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to give us the benefit of its views, segregating the part of the statement that applies to the law as it is today and the part that applies to the law as proposed by the Senate.

I have not read the proposed amendments. For instance, throughout the statement reference is made to the possibility of the interpretation of the statute. For example, on page 6 where it is stressed that, referring to conversations between the representatives of a bona fide enterprise engaged in domestic and foreign trade, “* * * spokesman for the U.S. parent could be regarded as an agent of a foreign principal.” On page 7:

Accordingly, under this legislation the corporate representative might have to register as an agent of a foreign principal.

There are many other such references as to what could happen or might happen.

Again on page 8, referring to a political consultant which I acknowledge is new language, there is the statement that the political consultant might be deemed to be engaged in political activities. That is a clear reference to the new language.

Mr. SONNETT. Yes, Mr. Chairman.

Mr. WILLIS. I certainly want to study the amendments most carefully. I will defer most of my questions and direct them to Mr. Yeagley as to whether the witness and the Justice Department are in agreement as to the unquestionably serious implications discussed by the witness.

One way to get at it would be this: I realize that probably the representative of the Justice Department could answer it. It is this: You have referred to the number of corporations that might be involved, and I think you said they run up to some 2,500; was that your opening statement?

Mr. SONNETT. 2,500, Mr. Chairman, is our estimate of the number of U.S. corporations having foreign corporate subsidiaries or affiliates as of 1962.

Mr. Willis. I would not expect you to know unless you have studied it but do you know how many such corporations have in fact registered under the present law?

Mr. SONNETT. I cannot answer that, Mr. Chairman, but I am confident of one thing. That is, that if the new language which is proposed to be added by this bill becomes law, I think it is going to be highly unlikely that any U.S. corporation—and we are talking only about American corporations whether they be parent or subsidiary, engaged in substantial business in the United States, normal commercial business—any time that corporation takes up a question with its government concerning its foreign business it is going to be acting at its peril unless it is registered.

If I may-you have been very kind, Mr. Chairman I would like to give you two examples of the kind of thing I am talking about.

Mr. WILLIS. All right. Mr. SONNETT. Take the situation of an important manufacturer of automobiles in the United States with a French subsidiary.

That automobile manufacturer would like the French subsidiary to sell more American-made cars in France but France has a tax on the horsepower of the cars and as a result American-made cars cannot be competitive in France. So the American manufacturer comes down to see its government and says, “We would like to enlist your aid to get the French Government to reduce its taxes so that we can sell more American-made cars in France.'

The way this bill reads that company would have to register as a foreign agent. That is the risk in terms of the American parent.

To reverse it, assume if you will, that a foreign corporation which may incidentally be owned in large part or even controlled by American citizens, has an American subsidiary which is engaged in selling its products here and manufacturing them. That company, let us assume it is a cosmetics company, has a French parent which makes perfume. It wants to sell the perfume here. Let us suppose that an American company having substantial American stockholders comes down to see its Government and says, “We would like to have you lend your best efforts to reduce the excise taxes on perfume.” That company would have to register as the agent of a foreign principal.

It is hard, Mr. Chairman, for us to envision in all seriousness any situation to which the bill will not apply where a bona fide American corporation, whether parent or subsidiary, is asked to cooperate with the Government in connection with developing, our foreign commerce and needs guidance or assistance or a definition of U.S. policy as to what our Government is prepared to do, let us say, to protect the interests of American nationals in a foreign company which may have an oil concession in Venezuela threatened with expropriation. As we read literally the language of the bill, that American corporation will have to register as an agent of a foreign principal.

In basic analysis I think where we come out of this is, inadvertently to be sure but nevertheless inevitably, the net effect of the proposed amendments will do substantial harm to the foreign commerce of American corporations. That is what is going to happen. Instead of encouraging these corporations as various other agencies of the Government and the Congress have sought to do, to expand our foreign trade and help in our balance of payments problem and all the rest of it, it is going to have a repressive effect. It is going to put burdens on those corporations making them into a separate class affecting every American corporation having substantial foreign business interests which has to come to its Government for guidance or help or policy or legislation.

It is put into a class apart simply because having foreign business interests and having to come to its Government it suddenly becomes a second-grade citizen. It becomes an agent of a foreign principal. That is our basic problem.

Mr. WILLIS. You raise matters of great concern to me. I would like to find a way to separate the good from the bad or to exempt those bonafide transactions to which you have referred and at the same time retain the essence of the Foreign Agents Registration Act.

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I am not quarreling with you at all but you raised many questions that concern me very greatly. For instance, on page 11 you say, referring to Senator Fulbright:

He has also indicated that the Justice Department has generally not required international corporations to register in the past and will not require them to register in the future. So that there is no reason for most international companies to be concerned.

Then you question his judgment. Well, that is the sort of thing I want to question Mr. Yeagley about, in the light of the language of the Fulbright bill as compared to the present law.

I might say also that on page 17, your proposed amendments seem to have merit although I certainly want to study them. For instance, you say that your amendment would*** limit the application of the proposed exemption to corporations which already are subject to the public disclosure requirements of the Government and the stock exchanges. That seems to the good. They are already required to make certain disclosures and if your amendment is along that line and that is the idea behind it and the effect, there may be merit to what you say.

As I say, I would want to examine with the Justice Department on those matters.

Mr. SONNETT, Mr. Chairman, on behalf of the chamber and the business of America which it represents, I can assure you that we are very grateful to have this matter now under very deliberate and careful analysis because we are convinced—the chamber is and it has had very careful consideration by the chamber and a variety of leading American corporations for some time--we are convinced that we do in fact have a major problem.

When you come to examine the representative of the Department of Justice in terms of the power which this new legislation would purport to give the Attorney. General, you will find that the power to exempt from registration is very narrow indeed. The bill would not exempt any of the corporations I have been talking about. The Department of Justice would not have the power to do it under the act.

In terms of waiving some of the disclosure requirements following upon registration where there would be some grant of discretionary authority, I think you will find that the Attorney General—and I hope they share my view—would have a very difficult decision to make because the language of the proposed amendment is that when the Attorney General finds in the interests of national security or the public interest that he can waive some of the disclosure requirements, he can do it. How is the Attorney General to decide what is the public interest as Congress has defined it in a variety of statutes ?

There is a public interest in promoting our foreign trade. There is a public interest in reducing our problem with our balance of payments. There is a public interest in aid to undeveloped countries and the expansion of American business. There are all those public interests.

On the other hand, there is the public interest, and perfectly right, that covert or clandestine foreign agents should not be permitted to operate in the United States. So I think the problems of the Attorney General would be manifold, particularly when Senator Fulbright says

he should have been enforcing this act much more vigorously in the past.

Mr. WILLIS. I understand that. I will make this observation and I will yield to other Members.

I said this morning that I certainly do not want to dilute the act of 1938 as it applies to subversive activities. I do not want to inject into these hearings my capacity as chairman of another committee. I sympathize with much of what you have to say with regard to the advisability of exempting bona fide foreign corporations in America owning foreign subsidiaries, or what not, but the question now in my mind is your own description occurring at page 17. You say

thatThe chamber suggests the addition of a proviso to the definition of “foreign principal” contained in section 1(1) of the bill.

By the way, are you now referring to the Senate language or the present language, present law?

Mr. SONNETT. The Senate language of the proposed bill.
Mr. WILLIS. Then you continue:

Under this proviso, which is set forth as an appendix to this statement, the term “foreign principal” would not include a bona fide business corporation or other similar association or organization engaged in bona fide trade or commerce if (a) such person is controlled by one or more domestic corporations regularly engaged in substantial commercial, industrial, or financial activities within the United States, or (b) such person controls a domestic corporation which has its principal place of business within the United States and which is regularly engaged in substantial bona fide commercial, industrial, or financial activities within the United States.

That is the end of the quotation.

Well and good, if we know for sure that we are talking only about bona fide business corporations or similar associations engaged in bona fide trade or commerce. But would that open the door to those who are not bona fide using the cloak of corporations to escape the provisions of the act as written by Congress way back in 1938 ?

Mr. SONNETT. I would not think so, Mr. Chairman. After all, we must recognize that as a practical matter the 1938 act was enforced by the Department of Justice up until now only in subversive cases. That has been the way it has been run. The business community therefore, substantial, bona fide American business community, has not had any major problems with it.

Mr. Willis. That was my understanding.

Mr. SONNETT. Problems arise only now because of these proposed amendments which really broaden the act and this declaration by Senator Fulbright that Justice better get busy and enforce this thing. Of course, I think he is thinking of the kinds of cases that he had before his committee which are quite different. Mind you, we hold no brief for those situations. I am afraid he may be in a situation where he is throwing the baby out with the bath water.

Mr. Willis. Would the language of your proposed amendment draw that distinction with such clarity that it could be very well understood ?

Mr. SONNETT. I think that our proposed language, Mr. Chairman, is a definite improvement over the language in the proposed bill. I am not saying to you, it is perfect, and we are completely at the disposal of you and your staff to work on any other language that may accomplish the result.

Mr. Willis. We are at the disposal of the American public to try to pass a good bill. I reserve judgment on these questions. I am asking about what comes to my mind as questions occur to me.

Mr. SONNETT. I just want to say to you, sir, we are very grateful that you are because we need your help.

Mr. POFF. Thank you, Mr. Chairman.

I join the chairman in his statement that we do not want to do anything to dilute the act. I add that we don't want accidentally to broaden the act in such a manner that it might lend itself in some unforeseeable future as an instrument of harassment.

Having said that, I will ask the questions that are on my mind.

You may not have an opinion on the first question. If not, just say SO.

Do you have an opinion about the advisability of transferring the administration of the program from internal security to criminal?

Mr. SONNETT. Well, assuming that our proposals or something even better were adopted to make this statute really specific, so that one who read it could understand plainly whether he was acting at his peril or not, assuming that it had the requisite clearness and specificity and did not drag in and condemn legitimate activities of American business in dealing with their own Government, I personally having spent some years with the Department of Justice would be inclined to favor putting this in the Criminal Division. It would then have the specificity that a criminal statute should have and you would have presumably a declaration by both the Senate and the House that the statute as amended in its refined and clarified form should be vigorously enforced. I am sure

Mr. WILLIS. Would you yield for an observation? I did not talk about that provision, of course, that is not in the bill.

Mr. POFF. It is in the report.

Mr. WILLIS. It is in the report. I have in my mind that it would not be too wise to transfer it to the Criminal Division.

Mr. SONNETT. It is fundamentally, Mr. Chairman, a regulatory statute. You will recall, I am sure, that in the first major prosecution under the 1938 act of Viereck, that conviction was reversed in the Supreme Court because the Government prosecutor was guilty of an excess of zeal. In that case, as I recall it, the Supreme Court reversed the conviction because the special prosecutor for the Government said to the jury, "It is your patriotic duty to convict this man”.

The Supreme Court said, “You cannot do that, Mr. Prosecutor.?

The conviction was reversed. Now, what I am saying most respectfully, Mr. Chairman and Mr. Poff, to you is, if Congress is going to make this a criminal statute and say to the executive branch enforce it as such, then I think the burden clearly is on Congress to make the statute so clear, so unmistakable that business knows what the rules of the game are. Because American business, obviously, will comply if they know the rules.

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