Thus, inquiries and complaints may well have poured in upon Olin's officers and lawyers, or at the very least these gentlemen may have reasonably anticipated the very flood of this type of inquiry on the very day in question, March 31st of this year.

Thus, in the haste and pressures of the moment, in supporting and advocating their client's interest, counsel may understandably, at least, have lost sight of their added responsibilities to the court, the other litigants and, indeed, the public.

Moreover, knowing as I do the deserved reputation for professional excellence and character enjoyed by counsel representing Olin in this case, I do not believe that they acted wilfully in this context.

Turning finally to a broader consideration, which necessarily underlies any legitimate concern about the specific problem at hand, it is too obvious to require extensive comment that particularly in the past 18 months much has been spoken, written about the thorny problem of reconciling the twin desiderata of free press and a fair trial.

Bar Association committees and other responsible groups, as we observed a moment ago, are at this very time working and studying and preparing, hopefully, recommended solutions.

Indeed, the Attorney General of the United States has already in recent months laid down specific guide lines for conduct by government prosecutors in this area. Yet the fact remains, as was so ably pointed out by the immediate past president of the American Bar Association in his major address in Miami last month, neither the canons of ethics nor any other sources that I have been able to put my hands on laid down particular clear guide lines concerning the type of problem that we have here for the profession as a whole.

Nevertheless, it seems certain that the events under discussion cast up interesting and serious implications which trial lawyers and judges above all others cannot ignore.

In conclusion then, not only are these remarks today to be considered as a reprimand to counsel here concerned, but also, and perhaps more importantly. the episode can serve as a specific reminder to our profession of its ever pressing and always present duty of enhancing its standards, high as it may be argued they are at present, particularly in the conduct of these criminal cases. Now, I think I have said enough to indicate my feelings on the matter. you will that I endeavored to anticipate as fairly as I can some of the points that can be made, particularly this one: that there are no clear guide lines. Hopefully, if it ever interests anybody at all outside of those of us here concerned, the facts can serve as some illustration for perhaps laying down such guide lines.

hope

So we will let the matter rest without any further ado or comment. And just as a reminder, the defendant Olin Mathieson has until 4 P.M. tomorrow to pay the imposed fine, the total amount of $30,000.

I hereby certify that the foregoing is a true and accurate transcript, to the best of my skill and ability, from my stenographic notes of this proceeding. JULIAN WOLF,

Official Court Reporter, U.S. District Court

EXHIBIT No. 18B

[U.S. District Court, Southern District of New York]

UNITED STATES OF AMERICA v. OLIN MATHIESON CHEMICAL CORPORATION, PHILIPP BAUER CO., INC., KENNETH B. BAUER, HERBERT G. WOLF and Far EAST INTERNATIONAL CORP., DEFENDANTS

(Government's affidavit concerning facts relevant to sentencing of Defendant Olin Mathieson-63 Cr. 217)

State of New York

County of New York

Southern District of New York

Richard A. Givens, being duly sworn, deposes and says:

1. I am an Assistant United States Attorney in the office of Robert M. Morgenthau, United States Attorney for the Southern District of New York, and make this affidavit to set forth facts in the Government's possession which may

be relevant to the sentencing of the defendant Olin Mathieson Chemical Corporation. Copies are being served on counsel for Olin and also counsel for the co-defendants remaining to be sentenced, Philipp Bauer Co., Inc. and Kenneth B. Bauer.

2. Indictment 63 Cr. 217 was filed on March 4, 1963, in 24 counts charging all of the defendants with conspiracy to make false statements to the foreign aid authorities, to cover up material facts and to defraud the United States, and with 23 separate false statements to the foreign aid authorities. The case is now before the Court for sentence of Olin Mathieson on its plea of guilty to counts 1, 20 and 21. Mr. Bauer and Philipp Bauer Co., Inc. are also before the Court for sentence following the jury's verdict of guilty as to all counts on July 9, 1965, after a two-week trial. The defendant Wolf has previously been sentenced on his plea of guilty to count 1, as has the defendant Far East on its plea of guilty to counts 1, 20 and 21.

3. The following subjects are dealt with in this affidavit:

Introduction.

TABLE OF CONTENTS

I. Summary of facts of the case.

II. Procedure of foreign aid financing.

III. The conduct of the Defendant Olin.

A. The false statements and surrounding circumstances.
1. Olin's profitable drug sales to the Far East.

2. The supplier's certificates.

3. The decision to pay benefits to the importers.

4. Use of Bauer Co. as an intermediary.

5. Payments to the numbered Swiss bank account of an official of the Cambodian importer and other payments for personal purposes.

B. Olin's response to the Government's investigations.

1. Continuance of wrongful conduct after notice of its illegal character. 2. Adoption of the device of direct payments to importers after initiation of grand jury investigation.

3. Failure to comply with grand jury subpenas.

IV. Postindictment events.
V. Conclusion.

I. SUMMARY OF FACTS OF THE CASE

4. During the period 1958 to 1963, Bauer Company received in excess of $1,000,000 of foreign aid funds to finance the sale of Squibb trade name pharmaceuticals manufactured by Olin destined for Vietnam and Cambodia. Suppliers' Certificates were made out concerning each shipment, stating that there were no agents' commissions in the invoice amounts, and that:

The supplier has not given or received and will not give or receive by way of side payment, "kickbacks" or otherwise any benefits. in connection with the transactions which were not disclosed.

No such benefits were disclosed. In fact, however, the following benefits among others were involved:

(a) Olin allowed Bauer company a commission, usually 2%, as Olin's agent. (b) Bauer company made payments to the importers of the drugs including so-called "promotional allowances" of 10% of the invoice prices. There were also other payments including payments for the benefit of Dr. Jacques Arnaud, an official of the Cambodian importing concern, many of which were made to numbered Swiss bank accounts.

(c) Bauer company paid 2% to Far East International Corp. at the request of Herbert G. Wolf.

5. After it became evident that the foreign aid authorities were investigating, all of the defendants took part in efforts to keep the nature of the transactions confidential as more fully explained below. In 1962 after the Grand Jury investigation started, Olin Mathieson also adopted a new procedure under which payments to the importers would continue to be made without disclosure on the Suppliers' Certificates, but would be made directly by Olin, based on the amount of business done with the importers. At the time of its plea of guilty, the defendant Olin told the press that the plea was based on the possibility that Olin could be held responsible for unauthorized acts of a former employee in Hong Kong. As indicated in detail below, however, there is overwhelming proof of the knowledge of numerous Olin officials in New York of all of the violations involved here.

II. PROCEDURE FOR FOREIGN AID FINANCING

6. The procedures for foreign aid financing of such sales as those involved here are set forth in AID Regulation 1, 22 C.F.R. § 201. Essentially, the importer in a

recipient country (normally lacking the foreign exchange necessary to obtain vital commodities from outside that country) pays for the goods with his own local currency, deposited in a counterpart fund to be used for economic development or military defense. The dollars to obtain the commodities are furnished by the United States through a bank, which pays the supplier in this country upon presentation of the necessary documents, which include the Suppliers' Certificate, ICA Form 280. The Certificate at the times involved contained boxes calling for the entry of the names of the suppliers and the importer, for the invoice amount after discount and for "information as to agents' commissions, domestic and foreign . . . in invoice amount-paid or to be paid." Paragraph 5 of the Certificate further stated:

The supplier has not given or received and will not give or receive by way of side payment, "kickbacks", or otherwise, any benefit in connection with said contract except as is disclosed on the reverse of this form. AID regulations further provide:

A payment, credit or other allowance to a foreign distributor of a supplier in connection with direct imports by such distributor for his own account. . . must be deducted from the gross amount of the supplier's invoice. 22 C.F.R. 201.6 (F) (2).

III. THE CONDUCT OF THE DEFENDANT OLIN

7. The nature of the conduct in this case is spelled out in documents subpoenaed from the defendant Olin Mathieson which are attached to this affidavit as Exhibits 1 through 29, 31 through 110 and 152. Documents obtained from Bauer Company and attached as Exhibits 111 through 151 are also pertinent.

A. The False Statements and Surrounding Circumstances

1. Olin's Profitable Drug Sales to the Far East

8. During the period 1958 through 1963 the defendant Olin Mathieson Chemical corporation made numerous sales of pharmaceuticals to Viet Nam and Cambodia, the gross amount financed from foreign aid funds exceeding $1,000,000. Olin's rate of profit on this Government financed business appears to have exceeded 33% as indicated by a memorandum from Herbert G. Wolf in Hong Kong to George M. Weimer of Olin in New York dated May 3, 1962 (Ex. 4) which states that:

[If a foreign aid] procurement authorization would have elapsed. we would have lost $90,000 worth of business, on which we stand to make about $40,000 gross profit. Therefore, the $90,000 would allow the corporation over $30,000 profit. We are fully protected from the simple reason that when the $90,000 letter of credit is shipped, there is a promotional allowance due Chimikhmer of 10% or namely $90,000, which is the same amount that OMFEL Hong Kong Guaranteed. This promotional allowance will be held back until Chimikhmer pays the $90,000 to the bank themselves so you can say there is no risk on our part. Olin made every effort to obtain foreign aid financing for these profitable drug sales as illustrated by a letter from Herbert Wolf to P. D. Peiser of Olin in New York dated May 20, 1959 (Ex. 78) stating in part:

I met Mr. Alden Smith, who is the Chief Adviser on commercial imports for U.S., and also the Chief Adviser on financial affairs. He is the gentleman who tipped us off on my last trip that there would be a $300,000.00 I.C.A. allocation, and that we should put in our application for as much as possible, and he would see that they are approved, if at all possible. You know the story that the $500,000.00 was put into effect, and we got over $200,000.00 of it. He mentioned that there were several projects on which money was left, and after he gets all the tickets together, Dr. Arnaud should call on him and he will surely allocate additional money, if not for finished goods, certainly for bulk for the plant.

2. The Supplier's Certificates

9. On each foreign aid financed shipments of Squibb drugs to Viet Nam and Cambodia during the period from 1958 to March 1963, Supplier's Certificates were submitted by Philipp Bauer Co., Inc. certifying that there were no agents'

commissions, domestic or foreign, paid or to be paid included in the invoice amounts and that:

5. The supplier has not given or received and will not give or receive by way of side payment, "kickbacks", or otherwise, any benefit in connection with said contract such as is disclosed on the reverse of this form ..

No disclosure was made of any of the types of benefits discussed in this affidavit.

3. The Decision to Pay Benefits to the Importers

10. On April 4, 1958, Wolf, as General Manager of the Squibb Export Division of Olin wrote to Dr. J. L. Arnaud, an official of the Cambodian importing company (Chimikhmer), sending copies to Bauer and to two other Olin officials in New York (Ex. 130):

... on your direct purchases you will... receive a 10% commission....

I know there is no blackmail in your attitude, and if I thought so for a minute I would not be writing you this letter, nor would I be doing business with you. You are merely pointing out sound business arguments and it is up to us to say whether or not we care to meet them. 11. On May 1, 1958, Dr. Arnaud and his partner Berard, wrote to Bauer (Ex. 145), with a copy to Zyto of Olin including the following paragraph:

Import Commission. I had stated in my cable import "allowances" as a matter of discretion. I am very surprised that there seems to be some misunderstanding about that, as in his letter of April 4 Mr. Wolf stated on page 4, paragraph 3: “3. Commission of importation not less than 5%. Both Bauer and ourselves agree. In fact, I will go one better. If your company does the importing, we will give you a commission of 10%. This does mean a total of 15% but only a total of 10% on any importation by your company—that is, direct importations.

Therefore, in our minds there was no problem about the existence of those commissions in addition to the 5% promotion allowance, but not being very familiar with American business calculation habits, we wanted to check on that. Some French firms, for instance, let the buyer himself add his commissions to the trade list price. As we were not sure whether or not the inclusion had already been made, we thought we had better check in order to avoid very difficult corrections on licenses later on. (Emphasis added)

12. On May 8, 1958, Dr. Arnaud wrote to Mr. Zyto (Ex. 118) with copies of Messrs. Wolf and Davies, also of Olin Mathieson, and to Mr. Bauer:

DEAR MR. ZYTO: As you will learn from the attached letter, there has been some confusion between us on the matter of commissions. We are extremely sorry if we have given you the impression that we are stingy bargainers, discussing at length the mercenary matter of set-aside money. It was not at all our intention to give this appearance but, as stated, the proposal came from Mr. Wolf or at least from what we understood to be stated in his letter; there is no reason for us to renounce this proposed advantage in the absence of definite explanations. (Emphasis added) 13. The letter to Mr. Bauer (Ex. 120) enclosed in Ex. 118 stated as follows: Coming back to your letter of April 23, everything is clear except this bothersome matter of promotional and import allowances. I am very sorry about all this confusion but I frankly feel that it does not come completely from our side, if at all. I partially answered this problem in my letter of May 2. I am enclosing a photostatic copy of Mr. Wolf's famous letter of April 4. When we received it, we read it several times and, despite a certain lack of clarity possibly due to hurried dictation, we concluded that it was a 5% allowance on all sales plus 10% commission on all imports. We have re-read it again, since it appeared from your cables that there was some confusion about that and we can not understand any more clearly after this careful perusing why Mr. Wolf stated: "I will go one better" if the total of allowances and commission is 10%.

As we were not the ones to request those figures but it was proposed by Mr. Wolf, we had therefore to postpone our order until complete clarification. This clarification would of course, have come immediately with a personal two-minute discussion and may clarify the situation earlier through the following means. (Emphasis added)

14. On May 9, 1958, Mr. Bauer wrote to Drs. Berard and Arnaud as follows (Ex. 117).

Commissions, etc.: We hope that by now the question of the amount of commissions and promotional allowances should have been straightened out. Whatever misunderstanding there may have been, was undoubtedly cleared up by the various cables we exchanged with Mr. Herbert G. Wolf, at present in the Near East.

In a cable which was sent the writer on the 4th of this month (3rd of May, Beyrouth time), he informed me that he was cabling you direct that the total amount of your commissions and promotional allowance was 10%, in addition to which you are receiving the $430.00 monthly for promotional, propaganda and detailing expenses.

In this particular cable, Mr. Wolf repeated that his letter of the 4th of April confirmed the agreement that you will receive 5% commission on all imports which Mr. You Chhan should make, either through you or in case he should prefer to order directly, and that on all imports of your own and for your own account, or for other customers of yours, the commission would be 10%. (Emphasis added)

15. On May 26, 1958, Mr. Wolf cabled (Ex. 106) four Olin officials in New York making it clear that the payments involved were considered commissions and that they were necessary to obtain this profitable business financed by aid funds for Olin Mathieson :

Zyto ask Bauer settle commissions due customers at once otherwise no orders will be placed this year, regards.

WOLF.

16. As the result of these and other communications, an agreement (Ex. 105) was signed dated July 25, 1958, between Dr. Arnaud and Kenneth on behalf of Philipp Bauer Co., Inc. stating:

In addition to . . . promotional allowance of $430.00 [monthly] you will receive a promotional allowance of 10% of all sales of Squibb's products, with exception of narrow spectrum antibiotics, where it is reduced to 5%.

This letter, to be signed by Dr. Arnaud, on behalf of himself, Dr. Berard and the Cambodian firms, and Mr. Kenneth Bauer for the Philipp Bauer Co., Inc. will at the same time certify the consent of Squibb to the above-mentioned points.

17. Mr. Bauer wrote to Dr. Arnaud (Ex. 134), sending copies to Mr. Wolf and Messrs. Zyto and Davies of Olin on April 23, 1958, that:

All prices or list prices, and therefore do include the promotional allowance as agreed upon...

*

Independent of this-and this has nothing to do with the prices-is the special monthly allowance for promotional and detailing personnel.

18. The $430.00 monthly promotional allowance was understood to be the mount expected to be spent for promotion as illustrated by Ex. 133, Dr. Arnaud's etter to Bauer, with copies to Wolf, Davies and Zyto of Olin Mathieson, dated February 10, 1958, stating:

We feel certain that in this our interests are mutual. Accordingly, I am sure that you will understand, in view of our efforts and expenditures-the latter already exceeding the agreed 430 U.S.$-that payment of the monthly promotional allowances should justifiably begin on February 1st, instead of March 1st.

78-726--68-pt. 2- -23