figures for fiscal year 1960 and discovered considerable discrepancies. No particular attention was paid to these discrepancies nor was action taken to resolve them because it was believed that the difference was probably attributable to end-of-the-year lag in the posting of U.S. exports which would not show up as Austrian imports until the following year.

About 1 year later it was decided to reconsider the program for export of feed grains to Austria under title IV. Inasmuch as USDA export statistics for fiscal year 1961 became available in about September 1961, it was then possible to compare the U.S. export figures with Austrian import figures for 2 consecutive years, and wide discrepancies were apparent. Officials of FAS reportedly discussed these apparent discrepancies among themselves for several months in an attempt to reconcile them. It was believed that, because the export figures had progressively increased each year from 1959 to 1961, that the yearend lag might have been a considerable factor. Also, FAS was not then sure of the accuracy of Austrian import figures because past experience indicated that many countries had inaccurate statistics either intentionally for political reasons or accidentally through poor statistical procedures.

In March of 1962, FAS decided to institute a formal statistical study which was completed in April and thereafter discussed with the U.S. agricultural attaché in Vienna on his return to Washington in May 1962. FAS asked him to look into the situation with a view to discovering the cause of the discrepancies. In August 1962, after exploring the situation with the Austrian Ministry of Agriculture, the attaché wrote FAS for further information as to the dates of shipment, specific type of feed grains shipped, the names of ships on which they were shipped, and other information that could be compared with import licenses, bills of lading, customs declarations, and other documents available to the Austrian Ministry of Agriculture. This information had to be obtained from various CCC offices in the United States, and the compilation thereof was not completed until November 1962, at which time it was sent to the agricultural attaché. Based on a comparison of this information with official Austrian import schedules, the agricultural attaché in December 1962 advised the Secretary of Agriculture that there appeared to be a serious diversion of feed grain shipments intended for Austria and he recommended an immediate investigation by the USDA Office of the Inspector General (USDA-IG).

In January 1963, a conference was held between USDA-IG and representatives of the Inspector General, Foreign Assistance, State Department (State-IG), and it was decided that, although the barter program was not an aid program and therefore the substantive jurisdiction rested with USDA-IG, a joint investigation would be conducted because of the natural interest of the State Department regarding relations between the United States and Austria. The investigation was begun toward the end of January 1963 when investigators made a preliminary inquiry of two commodity agents in New York City and representatives were sent to Vienna to begin the investigation there.

During most of 1963, the investigation in Europe for the most part has been pursued by two investigators, one each from USDA-IG and State-IG. All investigation in Europe ceased during most of the summer, presumably to allow a search to be made of customs export declarations in the United States. In September 1963 the investigation centered in West Germany where it was found that the major portion of the feed grain had been diverted. Only two full-time investigators were used during this investigation until the latter part of October when four additional investigators were assigned by USDA-IG to the European phase of the investigation. It is noted that this additional assignment of personnel was coincidental to the arrival of staff members in Vienna on October 21, 1963. State-IG has maintained its one full-time investigator assigned to the matter since inception of the joint investigation and takes the position that assignment of additional State-IG personnel is not necessary inasmuch as the diversions are essentially a USDA matter and one representative is sufficient to afford liaison with Embassy officials in Europe and to preserve the interests of the Department of State.

The diversions, which had begun in June 1959 after Austria was designated as a "C" country, ended in July 1962 following the first inquiries by the agricultural attaché in Vienna of Austrian authorities regarding discrepancies between reported U.S. commodity exports and corresponding Austrian import statistics. On May 3, 1963, USDA suspended the barter program as it relates to Austria when the investigation established that large quantities of feed grain destined for Austria under the barter program had been diverted. During the investigation, it was determined that most of the feed grains which entered the northern Euro

pean ports of Bremen and Hamburg, Germany, were diverted, while none of the feed grain shipments arriving at Trieste, Italy or Rijeka, Yugoslavia, were diverted. Reportedly, these northern ports were convenient to the diversion of the feed grain into West Germany and there is no market for the import of feed grains in Italy or Yugoslavia. However, the investigation determined that various quantities of the U.S. grain imported through these southern ports were relabeled, and new documents forged to show the origin of the grain as Canada, Argentina, or some other country, as well as showing a higher grade than actually shipped. It is noted that Austria has placed a quality discount on U.S. feed grains of $1.60 per metric ton below the established national import price on the premise that grains stored over a period of years in the United States become broken and otherwise damaged from storage, loading, and reloading. Therefore, by relabeling the grain as coming from a source other than the United States, the importers are able to gain an additional premium of $1.60 per metric ton.

When the facts concerning the relabeling, which occurred outside of Austria, were brought to the attention of the Austrian Economic Police, it resulted in the arrest of various importers in that country. The relabeling, for the most part, was perpetrated by Italian or Yugoslavian grain merchants or forwarding agents in conspiracy with the Austrian importers. According to USDA officials, there is no way that U.S. consular employees could have detected the relabeling even if they had sufficient personnel to inspect all shipments into Australia. Further, there are no U.S. regulations governing such action which would be applicable to the foreign parties responsible and there appears to be no way of labeling bulk products, such as grain, so that they could not be relabeled by altering the papers. However, as pointed out, the relabeling is a violation of Australian law and has resulted in the arrest of two principal Austrian grain importers. It is noted that the diversion of grain intended for Austria does not constitute a violation of Australian law because it was never imported into Austria. If the diverted grain had, in fact, been imported into Austria it would have exceeded the quotas granted to the various importers under import licenses issued by the Austrian Government for control of quantities brought into the country.

Investigation conducted to date has established that a company in Hamburg, Germany, purchased more than one-half of the grain diverted from shipments intended for Austria under the barter program. This is a German firm, operating as a limited partnership. The company is engaged in the import, export, and wholesaling of feed grains, and is regarded as the largest grain importer in West Germany, with offices in other major cities throughout the world. No derogatory information has been developed to date concerning the operations of this firm other than that pertaining to its involvement in the purchase of the grain diverted from Austria.

4. Strategic materials received for bartered grain

Agricultural commodities valued at approximately $220 million were exported to various countries under the terms of the 106 barter contracts which were involved in the shipment of feed grains intended for Austria during the period fiscal years 1960-62. Of this $220 million total, grain valued at some $53 million was intended for shipment to Austria; however, investigation has disclosed that approximately $29 to $30 million worth of this grain was diverted (applicable to the 568,428 metric tons described in referenced memorandum). Under the terms of the foregoing 106 barter contracts, strategic materials having an equivalent total value of $220 million were received by the General Services Administration (GSA) for inclusion in the Government's strategic material stockpile. The fact that a portion of the grain intended for shipment to Austria under these barter contracts was diverted has no effect on the total amount of strategic materials received in connection with the contracts.

It is to be noted that no one particular barter contract related solely to the shipment of grain intended for Austria, but rather each contract also involved the legitimate shipment of various agriculture commodities to other countries as well. Therefore, specific strategic materials received in payment for a particular barter contract cannot be directly related to that portion of the contract which involves the shipments of grain intended for Austria. GSA inspection procedures at the time the strategic materials are furnished the Government under the terms of a particular barter contract assure that the materials received have a value approximating that of the grain furnished the barter contractor by CCC, and that the materials meet Government specifications.

Following GSA's inspection, the strategic materials are, for the most part, comingled with similar materials already in the stockpile and they thereafter lose their identification as having been received in connection with a particular barter contract.

Respectfully submitted.

L. M. WALTERS,

Director, Surveys and Investigations, House Appropriations Committee.

DECEMBER 6, 1963.

Re Diversions of feed grain shipped to Austria under barter program, Public Law 480, U.S. Department of Agriculture.

MEMORANDUM FOR THE CHAIRMAN:

There is set forth hereinafter a brief summary of the staff's findings in connection with the investigation of captioned directive. It is anticipated that a full report will be submitted in approximately 30 days.

Pertinent provisions of the barter contract and procedures for enforcement The most pertinent provision in the barter contracts from the standpoint of this investigation is found in article XIII of the uniform barter contractual provisions (from CCC-111) incorporated by reference into all such contracts. This article covers export requirements and holds the barter contractor and his commodity agent to the warranty that no portion of the commodity obtained from CCC for export only, under the contract, will be transshipped out of the country to which it is destined under the contract. He, in turn, must include this provision in his contract with the foreign purchaser. In proof of export he is required to furnish that amount of proof as required by the U.S. Department of Agriculture (USDA) Commodity Office furnishing the commodity. The article further provides that shipment must be to an "eligible" country and to a "friendly foreign country."

Under the terms of these uniform contracts, Austria is the only country in West Europe fully eligible to receive barter shipments of feed grain under open-end contracts, i.e., where there is no requirement that the strategic material received in barter must come in direct exchange either from the country receiving the feed grain or from a third country. Moreover, USDA has never prescribed for its commodity offices a uniform requirement relative to proof that the commodity has been exported and, in the main, these offices have been content with a copy of the ocean bill of lading. This bill of lading shows that the commodity has been exported but does not offer any proof that it has reached the qualified country of destination and USDA never adopted, during the period of the diversion of feed grains shipped to Austria, any procedure for providing such assurance other than the warranty of the shipper (American commodity agent). Further, the American commodity agent himself has no proof other than the required contractual provision, and in some few instances a copy of a forwarding certificate showing that the shipment has been unloaded at a European port and reloaded for transshipment to Austria. Even this certificate is no guarantee that the shipment will arrive in the qualified country. Thus, even though the contracts do provide for liquidated damages in the event of breach of contract, the discovery of such breach would be by the most chance coincidence. Particularly is this true inasmuch as USDA had not set up any procedure to statistically establish that the total of all such shipments exported from the United States to any country had, in fact, been imported into such country.

2. Extent of the diversion

Although indications of possible diversions of grain shipped to Austria came to USDA's attention in the fall of 1961, the joint USDA-State Department investigation was not initiated until January 1963. This investigation has disclosed that for the fiscal years 1959-62 a total of 1,010.380 metric tons of feed grain (corn, barley, and sorghums) were exported by the United States under the barter program with destination as Austria. As of November 1963, it had been determined that, of this total, 568,428 metric tons did not arrive in Austria and were diverted to other countries. An additional 13,500 tons have not yet been accounted for and recent investigation indicates that some part of this tonnage likewise was diverted.

The great bulk of the diverted tonnage was unloaded at the ports of Hamburg and Bremen, Germany. Of the total diverted tonnage, 448,656 metric tons thus far have been accounted for by investigation conducted in West Germany, where investigation is still in progress. Final destinations of this tonnage accounted

for were as follows:

Austria (relabeled as Argentine grain and reshipped to Austria)

10, 500

dummy for

The initial investigation at Hamburg, Germany, was at the Co. and was predicated upon the receipt of information by the Austrian Economic Police from Vienna, Austria, to the effect that his firm acted only as a who was the true purchaser. According to deposition to the Austrian Economic Police, made payment to the American supplier in the name of through Swiss banks as a result of which the name did not appear in the transactions. The Austrian Economic Police had also received information from that this firm had sold its barter grain to Hamburg authorities, at the time of the staff's visit, had identified 327,889 metric tons as having been purchased by Co. Of this quantity, 148,307 tons was transshipped to other Western European countries and 179,582 remained in West Germany.

The investigation so far conducted reveals that of the total of 568,428 metric tons of grain which did not reach Austria, 448,656 metric tons, or 79 percent, have been accounted for by investigation in Germany, leaving remaining diversions of 119,772 metric tons still to be accounted for. Through arrangements made while in Europe, the staff is receiving current information with respect to the results of the continuing investigation at Hamburg, Bremen, and Rotterdam. Additional dispositions of the diverted grain may be available before completion of the staff's report. This investigation in progress at the three aforementioned ports, when completed, should account for most of the remaining 119,772 metric tons.

In connection with the diversion of grain to Germany, it will be noted that the investigation conducted to date discloses that a shipment of 10,015 metric tons of barter grain (barley and corn) exported from the United States in 1960 moved into East Germany where it was consigned to Of this shipment, 8,186 metric tons upon departure from the United States was destined for Vienna, Austria, as buyer, and the balance of 1,829 tons was consigned to Austrian importer. as buyer. Transshipment of this grain occurred at Hamburg, Germany, through the free port under controlled customs supervision. This is the only shipment to date which was found to have entered East Germany, or any other Soviet bloc country.

3. Strategic materials received for bartered grain

Over $200 million worth of strategic materials have been received in connection with the barter contracts involved in the shipment of grain intended for Austria (which include the portions diverted). It is not possible to physically identify the specific materials received in return for the grain intended for Austria. The strategic materials received were, for the most part, comingled with similar material in the Government's stockpile and thus have lost their identity with the specific barter contract under which they were received. General Services Administration inspection procedures at the time such materials are received by the Government from the barter contractor serve to assure that this material meets Government specifications and that full value is received in return for the bartered grain. With respect to the barter con

tracts in which the diversions are involved, full value has been received. The nature of the commodities received in exchange for the barter grain included industrial diamonds, antimony, manganese, ferrochrome, and other metals. 4. Responsibility for the diversion

Investigation to date has established that the diversion was knowingly accomplished by at least four Austrian grain importers who have been charged with violations of Austrian law. Two additional Austrian importers, also charged with violations of Austrian law which were developed during the Austrian investigation, may ultimately be found to have contributed to the diversion. Investigation clearly shows that West German grain importers conspired to obtain the diverted grain and at least one of these importers is conclusively identified. Because West Germany was not eligible to receive feed grains under the barter program, these German importers were motivated to obtain the grains at the lower prices available under the barter progam. Investigation has raised the suspicion that certain officials of the Austrian Government may have closed their eyes to the apparent diversion, but there is no clear evidence to establish this. There is no suspicion attached to officials of the West German Government.

As pointed out, the diversion was made possible by the lack of established controls by USDA to discover any infractions of the barter contracts and to enforce the provisions thereof. No evidence has been developed to indicate that the American barter contractors were in any way involved in the conspiracy to divert the feed grains. However, there are strong suspicions to indicate that their commodity agents (U.S. grain exporters) may at least have had knowledge of the diversion, if not an actual party to the conspiracy. Insufficient investigation has been conducted to establish conclusive evidence thereof; there is circumstantial evidence indicating involvement of Co. of New Orleans.

The joint investigation of the executive branch begun in January 1963 is continuing and should establish the destination of all diverted grains and possibly will shed more light on the culpability of those responsible for the diversion, particularly with respect to the American commodity agents. The results of the joint investigation to date have been brought to the attention of the Department of Justice and are under consideration there as to possible civil and/or criminal action against American commodity agents. In the meanwhile, it is reasonable to expect that the oversea investigation by the executive branch will extend well into 1964 and cannot possibly be completed in January 1964, as originally hoped. For the majority of the 10-month period of investigation thus far pursued by the executive branch, two investigators were assigned. The adequacy and pace of this investigation will be the subject of comment in the staff's report.

Respectfully submitted.

L. M. WALTERS,

Director, Surveys and Investigations, House Appropriations Committee.

DEPARTMENT'S STATEMENT

The diversion of bartered grain intended for delivery to Austria resulted from the opportunities inherent in movement of commodities through third countries in order to reach a landlocked destination. Verification procedures to meet this kind of circumstance were not adequate to detect promptly the diversion of grain. It should be pointed out that the controls exercised over barter transactions by the Department were and are such that the Government has received full value for all agricultural commodities that have been exported under barter contracts, including those specific barter contracts involved in the Austrian situation.

As soon as it became apparent that irregularities had occurred in deliveries of bartered grain to Austria, the Department moved promptly. The Office of the Inspector General, in cooperation with the Department of State, carried out an investigation to determine the extent of diversion and the responsible parties. A report is now with the Department of Justice. Immediate steps were taken to drastically revise and strengthen the existing system of export verifications and controls. At the present time, the receipt of bartered shipments of agricultural commodities in a designated country of destination must be confirmed by customs receipts attesting to the importation. In addition, the