Mr. SCHELL. Yes, sir; you are wrong in one respect.

Mr. BYRNE. Then clarify it for us, please.

Mr. SCHELL. In the procedure. The proposed bill contemplates a single transaction, proposes that the companies keep the money that they now have. The RFC was kind enough to permit us to keep the money in escrow, if you will, during that time; so that this bill does not call for an appropriation.

Mr. BYRNE. That is exactly what I had in mind; the result is the same.

Mr. SCHELL. The result is exactly the same.

Mr. BYRNE. But the procedure is different?

Mr. SCHELL. Yes sir.

Mr. BYRNE. In other words, this bill will permit you to keep the money that is in your possession and to which they have title and claim?

Mr. SCHELL. Yes, sir; that is right.

Mr BYRNE. Based upon the technical claim that there is no claim in the law that could be enforced here?

Mr. SCHELL. That is right; that is our belief; that is, there is no claim in law that we feel we can enforce against the Government.

Mr. BYRNE. And there is no claim that they can enforce against you by law? Mr. SCHELL. I should not want to go that far.

Mr. BYRNE. Nevertheless you say that if the Government could have found a way to have settled this thing by law, through the Department of Justice or some other way then perhaps it could have been fought out legally?

Mr. SCHELL. Yes, sir. We think if the RFC had been able to find in their files a single piece of paper, or if we had been able to show from our files a single piece of paper that would have substantiated our theory of this case, they would have been most willing to pay us the money. Our difficulty stemmed from the fact that they had a formal contract and to have allowed us to keep the money in the face of that formal contract might have raised grave questions with the General Accounting Office.

Mr. LANE. May I quote from a letter from Mr. Hise, the Chairman of the RFC, dated June 15, 1949? In his report to this committee he says:

"It has been our legal opinion that there is no legal obligation on the part of the RFC to make payment on these claims. It must be assumed that when we sold the opium, Merck had full knowledge of the product they were buying. How

ever

And this is the part I wish to call to the attention of the chairman and my colleague on the other side

"However, we feel that there are grounds for the view that the manufacturers are equitably entitled to the refund obtained from the Turkish monopoly on the basis of their contention that it was their understanding in accordance with the custom of the trade that the opium was purchased by them on the basis of the morphine content They further contend that the provisions of the contract providing for the purchase 'as is' related to the physical condition of the opium and not the morphine content"

Mr. SCHELL. Yes, sir; I think that summarizes the position very clearly.

Mr. LANE. In other words, by the passage of this bill, these three gentlemen will receive what is properly due them and the Government has lost nothing? Mr. SCHELL. Yes, sir; that is correct.

Mr. LANE. There is no expense to the Government?

Mr. SCHELL. No, sir.

Mr. LANE. And especially where Mr. Kerrigan came in here during the emergency and worked out the situation for these three manufacturers, giving them his time without any compensation-was offered compensation and refused; is that right, Mr. Kerrigan?

Mr. KERRIGAN. That is right; yes, sir.

Mr. BYRNE. And then, when the suggestion was made of 5 percent on those transactions, it was cut down to the reasonable price of one-half of 1.

Mr. KERRIGAN. Well, 5 percent is customary in some merchandise that sells for cents per unit, whereas this was selling for dollars per unit.

Mr. BYRNE. Yes. In other words, the entire transaction has in no sense been fiscolored by any question of bad practice or anything of that kind.

Mr. KERRIGAN. Not of mine, in any case

Mr. BYRNE. And apparently not on the part of the Government. either

Mr. KERRIGAN. No.

Mr. BYRNE. Now, do you have anybody else here you want to put on the record?

Mr. SCHELL. Mr. Stoner is here from the RFC, and I know he would like to make a statement.

STATEMENT OF GEORGE STONER, ASSISTANT GENERAL COUNSEL, RFC

Mr. STONER. I do not have any prepared statement.

Mr. BYRNE. We would like to have your contribution.

Mr. STONER. I think what these people did was to purchase and pay for 100 proof whisky and they got 86 proof.

Mr. BYRNE. Yes; that is a good illustration.

Mr. STONER. I do not think they liked it when they drank it.

Mr. BYRNE. No.

Mr. STONER. But we are much in agreement with what they say here. In other words, under the contract, legally we cannot make any adjustment with them, but, had we thought of this or had they thought of it, we would have put in the contract a provision that it would have been sold on the basis of the morphine content of the product. This opium is not worth anything except on the basis of the morphine content.

Also, I might add we have not lost anything under this transaction. I think we got our commission which they mention and which might have added up to $30,000. In addition to that, I think we may have made a profit of about $800,000.

Mr. BYRNE. $800,000?

Mr. STONER. Yes. We lost about $200,000, which was mentioned here, and which was lost because the boat sank.

Mr. BYRNE. In other words, in building up your so-called pile during the entire course of the proceeding in the war the Government-the RFC, in other words has had what amounts to a net profit of $600,000 out of the whole transaction?

Mr. STONER. Yes; in addition to the $30,000 commission. Of course, we had a lot of programs where we necessarily lost money during the war. Mr. BYRNE. But this program was not unsuccessful?

Mr. STONER. That is right. We did not, however, charge them for war risk insurance; we assumed that ourselves. As I point out, we had a loss of about $200,000, but we also had the $800,000 to offset that.

Mr. BYRNE. That would be in the transportation of it?

Mr. STONER. Yes. The war-risk insurance would have been rather high; it would probably have been around 20 to 25 percent-something like that. So that, taking everything into consideration, I think the Government came out at least even on the program.

Mr. BYRNE. After all deductions, the Government is in the black on it and not in the red?

Mr. STONER. I think that is a fair statement.

Mr. FRAZIER. Is it not true, also, if it had not been for the company, the Government would have lost that $139,000 from the Turks?

Mr. STONER. Yes. I do not think we would have had any chance to collect that from the Turks. The State Department is not very sympathetic toward claims against these foreign countries.

Mr. BYRNE. In other words, they are better diplomats than businessmen.
Mr. STONER. That is right.

Mr. BYRNE. But they had something here on which to dicker?

Mr. STONER. That is right.

Mr. BYRNE. I think that is a very happy solution of this problem. When you meet a claim of the proportions of this claim, naturally it is a bit worrisome to get the facts so clear so that there will be no question of the multiple operations in it. I think we are very thankful to you representing the Government, the RFC, and also to Mr. Kerrigan and the counsel.

Is there anything else?

Mr. LANE. Will you be kind enough to give your name to the committee for the record?

Mr. STONER. George Stoner, Assistant General Counsel, RFC.

Mr. LANE. And you are here prepared to support this piece of legislation? Mr. STONER. Yes. We wrote letters-Mr. Hise wrote one, and also we wrote to the Justice Department.

Mr. LANE. And you favor the passage of this bill, representing the RFC, which is the agency that is involved in this situation?

Mr. STONER. Yes. We feel they have an equitable claim under all the circumstances.

Mr. LANE. Thank you.

Mr. BYRNE. Is there anyone else who wants to say a word?

STATEMENT OF MR. COVERT OF THE PROFESSIONAL STAFF OF THE SENATE JUDICIARY COMMITTEE

Mr. COVERT. I am just listening.

Mr. BYRNE. So that you will know what happens here?

Mr. COVERT. Yes, sir. We have a companion bill over in the Senate.

Mr. BYRNE. Who introduced it over there?

Mr. COVERT. Senator Wagner, of New York, I guess.

Mr. LANE. But he has resigned.

Mr. COVERT. It was technically introduced by Mr. McGrath for Mr. Wagner. Mr. BYRNE. Is there anything else now, gentlemen?

Mr. LANE. No, Mr. Chairman.

I think we owe an apology to these persons who came before our committee today for making them wait so long, and I want to thank them for being so kind as to wait for us. We were delayed in conference with the committee over in the Senate.

Mr. BYRNE. Thank you all very much.

Mr. SCHELL. Thank you.

MODIFYING A LIMITATION AFFECTING THE PENSION COMPENSATION, OR RETIREMENT PAY PAYABLE ON ACCOUNT OF AN INCOMPETENT VETERAN WITHOUT DEPENDENTS DURING HOSPITALIZATION, INSTITUTIONAL OR DOMICILIARY CARE

JULY 7, 1949.-Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. RANKIN, from the Committee on Veterans' Affairs, submitted the following

REPORT

[To accompany S. 266]

The Committee on Veterans' Affairs, to whom was referred the bill (S. 266) modifying a limitation affecting the pension, compensation, or retirement pay payable on account of an incompetent veteran without dependents during hospitalization, institutional or domiciliary care, having considered the same, report favorably thereon with amendment, and recommend that the bill, as amended, do pass. The amendment is as follows:

Page 2, line 5, strike the word "veterans' " and insert in lieu thereof the word "veteran's".

EXPLANATION OF THE BILL

The purpose of this bill is to remove the discrimination which now exists against a veteran who has recovered his competency after having been hospitalized or cared for by the Veterans' Administration so that he will receive the amount of benefits withheld during the period of such care by reason of the existing limitation precluding payment to him of such sums where his estate equals or exceeds $1,500. Under present law a competent veteran without dependents who is hospitalized or cared for by the Veterans' Administration is paid the entire amount of pension, compensation, or retirement pay which has been withheld during hospitalization. It is the view of the committee that this discrimination is wholly unwarranted because the economic needs of the veteran who has regained his competency are as great and often more urgent than those of other classes of veterans who have been discharged from a period of treatment or care by the Veterans' Ad

H. Repts., 81-1, vol. 5-14