uses prime contractors make of excess materiel, but American authorities have virtually no say in what subpurchasers do with surplus weaponry. Sold once, U.S. war materiel is traceable and even recoverable. But twice sold, the weaponry is loosed upon the world of illicit armaments like confetti in the wind.

Fourth, weigh-in and weighout procedures in surplus sales are vulnerable to falsification. The loss in revenues is considerable. Chairman MCCLELLAN. Do I understand there were 408 of these

sold?

Mr. GRAHAM. They were sold as excess property; yes, sir.
Chairman MCCLELLAN. As excess property?

Mr. GRAHAM. Excess to our weapons system-obsolete in our weapons system.

Chairman MCCLELLAN. Were they sold as scrap or sold as weap

ons?

Mr. GRAHAM. They were sold to be reduced to scrap.

Chairman MCCLELLAN. They were sold as scrap, they were to be reduced to scrap?

Mr. GRAHAM. Yes, sir.

Chairman MCCLELLAN. Was that an instance in which the purchaser contracted to demilitarize them?

Mr. GRAHAM. Yes, sir. The purchaser would be held responsible for complete demilitarization of the weapon.

Chairman MCCLELLAN. Is this a case where they didn't demilitarize them?

Mr. GRAHAM. Yes, sir. This is the case.

Chairman MCCLELLAN. Did they sell them as weapons?

Mr. GRAHAM. They sold components that could be assembled into a weapons system.

Chairman MCCLELLAN. They sold the components to be reassembled into a weapons system?

Mr. GRAHAM. It would be possible; yes, sir.

Chairman MCCLELLAN. I am trying to get something related here as to what happened. Declared surplus is supposed to be sold as junk. Mr. GRAHAM. Originally the weapons were declared obsolete to our weapons system.

Chairman MCCLELLAN. That is the same as excess to our needs.

Mr. GRAHAM. Yes, sir. There were sales contracts drawn up that the weapons would be sold as scrap, but a demilitarization process had to be gone through first. That demilitarization process was then under the terms of the contract the responsibility of the purchaser.

Chairman MCCLELLAN. What happened to it? It was sold as scrap and supposed to be made into scrap after it was sold. Now what happened to it? I want to follow through and get the connection right here.

Mr. GRAHAM. The original contractor disassembled the weapon and put them into components. He resold the components to a second purchaser, to a man by the name of Teichmann who bought components.

Chairman MCCLELLAN. He is the man who originally purchased ther and disassembled them. Then he sold the component parts to someon who reassembled them?

Mr. GRAHAM. They weren't reassembled by the second purchaser. He had only taken possession of the components from the first purchaser who had disassembled the weapons.

Chairman MCCLELLAN. Were they recovered?

Mr. GRAHAM. Sir, I have a sort of summarization here I would like to present.

Chairman MCCLELLAN. I want to get what happened to these.

Mr. GRAHAM. The shorter synopsis would cover the disposition or at least what we determined to be the weapon disposition.

Mr. CONSTANDY. The missile was in two stages, was it not, is that correct? The lower stage is a liquid-propellant missile and the upper stage is a solid-propellant missile?

Mr. GRAHAM. Yes.

Mr. CONSTANDY. At the time they turned it over to the contractor those propellants were removed from the missiles?

Mr. GRAHAM. Yes, sir.

Mr. CONSTANDY. And so was the warhead more or less. Remaining was the tube which contained the propellant initially. The critical components that remained were the guidance system and hydraulics package, is that correct?

Mr. GRAHAM. Yes, sir.

Mr. CONSTANDY. Isn't it true, when the contractor bought these he was to demolish everything he got, the two tubes, guidance package and the hydraulics package!?

Mr. GRAHAM. He was supposed to completely destroy the weapon and all the components.

Mr. CONSTANDY. He was supposed to reduce it to scrap?

Mr. GRAHAM. Yes, sir.

Mr. CONSTANDY. Is it not true he did reduce the two missile tubes to scrap, but he removed from them the critical guidance systems and the hydraulics packages?

Mr. GRAHAM. That is right.

Mr. CONSTANDY. Did he not sell them to another person named Teichmann?

Mr. GRAHAM. Yes, he did.

Mr. CONSTANDY. Mr. Teichmann had some number of them in his possession?

Mr. GRAHAM. Yes, sir.

Mr. CONSTANDY. Prior to any time he was able to sell them to anyone for any purpose, you became interested in the case. Is that true? Mr. GRAHAM. Yes, sir.

Chairman MCCLELLAN. Did you recover them or did you see that they were demilitarized? What happened to them? That is what I am trying to find out.

Mr. GRAHAM. They were brought under control to the point where they were demilitarized; yes, sir.

Chairman MCCLELLAN. You happened to intercept the transaction after it was made. You intercepted the materiel and components and demilitarized them; is that right?

Mr. GRAHAM. Sir, what happened was that the CID received an anonymous letter or received information from an informant that these parts started to appear on the market or they were available for sale. Then CID intervened and determined the man who had originally purchased the record had disassembled them and sold them to a second purchaser who had them available to the highest bidder.

Chairman MCCLELLAN. Did he sell them at a higher price than junk?

Mr. GRAHAM. The Government sold the components as scrap.
Chairman MCCLELLAN. What did he sell them at?

Mr. GRAHAM. Sir, I would like to continue here.

Chairman MCCLELLAN. Very well. You may continue. Go ahead. Mr. GRAHAM. Fifth, the integrity and reliability (I. & R.) check on the contractors was ineffectual.

On April 15, 1966, an informant reported to the CID that Herbert Teichmann, a German national, was selling components and parts from Nike-Ajax missiles.

The informant said Teichmann bought the materiel from Gerda and Rudolf Schreurs.

Preliminary investigation indicated that the Schreurs had bought the Nike-Ajax missile components from the U.S. Air Force Redistribution and Marketing (R. & M.) Center at Mainz-Kastel.

Norman F. Gieseler, the contracting officer at Mainz-Kastel, issued an invitation for bid (IFB) February 10, 1965. The IFB said:

*** mixed metal scrap, to be derived from demilitarization of missile body, GM, M2, M2Eí, Nike-Ajax; fin assembly, rocket motor, M12, M2; control and stabilizer, jato M12; draining kit; (steel containers will not be demilitarized).

(Exhibits 1-3 are "Invitation for BID 61-514-s-65-49," dated February 10, 1965; U.S: Government Bid and Award Form, dated March 10, 1965; and End Use Certificate Statement, Regarding Disposition and Use of Property, dated March 9, 1965.)

The R. & M. Center wrote to the American Embassy in Bonn for a reliability and integrity check on the Schreurs after they became high bidders. The Embassy had never heard of them. On April 15, 1965, the U.S. Embassy wrote:

We have been unable to find anything in our files which would confirm Miss Schreurs' address or kind of business.

(Exhibit 4 is letter, "American Embassy, Bad Godesberg," dated Apr. 15, 1965.)

On April 22, 1965, W. W. H. Smith, of the R. & M. Center, wrote a memorandum: