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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 weapons?

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 MoCLELLAN. 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 then and disassembled them. Then he sold the component parts to someon who reassembled them?

Mr. GRAHAM. They weren't reassembled by the second purchaser. Hy 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, M2E, 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 61-514-5-65–49,"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 :

Comments contained in the letter from the American Embassy, Bonn, dated 15 April 1965 are insufficient for denial of contract in accordance with security trade control procedures.

... It is recommended that close attention be provided in order to insure that the purchaser performs demilitarization under U.S. Government supervision.

(Exhibit 5 is letter, “United States Air Force, Europe,” Redistribution and Marketing Management Center, dated Apr. 22, 1965.)

On April 22, 1965, Norman F. Gieseler awarded the contract to the Schreurs.

Alfred Herrmann, property disposal agent at Germersheim, wrote a memorandum May 6, 1965, to the Quality Assurance Division to request that the division “inspect work in process and check for adherence to all demilitarization regulations” in connection with the missiles.

Master Sergeant John H. Hartman, U.S. Army, wrote back May 7, 1965, to decline the request, pointing out that “this office is not qualified" to check demilitarization work.

“I recommend that qualified personnel from the missile field be requested to assist in this operation,” Sergeant Hartman said.

Exhibit 6 is a “Disposition Form, U.S. Army General Depot, Kaiserslautern,” subject : Demilitarization, dated May 6, 1965.)

No further communications have been found relative to securing demilitarization experts.

Several missiles contained nitric acid and propellant. Nitric acid is a corrosive liquid acid used as an oxidizing agent in making explosives. The missiles were decontaminated under the supervision of an Army specialist. This development had not been anticipated in the contract. An adjustment was made, offsetting any financial hardship to the Schreurs for decontamination work.

(Exhibit 7 is “Memorandums for Record,” U.S. Army General Depot, Kaiserslautern, dated May 20, 1965; May 26, 1965, and June 3, 1965, respectively.)

On June 21, 1965, the warhead on one missile was found to be “live." The area was cleared. The warhead was disconnected.

(Exhibit 8 is “Memorandum for Record,” U.S. Army General Depot, Kaiserslautern, dated June 22, 1965.)

Work continued. All 408 missiles were disassembled, according to the contract. In violation of the contract, few of the components and parts were demilitarized.

Schreurs could not estimate how many guidance packages and hydraulic accumulators he had sold Teichmann. But Teichmann set the figure at 390 guidance packages and 178 hydraulic accumulators, including gyroscopes. The guidance systems stabilize missiles in flight and guide them to their targets. The hydraulic accumulators also are guidance and targeting devices.

(Exhibits 9–10 are “Statement of Mr. Schreurs,” dated June 6, 1966, and “Statement of Mr. Teichmann,” dated June 8, 1966.)

Another guidance package was sold by Schreurs to a German named Karl Heinz Franke of Germersheim. Mr. Schreurs sold 391 of 408 guidance packages. The other 17 remained in his warehouse.

Mr. Franke, according to a June 14, 1966, interview with the CID, had hoped to buy more than one guidance package. He said:

* I brought a Mr. Bonniec, surplus dealer, 10 Av Canot, Maison Laffitte, Paris, France, to Mr. Teichmann. He was interested in purchasing the guidance

packages * * * I delivered a guidance package to Mr. Bonniec on February 27, 1966 and he took it with him to France. Mr. Bonniec wrote me a letter dated April 6, 1966 which is in my files indicating that he had a possible buyer in Israel who was willing to pay one million Deutsch Mark for the guidance packages Teichmann had. Bonniec said they were as good as sold.

Mr. Franke said the deal fell through, possibly because Mr. Bonniec owed the French Government 50 million francs.

(Exhibit 11 is statement of Mr. Franke, dated June 14, 1966.).

CID investigation revealed that Mr. Bonniec was Louis Marie Bonniec, a Parisian with a history of French customs violations.

(Exhibit 12 is investigator's statement by Agent Payne, dated July 15, 1966.)

In a June 6, 1966, CID interview, Rudolf Schreurs said Teichmann bought the equipment for between 20,000 and 30,000 deutsche marks or approximately $5,000 to $7,500, and took the materiel from the Germersheim depot.

The CID interviewed Teichmann June 8, 1966.
Teichmann said:

I purchased 178 combination guidance and hydraulic packages from Mr. Schreurs in July 1965 for DM 120 for each unit. The guidance package and the hydraulic package were joined together. I have shown you both of these units and allowed you to photograph them. On January 8, 1966 I purchased 212 guidance packages without the aluminum housing or the hydraulic package

** For these 212 items I paid DM 30.00 each. This makes a total of 390 guidance packages and 178 hydraulic packages that I purchased. I have stripped the aluminum housings from the first 178 guidance packages I obtained and sold this to Mr. Heinz Buch, scrap dealer, who resides in Hockenheim, Germany. I still have the 178 hydraulic packages and 390 Nike Ajax guidance packages in my warehouse in Hockenheim. * * *

The interior components such as the gyroscopes and other items in this first shipment were mostly good and in serviceable condition. *

Over 50 percent of the housings of the first 178 guidance packages were not damaged. The remainder of the housings seemed to be slightly crushed, but this crushing did not damage the inner components. * * *

Teichmann said the guidance packages had been “handled roughly." The gyroscopes and other components “appeared to be in good condition." The hydraulic packages were in such “good condition,” he said, “they looked like new. I didn't notice any damage to them.”

Asked what he intended to do with the electrical equipment, Mr. Teichmann said he would disassemble them further and sell them to amateur radio operators, adding:

I do not intend to sell these parts to any Iron Curtain countries.

The CID wanted to recover the equipment. But the law was not favorable. The U.S. Government could take the Schreurs to court, but the Schreurs did not own the equipment. Teichmann did, and he wanted to keep it.

Captain David O. Wente, an Army Judge Advocate Officer, assessed the American legal position regarding the Nike-Ajax electrical equipment. His findings were not encouraging.

Captain Wente wrote a “statement of facts and analysis”:

* * * the U.S. Government has no contractual remedy against Teichmann in this case, therefore, injunctive relief in the German courts to stop Teichmann from reselling the items would be difficult. * * * Although it is doubtful that Teichmann will agree to return the items to the U.S. Government for scrap value, that avenue is the best initial approach to the problem.

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