ence to certain materials which were imported into the foreign trade scene in 1961 and 1962, somewhere in there, in bulk form. These materials were then reduced to dosage form, repackaged in ampoule form, so forth and so on, and then shipped out of the foreign trade zone, with the representation that the source of origin was the United States.

Let me add one thing on this. The cost of repackaging and reducing this in bulk form under Federal administration regulations constitutes a change in the utility of the drug. The cost was in excess of 50 percent to do this under a number of cases, the Virgin Island watch case and all sorts of customs cases where origin questions, legal questions, have arisen, where the cost of the ultimate end product exceeds 50 percent manufactured in the United States the source origin is considered the United States.

This is again a legal question. This is one of the subjects of the civil lawsuit. This is one of the things in which the Department of Justice has already declined prosecution. It is still a legal question, sir. That is all I am saying.

Mr. O'DONNELL. It cannot be resolved here today. The position that AID has taken is that this is a violation of the regulations that exist? Mr. AMBROSE. That is right. AID has taken this position some 5 or 6 years after the fact.

Mr. O'DONNELL. But the point is that we cannot discuss or argue it here, this is not the proper place to do it.

Mr. AMBROSE. I am only pointing out, sir, it should go into the record because that would indicate some of the testimony here is subject to other interpretations both factually and legally.

Mr. O'DONNELL. Mr. Chairman, this is a letter dated January 15, 1963, Archifar International, directed to Mr. Lowens by Mr. Gubbay, and has been discussed. I would like to present it to the witness and have it identified so it can go in as an exhibit.

Mr. AMBROSE. May we have a conference?

Mr. O'DONNELL. Take page 4; can you identify that, Mr. Lowens?
Mr. LOWENS. I assume that I received that letter.

Senator RIBICOFF. Mr. Gubbay's signature is on it.
Mr. LOWENS. Yes.

Senator RIBICOFF. It may be introduced as exhibit 51.

(The document referred to was marked "Exhibit No. 51" for reference, and will be found in the appendix on p. 632.)

Mr. O'DONNELL. I hand you a copy of a letter dated July 12, 1963, Milan, Italy, signed by Mr. Gubbay, addressed to the Associated Chemical Pharmacy & Industries, Ltd., New York. Can you identify that particular letter?

Mr. LOWENS. I must assume I received the letter. I don't remember what it is all about. I don't remember the circumstances.

Mr. O'DONNELL. Mr. Chairman, may that be made an exhibit? Senator RIBICOFF. Without objection it will be made exhibit 52. (The document referred to was marked "Exhibit No. 52" for reference and will be found in the appendix on p. 637).

Mr. O'DONNELL. The last letter that I have is dated August 7, 1964, Milan, Italy, addressed to you, signed by Mr. Gubbay. Can you identify that letter?

Mr. LowENS. Yes; I see Mr. Gubbay's signature. I assume it was received. I see a receipt stamp on it.

Mr. O'DONNELL. May that be made an exhibit, Mr. Chairman? Senator RIBICOFF. Without objection it is introduced as exhibit 53. (The document referred to was marked "Exhibit No. 53" for reference and will be found in the appendix on p. 639.)

Mr. O'DONNELL. I have no further questions, Mr. Chairman. Senator RIBICOFF. Unless Mr. Lowens or Mr. Ambrose would like to make a statement. Would you like to make a statement, sir?

Mr. AMBROSE. Mr. Chairman, one statement I would like to add in connection with this. At the time Mr. Lowens received a grand jury subpena duces tecum 2 years ago by the U.S. attorney of the southern district of New York, I personally went down and examined the voluminous documents involved. There are literally many, many, many thousands of individual shipments and documentation, customs documentation and so on. Because of the sweeping nature of the assistant U.S. attorney's grand jury subpena, rather than move to quash it I decided we would produce every single document required. This was I think eight filing cabinets filled with documents, stuffed, believe me, with thin sheets.

Senator RIBICOFF. You turned over everything?

Mr. AMBROSE. Everything. According to the subpena I have turned over everything. I have never yet received a comment from the assistant U.S. attorney that I did. To this day I want to point out to the Senator, that to expect Mr. Lowens to remember specific documents in this vast pile of transactions would be somewhat unfair. That is my only point.

Mr. DUFFY. Let me comment on that.

This morning we received for the first time documents from your organization which were requested many times in the past. The canceled checks were produced for the first time this morning. I might make that comment.

Mr. AMBROSE. I did not make any reference to any Senate subpenaed documents. I was retained by Mr. Lowens on Monday afternoon when I was informed by Mr. Duffy on Monday afternoon by telephone conversation that he wanted these records. I sent Mr. Lowens back to his office. Mr. Lowens got the records and brought them here.

Mr. DUFFY. Mr. Ambrose cooperated perfectly on that. The point I want to make is that these are very pertinent documents, canceled checks, disbursement records, receipt records, they were not examined by the U.S. attorney during this period.

Mr. AMBROSE. That is his fault, not mine.

Senator RIBICOFF. Do I understand that they are being examined by the grand jury on Friday?

Mr. AMBROSE. As a matter of fact, they were not asked for. The records that were in the original subpena, and I could go through some of the files and look for it, were for all correspondence basically and all invoices and all customs shipping documents and all documents filed with AID. My recollection is that there was no request for canceled checks.

Senator RIBICOFF. Have Mr. Ambrose and Mr. Lowens granted the committee or committee staff whatever they have requested to date?

Mr. DUFFY. There is one thing we do not have, the credit memorandums we would like to get for the record indicating dollars sent to VPPO in Milan, invoices from VPPO, credit memorandums.

Mr. LOWENS. I don't know. They should be in the documents in New York.

Mr. AMBROSE. We are making no allegation that the checks do not constitute payments to IPO and VPPO. They speak for themselves. Mr. O'DONNELL. Could you furnish them if you do have them available?

Mr. AMBROSE. If they are available you may have them any time you want.

Mr. LOWENS. You realize with this investigation going on for 2 or 3 years the office has been turned upside down. I don't know what is there.

Senator RIBICOFF. This hearing will be adjourned, subject to reopening if Mr. Gubbay becomes available either through cooperation of counsel or committee subpena.

(Whereupon, at 3:40 p.m., the committee was recessed subject to call.)

APPENDIX

EXHIBIT No. 17A

Mr. Edward P. Guinane, MIS.

Meyer Lee, MIS.

May 7, 1963.

Viet Nam-R. P. Scherer Corp., Detroit (Supplier), Pharmacie La-Thanh, Saigon (Importer), Kickbacks.

It is recommended that a case be opened as captioned above. Examination of the 280 file in the Controller's Office disclosed five forms 280 covering shipments by subject, R. P. Scherer Corp., to La-Thanh, Saigon, aggregating almost $80,000. These forms, representing Voucher Nos. 600065, 624426, 615076, 631849 and 533314 are attached hereto. None of them reflect agents' commissions or other payments. In this connection, it will be noted that the writer's inquiries in the Bauer-Olin Mathieson case and others established the existence of a pattern of kickbacks to La-Thanh from numerous U.S. suppliers.

The report of FBI Agent Frank J. Knoth, dated January 17, 1963, and contained in the Bauer file, reflects subject's denial of the payment of any promotional allowances or kickbacks to La-Thanh on vitamin shipments made in 1961-62 totaling $100,000.

Dan Cohen, FRD, advised that he has no information with respect to the Scherer firm. A Dun & Bradstreet report on subject has been requested.

It is recommended that a case be opened in this matter and that a review be made of subject's files, correspondence and records pertaining to its dealings with La-Thanh.

Gammelsbacher Str. 2, Everback (Bad Neckartal), (Germany).

GENTLEMEN: We acknowledge receipt of your three letters of February 4 to which we have given our fullest attention.

With regard to the two letters and the total amount of commissions due to us, we agree on the amount of U.S. $2,594.73 and we apologize for the error inadvertently committed by us.

With regard to your letter which contained [your proposals] of paying the bill according to the stipulations of the letter of credit, we know by experience that each ICA letter of credit is accompanied by a form MOD 820 (AID form 280) with which the dealer and exporter has to notify the domiciliary bank about the commission included in the FOB price of the exported merchandise.

In practical proceedings, however, it has happened that all the dealers with whom we are doing business have not been paying heed to these recommendations and failed to declare the commissions and the wholesale and retail prices in separate statements.

In other words, you have to invoice by dividing the wholesale from the retail prices and you must likewise certify that the FOB price does not contain any commission nor refund.

551

78-726-68-pt. 2- -22

If you do not act according to the above instructions, you will not only place our customer and ourselves in a very difficult situation but, and what is much worse, we cannot work with you in the future in spite of our wish to do our outmost to bring your products on the Vietnamese market.

Will you, therefore, make your invoice according to the bill duly corrected by us.

Finally, we kindly ask you not to write to us any longer letters about commission and refund nor letters of this kind to the customer for reasons which you will easily understand.

We, therefore, acknowledge our cable of today which runs as follows: "Reference yours February fourth imperative await our letter before submitting documents on February twentieth."

There is no need that you repeat: "In extenso" to the present letter. Tell us only that you received it and that you agree with us and that you prepared your invoice according to our instructions.

GENTLEMEN: In order to facilitate your steps with the German Exchange Office with regard to the allocations due to us for our intervention in carrying out the order of the LA-THANH pharmacy.

We kindly ask you to disregard our letter GER/1/58 of January 25, 1958 and cable at our expense the sum of US$1,594,20 (thousand five hundred ninety four) which represents our personal remittance to the account of Mr. Lucien Baconnet, No. 33,908 with the Franco-Chinese Bank in Saigon.

We would be thankful if you would kindly pay to Mr. La-Thanh-NGHE the sum of US$1,000.55 (thousand) on his personal account No. 391702 with the Union de Banques Suisses in Geneva.

Thanking you in advance for the promptness which you have shown to satisfy us, we beg to remain, gentlemen,

Yours very truly,

LUCIEN BACONNET,

RALEIGH SHALOM.

EXHIBIT No. 17D

OCTOBER 3, 1963.

Re Laboratories de La Grange, Paris, France;

Charges of kickbacks and/or promotional allowances.

Mr. ARTHUR H. CROWL,

Investigation and Compliance Division, MIS, U.S. AID to Vietnam, c/o American Embassy, Saigon, Vietnam.

DEAR ART: Reference is made to our letter of June 24 on captioned matter. For your information, recent inquiries conducted by Inspector Meyer Lee in West Germany disclosed that Vietnam Pharmaceutical Promotion Office (VPPO), Saigon, received kickbacks totaling 27.5 percent of the invoice amount from R. P. Scherer Corp., Eberbach/Baden, West Germany, 10 percent of which was passed on to importer La Thanh, Saigon. Scherer's Managing Director advised that VPPO performed no promotional services for his company.