said that during the previous November he has been approached by a Mr. Rueffel, who worked in the Germersheim inventory division.

Mr. Rueffel asked him to certify to the demilitarization of certain property listed on 200 documents, Sergeant Garcia said, adding that Mr. Rueffel then explained that this was standard procedure. He again refused to certify.

The sergeant reported the incident to Colonel Rudd, the depot commander. Sergeant Garcia said Colonel Rudd told him to certify to demilitarization procedures only on those items he had actually observed being demilitarized.

(Exhibit 85 is statement of Agent Lehrmann, dated September 8, 1971.)

The situation at the Kaiserslautern depot was no better. For 6 months, in fact, demilitarization procedures were stopped completely. Gerhard Fries, an inspector for excess materiel and for demilitarization work at Kaiserslautern, gave CID a sworn statement July 27. 1971. CID questions and Mr. Fries' answers follow:

Q. Can you explain to me in your own words how the demilitarization program operated at the KAD (Kaiserslautern Army Depot)?

A. The demilitarization program in this depot was a stepchild, meaning that it was neglected inasmuch as there were not enough people, transportation and equipment available for it. There was no control and paperwise we couldn't keep up with it. It has happened that for a six-month period nothing was done at all on the whole program. There was no demilitarization for a six-month period. Then all of a sudden the depot commander or someone would see all the stuff awaiting demilitarization and then at random they would take people from here and there, whoever was available, and for a two week period nothing was done except demilitarization. Then, of course, the paper work had to be caught up on so 500 or 1,000 documents were prepared and stamped at the same time and went with the scrap to the salvage yard.

Q. If the documentation on the materiel to be demilitarized was processed to PDO, how could you keep control of the items left at the demilitarization point? A. The whole section had no control over what was going on and if there were any questions later on, no one could answer it with the exception of large and bulky items such as trucks or tanks. In those cases they kept the documents as long as the item was there at the demil point.

Q. Also in security warehouse they keep missile components and they require demilitarization. Did you also stamp the documents on the missile components reflecting that they were demilitarized when in fact you did not actually see them demilitarized?

A. That is true, too.

(Exhibit 86 is the statement of Mr. Fries, dated July 27, 1971.)

Sgt. Dale D. Winkler was the noncommissioned officer in charge of the warehouse at Kaiserslautern. Sergeant Winkler gave a sworn statement to the CID on July 28, 1971.

Sergeant Winkler said a large quantity of weapons that were supposed to have been demilitarized were placed in a corner of the warehouse without being demilitarized. The numbers grew as the weapons accumulated for a year.

In addition, he said, demilitarization certificates were signed and sent to the U.S. Army/Europe Materiel Command (MATCOM) that asserted the materiel has been demilitarized and shipped to property disposal yards.

Here are excerpts from the CID interview of Sergeant Winkler:

Q. Have you ever been missing any weapons from the security warehouse? A. That's a hard question to answer because so far as I know, I myself have never known what's physically in the warehouse. I couldn't give you a quantity on anything there.

Q. In other words what you're telling me is you really don't have accurate records of what weapons you physically have in the warehouse.

A. That's true sir. That's definitely true.

Q. How about the records which are maintained by the inventory division which reflects what you should have in the warehouse? Are these accurate? A. No, sir, definitely not.

(Exhibit 87 is statement of Sergeant Winkler, dated July 28, 1971.) The CID survey working papers reflect the fact that four German nationals employed at Germersheim accepted gratuities from contractors. The employees, in sworn statements, said they received gratuities ranging from 5 Deutsch Marks to 1,500 Deutsch Marks.

CID investigators also asserted that:

Substantial shortages of copper wire, zinc, and battery lead were discovered at Ludwigsburg in November of 1970. Investigation revealed that copper wire, zinc, and battery lead contracts were won by contractors who had bid substantially higher than they could expect to sell the property for. This indicated the contractors could show a profit only if they were taking from the depot more copper wire, zinc, and battery lead than they were paying for. This lent credence to allegations contained in an anonymous letter found in the Ludwigsburg files that the scalemaster at the depot was manipulating weight slips in favor of certain contractors.

A review of more than 300 sales contracts pertaining to sale of property from Ludwigsburg disclosed gross discrepancies in tare (empty truck) weight of contractors' trucks. It was found that in 66 contracts inflated tare weight had been reported and that 17 sale contractors had probably taken scrap metals of a value of 195,619.80 Deutsch marks (about $55,000).

Problem areas cited by Department of the Army:

The staff of the investigations subcommittee arrived in Europe November 17, 1971. Shortly after their arrival, the Department of the Army began sending out directives calling for reform and improvement in property disposal operations worldwide.

A December 17, 1971, wire from the Department of the Army to the U.S. Army/Europe and to other commands throughout the world

said:

A review of survey reports on disposal activities worldwide substantiates the need for intensified surveillance and management.

Then the wire listed those property disposal procedures which were inadequate. They included depot security, demilitarization, receipt and storage, segregation and lotting of property, weigh-in, bidding, property condition coding and control of military assistance program (MAP) property.

A second wire on property disposal operations went out from the Department of the Army December 18, 1971, to the U.S. Army/Europe and to other commands worldwide.

The wire called for command reviews of property disposal operations "to insure that they conform" to Army Department policy and regulations regarding more staff visits to PDO depots, improved inventory procedures, more responsiveness to the need for corrective actions as cited by the CID and audit reports, better depot security, strengthened personnel training program and more efficient depot organization and review of end-use checks.

The wire concluded by saying:

Command synopses will be used as part of an intensive review of PDO policy and directives being conducted at this headquarters on a high priority basis.

(Exhibit 88 is message from Department of the Army to all commands, dated Dec. 7, 1971.)

(Exhibit 88a is message from Department of the Army to all commands, dated, Dec. 17, 1971.)

Mr. NAUMANN. When I was assigned to work with this subcommittee, I reviewed the visitation records of Army property disposal facilities in Germany for the period of July 1971 to February 1972. I found that the representatives of six suspended or debarred firms visited PDO depots to inspect surplus property offered for sale in invitations for bid (FB).

At Kaiserslautern, representatives were allowed on the depot grounds from the following debarred or suspended firms-Hermann Fink GmbH of Boeblingen, Germany; Claude Faure Enterprises of Saint Jean de la Ruelle, France; and Ernst Bertram, GmbH of Langenargen, Germany.

Representatives of the Hermann Fink GmbH firm and Emil Hopt of firm Ernst Bertram were allowed on the PDO grounds at Ludwigsburg.

Hermann Fink representatives visited the facilities of the PDO maintenance plant at Boeblingen, Germany.

The PDO yard at Germersheim was visited by representatives of Hermann Fink, GmbH, Huizer Tennis of The Netherlands; Barth A. J. N. V. of the Netherlands; and P. L. Baris of The Netherlands. I interviewed employees of the PDO yards. Almost all of them were not aware that the firms had been debarred or suspended.

According to the visitors log of maintenance depot at Boeblingen, Mr. Gerhard Fink of the firm Hermann Fink entered the depot 79 times from July 1971 to October 1971 and Fink trucks drove on the facility 66 times to remove scrap which had been purchased by other contractors. The firm Fink had been debarred and removed from the cleared bidders' list April 30, 1971.

The Redistribution and Marketing Center at Mainz-Kastel advised the subcommittee that suspended or debarred firms are not eligible to bid on sales of excess property. Resale of such property is also disallowed.

The debarment or suspension does not preclude representatives of these firms from attending auctions of the property or from inspecting it beforehand.

This review indicates, therefore, that debarment and suspension procedures have little effect. Debarred or suspended firms have access to yards, are allowed to inspect property and, through cleared bidders, can actually buy property. We must ask, what then is the purpose of debarring or suspending certain firms? Except for the inconvenience of having to work through an intermediary, they are permitted to conduct business as usual.

It is apparent that the inability of property disposal officials to exercise adequate controls over contractors first noted by the CID in the mid-1960's, still prevails today.

(Exhibit 89 is internal memorandum from Agent Naumann to Mr. Duffy, undated. Subject: Access of suspended/debarred bidders to U.S. Army property disposal facilities PDO.)

Chairman MCCLELLAN. Now, gentlemen, you have omitted several pages in your prepared statements dealing with six cases. Am I correct?

Mr. JOHNSON. Yes.

Chairman MCCLELLAN. This we will want, of course, to get in the record. I believe you preferred now to be questioned on these overall statements, is that right?

Mr. JOHNSON. Yes, sir.

Chairman MCCLELLAN. The statements that you have given this morning.

I am going to proceed for just a few minutes and then we are going to come back.

Senator, do you wish to make a statement?

Senator PERCY. Yes, sir.

Chairman MCCLELLAN. We reserved in the record yesterday morning, Senator, space for your opening statement if you like. After we hear the Senator's opening statement, we will recess and come back at 2 o'clock.

Senator PERCY. I would like to begin my statement by thanking our distinguished chairman for commencing these hearings. I regret very much not being able to attend yesterday's session. Having studied the testimony presented by Secretary BeLieu and Mr. Buzhardt on behalf of the Department of Defense, I am further convinced that our investigation is an important one.

From yesterday's statements and those we will hear today, we know that the U.S. Government's policies and practices with respect to the disposal of surplus military property are complex, misunderstood, inefficient, in some cases wasteful, and frequently place our military property system in a position of vulnerability to theft, bribery, collusion, and illegal arms trafficking.

In many ways the inadequacies of our military supply and disposal system are a matter of managerial control and administrative responsibility. Mr. Buzhardt testified yesterday that with the exception of the DOD's authority to suspend and disbar bidders in disposal negotiations, there does exist within the Department the appropriate authority to correct problems that now plague the system.

Our investigation and hearings will examine some of the system's basic shortcomings. We will look more closely at the questions of inventory control, auditing, demilitarization of sensitive war material, the monetary return received from surplus sales, et cetera, and perhaps suggest additional ways that the Department could take corrective action administratively.

I, for one, am appalled at the potential for waste that has been touched on only lightly in the first day of our hearings. I think that the American public will and should be equally disturbed. We are not talking about a "nickel and dime" operation. Secretary BeLieu testified that annual sales throughout the Defense Department are in excess of $150 million for property having an acquisition cost of approximately $5.5 billion. If the economics of this situation were the only criterion for holding an investigation, it would be justified.

Yet there is another vitally important aspect of this question, and it is to what extent our foreign policy is being weakened and manipulated by the sale of valuable, militarily sound surplus property to

international arms traffickers through which it is subsequently sold on the black market to unfriendly nations.

During the course of our hearings we will identify and examine the methods used by known arms traffickers. I am hopeful that we can then formulate appropriate means to prevent this practice in the future. We cannot continue to acknowledge that this practice does exist and fail to take strong action in its face.

I know that the Department has begun to take steps that will tighten the procedures and initiate a system for the identification and disposal of property. This is commendable. Yet, it appears that no real undertaking was made until our subcommittee began its investigation last fall. This fact again emphasizes the important role of oversight that the Congress has to carry out.

We have the responsibility of bringing situations such as this before the public eye and of examining them from the standpoint of the legislative process and the budget-setting powers of the Congress.

As in other investigations, we may find that there are a number of ways that the military surplus property disposal operation could be improved through new legislative authority. Or the case may simply be that a further open and frank discussion of the problems will clear the way to constructive action from within.

In any event, Mr. Chairman, I know that these hearings are going to be fruitful and that our time will be well spent in an examination of the executive branch's policies with respect to military property disposal.

I know, Mr. Chairman, since I have spent a good deal of my life in business, and I think this is a business problem, we are dealing with taxpayers' money, it is a readily understandable problem faced by any industry.

When you have surplus you try to get rid of it with the greatest possible return to stockholders. In this case, the stockholders are the taxpayers. I know as a procurement officer many years ago in the Navy, we ran into problems where we overbought and we had to dispose of those products.

I will try to put the same diligence that I put into business and into those military jobs into this job.

We are very, very dependent on our staff. Our staff has done a thorough investigative job. As I understand it, we have the full cooperation of the Department of Defense and certainly the expert witnesses that appear before us today.

I certainly know that this committee, as has been true during the years of its history of these hearings and investigations is totally nonpartisan.

We will let the chips fall where they may, whether they fall on one administration or another. We are trying to see what we can do to find the faults that have occurred in the past, to correct them, and to make certain that they will never recur.

We hope most of the corrective action will be initiated by the Department of Defense itself as they have as result of many of our other investigations. We have responsibility in this committee as one committee that has that oversight responsibility to carry on as thorough an investigation as we can and then make certain that what we find is made available to the public and the Department.