Mr. ADLERMAN. To Mr. Lowens? Mr. ADLERMAN. Just to set the record straight, are there kickbacks involved in the affairs of Solar and Pharma Scienta, or is it mostly overpricing? Mr. COHEN. I would say that we are considering an overpricing claim. The overpricing was of a magnitude which leads us to believe that there was margin for kickback to VPPO, or to Gubbay. Mr. ADLERMAN. You made a study of some 142 shipments by Solar and Scienta, is that right? Mr. COHEN. Yes, sir. Mr. ADLERMAN. On 39 shipments made by Solar, they had a total sales price of $221,000, a cost price of $112,000, and a markup of $109,000-a markup of 97 percent? Mr. COHEN. Yes, sir. Mr. ADLERMAN. Describe these markups. Were they to the secondary suppliers? Mr. COHEN. These were the markups from Solar and Pharma Scienta to the importer. Mr. ADLERMAN. To the importer? Mr. COHEN. That is right. They were the markup over their socalled acquisition cost. Mr. ADLERMAN. Did the products of Solar and Scienta come from France or Italy? Mr. COHEN. I don't know. They claim that they came from Greek and Portuguese laboratories. I might say that, by the large markup, they might have truly come from-well, I don't know. I couldn't say. Mr. ADLERMAN. But principally involved is the markup or the pricing? Mr. COHEN. Of the AID-financed transactions; yes, sir. Mr. ADLERMAN. So Pharma Scienta had 103 shipments. The sales price was $719,000. The cost price was $387,000. The markup was $332,000, or 85 percent. Mr. COHEN. Yes, sir. Mr. ADLERMAN. The total sales price of 142 shipments came to $941,000. The cost price was $500,000, and the markup was $441,000, for a markup of 88 percent. Mr. COHEN. Yes, sir. Mr. ADLERMAN. That is the involvement of Solar and Pharma Scienta. Were there also excessive markups by the Gedeon Richter Co. of New York through invoicing or reinvoicing of drugs going to Vietnam from Gedeon Richter, Brazil? Mr. COHEN. Yes, sir, there were, but that is still under study. I don't have as much of a breakdown for you as we have on the Solar and Pharma Scienta. Mr. ADLERMAN. But we do have some illustrations of some of the items. Senator Ribicoff referred to a 345-percent markup. This was on Cortiplex B3 plus 3, intravenous. Mr. COHEN. Yes, sir. Mr. ADLERMAN. The schedule price on the Sao Paulo, Brazil, invoices was 46 cents. The New York invoice price was $2.05, or a markup of $1.59, is that right? Mr. COHEN. That is right. Mr. ADLERMAN. And similarly you had other markups of a similar nature. Take, for example, Pancortin B6, which had a Sao Paulo price of 46 cents and a New York invoice price of $1.02. The difference was 56 cents, or a 121-percent markup. Mr. COHEN. Yes, sir. As I understand it, Mr. Lowens advised the AID investigator, who had obtained the information on the Brazil price, as compared to the price that was ultimately financed by AID, that the price was determined by Mr. Navarro. Mr. ADLERMAN. Are you familiar with these exhibits that I show you? (The documents were handed to the witness.) Mr. COHEN. Yes, sir. Mr. ADLERMAN. Do these relate to the overpricing? Mr. ADLERMAN. I would like to offer these in evidence. Senator RIBICOFF. Without objection, it is so ordered. (Documents referred to were marked "Exhibits No. 24A, B, and C." Letter dated April 18, 1967, follows. Other documents will be found in the appendix on pp. 588-589.) AGENCY FOR INTERNATIONAL DEVELOPMENT, INSPECTIONS AND INVESTIGATIONS STAFF, Re: IIS Case No. 3567, IIS Case No. 3568, IIS Case No. 3146. DEAR BOB: We are leaving today for Dublin, Ireland, having completed our European and Beirut work on the above cases, in which Mr. Clement GUBBAY was a principal. In summary, we have established a price markup of $500,202.86 (88%) on 142 shipments billed to Vietnamese importers at $941,678.54, as shown below: There are some additional transactions on which details are not currently available, since we noted approximately 169 Supplier's Certificates in C/FRD. Although we found no instances where the cost of imported products exceeded 10% of the FOB prices billed by SOLAR or PHARMA SCIENTA, nevertheless, the principal prime materials were frequently of French or Italian origin. No evidence of kickbacks was obtained. At the time of the submission of our reports in Washington, D.C. we plan to prepare a Memorandum to Mr. Leslie A. Grant, for your signature, calling attention to the overpricing we have documented. Sincerely yours, MILTON SINGMAN, Foreign Assistance Inspector. Mr. ADLERMAN. Mr. Cohen, you prepared this chart, is that correct? Mr. COHEN. Yes, sir. Mr. ADLERMAN. I would like to offer this chart into the record. Senator RIBICOFF. Without objection, the chart will go into the record. (Chart referred to follows:) Mr. ADLERMAN. Have you anything more to add, Mr. Cohen, in clarification of anything? Mr. COHEN. No, sir. I think this covers it. Senator RIBICOFF. Thank you, Mr. Cohen. Mr. Ernest Lowens. Senator CURTIS. Mr. Chairman, could I ask Mr. Cohen a couple of questions before he leaves? Senator RIBICOFF. Certainly. Senator CURTIS. I base this upon a report in reference to Merck & Co. Would you describe the steps you have taken to discuss with Merck & Co. its operations concerning this investigation? Mr. COHEN. I visited Merck & Co. with Mr. Duffy of the subcommittee staff. We had a subpena. We obtained information which was not given to AID previously. Senator CURTIS. Did you ask them for some information before? Mr. COHEN. My recollection is that I had asked them for information before as to whether or not they had paid any promotional allowances or made any promotional allowance payments or side payments to their distributor in Vietnam. My recollection is that they replied they had not. This was around 1962. Senator CURTIs. Do you recall who you talked to? Mr. COHEN. I don't recall, sir. Senator CURTIS. Do you know when it was? Mr. COHEN. Approximately 1962. Senator CURTIS. With whom? Mr. COHEN. I don't recall, sir. Senator CURTIS. Do you know where the conversation took place! Mr. COHEN. In New York, in their office. Senator CURTIS. The New York Times states Merck's payments were brought to light only through use of the investigating committee subpena powers. Mr. COHEN. Sir, the company knew that promotional allowances were ineligible for AID financing, and they also knew of the Olin Mathieson case and of the convictions therein. They did not come forward with any information to advise AID that they had made these payments. Senator CURTIS. Your recollection is that the only contact with them prior to this appearance of the subpena was a visit with somebody, but you do not remember with whom, back in 1962? Mr. COHEN. Right. Senator CURTIS. Was anyone with you? Mr. COHEN. No, sir. Senator CURTIS. And since that time, has there been any denial of cooperation? Mr. COHEN. Not from Merck; no, sir. Senator CURTIS. At any time? Mr. COHEN. No, sir. Senator CURTIS. I am talking about prior to the subpena. Mr. COHEN. There was no denial; no, sir. Mr. DUFFY. Senator, the Merck Co. has been extremely cooperative with the committee in this area also. Senator CURTIS. Thank you. Has the method of dealing with distributors, to which there has been bjection made, differed in Merck's practices as far as AID is conerned? Mr. COHEN. I don't know. I don't know whether they paid kickpacks before the AID program or not. Senator CURTIS. Have they paid any since then? Mr. COHEN. They discontinued the practice of paying promotional allowances or kickbacks after the Olin Mathieson conviction, after Olin Mathieson pleaded guilty and the other firms were found guilty n the jury trial. That was 1964. Senator CURTIS. This question is not confined to any one company, out in general were the so-called promotional allowances for all companies of the same magnitude? Mr. COHEN. Yes, sir; they were. The entrance fee if I may characterize it as such, was 10 percent, roughly. Senator CURTIS. Have you advised Merck that you have or are going to certify any claim against them? Mr. COHEN. They were so advised during the course of our discussions with them, when Mr. Duffy and I were in Rahway, N.J., and in New York. We advised them that this would most likely result in a claim for refund. Senator CURTIS. I am not talking about a possibility of a claim to be made. Mr. Duffy couldn't certify a claim against them. Has the AID program advised them that they have or are going to certify a claim against them? Mr. COHEN. No, I did not, for the very reason that we may first send this to the Department of Justice for consideration before a claim is issued. Senator CURTIS. Is there anything else you wish to say in reference to the questions I have asked? Mr. COHEN. Only that there was a pattern of these side payments to distributors in Vietnam, and recoveries have been made from a large number of American pharmaceutical companies, as well as some foreign companies. In the case of Merck, we did not know of the $117,000 side payment until Mr. Duffy and I served a subpena on them. (Additional comments concerning the preceding testimony of Daniel Cohen follow :) U.S. SENATE, COMMITTEE ON GOVERNMENT OPERATIONS, Mr. FRED BARTENSTEIN, Jr., DEAR MR. BARTENSTEIN: I am in receipt of your letter dated August 8, 1967, with comments relative to the testimony of Daniel Cohen, an official of AID, before the Senate Permanent Subcommittee on Investigations on August 1 and 2. You requested that your letter of August 8 with comments be made a part of the official record of the Subcommittee hearings. In compliance with the general rule of the Subcommittee that all testimony placed in the record be sworn testimony taken under oath, it is requested that the contents of your letter be submitted in affidavit form. I have also directed that the Subcommittee staff furnish a copy of your August 8 letter to AID with the request that any comments or observations they may |