INVESTIGATION OF THE NAVAL DEFENSE PROGRAM

THURSDAY, MAY 28, 1942

HOUSE OF REPRESENTATIVES,

NAVAL AFFAIRS INVESTIGATING COMMITTEE,

Washington, D. C.

The committee met at 10:32 o'clock, pursuant to adjournment on Wednesday, May 27, 1942, in room 313, Old House Office Building, Representative Carl Vinson, Georgia, chairman, presiding.

Present: Representatives Carl Vinson, Georgia (chairman); William E. Hess, Ohio; W. Sterling Cole, New York; Melvin J. Maas, Minensota; Thomas A. Flaherty, Massachusets; William S. Jacobsen, Iowa; James J. Heffernan, New York; William H. Sutphin, New Jersey; Lansdale G. Sasscer, Maryland; William H. Wheat, Illinois; Ed V. Izac, California; Arthur B. Jenks, New Hampshire; John Z. Anderson, California; William W. Blackney, Michigan; Lawrence E. Imhoff, Ohio.

Also present: Edmund M. Toland, general counsel; William J. Shaughnessy, assistant general counsel; and Thomas S. Hinkel, assistant general counsel.

The CHAIRMAN. Let the comittee come to order. All right, Mr. Toland.

Mr. TOLAND. Mr. Chairman, the matter to be presented to the committee involves the Mine Safety Appliances Co., of Pittsburgh, Pa., a long-established company dealing in safety appliances of various kinds. The records disclose an increase from 1939 to 1941 of approximately 700 percent, directly attributable to a vast increase in business. with the United States Navy. Profits will be shown during the years 1940 and 1941 on Navy business amounting to 81 percent on cost and ranging from a high of 122 percent to a low of 38 percent. The two largest contracts with the Navy show tremendous gross profits. In addition, instances of collusive bids on Navy contracts involving this company will be demonstrated.

A great portion of the business of the Mine Safety Co. is proprietary, large royalty payments being made on certain technical appliances. These royalty agreements contain frequently a discriminatory charge wherein higher royalty payments are made when the sales are made to the Government of the United States.

We will also discuss the salaries and bonuses of officials of the company.

The CHAIRMAN. Call your first witness.

Mr. TOLAND. Mr. Beggy.

I would like to correct the statement to make it 700 percent increase in business, not profit.

Mr. GEORGE H. DEIKE. George H. Deike is my name. I am president of the Mine Safety Appliances Co., and with your permission, Mr. Chairman, I would like to present on behalf of our company a statement of the policy which I would ask to be given most careful consideration.

The CHAIRMAN. We mean to have you do that, but do you want to present it at this point? Do you want to use him as a witness, Mr. Toland?

Mr. TOLAND. No, sir.

The CHAIRMAN. Just file it with the reporter.

Call your first witness, Mr. Toland.

Mr. TOLAND. Mr. Beggy, will you stand and be sworn?

The CHAIRMAN. Hold up your right hand. The evidence you give the Naval Affairs Committee will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. BEGGY. Yes, sir.

TESTIMONY OF JOHN F. BEGGY, VICE PRESIDENT AND SECRETARY, MINE SAFETY APPLIANCES CO., PITTSBURGH, PA.

Mr. TOLAND. Mr. Beggy, what is your full name?

Mr. BEGGY. My full name is John F. Beggy.

Mr. TOLAND. Where do you reside, Mr. Beggy?

Mr. BEGGY. Pittsburgh, Pa.

Mr. TOLAND. What is your present business or occupation? Mr. BEGGY. I am vice president, secretary, and assistant treasurer of the Mine Safety Appliances Co.

Mr. TOLAND. How long have you been connected with that company?

Mr. BEGGY. I have been connected with the company since 1917. The CHAIRMAN. Talk a little louder.

Mr. BEGGY. Since 1917.

Mr. TOLAND. What are your duties as vice president and secretary of the company?

Mr. BEGGY. As vice president of the company I am charged with the operating affairs of the company in the absence of the general manager; also in charge of accounting, budget control, and sales budgets.

Mr. TOLAND. What was the volume of the business in 1940? Mr. BEGGY. I cannot answer that, Mr. Toland. I do not have the records.

Mr. TOLAND. Just a moment. There are no statements read at this committee. You are here to be questioned and you can give answers.

Is there anybody here who has been subpenaed who has the record of the total volume of the business of the company?

Mr. BEGGY. No, sir.

Mr. TOLAND. Mr. Chairman, I would like to offer in evidence a report submitted to the committee by Captain Baldwin of the United States Navy representing an examination of the books and records of the company for the years 1939, 1940, 1941, not to be printed.

(Statement referred to was received in evidence, marked "Exhibit No. 375," and is filed with the committee.)

Mr. TOLAND. The examination of the records of the company by the members of the staff show that in 1940 the total business of the company was $8,327,149.59, and in 1941, $16,307,937.26.

Now, Mr. Beggy, what percentage of the business in 1941 was business with the Navy and the Government of the United States? Mr. BEGGY. Mr. Toland, may I refer to some papers in my files? Mr. TOLAND. Yes, surely.

Mr. BEGGY. Mr. Toland, do you mind repeating that question, please?

Mr. TOLAND. What was the percentage of the Navy business of your company, classified and unclassified Navy sales, in 1941?

Mr. BEGGY. Mr. Toland, in view of the fact that I have signed espionage clauses and the information contained in answering your question might work to the detriment of the armed forces of our country and the safety of the country, as covered in this report of Mr. Deike, I do not think I should answer that question.

Mr. TOLAND. Do I understand you were subpenaed to appear before this committee?

Mr. BEGGY. That is correct, sir.

Mr. TOLAND. Are you refusing to testify?

Mr. BEGGY. No, sir; I am not refusing to testify.

The CHAIRMAN. One minute.

Mr. BEGGY. I would like to have my counsel

Mr. TOLAND (interposing). No, no, no; you are the witness.

The CHAIRMAN. Wait one minute. Mr. Toland, let's stop right there now and read what this statement says. Let the witness read this statement that you just made as the reason you don't want to make that explanation.

Mr. BEGGY. Thank you, sir.

This is before the Naval Affairs Investigating Committee of the United States House of Representatives. Statement of Mine Safety Appliances Co. to the honorable chairman and members of the House Naval Affairs Investigating Committee.

Mine Safety Appliances Co., a Pennsylvania corporation, has been for many years and is now, engaged in the manufacture of safety equipment for the United States Navy. Approximately 75 percent of the equipment now being made for the Navy is subject to the provisions of the Espionage Act (act of June 15, 1917, as amended, 50 U. S. C. A. sec. 31 et. seq.), the act of June 12, 1938 (50 U. S. C. A., sec. 45), and Executive Order No. 8381 of March 22, 1940, carrying into effect the provisions of said act, the act of October 6, 1917 (Public, No. 80), as amended July 1, 1940 (Public, No. 700), as amended August 21, 1941 (Public, No. 239), and in addition, to contract provisions, forbidding said company to in anywise make disclosure of the equipment manufactured, or contracts relating thereto, under penalty of possible criminal penalties as well as possible loss of valuable rights. In order to protect itself and as well to cooperate with this committee, the company on April 27, 1942, applied to the proper authorities for advice as to whether it could make disclosure of the foregoing information to this committee, but to date authorization to do so has not been received.

The company respectfully insists that it would be against the public interest and of aid to the enemy, to make such disclosure.

The company is aware from a reading of the first report (p. 3) of this conmittee that this honorable body does not intend to require any disclosure of vital and secret defense information.

The company and the individual witnesses here appearing have been advised by counsel and respectfully urge this committee to concur in said advice, that they are not permitted to directly or indirectly disclose any of the above-mentioned secret, confidential, or restricted information to this committee. To

require them to do so would not only involve the witnesses in a disclosure of information vital to the war program but would as well compel them to violate the foregoing statutes, Pollen v. Ford Instrument Co. (26 Fed. Supp. 583) and Pollen v. United States (35 U. S. P. Q. 453).

The company respectfully urges this committee to consider the unfair and impossible position of the company in the light of the foregoing, if inquiry is to be made into the profits of the company, which it is understood is the purpose of the present hearing. If the company is expected to defend its profits, necessarily it must explain its costs and to explain the latter obviously requires an explanation of the details and processes of manufacture, which seems to be impossible in the light of the statutory and contract restrictions above referred to. It is respectfully submitted that the foregoing statements should be considered in execuive session, in order to avoid any risk of disclosure of vital defense information.

The committee may be interested in learning that based upon its income-tax returns the net profits of the company from all sources, including commercial and Government business after taxes, for the years 1937-41, inclusive, were as follows: 1937, 7.44 percent; 1938, 9.49 percent; 1939, 7.86 percent; 1940, 7.64 percent; 1941, 7.58 percent.

The committee may be interested in learning that the company has greatly increased its facilities for defense production without any financial assistance from the Government.

The company has for sometime past been engaged in negotiating new contracts with the officials of the Navy at prices which are to be satisfactory to the Navy and said negotiations are on the point of final consummation. The company, pending said negotiations, has been furnishing equipment to the Navy upon the assumption that there will be no difficulty in arriving at a satisfactory price. Signed, Mine Safety Appliances Co., by George H. Deike, president. (Statement of the company was received in evidence and marked "Exhibit No. 376.")

Mr. TOLAND. Mr. Chairman, the statement that the witness just read is another instance of attempts on the part of this company not to be compelled to disclose excessive profits in the conduct of its business, which we have developed through investigation. They came to me with counsel and they discussed this matter. They went to the Navy Department; and then they went to a Member of Congress in an effort to prevent the matter from being explored.

On the 13th day of October 1941 the Secretary of the Navy issued a directive based upon conferences with the chairman and myself, had at the Department, that the disclosure of profits was permissible, even though the particular contract itself was a confidential contract I don't think this committee will conclude that the query as to gas masks is such a confidential or military secret that the formula of their cost and their profit on gas masks or oxygen-breathing apparatus is such that we should hear it in executive session and that they should not be compelled to testify.

Now, they go into their defense in this statement and try to show what their taxes are, what their profits are after taxes. In other words, the statement is, first, to prevent the hearing; secondly, it is a self-serving declaration so far as they are concerned. Under the ruling of the Secretary of the Navy this committee-and under its resolution-has the right to inquire as to the profits of any company. The particular contracts that we are going to question these people about are not military secrets.

Mr. MAAS. I don't think anything that the counsel intended to inquire in would disclose the slightest military secret. The question as to profits has no bearing on that. We don't want to have detailed costs or the design of what they are making at all. I think that I

agree with the counsel in this case. This is an effort to avoid a disclosure of possible excessive profits.

The CHAIRMAN. One minute.

Mr. SUTPHIN. Do you intend to show that these profits that they show here in the statement are erroneous or false?

Mr. TOLAND. I will show that the profits on the two contracts as well as the profits on their Navy business are high. I will also show that the Government of the United States pays a higher royalty than commercial customers of these people; and I will also show that they collusively bid and deceived the Navy Department. We have those documents.

The CHAIRMAN. All right. Now, Mr. Toland, read for the benefit of the committee the results of the interview I had with the Secretary in regard to

Mr. TOLAND (interposing). I sent for the directive of October 13 and it should be right down. I would like to wait and have it put into the record at this time.

The CHAIRMAN. We don't want, as suggested by Mr. Maas, any of the details about how these masks are made or anything but the profit. The question of profit is no military secret. We don't go into any details because we don't want the details. Go ahead now, Mr. Toland. Mr. BEGGY. Mr. Chairman

Mr. TOLAND (interposing). Sit down, Mr. Beggy.

Mr. BEGGY. I have signed an espionage clause.

The CHAIRMAN. All right. We will ask the questions and you can make your answers.

Mr. BEGGY. May I consult with my counsel with respect to this for that reason?

The CHAIRMAN. Let your attorney come up here, if he is here.
Mr. BEGGY. Mr. Stewart!

The CHAIRMAN. Mr. Stewart, come up here and sit down. We would rather have an informal hearing. Sit right down there.

Now, Mr. Toland, you ask the witness any question you want to ask him.

Mr. TOLAND. He wants to consult with his lawyer.

Mr. W. DENNING STEWART (Stewart & Lewis, Pittsburgh, Pa.). Mr. Chairman, gentlemen of the committee, I should like to make it plain that insofar as the totals are concerned I see no objection, but Mr. Toland is quite in error when he thinks the gas-mask contract is not a confidential military secret.

The CHAIRMAN. We don't want that detail.

Mr. MAAS. We are interested in the profit.

The CHAIRMAN. The profit is all we want. We don't want anything but the profit.

M. STEWART. Quite right.

The CHAIRMAN. Confine your questions, Mr. Toland, to the question of profits and the question as to whether or not they sell at lower prices to private consumers than they do to the Government.

Mr. MAAS. Certainly the question of cost without details is not a military secret. We want to know the cost and the selling price, and I think there is nothing confidential.

Mr. TOLAND. That is what we have been doing right along.

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