not make a statement for the benefit of the committee, not only as to the limit of profit provisions of the bill but as to the limit of working hours, and give us the benefit of your supervision and your personal opinion?

The CHAIRMAN. May I say that later on we will have Mr. Toland do that, but I have some witnesses that are here this morning, that are taken away from their business; let us try to get through these witnesses and then we will have Mr. Toland on that identical point that you have raised.

Mr. JACOBSEN. Apparently we are having witnesses here giving us information, supposedly, and information that we already have. Mr. TOLAND. I would like to make this suggestion, in regard to the question of manpower: As I said on Monday, Admiral Spear is a great American, and he has done everything in the interest of speed, but also to protect the cost to the taxpayer. We have, throughout the course of the investigation, spent hours with the officials of the Department to eliminate the possible situations that we found in Jack & Heinz. They brought that to my attention, and they brought to the committee's attention numerous other incidents.

On the question of manpower, Commander Gingrich, who is the aide to the Under Secretary, is one of the greatest students that I have met on the question of man power with regard to the services in industry, and if that problem becomes of importance to this committee, I do think that the committee should hear from him. With regard to my own views, I would like an opportunity to express my views now or on Friday with regard to this legislation and as to what I think the solution may be.

The CHAIRMAN. We are going to avail ourselves of your study on this subject matter, but we will do it just a little later on.

Mr. MOTT. I have a question.

On yesterday, Mr. Donald Nelson expressed the opinion that these manufacturers having contracts with the Government were not particularly interested in large profits, they were quite willing to pay high taxes, and that same idea was reflected by a number of other witnesses who have appeared before us.

Can you reconcile that view from your own statements there? Mr. TOLAND. I take the same position that Mr. Forrestal takes, and it comes to this present legislation, I believe. I tried to, in the manner that I presented it on Monday

Mr. MOTT. No; I asked you if you could reconcile a statement such as made by Mr. Nelson and the other witnesses with your own statement that you read from your investigation report?

That they were not particularly interested in making profits, and willing to pay taxes?

Mr. TOLAND. I do not think that that was their position. I think the position of Mr. Forrestal, and the other witnesses, was as to the formula, as to how to reach the question of profits.

My own personal view is to place the limitation of profits in the contract. Where the company has the accounting system, where it prepares unemployment compensation taxes, State income-tax returns, and Federal income-tax returns, then it can handle the accounting necessary. Under the Revenue Act, companies are required to furnish information regarding overhead and cost of labor and material; such data is furnished to the Government. As an example, in Aus

tralia, in all contracts with the Government a ceiling of 4 percent profit on fixed and invested capital has been suggested.

Mr. MOTT. That was not my question, Mr. Toland. I asked you if you could reconcile your statement with the opinion given us by witnesses who have appeared here, that these manufacturers were very patriotic, and were not.particularly interested in high profits, and quite willing to pay very high taxes? Your statement would indicate the exact opposite?

Mr. TOLAND. My position is this, that there may be, and as the report shows, and it is my own feeling, that there are few people in industry, and it is not an indictment of all industry, but there are a few people in industry who have contracts with the Government who are perfectly willing to not only evade taxes but to avoid taxes by distributing money that they receive as profits under Government contracts, so that the corporate tax of the company will not be what it should be.

Mr. MOTT. Well, so far as evasion and avoidance are concerned, they are exactly the same so far as the Government is concerned, in each case the Government does not get the revenue.

Now, let me ask you this: Is that list of companies which indicates fairly widespread racketeering in bonuses, and increases in salary, would you say that those cases are the exception to the rule or would you say that that is prevalent throughout industry having contracts with the Navy?

Mr. TOLAND. What we did was to select returns on only one questionnaire.

Based upon my own investigation, it is my belief that in many companies, not all, because of the increased volume of business there have been increases in the compensation to the officials and the bonuses granted to them.

Mr. MOTT. Wait a minute, just answer the question; are these examples of racketeering in the shape of unwarranted, unconscionable bonuses, and increases of salaries, are they the exception to the rule or are they the general rule, among those who have contracts with the Navy?

Mr. TOLAND. The examples I gave merely speak for themselves. There is no implication that every company that has a contract has pursued this policy.

Mr. MOTT. Well, how many questionnaires did you send out, from which you received answers that would give you a line on the extent to which they were increasing salaries, and granting additional bonuses, on account of their war contracts?

Mr. TOLAND. We sent out questionnaires covering 25,000 contracts. Mr. MOTT. And how many questionnaires did you get back showing that sort of thing to be prevalent?

Mr. TOLAND. Well, we have not finished a complete study of the subject, as I pointed out in the memorandum. We took the ordnance contractors, and we could find only 41 that had furnished sufficient information to enable us to make a test as to the increase in compensation and bonuses. Those contractors used are not indicative of all others; they do no more than speak for themselves. There is no implication that every other company

Mr. MOTT (interposing). Here is the difference, Mr. Toland. You sent out 25,000 of those questionnaires. Now, if you only got in

a few dozen from people who were operating this sort of a racket against the Government, that is a matter that can quite easily be taken care of, and I think criminal prosecutions would lie against some of these people, but if, on the other hand, that is prevalent throughout the industry, that every contract with the Government, then it is a much

more serious matter.

Mr. TOLAND. I make no statement that it is prevalent because of the fact that the test that we have made, the material that we have, only permits the selection of what we have presented to date.

Mr. MOTT. Well, you say it is or it is not prevalent?

Mr. TOLAND. I say, as I said before, that based upon my study for 1 year, that I think that in some instances, and we will prove to this committee, that there is a feeling on the part of some people, both in labor and in industry, of, "What do you care how much it costs? The Government is going to foot the bill." I think

Mr. MOTT (interposing). Now, next Friday, when you come before us after a little more study, if you will just be prepared to answer this question, next Friday, whether in your opinion as an investigator for this committee, that racketeering is prevalent, or whether it is an exception to the rule, it will be a valuable contribution to the com

mittee.

Mr. BRADLEY. You say 56 companies have gotten 75 percent of these war contracts?

Mr. TOLAND. I said that our report stated that approximately 75 percent of the war contracts were distributed to 53 or 56 companies. Mr. BRADLEY. Now, among those 53 or 56 companies, is that practice prevalent?

Mr. TOLAND. We are making a check on that, because of the fact that those companies have not, because of the volume of the business, complied to any great extent with returning the questionnaires. Even though many of the questionnaires were sent out 8 or 9 months ago, these companies have not returned them, on the average, to the extent that other companies have.

Mr. BRADLEY. They have not sent them back yet?

Mr. TOLAND. We have not received all the questionnaires from many of them.

Mr. BRADLEY. Well, may they not be trying to evade the disclosure of these things?

Mr. TOLAND. Well, I have been charged with the fact that the cost of preparing the questionnaires was $50,000 in some cases and that preparing them interferes with the defense program. We have written letters

Mr. MOTT (interposing). Who charged you with that?

Who charged you with wasting defense money trying to get this information?

Mr. TOLAND. I can bring letters that have been forwarded to the chairman.

Mr. MOTT. From these people that you mentioned?

Mr. TOLAND. No.

The CHAIRMAN. We have received letters that information called. for in the questionnaires has forced companies to put on additional employees, and that to answer them is interfering with the operation of the defense program. Each such letter has to be dealt with as it comes in. Of course, we do not want to interfere but we do want the

information requested. We are trying to deal with cases as they arise and we are trying to get the information from them.

Mr. TOLAND. I would say 90 percent of the companies have been splendid, they have cooperated with the committee, and the same is true of 90 percent of labor organizations. However, there are 24 labor organizations that we have written to time and time again, and we cannot get them to file the information. The great majority of the contractors, and in many cases where they had a large volume of contracts, have cooperated with the committee and prepared the information in excellent style. In those cases it is readable and understandable, and it has been furnished without any objection at all. There are exceptions to that, of course.

The CHAIRMAN. The rank and file of the people to whom we sent the questionnaires, labor as well as industry, have been trying to cooperate and give us the information that we have called for.

In some cases, they point out this objection and that objection and we try to deal with them when those objections are made known to us. We are not trying in any way to do anything that will impede the work that they have contracted for, but we are trying to get the information. We have been quite successful in a great many instances, I might add. In some instances we have not got it, but we are making fairly good progress.

Mr. MOTT. That, Mr. Chairman, is exactly what I want to find out, if this unpatriotic situation which we find here is prevalent throughout the industry, or whether these examples of unpatriotic racketeering are exceptions to the rule and I think it makes a great deal of difference. The CHAIRMAN. We are trying to answer that Friday morning. Mr. BRADLEY. Mr. Chairman, on Friday morning might Mr. Toland bring before the committee information respecting particularly these 56 companies who are getting 75 percent of the war contracts, the 56 or 53, all of them, the salaries, and the bonuses of those officials, also the number of them, and the names of them, who have secured R. F. C. loans, or loans from the Navy Department, or any other agency for plant expansion?

Now, if those facts are not available because they have not answered the questionnaire, I think that between now and then we can get them very easily from the Securities and Exchange Commission. I think it is important that we know the salaries and bonuses of those companies.

Mr. MOTT. I think it might be a good idea to find out how many of these people are within the military age. We might be able to give these racketeers a chance to exhibit their patriotism in a little better form.

The CHAIRMAN. Thank you very much, Mr. Toland.

INVESTIGATION OF NAVAL DEFENSE PROGRAM

MONDAY, APRIL 13, 1942

HOUSE OF REPRESENTATIVES,
COMMITTEE ON NAVAL AFFAIRS,
Washington, D. C.

(The committee met at 10 a. m., pursuant to notice, Hon. Carl Vinson, chairman, presiding.)

The CHAIRMAN. Now, Mr. Toland, I understand you have some statement to make as a result of the work of the investigating committee that you desire to submit in regard to the inquiry about Jack & Heintz, Inc.

STATEMENT OF EDMUND M. TOLAND, GENERAL COUNSEL, HOUSE NAVAL AFFAIRS INVESTIGATING COMMITTEE

Mr. TOLAND. In addition to that, Mr. Chairman, I have a complete survey of the profit laws of England, Canada, and Australia.

The CHAIRMAN. Let us not go into that phase of it today, because I have to be on the floor in a few minutes. We will take that up tomorrow. Just take up the Jack & Heintz matter now.

Mr. TOLAND. I have in addition to that a great deal of material that has a bearing on the previous testimony of witnesses, and I have two proposed substitute bills for the present bill which is now before the committee.

The CHAIRMAN. Now, what have you on the formal inquiry into the Jack & Heintz matter?

Mr. TOLAND. In connection with Jack & Heintz, I would like to read for the record a letter from the Secretary of the Navy, addressep to the chairman of the committee under date of March 28, 1942. He states:

I acknowledge receipt of your letter of March 25 and a copy of the hearings concerning Jack & Heintz, Inc. I have also seen a letter on this subject which was written to you by Under Secretary Forrestal. I think that letter covers the Navy point of view. As you will observe from that letter, the initiation of the investigation of Jack & Heintz began in Forrestal's office and Mr. Forrestal notified Mr. Toland of our suspicion that all was not right.

I am personally very glad that this thing was brought out in the open and I think your committee did a very useful service.

Yours sincerely,

FRANK KNOX.

(The letter was received in evidence and marked "Exhibit No. 80.") Now, the letter he referred to is dated March 27, and is from Under Secretary Forrestal, addressed to the chairman of the committee. He states:

MY DEAR MR. VINSON: The newspaper reports of hearings on the Jack & Heintz, Inc., case have left an impression on the public mind of negligence on the