ever, the commission was credited to the account of DBI, and DBI originally returned such to the paying bank with the direction that the commission should be paid in local currency, if permitted under current A.I.D. Regulations. Despite such, the commission was paid over to DBI, and DBI is tendering this directly back to A.I.D. Similar to the foregoing transaction was another transaction on May 3, 1967, Invoice No. IB 5140, in which a commission payable in local currency was incorrectly declared in the amount of $626.74 when such should have been $689.97. DBI is handling this transaction in the same way and is now tendering such back to A.I.D., directly.

We have not yet completed our investigation into the activities of Don Baxter, Inc., with regard to the provisions of § 201.31 (g), § 201.63 (e) (2), and § 201.65 (a) (1), Code of Federal Regulations, Title 22; however, our investigation to date reveals no questionable transactions under such sections other than those as set forth herein. While such investigation is continuing for those purposes as well as finalizing recommendations to the Board of Directors, insofar as A.I.D. is concerned, it is our recommendation to the Board of Directors, which we believe will be immediately approved, that DBI tender to A.I.D. the appropriate amounts of commissions which were paid or obtained and which would not have been payable if the appropriate regulations had been adhered to. The total amount of such presently recommended tender will be $5,260.11, composed of $1,418.11 on Vietnamese sales and $3,842.00 on Dominican Republic sales.

If any part of our subsequent investigation reveals further material facts which are or may be of interest to your Committee or to A.I.D., we shall immediately disclose such. We reiterate that we are presently in possession of all available records of DBI which we shall hold in our offices for a period of thirty days in case you might want to have such inspected by any of your personnel, and, although such should be made available to you thereafter, we shall then return these records to DBI.

Very truly yours,

JOHN W. HOUGH.

Senator RIBICOFF. Mr. Cohen, what was the extent of the kickbacks or ineligible commission to Mr. La Thanh Nghe or his brother? Mr. COHEN. The total amount that went to Mr. La Thanh Nghe and his brother was over $800,000.

Senator RIBICOFF. You received, I believe, $763,152.13 back from the pharmaceutical companies to the Government?

Mr. COHEN. Yes.

These, by the way, Senator, included refunds on payments that had been made to a firm owned by the brother, Pharmacie Thanh Trung, and a firm owned by his brother-in-law, Pharmacie Phan Nham.

It also included refunds we obtained on payments that were made to Vinamyd, a company which Mr. La Thanh Nghe owned 60 percent of. Senator RIBICOFF. What happened to the funds that went to La Thanh Nghe? Did he keep those funds?

Mr. COHEN. I believe we have a report that most of those funds were eventually repatriated, although the full extent of that I am not sure of. Mr. ADLERMAN. The next witness will testify to that.

Senator RIBICOFF. I have a schedule prepared, I believe, by you, indicating that various companies had paid out a total of $896,258.66 in improper and ineligible commissions.

Mr. COHEN. Some were undisclosed side payments or kickbacks and some were ineligible commissions; yes, sir.

Mr. ADLERMAN. I would like to have that printed in the record. Senator RIBICOFF. Without objection, it will be printed in the record. (The table referred to follows:)

La Thanh Nghe.

17, 717. 44

Do.

Mr. ADLERMAN. Mr. Cohen, this schedule that you prepared shows $763,153 in kickbacks or improper commissions paid to La Thanh Nghe by several American concerns and one German concern; is that right? Mr. COHEN. That is right.

Mr. ADLERMAN. Has this sum been collected by the Government since then?

Mr. COHEN. All of this has been collected with the exception of $909.38 which has been tendered. This is part of Don Baxter's check. Mr. ADLERMAN. On the second part of the list, there is another $133,000. Was that collected?

Mr. COHEN. No. We have issued claims for that.

Mr. ADLERMAN. You have a claim for that. Has that been filed since you started your work with the subcommittee?

Mr. COHEN. Yes.

Mr. ADLERMAN. Of the total of $896,256.66 which La Thanh Nghe and his company received, all has been collected by the Government except the $133,000?

Mr. COHEN. That is right.

Mr. ADLERMAN. And you are in the process of collecting that?

Mr. COHEN. Those claims have been issued, sir.

Mr. ADLERMAN. Is there another $117,000 in claims?

Mr. COHEN. There is another $117,000 involved in kickbacks that were paid by Merck Sharp & Dohme, which we did not know about, and which the subcommittee was able to obtain information on through interrogation and through a joint investigative effort of myself and Mr. Duffy of your staff.

Mr. ADLERMAN. In other words, about $250,000 in improper commissions has recently been disclosed with the assistance of our staff; is that right?

Mr. COHEN. The ineligible commissions, the $133,000, a good part of that was known, that these commissions were paid. But with the assistance of the staff we were able to ascertain the relationship between Mr. La Thanh Nghe and the companies to which these payments were made.

In some cases the companies were importers and Mr. La Thanh Nghe appeared as the agent.

Mr. ADLERMAN. I just wanted to bring out that the subcommittee has been helpful in obtaining the repayment of about a quarter of a million dollars.

Mr. COHEN. Very much; yes, sir.

Mr. ADLERMAN. And that would not have been repaid otherwise? Mr. COHEN. Yes, sir.

Mr. ADLERMAN. Improper commissions that would not have been repaid.

Mr. COHEN. And kickbacks.

Mr. ADLERMAN. Who is La Thanh Nghe!

Mr. COHEN. Mr. La Thanh Nghe is a Vietnamese pharmaceutical importer. He is the senior member, as I understand it, of the La family. He, his brother, and his brother-in-law control a large amount of the pharmaceutical imports coming into Vietnam.

Mr. ADLERMAN. Was he a member of the cabinet of South Vietnam? Mr. COHEN. He has been a member of the cabinet, yes. I understand he is no longer a member of the cabinet.

78-726-68-pt. 2- -6

Mr. ADLERMAN. I have a newspaper clipping in my hand, from the Saigon Daily News. We have verified it through official channels. It states that La Thanh Nghe, who had been Handcraft and Industry Secretary of State, resigned on or about July 7 or 8 of this year, and that he is presently a candidate for the senate.

Is that your understanding?

Mr. COHEN. This is my understanding.

Mr. ADLERMAN. And he will head the ticket for the CA or the upper house election, is that right?

Mr. COHEN. I have been told that this is correct, yes.

Senator RIBICOFF. Without objection, the documents will be placed in the record at this point.

(Documents referred to were marked "Exhibits No. 16 A and B" for reference and may be found in the files of the subcommittee.)

Mr. ADLERMAN. Do you know whether or not the Vietnamese Government took any action against La Thanh Nghe at all for his activities?

Mr. COHEN. I do know Mr. La Thanh Nghe was suspended from importing activity for a while, and that he was also fined and required to repatriate the dollars which had been deposited outside the country. The full extent of that I will have to defer to somebody else.

Mr. HALL. Mr. Chairman, that is substantially correct.

He was given a fine which he paid, we understand. He repatriated a substantial portion, at least, of these payments to him. We have advised the Vietnamese Government of these payments.

We will advise them of the new ones we have discovered as a result of the committee's subpena power and assistance.

Mr. ADLERMAN. He has been fined but never punished?

Mr. HALL. He has never been in prison.

Mr. ADLERMAN. He was fined and required to repatriate some of that money he had in the United States or in Swiss banks?

Mr. HALL. Yes, sir.

Mr. COHEN. And the U.S. banks, as well.

Mr. ADLERMAN. Do you know the rate of exchange for that transaction?

Mr. HALL. No, I don't have that information.

Senator RIBICOFF. How widespread is that practice in Vietnam? Mr. COHEN. The pharmaceutical industry?

Senator RIBICOFF. In the pharmaceutical industry and in sales in general under the commercial import program?

Mr. COHEN. I would say, Mr. Chairman, that the pharmaceutical industry-I would say this was a pattern in the pharmaceutical industry which we uncovered and which we dealt with.

The pharmaceutical importers, the La family in particular, as the price for doing business would have moneys set aside and deposited for them outside the country.

Senator RIBICOFF. Were they the largest family in control of the pharmaceutical business in South Vietnam?

Mr. COHEN. Probably one of the largest single family combines, if you want to call it that.

Senator RIBICOFF. If you take all the pharmaceuticals that were imported in Vietnam, whose whereabouts we are not sure of, in excess

of the basic needs as testified to by Mr. Tamblyn, would that be controlled, the disposition be controlled, by the La family?

Mr. COHEN. No, not all of that.

Senator RIBICOFF. But a substantial portion?

Mr. COHEN. A substantial portion of the pharmaceutical imports into Vietnam were either by Pharmacie La Thanh, wholly owned by Mr. La Thanh Nghe, or Vinamyd, or companies in which Mr. La Thanh Nghe or the La family has an interest.

Senator RIBICOFF. The laws of Vietnam require that if a commission is received or sales made, the dollar equivalent should be deposited in South Vietnam. These dollar commissions were deposited in either Switzerland or the United States, isn't that correct?

Mr. COHEN. That is right.

Senator RIBICOFF. So that deprives South Vietnam of a legitimate source of dollars, even though it was illegitimately paid?

Mr. COHEN. Yes, sir.

Senator RIBICOFF. What has happened with those funds? Have those funds been repatriated to South Vietnam?

Mr. COHEN. As you know, we obtained recovery from the suppliers who obtained reimbursement from us for commissions which should not have been paid, or, rather, not only commissions but for side payments, kickbacks, which should not have been made.

Senator RIBICOFF. I know. But you received that from the suppliers?

Mr. COHEN. Right.

Senator RIBICOFF. Evidently they did not receive that money back from La Thanh Nghe, did they?

Mr. COHEN. To my knowledge they did not.

Senator RIBICOFF. So La Thanh Nghe still has American dollars in Switzerland or the United States?

Mr. COHEN. He has some of it there. I understand some of it has been repatriated. We have advised the Vietnamese authorities and presumably some of it was repatriated.

Mr. ADLERMAN. Mr. Cohen or perhaps Mr. Hall can answer this question.

Isn't one of the real problems in AID, especially in the Far East, that the customary way of doing business is to make payments under the table or a side commission or a kickback? Isn't this one of the real problems that AID has to face not only in Vietnam but in other countries?

Mr. HALL. This is the common commercial practice, to pay a commission or a kickback to the man who is representing you. This is the general practice. We do have to struggle with this problem. It is perhaps worse in the Vietnamese situation than in other countries but it is generally present in the total commercial practice.

Mr. ADLERMAN. And what is the word for it?

Mr. HALL. It is a form of discounting, I suppose, in a sense. It does involve, to some extent, an attempt to evade the foreign exchange regulations and laws of the country. We have worked with the Vietnamese authorities to advise them of all the cases we know of and whenever a commission, whether legitimate or illegitimate, is reported to us, we have notified the South Vietnamese authorities.