undisclosed side payments or kickbacks were made to importer/distributors, importing for their own accounts. Since the Permanent Subcommittee on Investigations began its current investigation of the Vietnam commercial import program, there has been an intensification of AID's review of transactions involving Mr. La Thanh Nghe either as an importer or an alleged agent of the supplier. At the request of the subcommittee, AID undertook an investigation of Mr. La Thanh Nghe's financial interests in various importing firms. It was ascertained that Mr. La Thanh Nghe owned more than 60 percent of the stock of Vinamyd-giving him effective control of the firm. On the basis of this information, AID has issued claims against three suppliers for recovery of ineligible commissions totaling $55,185.86. It was also learned that Mr. La Thanh Nghe and his brother, Mr. La Thanh Trung, were partners in a pharmaceutical laboratory, Van Lang Duoc Vien. A small claim in connection with an ineligible commission to Mr. La Thanh Trung, relative to an AIDfinanced shipment to this firm, has been filed. The subcommittee staff made certain documents available to AID, indicating a close financial relationship between the brothers La Thanh Nghe and La Thanh Trung, which went beyond their joint venture in Van Lang Duoc Vien. Mr. LaVern J. Duffy of the subcommittee staff was able to obtain documentary evidence, in the form of canceled checks and bank advice, which reveals that American Cyanamid Co. made deposits to Swiss bank accounts of both brothers, splitting compensation apparently due Mr. La Thanh Nghe for so-called promotional activity, with part of the payments deposited to Mr. La Thanh Nghe's account and part to Mr. La Thanh Trung's account. On the basis of the fact that payment to either of the brothers inures to the benefit of the La family, AID has issued claims against suppliers for recovery of ineligible commissions totaling $77,059.10. Senator RIBICOFF. Without objection, the material offered by the committee to Mr. Cohen will be marked for identification and placed into the record. That will be exhibit 15. (Documents referred to were marked "Exhibits No. 15 A and B." Letter follows and attachments will be found in the files of the subcommittee.) Mr. DANIEL COHEN, EXHIBIT No. 15A JUNE 7, 1967. Price Analysis Branch, Financial Review Division, Office of the Comptroller, Agency for International Development, Washington, D.C. DEAR MR. COHEN: In accordance with our conversation of June 6, 1967, I am enclosing a number of documents relating to the financial activities of La Thanh Nghe. As you will observe, these documents disclose a close financial arrangement between La Thanh Nghe and his brother La Thanh Nghe Trung These documents also imply La Thanh Nghe shared his commissions on indent orders with other importers in Vietnam. Yesterday, I supplied you with a copy of a report disclosing La Thanh Nghe's financial interest in the Vietnamese firm Viet Nam Duoc Hoi. The copy that I furnished you was very difficult to read. I am enclosing for your convenience a typed extract from this report concerning this matter. I want to personally thank you for all your assistance in these matters. Sincerely yours, LAVERN J. DUFFY, Mr. COHEN. Mr. Duffy and I have been working together in a joint investigative effort for the past several weeks on leads, involving suspicion of other "kickback" arrangements in connection with pharmaceutical shipments to Vietnam under the commercial import program. We found that Don Baxter, Inc., of Glendale, Calif., made "kickbacks" and other ineligible payments to Mr. La Thanh Nghe, some as late as 1965. Claim action for recovery of the amount of these payments will be initiated by AID. In addition, we found that Merck, Sharp & Dohme made undisclosed side payments totaling about $117,000 to a Vietnamese importing firm during the period 1961-64. These payments followed a similar pattern to that in the other cases on which AID has obtained substantial recoveries. The Agency is considering the filing of a claim for recovery of the payments in question. In working with Mr. Duffy, I found that subpena power is sometimes instrumental in obtaining certain information which otherwise is not likely to be made available to AID. Mr. ADLERMAN. I would like to offer some additional material at this point with regard to the testimony of Mr. Cohen. I would also like to point out that on the Baxter case a letter has been sent to the committee in which the firm admits that they owe $5,260, to the Government, on payments Baxter made to La Thanh Nghe. Senator RIBICOFF. Without objection, the documents will be placed into the record at this point. (Letter referred to follows:) Re Don Baxter, Inc. LAW OFFICES OF SPRAY, PRICE, HOUGH & CUSHMAN, SENATE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE (Attention of Mr. La Vern J. Duffy). GENTLEMEN: Pursuant to the request of Mr. La Vern J. Duffy of your staff, we hereinafter submit a summary of the results of our investigation to date of all the activities of Don Baxter, Inc., with regard to Pharmacie La-Thanh Nghe of Saigon, Vietnam, International Pharmaceutical Organization of Milan, Italy, and Vietnam Pharmaceutical Promotion Office of Saigon, Vietnam, in relation to the known sales of the products of Don Baxter, Inc., to or for a final destination in Vietnam. This report as well as the disclosures contained herein are not given by us as agents or representatives of Don Baxter, Inc. The offers on behalf of Don Baxter, Inc., are made by us pursuant to directions and may be deemed to be the offers of Don Baxter, Inc. Immediately after your Subpoena No. A 837, dated June 12, 1967, was served upon Don Baxter, Inc., on or about June 14, 1967, our office was contacted as general counsel for the corporation. Shortly thereafter we were directed as such general counsel to conduct our own, independent investigation of all activities of Don Baxter, Inc., in its international field where the sales were financed by U.S. Government sources, and make a full report to the Board of Directors, with full authority to ascertain and see any and all records we deemed pertinent, as well as interrogating all personnel of the company who had or might have had knowledge of the particular activities and transactions. We were also requested by the Board of Directors to make recommendations as to any corrective actions we deemed to be indicated. Subject to the foregoing conditions and understandings, we have been requested by the Board of Directors to make this and any subsequent report you might desire as well as make available all records that are or might be pertinent. Our investigations to date consisted of interrogating at Glendale, California, all available, cognizant personnel of Don Baxter, Inc., including obtaining written statements as we deemed appropriate, as well as reviewing all available records which we deemed pertinent. While we are still in the process of completing our investigation for the Board of Directors, at this stage we deem our investigation to be complete enough for us to inform you of the details of U.S. Government financed sales of Don Baxter, Inc., in the international field during the last five years which might be questionable as to compliance with applicable U.S. laws and regulations thereunder. The evidence educed from such investigation appears to establish the following facts: 1. That the following sales to or for Vietnam were A.I.D. financed (or I.C.A.) and were incorrectly handled in accordance with the A.I.D. Regulations, the amount of the commissions paid Pharmacie La-Thanh also being set forth: In addition to the foregoing, it appears that a commission was properly paid on the following shipment which was made on an indent sales basis, although the declarations on A.I.D. Form 280 did not reflect that a commission was being paid: In addition, there appear to have been sales made on an indent basis to the following customers of Pharmacie La-Thanh, all of which were properly declared on A.I.D. Forms 280: Vinamyd, Viet-Nam Y Duoc Cuoc, 143, Rue Yen-Do, Saigon, Vietnam. Pharmacie Phan-Nhan, 232, Cong-Quynh, Saigon, Vietnam. Pharmacie Thanh Trung, 31, Rue Docteur Yersin, Saigon, Vietnam. Such sales were as follows: 2. Under date of April 23, 1957, Don Baxter, Inc. (DBI) sent a letter offer to International Pharmaceutical Organization (IPO), Via Dogana 3, Milan, Italy, Attention Mr. Leopold Shalom, accepted May 15, 1957. Such letter was signed by Keith P. Pattengill, then President of DBI, but no longer employed by DBI or any of its related corporations. This agreement, among other things, authorized IPO to act as broker for DBI to introduce, promote and develop sales of DBI products in Burma, Thailand, South Vietnam, Ceylon, Singapore, Malaya, and later had added thereto Egypt. A commission was to be payable to IPO in the amount of 2% on all sales, based on the net selling price, F.A.S., Los Angeles Harbor, of DBI, plus an additional 10% on sales in excess of minimums, in the case of South Vietnam in the amount of $2,039.57, the 1956 total sales to South Vietnam. The agreement was for a period of three years, renewable at the option of DBI. Such agreement could also be cancelled by country. Under date of November 23, 1960, the right of IPO to distribute any DBI products for Vietnam was terminated due to lack of sales. By such time, the IPO agreement had been terminated as to all other countries originally listed therein. 3. Apparently IPO made contact with Pharmacie La-Thanh some time during or before 1956, and Pharmacie La-Thanh commenced selling as a distributor of DBI. 4. After the termination of IPO, during 1960 and 1961, DBI continued to sell through Pharmacie La-Thanh in South Vietnam. On November 10, 1961, an employee of DBI rendered a report concerning his visit to South Vietnam which included a discussion of Pharmacie La-Thanh. Under date of December 15, 1962, Pharmacie La-Thanh asked that DBI appoint it the sole distributor of DBI products for South Vietnam. On December 27, 1962, DBI refused to give such a certificate to Pharmacie La-Thanh, such having been cancelled by letter notice of November 8, 1962, due to lack of business generated by Pharmacie La-Thanh. On December 4, 1964, a letter agreement was sent to Pharmacie La-Thanh confirming that they were a distributor for DBI products for South Vietnam and they were granted a distributor's discount. The record shows that Pharmacie La-Thanh was customarily given a 5% discount or commission from the F.A.S., Glendale, price from 1964 onward. 5. Under dates of October 15 and October 25, 1962, DBI had written to the Economic Section of the American Embassy in Saigon regarding the lack of business generated for DBI by Pharmacie La-Thanh. On November 1, 1962, the Third Secretary of the Embassy for the Economic Counselor wrote as follows: "With regard to your problems with Pharmacie La Thanh, the director of this firm is reportedly having some difficulties with the Department of National Economy. Although I have not discussed the matter with him, I understand that the Department is refusing to permit him to import pharmaceutical products at the present time. The matter reportedly involves a disagreement between certain large United States pharmaceutical houses and the Agency for International Development (AID) over allowances paid to Mr. La Thanh Nghe for promotional activities, and a possible AID claim against the Government of Vietnam for the amount in dispute.' In connection with the search for a possible replacement of Pharmacie LaThanh, DBI had obtained a United States Department of Commerce, Bureau of International Business Operations, trade list for Vietnam, which, besides listing Pharmacie La-Thanh, also listed Pharmacie Phan-Nhan and Pharmacie Thanh Trung. 6. The record does show that the personnel of DBI were familiar with the regulations of A.I.D. Under date of July 10, 1964, Dennis P. Hayes of DBI wrote a memorandum reflecting that he had discussed with Mr. Lazier at Carmichael Forwarding Co. in Los Angeles regarding incorrect A.I.D. forms filed on four shipments to Vietnam. The memorandum states that Mr. Lazier had talked with a man at the Department of Foreign Commerce (not named) and with one at the Union Bank and that the man at the Department of Foreign Commerce had advised not to submit revised A.I.D. documents. Previously thereto, Mr. Hayes had talked with Mr. Kelleher at the Chase Manhattan Bank in New York, by telephone, regarding the form of documents on A.I.D. financed shipments to Vietnam. In 1964, approximately on July 9, an internal "hold order" was placed on all commissions to Pharmacie La-Thanh credited on the books of DBI. Throughout the time that Pharmacie La-Thanh was a distributor of DBI products in Vietnam many memoranda were circulated within DBI, advising of A.I.D. Regulations. On or about August 28, 1964, Edward C. Backhaus wrote Pharmacie La-Thanh that no commissions could be paid to them on orders where they were the consignee, as such was contrary to A.I.D. Regulations. Under date of August 2, 1965, in answer to an inquiry from Pharmacie LaThanh, a representative of DBI wrote that there was a total commission payable by DBI to Pharmacie La-Thanh in the amount of $3,533.38, despite the fact that some of the commissions payable were contrary to the regulations of A.I.D. Despite the internal hold order within DBI, on February 17, 1966, a check in the amount of $3,533.38, drawn on the United California Bank, was issued to "Pharmacie LA THANH", apparently negotiated at Banque Francaise de l'Asie, Saigon, and then negotiated to French American Banking Corp. Such check appears not to bear the endorsement of Pharmacie La-Thanh. On May 6, 1966, an additional check of DBI, drawn on United California Bank and negotiated in the same manner as the previous check, was issued to Pharmacie La-Thanh in the amount of $612.70. DBI is still carrying on its investigation in order to ascertain where, within its organization, the responsiblity lies for having paid such commissions to Pharmacie La-Thanh, although the detail of the payments is set forth in paragraph 1 above. 7. The ownership of indent customers of Pharmacie La-Thanh in Saigon apparently was not known to any of the personnel of DBI, except that Mr. Phan-Nhan, the brother-in-law of the owner of Pharmacie La-Thanh, owned Pharmacie PhanNhan. 8. The ownership of IPO apparently was unknown to the personnel of DBI. The value, quantity and identification of drugs and pharmaceuticals shipped to Vietnam by DBI from 1962 to date is within the records, which records are voluminous but in our possession and will be made available upon demand. All other records are also in our possession and will also be made available upon demand. 9. In connection with our investigation it was ascertained that there were sales made to distributors in the Dominican Republic, which sales in most instances were discovered to have been financed by A.I.D. funds. The sales were made to two distributors as follows: In addition to the foregoing, on May 31, 1966, per Invoice No. 804400, there was a sale made on an indent basis to the Ministry of Health, for which sale there was a commission of $1,170.28 declared on A.I.D. Form 280 as being payable to J. Gasso Gasso. An A.I.D. Form 280 was filed, but apparently the commission of $82.83 was not declared. There were two other sales made to Espinal so far, one on January 19, 1967, Invoice No. 804886, for which there was a discount or commission in the amount of $690.94 payable to Espinal. Since this is now contrary to A.I.D. Regulations, and was so recognized by the personnel of DBI, a draft against the paying bank was drawn for the net amount of the invoice less such commission. How |