Full text of Further Matters Relating to the Nomination of G. William Miller : Hearing Before the Committee on Banking, Housing, and Urban Affairs, United States Senate, Ninety-Sixth Congress, Second Session, February 8, 1980 : Part I: Testimony Before the Committee

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FURTHER MATTERS RELATING TO THE NOMINATION
OF G. WILLIAM MILLER

HEARING
BEFORE THE

COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
NINETY-SIXTH CONGBESS
SECOND

SESSION

ON
T H E NOMINATION
G. W I L L I A M

M I L L E R TO B E C H A I R M A N

OF T H E B O A R D

GOVERNORS OF T H E F E D E R A L RESERVE

SYSTEM

PART I
TESTIMONY BEFORE THE

COMMITTEE

F E B R U A R Y 8, 1980

Printed for the use of the
Committee on Banking, Housing, and Urban Affairs

U.S. GOVERNMENT PRINTING OFFICE
69-845 O

WASHINGTON : 1980

COMMITTEE

BANKING,

HOUSING,

A N D

U R B A N

AFFAIRS

WILLIAM PROXMIRE, Wisconsin, Chairman
HARRISON A. WILLIAMS, JR., New Jersey
ALAN CRANSTON, California
ADLAI E. STEVENSON, Illinois
ROBERT MORGAN, North Carolina
DONALD W. RIEGLE, JR., Michigan
PAUL S. SARBANES, Maryland
DONALD W. STEWART, Alabama
PAUL E. TSONGAS, Massachusetts

JAKE GARN, Utah
JOHN TOWER, Texas
JOHN HEINZ, Pennsylvania
WILLIAM L. ARMSTRONG, Colorado
NANCY LANDON KASSEBAUM, Kansas
RICHARD G. LUGAR, Indiana

KENNETH A . M C L E A N , Staff
M . D A N N Y W A L L , Minority

Director

Staff

Director

CHARLES L. MARINACCIO, General
JOHN T . COLLINS, Special

Counsel

BRUCE F. FREED, Professional
(II)

to
Staff

Counsel
the

Minority
Member

CONTENTS
FRIDAY, FEBRUARY 8,

1980

Page
Opening statement of Chairman
Opening statements of:
Senator Garn
Senator Cranston
Senator Heinz
Senator Riegle
Senator Lugar
Statement of G. William Miller,
Memos:
Bell Aerospace Corporation
1969
Bell Aerospace Corporation
23, 1971

Proxmire

Secretary, Department of the Treasury

1
4
4
5
6
44
6

1966 Federal Income Tax Audit dated Aug. 8,
21
1967 Federal Income Tax Audit dated Sept.
28
AFTERNOON SESSION

Opening statements of:
Senator Cranston
Senator Riegle
Senator Proxmire

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70
71
APPENDIX

Letter to Attorney General Benjamin Civiletti from Senator Proxmire dated
Oct. 30, 1979
News article from the Wall Street Journal, Oct. 24, 1979
Response to letter of Senator Proxmire from Assistant Attorney General
Philip B. Heymann dated Nov. 17, 1979
Response to letter of Senator Proxmire from Deputy Assistant Attorney General John C. Keeney dated Jan. 14, 1980
Justice Department conclusion
Excerpts from nomination hearing of Mr. Miller dated February 27 and 28,
1978 are reprinted at the request of Senator Riegle
Letter to Senator Proxmire from Gibson, Dunn & Crutcher, lawyers and
counsel to the special committee of the board of directors of Textron, Inc
Page 101 of SEC staff report

333
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338
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116

V O L U M E ONE
Report of the Special Committee of the Board of Directors of Textron, Inc.:
Transmittal Letter
Table of Contents
Table of Appendices
Names frequently abbreviated in this report
PART I General Overview of the Committee's Findings

(ill)

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IV
Page
PART II The Committee's Work: Scope and Conduct of the Committee's
Investigation
A. Background of the Committee's Appointment
B. Appointment and Organization of the Committee
C. Scope of the Committee's Investigation
D. Conduct of the Investigation
1. Staff Assistance
2. Questionnaires
3. Preliminary Document Review
4. Division Reviews
5. Special Procedures at the Bell Helicopter Division
6. Interviews of Non-Employees and Other Procedures
7. Pertinent Aspects of the Interview Process
8. Special Assistance Provided by Outside Auditors
9. Relations with the SEC Staff
E. The Fact-Finding Process
F. Use of Names in the Report
PART III Summary of the Committee's Findings as to Particular Transactions
A. Textron—An Overview
B. Summaries of Findings as to Foreign Sales of Bell Helicopter
1. Introduction
2. Ghana
3. Dominican Republic
4. Country "A"
5. Country " B "
6. Country " C "
7. Country " D "
8. Country " E "
9. Country " F "
10. Country " G "
11. Country " H "
12. Country " I "
13. Country " J "
14. Country " K "
15. Other Countries
C. Summaries of Findings as to Foreign Sales of Divisions Other than
Bell Helicopter
1. Introduction and Overview
2. Fafnir
3. Shuron
4. Bell Aerospace
5. Questionable Practices of a Less Important Nature
D. Occasions on which Textron Divisions Rejected Requests for Improper Payments or for Other Questionable Actions
E. Summary of Findings as to Accommodation Payments and Overbillings as to Foreign Sales
F. Summary Findings as to Sales Practices with Respect to Domestic
Operations
G. Summary Findings as to Political Contributions
H. Summaries of Findings as to Miscellaneous Matters Examined by
the Committee
1. The Sixty Trust: Sale of Property in Country X
2. A Charitable Contribution to a Medical Foundation
3. Bell Helicopter's 1978 Inquiry into the 1971 Sale to the
Government of Ghana
I. Findings as to Accounting Practices Related to Questionable Transactions
J. Findings as to Senior Officers of Textron

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174

V
PART IV The Committee's Recommendations
A. Introduction
B. Recommendations
1. Establishing and Communicating Standards of Business
Conduct
2. Oversight of the Corporate Compliance Program
3. Control of International Marketing Activities
4. The Audit Committee and the Internal Financial Controls
Environment
5. Particular Recommendations with Respect to Bell Helicopter
6. Textron Legal Department Liaison with the Divisions
7. Disciplinary Recommendations

Page
177
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181
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184
189
191
191

VOLUME TWO
Table of Contents
A. Further Information as to Bell Helicopter's International Marketing
Activities
1. Introduction
2. Ghana
3. Dominican Republic
4. Country " A "
5. Country " B "
6. Country " C "
7. Country " D "
8. Country " E "
9. Country " F "
10. Country " G "
11. Country " H "
12. Country " I "
13. Country " J "
14. Country " K "
15. Other Countries
16. Iran
B. Further Information as to Foreign Sales of Divisions Other than Bell
Helicopter
1. Introduction
2. Fafnir
3. Shuron
4. Bell Aerospace
C. Specific Findings as to Accomodation Payments and Overbillings as to
Foreign Sales
1. Introduction
2. Accommodation Payments
3. Overbillings
D. Additional Information with Respect to Domestic Operations
1. Marketing to the United States Government: Hospitality Expenses
2. Findings as to Domestic Commercial Marketing Practices Generally
3. "Push Money" Payments
E. Additional Information as to Political Contributions
F. Additional Information as to Miscellaneous Matters Examined by the
Committee
1. The Sixty Trust: Sale of Property in Country X
2. A Charitable Contribution to a Medical Foundation
3. Bell Helicopter's 1978 Inquiry into the 1971 Sale to the Government Ghana

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321

VI
Table of Contents—Continued
G. A Short History of the Development of Textron Business Conduct
Policies
1. The Period 1971-75
2. The Period 1976-78
3. Programs to Assure Compliance with the Foreign Corrupt Practices Act
4. Development of the Business Conduct Guidelines
5. Additional Steps in Conjunction with Outside Auditors

Page
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327
330
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332

FURTHER MATTERS RELATING TO THE
NOMINATION OF G. WILLIAM MILLER
FRIDAY, FEBRUARY 8, 1980
U . S . SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, D.C.

The committee met at 10:05 a.m., in room 5302, Dirksen Senate
Office Building, Senator William Proxmire (chairman of the committee) presiding.
Present: Senators Proxmire, Cranston, Stevenson, Riegle, Sarbanes, Tsongas, Garn, Heinz, and Lugar.
The CHAIRMAN. Mr. Secretary, would you rise and raise your
right hand? Do you swear the testimony you are about to give will
be the truth, the whole truth, and nothing but the truth?
Secretary MILLER. I do.
OPENING STATEMENT OF CHAIRMAN PROXMIRE

The CHAIRMAN. Thank you, sir. Be seated.
This morning the committee meets to hear the Secretary of the
Treasury answer questions with respect to the recent complaint by
the SEC against the Textron Corp. which the Secretary headed
during the period on which the complaint is based.
The purpose of the hearing is to permit the committee to make a
more complete and accurate record than we were able to establish
at the time of the consideration of Mr. Miller's nomination as
Chairman of the Federal Reserve Board in early 1S78.
Mr. Miller is no longer Chairman of the Federal Reserve Board.
He is now Secretary of the Treasury. The complaint is based on a
July 1979 staff report of the SEC. At the time Mr. Miller was
confirmed as Secretary of the Treasury by the Senate in August of
1979, I spoke at length on the floor of the Senate in opposition to
Mr. Miller and based my speech largely on the staff report.
But the complaint is something new. It is not a conclusion of the
SEC staff. It is the considered charge of the Commission itself, and
that Commission is perhaps the most respected and independent
agency of the Federal Government.
The SEC complaint was a public complaint. It has raised some
serious public concerns expressed in the press. The New York
Times, for example, in a lead editorial, called for a congressional
inquiry and specifically called on this committee to make it. Senator Cranston, a member of this committee, called for this committee to recall and question Mr. Miller.
The New York Times and Senator Cranston were right. Mr.
Miller occupies a high office in this Government. The principal

(1)

record made by the Senate with respect to Mr. Miller was made by
this committee's investigation some 2 years ago.
Now it is true, as we know, that Mr. Miller had a press conference to respond to questions on this matter. But in my judgment,
the SEC complaint is sufficiently serious to warrant a thorough,
comprehensive inquiry to secure from Secretary Miller answers to
each item of the complaints made by the Securities and Exchange
Commission, so the record is more complete and clear.
This committee faces a difficult challenge in this inquiry. It is
obvious that a man's integrity is at stake. It is also true that to a
very considerable extent the integrity of the administration is at
stake. That means to me that we should show Mr. Miller every
consideration and give him every opportunity to respond. Mr.
Miller is in an extraordinarily difficult position. It's difficult for his
family. I think we are all aware of that and we should be.
At the same time, this committee, as I see it, has a duty to
pursue these matters fully and vigorously and to demand answers,
and I intend to do that.
Let me say first and most emphatically that nothing in the
record—not the investigation by the committee staff, and it was a
thorough investigation, not the staff investigation by the SEC, not
the investigation by the independent directors of Textron—has uncovered any testimony or document linking Secretary Miller to any
foreign bribe or the destruction of any record or any other improper activity relating to foreign bribes.
What then is there for the committee to investigate? The committee needs to seek from Mr. Miller his explanation of how he, as
president of Textron from 1960 to 1974 and chairman of the board
from 1974 until he retired in 1978 to enter the Government, failed
to know about and prevent payments by the corporation he headed
which totaled at least $5,400,000 when the SEC alleges that Textron knew or had reason to know that payments would be shared
by foreign government officials and others in connection with the
use of their influence to secure business for Textron.
The committee needs to find out from Mr. Miller how he, as the
chief executive officer of Textron, failed to know about and prevent
these payments to be made through Textron's sales agent and the
corporation facilitating such payments by transmitting "commissions" of sales agents to bank accounts and third parties outside
the sales territory of the sales agents.
The committee needs to know how Secretary Miller explains the
complaint of the SEC that at the 1976 annual meeting of the
Textron shareholders Mr. Miller, as chairman of Textron, made the
statement that "there have been no payments that are illegal or
any payments that are improper, anywhere throughout the company/' In the words of the SEC complaint, this statement was made
without Secretary Miller "having a reasonable basis and was erroneous and misleading * * *"
The committee needs to know why Mr. Miller, as head of one of
the companies that had a major share of our aerospace export
market, failed to come forward as did 500 other corporations, many
of them much smaller than Textron at the suggestion of SEC and
make the kind of investigation by independent directors that would
have disclosed this bribery and other improper activities.

The committee needs to know Mr. Miller's response to the SEC
charge that while he was chairman or president of Textron, the
corporation made false and misleading representations to the U.S.
Government.
The committee needs to know Mr. Miller's explanation of how he
failed to know or prevent its employees from falsely altering documents or concealing documents regarding improper payments on at
least two separate occasions.
The committee needs to know why Mr. Miller failed to know
about or prevent Textron filing reports with the SEC that the
Commission charged were false and misleading regarding expenses
incurred in entertaining employees of the U.S. Defense Department.
The committee needs to know why Secretary Miller, as the head
of the Textron Corp., failed to know or prevent Textron from filing
false and misleading reports regarding the practice of at least six
Textron divisions of overbilling foreign purchasers of their products. And why Mr. Miller failed to know or prevent the corporation
from filing false export declarations with the U.S. Department of
Commerce.
To sum up, Mr. Secretary, what is new in all of this is the
totality of it, the totality of what went on. There were at least 14
bribes or improper payments in 10 different companies over 8 years
when you were in charge. The company used Swiss or Luxembourg
accounts to hide payments on at least five occasions.
Key information and/or documents were destroyed or altered on
two occasions.
Routine overbillings amounting to at least $1.3 million were
made over a period of years.
Five, perhaps more, senior officials either knew of questionable
payments or that foreign government officials owned a piece of
Bell's agencies abroad.
In four countries the local commercial companies through which
Bell did business was either owned, were fronts for, or closely
associated with high government officials.
Eleven officials of the company took the fifth amendment concerning these questionable activities in the SEC investigation, including at least two senior officials, three who worked with senior
officials, your major agent in Indonesia, an official of your accounting department, and two major agents who had contacts with your
senior officials.
There were repeated occasions when you had an opportunity to
investigate these matters in which the investigation either did not
take place or was done in the most cursory manner.
These facts brought out both in the SEC complaint and report of
your own company's outside directors' report certainly appear to
contradict your assertions that Textron can do business without
improper payments.
They appear to contradict your repeated statements that senior
officials were unaware of improper payments or bribes.
They appear to contradict your own statement that you were too
much involved in the details of the company.
What these facts do is to challenge our credulity that a person of
your ability, your energy, your sophistication, could be so unaware

of what went on and we therefore believe it's necessary to ask you
about it.
Secretary Garn.
Senator GARN. I just changed from a Senator to a Secretary.
The CHAIRMAN. Pardon the demotion.
Secretary MILLER. Yes, it may be a demotion.
OPENING STATEMENT OF SENATOR GARN

Senator GARN. Thank you, Mr. Chairman.
Secretary Miller, this hearing concerns the integrity of earlier
confirmation hearings held by this committee regarding your nomination to be Chairman of the Federal Reserve Board. Our hearing
2 years ago included extensive questioning and research with respect to possible improper payments made by the Bell Division of
Textron. At that time we found no evidence that Mr. Miller, as
chairman of Textron, knew of or sanctioned improper payments by
his company.
Last week the Securities and Exchange Commission filed a complaint against Textron regarding $5.4 million in improper payments and questionable expenditures made by several divisions of
Textron. The company, without admitting or denying any of the
allegations in the complaint, consented to the injunctive order
requested by the SEC, which generally requires Textron not to
violate the securities laws in the future. While the complaint indicates that Secretary Miller was aware of certain questionable bookkeeping procedures regarding Textron entertainment expenditures
and did not use reasonable care in some remarks made to Textron
shareholders concerning such expenditures, there is no statement
alleging that he knew of or directed any improper payments.
Because of the issues raised by the SEC complaint, the committee decided to conduct this hearing, and I believe properly so, to
review with Mr. Miller his testimony before the committee 2 years
ago.
While the SEC investigative report and a Textron audit report,
both completed this past July, showed that the committee was not
provided all of the information it requested from Textron 2 years
ago concerning improper payments, we have no knowledge at this
time that what Mr. Miller told us during our earlier hearings was
untrue. Thus, I want to emphasize that I am not here today to
charge Secretary Miller with any wrongdoing but to participate in
and help provide an opportunity for a fair discussion of all of these
issues that the chairman has outlined and hopefully to settle them
one way or another and put this issue to bed once and for all.
I thank you for your willingness to appear, Mr. Secretary. It is
difficult for you, but I much appreciated your answers in the past
and I'm sure you will be responsive to our questions today.
The CHAIRMAN. Senator Cranston.
OPENING STATEMENT OF SENATOR CRANSTON

Senator CRANSTON. Thank you very much, Mr. Chairman.
Mr. Secretary, the Securities and Exchange Commission report
referred to by Chairman Proxmire and by Senator Garn has only
recently come to the attention of this committee. It raises new
questions about your conduct while chairman of Textron, Inc., and

about the completeness of your testimony before this committee at
your confirmation hearing 2 years ago.
You have categorically denied all allegations of wrongdoing to
the press. Making a public statement through the media was a
perfectly proper step for you to take, but it's not, in my judgment,
sufficient to make these denials only to the press.
To try to set the matter totally to rest, as Senator Garn suggested, it seems to me most advisable that you clear the air and the
record by making your statement directly to the U.S. Senate which
confirmed your appointment to the Federal Reserve Board and
specifically to this committee which recommended your confirmation.
By the same token, this committee has a responsibility to consider the serious allegations made against you subsequent to your
confirmation and to explore fully new evidence not available prior
to your confirmation.
Under our constitutional separation of powers we have the responsibility to pursue these matters, irrespective of whatever actions may or may not be taken by other branches of the Government. That is why I suggested to the chairman that you be asked
to reappear before this committee.
This is not intended as a challenge. It's intended as an opportunity. At a time when our Nation faces not only but two international
crises, when we are tryng to deal with persistent and perplexing
economic and social problems at home, the people must have confidence in their men and women who are running the Government.
Rumor and innuendo can be more damaging than the facts. Those
who are under suspicion have a right to have rumor and innuendo
disspelled, if they can be disspelled, and the American people have
a right to the facts.
I, for one, am not necessarily doubting your word or your integrity. I do feel, however, that both you and the administration owe
the Senate an explanation inasmuch as the SEC complaint raises
questions concerning your testimony before this committee during
our confirmation hearings on your appointment as Chairman of
the Federal Reserve. You may be subjected to some hard questioning. That, too, would be altogether proper. A number of hard
questions have not yet been answered. It would be a disservice to
you and to the President and to the Nation if they were left
unanswered. I wait eagerly your reply. I thank you.
The C H A I R M A N . Senator Heinz.
OPENING STATEMENT OF SENATOR HEINZ

Senator H E I N Z . Thank you, Mr. Chairman.
Mr. Secretary, I think the reason for this hearing can be stated
in one word: credibility. Since the last time you appeared before
this committee there's been, as you know, an SEC staff report
followed by an SEC complaint. The information set forth in those
documents obviously raise questions as to how you as the chief
executive officer might not have known or did not know about
many of the things identified in those complaints and investigations.
I think it's the committee's obligation to get to the bottom of
those concerns and troubling questions.

Thank you, Mr. Chairman.
The CHAIRMAN. Senator Stevenson.
Senator STEVENSON. Thank you, Mr. Chairman.
If I have any comments, I will make them after we have had an
opportunity to hear from the Secretary.
The CHAIRMAN. Senator Lugar.
Senator LUGAR. I have no comment.
The CHAIRMAN. Senator Riegle.
OPENING S T A T E M E N T OF S E N A T O R R I E G L E

Senator RIEGLE. Mr. Chairman, just a brief comment.
First, I want to welcome the Secretary and say that I, for one,
appreciate the work that he's done both at the Federal Reserve and
lately at the Treasury Department.
My staff and I have gone through all of our previous testimony
and I remember it quite clearly, apart from having just reviewed it,
and I have not been able to find anything that is new in terms of
the items that have been discussed more recently in the press in
terms of laying it beside the ground that we covered during our
hearings some 2 years ago. I know the professional staff of this
committee has been involved at some length in examining all these
items and it may well be that if they have anything new to add
that we will learn that today. I am not aware of anything that falls
into that category, but perhaps we will find out if there is anything
new as the hearing proceeds.
I think that really is the critical issue, whether or not we're here
covering the same ground we covered before or whether in fact
there is new information, new facts that have to be considered, and
so I would preserve any further comment myself until we have all
had the chance to discuss these matters.
The CHAIRMAN. Senator Sarbanes.
Senator SARBANES. I am prepared to hear from the Secretary.
The CHAIRMAN. Senator Tsongas.
Senator TSONGAS. Nothing.
The CHAIRMAN. Mr. Secretary, it's all yours.
S T A T E M E N T O F G. W I L L I A M M I L L E R , S E C R E T A R Y ,
DEPARTMENT OF THE TREASURY

Secretary MILLER. Mr. Chairman and distinguished members of
the committee, let me thank you for inviting me to appear here. I
do appreciate this opportunity to clear up the questions that have
arisen as a result of the Textron investigations and I agree wholeheartedly with Senator Cranston that this is an appropriate forum
in which the procedures are appropriate for trying to accomplish
this.
After my confirmation hearings before this committee 2 years
ago, Textron's board of directors did commence its own extensive
investigation under the direction of a special committee of outside
independent directors. That special committee retained Frank
Wheat, who's a former SEC Commissioner, and his law firm to
assist in their investigation.
That special committee's work was completed in July 1979 after
more than 1 year, and its report was filed with the SEC and was
made available to the public. I understand that copies were made

available to the appropriate Senate committees and were available
to the Senate prior to my confirmation as Secretary. I have a copy
of the report here. I'm sure you all have read it.
The SEC's investigation of this matter began while our hearings
were going on in 1978 that began in February and it too was
completed in July, as I understand it, of 1979. Because my nomination was pending at that time, the SEC provided a confidential
copy of its nonpublic investigative report to the chairman of this
committee and the chairman of the Senate Finance Committee and
I understand that members of the committees and their staffs and
members of the Senate had access to the SEC report in connection
with my nomination to Treasury. I wasn't provided with a copy of
the report at that time. A copy was furnished to me last Tuesday
and I read it for the first time that evening.
Eleven days ago, on January 28, as a result of a settlement
agreement, SEC filed a civil complaint in the Textron matter and
Textron simultaneously filed a consent judgment. This SEC complaint set forth a series of allegations. I think you know I was not
involved in the SEC action or settlement, so we should be here
concerned by the broader matters in the complaint.
The SEC complaint and the special committee report include
information on improper payments made in connection with foreign sales. While I did not know of any of these and while such
payments were contrary to Textron policy and what I believe to be
Textron practice, these disclosures have greatly disturbed me and
have caused me to reassess my broader responsibilities as chairman of Textron.
Mr. Chairman, I think you are correct, the big issue is my
stewardship at Textron. During my tenure, Textron had about
65,000 employees, 25 to 30 divisions, operating some 180 plants
throughout the United States and around the world with annual
sales of about $2 billion, plus or minus. We had extensive managerial and financial controls to administer such a widespread enterprise.
The basic policies and procedures were set forth in the Textron
management guide. Among other subjects, the management guide
included a section on standards of conduct which explicitly set
forth not only the requirement for all personnel to comply with the
letter and the spirit of all laws, but also to conform to the highest
standards of conduct and ethics. The policy also imposed the requirement for all personnel to disclose any circumstances which
might be alleged to violate company policy.
The subject of standards of conduct was covered over the years in
memos, management meetings, business reviews, seminars and the
like, which included both corporate and divisional personnel and
management.
While audits, reviews, and disclosure requirements provided a
means of checking on compliance, we did from time to time endeavor to strengthen our procedures. Starting with the annual
audit of 1976 we required all key employees to furnish affirmative
statements that they were not aware of any illegal, improper, or
questionable payments. These statements were signed by over 1,000
key corporate and divisional executives and did not disclose any of
the improper foreign payments.

Yet the payments did occur.
In fairness to the Textron divisional people involved, I would like
to call your attention to a statement made by the Textron Special
Committee. I'd like to quote it:
The committee is satisfied on the basis of its investigation that no officer of
Textron or any of its divisions sought or obtained any personal financial gain in the
course of any of the transactions described in this Report. Where employees were
involved in questionable activities, the evidence is that they genuinely, albeit mistakenly, believed their activities to be in Textron's best interest.

In retrospect, Mr. Chairman and members of the committee, I
could have and I should have done much more to assure that
Textron policy was widely understood in its divisions from the
corporate office without relying so heavily on divisional management, and I could have and should have done much more to check
affirmatively from the corporate office to be sure that there was
full compliance.
One of the very important things I could have done to improve
the situation was to recommend a special Textron investigation at
the time that improper payments began to surface as a general
problem for American corporations. I did not do so because I honestly felt that we were conscientious in our efforts to maintain high
standards and because such an investigation would have been disruptive and expensive. In hindsight, I should have proposed an
investigation.
Both the SEC and the special committee reports refer to the
expenses of the Bell Helicopter and Bell Aerospace Divisions of
Textron in entertaining Department of Defense employees, generally through the provision of meals.
This matter first came under my close scrutiny in late 1975 when
Senator Proxmire wrote to me as part of a survey of defense
contractors.
Prior to that time, I was aware that the Bell divisions did provide hospitality to DOD personnel, which I understood to be in the
nature of normal courtesies.
During the SEC and special committee investigations it was
called to my attention that in 1969 and in 1971 I had received a
memorandum from the Textron tax department discussing tax
audit adjustments and indicating that expenses for entertainment
of Government personnel were not documented and had been disallowed as tax deductions. When these were shown to me I didn't
recall the items. That's probably because the particular matters
were agreed to by our tax department and not in dispute and were
relatively small compared to the other proposed adjustments. The
tax returns and tax adjustments at Textron were always reviewed
by Textron's outside auditors and outside counsel, so it was my
usual practice to concentrate on larger items that were in dispute
which required some sort of decision.
The matter of these entertainment expenses did come to my
specific attention when Senator Proxmire wrote to me and to other
defense contractors on October 31, 1975, in his capacity as vice
chairman of the Joint Committee on Defense Production. The committee was making a review of defense contractors and the letter
requested certain information, including information on expenses
for entertainment of Government personnel from the period 1971
through 1975. I was out of the country when the letter arrived, but

I replied on November 24 that I had commenced a survey to obtain
the information which I would supply when available.
On December 2, 1975, Deputy Secretary of Defense William P.
Clements, Jr., wrote to me and to other defense contractors calling
attention to a DOD directive with respect to acceptance of any
gratuity by the Department of Defense personnel. He asked cooperation from defense contractors in informing personnel who dealt
with DOD representatives about the DOD requirement. I responded
to Secretary Clements on December 9, indicating that I would be
pleased to inform Textron personnel as he requested.
Senator Tower, a member of the Joint Committee on Defense
Production, wrote to the same defense contractors on January 2,
1976, advising of certain modifications of the request from Senator
Proxmire. Senator Tower noted that the committee was aware that
for many sorts of activities, such as provision of meals, hospitality
suites, or tickets to sporting or cultural events, the amount of
effort to produce full details would be prohibitive and unnecessary.
However, information was requested for expenses which exceeded
$100 per guest. It was also requested that responses be sent by
March 1.
On January 20, I replied to Senator Tower letting him know that
our survey was proceeding and that I hoped to be able to meet the
March 1 date.
On that same day, by coincidence, on January 20, 1976, after
having obtained copies of the DOD directive, I wrote to the presidents of all Textron divisions directing that full cooperation be
given with Secretary Clements' request and that there be full
compliance with DOD policy. A copy of Secretary Clements' letter
to me was enclosed and I required an affirmative response that all
appropriate personnel had been advised.
The reply to Senator Proxmire's survey was sent on March 1.
The nature of entertainment and hospitality was described. I pointed out that the individual courtesies and hospitalities extended
were limited and were not intended to be and could not have been
of such scope or value as to influence the standards of conduct and
ethics of Government personnel. I reported that we had not been
able to find any instance where the cost could have been as much
as $100 per guest.
In September 1977, the Joint Committee on Defense Production
published its report on this matter. It was noted that the purchase
of meals by defense contractors for Government personnel was a
widespread practice but that it was not clear to what extent this
was permissible under DOD regulations. The committee reported
that the annual average meal expenses for those companies who
provided figures was about $125,000 and that some contractors
excluded the names of Federal employees from company expense
documentation.
The Textron Special Committee report notes that in testimony
before the Joint Committee in 1976, Secretary Clements conceded
that DOD regulations had not been adequately circulated to DOD
employees and that they were ambiguous.
The investigative reports of the SEC and of the Textron Committee do cover the accounting procedures of the Bell divisions for
these expenses. In each case, the expense items were properly

entered in the books of the division. These were not kept off the
books. They were right there on the record.
After my memo of January 20, 1976, requesting compliance with
Secretary Clements' request, the amount of these expenses dropped
substantially and were later discontinued altogether.
This matter was discussed on the floor of the Senate last August
2 by Senator Proxmire in connection with my nomination.
Let me now turn to references in the SEC complaint about
statements made by me at the 1976 and 1977 shareholders' meetings of Textron.
In 1976, I said, "* * * so far as we know, there have been no
payments that are illegal, or any payments that are improper,
anywhere throughout the company."
I believed this to be correct at the time.
At the annual Textron management meeting in February 1976,
before the shareholders' meeting, I had made an extensive presentation on standards of conduct. I had, among other things, specifically pointed out that fees and commissions to third parties were
not to be used to disguise improper payments and I particularly
called attention to the responsibility for voluntary disclosure of
information needed to maintain compliance.
The absence of discovery or employee disclosure made it seem
reasonable to me to report that so far as I knew there were no
improper payments.
At the 1977 shareholders' meeting, during the discussion period,
I made a similar statement to the effect that we did not know of
any illegal or improper payments. I noted that over 1,000 employees had signed an affirmative statement in this regard in 1976 and
I went on to say that I could not assure that there had been no
unethical conduct but that we had found none, none had been
authorized, and none would be condoned.
The signed statements of the 1,000 key people seemed to me to
provide further assurance and, of course, at that time I added a
caveat that I could not guarantee that there was not something
that we were not aware of.
Mr. Chairman, members of the committee, my statements were
made in good faith. I believed it was correct and reasonable for me
to say that I knew of no improper payments.
But, of course, the investigations have disclosed that there were
improper payments. It turned out that I was incorrect.
I was distressed to learn that there had been improper payments
and I very much regret that my personal efforts fell short.
Mr. Chairman and members, I thank you for your attention and
I will be pleased to try to answer any of your questions.
The CHAIRMAN. Thank you very much, Mr. Secretary.
Mr. Secretary, we are going to run a 10-minute time on each of
us because there's so many of us here; otherwise, we won't get a
chance to share the question period.
Will you identify the gentlemen who are with you at the table
for the record on your left?
Secretary MILLER. This is Mr. Michael Klein, who is representing
me. He's a member of the firm of Wilmer & Pickering; and this is
Mr. Steven Kidder of the same firm.
The CHAIRMAN. Very good.

First, I want to congratulate you on your opening statement. I
think that was very, very helpful and I appreciate your doing
something that few people are willing to do: Conceding a mistake
and an important mistake in not calling for further investigation,
and I think that was a key point in this whole situation. You were
also wise I think to point to putting this in context that this wasn't
a little company with a few hundred employees. It was an enormous company with many divisions with far-flung employees in
many parts of the country—in fact, in the world; and therefore, it
was difficult for any person to know everything that was going on.
I think those are perfectly legitimate and proper points and I think
we should keep those in perspective in questioning you on these
matters.
You were also, I thought, most helpful to us in going into detail
on the new allegations that's in the SEC report with respect to
entertainment of Defense Department employees by Textron. I
have some questions on that later on, but first, let me get to
something that we questioned you on before but I think the SEC
complaint and the SEC staff report raises some new issues.
Let me read from the SEC report with respect to the $2.95
million payment. In 1973 through 1975, Textron-Bell paid approximately $2,950,000 to Air Taxi Co., Textron-Bell's sales agent in
Iran, in connection with a contract, secured in or around June
1973, pursuant to which the Iranian Army agreed to purchase 489
Bell helicopters for approximately $500 million. During this period,
Gen. Mohammed Khatami, commander in chief of the Iranian Air
Force, had a financial interest in Air Taxi, and in fact received at
least $500,000 of the $2,950,000 paid to Air Taxi. Textron-Bell knew
or had reason to know of Khatami's interest in Air Taxi, through
one or more of its senior officials, although those persons responsible for negotiating the payment to Air Taxi deny having any
knowledge or belief of such interest.
Now that was in the complaint 1 on page 4. You previously
testified before this committee that you would be surprised to find
that Khatami, an Iranian general, owned Air Taxi, Textron-Bell's
dealer in Iran, and recipient of the $2.95 million fee. You said you
did not believe Khatami owned Air Taxi and that it should not
reasonably be expected to discover that Khatami owned Air Taxi.
The question is this: The SEC report found that Textron-Bell
knew or had reason to know of Khatami's interest in Air Taxi. In
one Textron memo in 1971 reviewed by Dukayet and Atkins it
stated that Khatami was the real influence behind Air Taxi.
Wouldn't you agree that Textron's own files showed that Khatami had an interest in Air Taxi, at least such as to warrant an
inquiry into the ownership at the time of the $2.95 million payment?
Secretary M I L L E R . Mr. Chairman, I would like to point out just
one thing. When you read that particular paragraph, the words
"Textron-Bell" means Bell Helicopter Division. It does not mean
corporate I think the way the SEC defined it. Both the special
committee and the SEC concluded that Khatami did have an interest, either ownership interest or financial interest, in commissions,
that he had received money from Air Taxi, and there is evidence
1

Printed in the appendix, part II of this hearing.

69-845 0 - 8 1 - 2

that some people in the divisions knew or should have known. I
only say that I did not know. Whether I should have done more,
you will have to judge in the context of the time. It may have been
a shortcoming of mine not to have gone further, but I didn't.
The CHAIRMAN. Wasn't it true that the top Bell officials reported
directly to you?
Secretary MILLER. Yes. Mr. Chairman, the top Bell officials who
reported to me continue to state under oath that they did not know
of it and the report—even the complaint goes out of its way to
point out these officers deny it. So while you know that could be a
litigative point, they deny under oath that they knew of it, and so I
can't respond to whether that further indicates something I should
have known, but I did not know of it.
The CHAIRMAN. In your testimony on page 77 before our committee 2 years ago, you said, "Bell Helicopter Division is an operating
company and I have a complete responsibility for the policies of the
company." In your confirmation hearing you said you dealt with
Mr. Atkins in the Air Taxi matter and there was no suggestion
that Mr. Atkins knew of Khatami's ownership of Air Taxi. You
then said that if Khatami did have an undisclosed interest in Air
Taxi, "then Mr. Atkins and I have been deceived."
According to the SEC report, Atkins and Ducayet attended a
meeting in 1971 in which a memo was discussed stating that the
real influence behind Air Taxi is Khatami and one Textron employee testified that the language confirmed his understanding
that Khatami had a financial interest in all Iranian aerospace
companies, including Air Taxi. Should the memo have raised a flag
to Atkins on the ownership of Air Taxi or are you suggesting that
Atkins may have deceived you?
Secretary MILLER. I would not come to that conclusion because I
think in fairness that would be improper for me to do. If you will
recall, Mr. Chairman, before I made my statement on February 28,
as I recall that you just read, Mr. Atkins had testified before this
committee and had testified to you that he did not know that. I
made my statement on the basis of that record.
The CHAIRMAN. YOU see, Mr. Secretary, in view of your strong
involvement in Bell and the fact that this was a very, very important sale—$500 million—and that the amount of the payment was
substantial, nearly $3 million; and in view of what the State Department tell us was common knowledge that Khatami owned Air
Taxi, that the public records in Iran supplied to Textron referred
to Khatami as the chairman of the board of Air Taxi and that
French officials told high Textron officials that Khatami owned Air
Taxi, that the Commerce World Trade report stated that Khatami
had a financial interest in Air Taxi, and that a Textron employee
recommended hiring of Air Taxi understanding that Khatami had
an ownership interest in Air Taxi, and the internal Bell memo
stating that the real ownership interest was General Khatami—in
view of all that, I wonder why Textron, which was of course the
controlling corporation over Bell Helicopter, didn't know what everybody else seemed to know.
Secretary MILLER. I think some of the things you're citing were
way back in the 1960's when there was virtually no business in
Iran. Not very much attention was paid to the Iranian market

pertaining to sales and Air Taxi occurred in the late 1960's and it
was not until the early 1970's
The C H A I R M A N . You're correct. In 1965 or 1966 the Shah issued
an edict saying his people should not have ownership in companies
like Air Taxi that were procuring weapon systems or what not for
Iran. However, the State Department position stated this was
common knowledge in 1974 and the Commerce World Trade report
was, as I understand it, after that, and the memorandum was, as I
pointed out, in 1971.
Secretary MILLER. Once again, I want to say it did not surface to
my attention. If I should have done more, I failed to do so.
The CHAIRMAN. Now in 1 9 7 3 , again I'm reading now from page 4
of the complaint:
Textron-Bell paid approximately $155,000 to an official of the Mexican Air Force,
in connection with a contract pursuant to which the Mexican Air Force agreed to
purchase 10 helicopters and related spare parts for $3,500,000.

That's a statement in the complaint. Do you have any knowledge
of that?
Secretary MILLER. I have no personal knowledge of that at all.
The CHAIRMAN. All right. The next charge is that: In or around
February 1975, Textron-Bell paid approximately $200,000 to its
dealer for the United Arab Emirates knowing or having reason to
know that this sum would be transferred to an entity owned by a
senior official of the Government of Oman, in connection with a
contract, secured in or around January 1974, pursuant to which
the Oman Department of Defense agreed to purchase five model
205 helicopters and related spare parts for approximately $3.5 million. Do you have any knowledge of that?
Secretary MILLER. NO, sir.
The C H A I R M A N . In 1 9 7 6 Textron-Bell paid approximately
$ 2 7 5 , 0 0 0 to its dealer for the U A E knowing or havng reason to
know that this sum would be transferred to a close relative and
personal assistant on diplomatic affairs of the Sultan of Oman, in
connection with a contract, secured in or around October 1974,
pursuant to which the Oman Department of Defense agreed to
purchase five model 214 helicopters and related spare parts for
approximately $ 8 , 7 0 0 , 0 0 0 . Do you have any knowledge of that?
Secretary MILLER. NO, sir.
The C H A I R M A N . I have some others I'm going to follow up on, but
my time is just about to expire, so I yield to Senator Garn.
Senator G A R N . Thank you, Mr. Chairman.
Mr. Secretary, after reviewing our committee's 1978 hearing
record and your assertions that you knew of no improper payments
by Textron at that time and that you were kept fully informed of
ethical questions regarding foreign sales, the subsequent disclosures in the SEC report cause me to wonder about the effectiveness
of Textron's managerial controls. I recognize it's a decentralized
company with a lot of divisions and a lot of employees, but I don't
think this means that you couldn't insure that proper corporate
policies, such as your insistence on high standards of moral and
ethical conduct, were properly disseminated and that there were
some controls.

So the first question I would like to ask is, how were your
directives regarding questionable payments disseminated to your
staff and employees?
Secretary MILLER. Senator Garn, the fundamental start of that
was in the management guide of the company which laid out this
policy. That management guide—I don't know if we even have a
copy of it here, but it was a document that was published in a
notebook and covered a whole series of policies which included
standards of conduct and conflict of interest, but also included
many, many others. It was the key document for setting forth the
policies and procedures for the corporation divisions. It was printed, as I recall, in several thousand copies and was distributed to
divisions and was to be made available to all key officials so they
would understand the policies and be able to comply with them.
That was not enough, obviously, and I have checked back and I
find that over the period we are talking about that there were very
frequent discussions of these sort of matters of standards of conduct at management meetings. We always had an annual management meeting of top people. Through most of this period I visited
every division about once a year and often brought the subject up.
We had it discussed at annual meetings of our comptrollers
throughout the company who had a special responsibility to watch
this sort of thing. We had some different kinds of seminars occasionally with salespeople.
It is clear to me in hindsight that the memos, the discussions,
only touched the top people and that I was delinquent in not
carrying this deeper into the company and from the corporate
office running seminars or programs and making sure it was understood. I think I did not go deep enough. I was relying on the top
layer getting it on down and apparently it didn't work.
Senator GARN. Did you ever make any checks with key employees, in other words, just to ask them, "Do you understand the
policies?"
Secretary MILLER. I did that in spades with the people I dealt
with and, as I say, the 1976 annual meeting—I happen to have the
text because I rarely wrote the text but in that case I happened to
have written the text because I thought the subject deserved it.
Senator GARN. Were the salesmen who were actually in the
frontlines ever asked the question?
Secretary MILLER. Salesmen, I never did. Occasionally I was at a
sales conference. I think our legal department would have gone to
the sales meeting where the problems were mainly making sure
they understood our whole kind of policies and procedures and
pricing and compliance with law, and those were done fairly frequently, but obviously we did not get down to the sales department
in Bell Helicopter.
Senator GARN. Wouldn't it have seemed logical, though, that no
matter how much you disseminate at the top level, the people
actually out making the contacts with the foreign governments
would have been the ones who should have understood the policy
more than anybody else?
Secretary MILLER. Yes; and when we required affirmative statements declaring and signed "I know of no such case," we got, I
think, 1,100 key people. Now we didn't get, you know, the several

thousands there, and in retrospect, perhaps we didn't therefore
smoke it out—I thought 1,100 key people would have to know
what's going on. Of course, I realize there are those who think I
should have known what was going on, but I think the others
should have known.
Senator G A R N . I realize this is hindsight, but my own policy
when I had a sales force was that those people making the contacts
were more important than those people in the offices who are not
out actually dealing with the people with whom the sales were
being made and, in Textron's case, to whom eventually some of the
questionable payments and bribes were made.
Secretary MILLER. Senator, we shouldn't be too hard on Bell
Helicopter people, the salesmen. We have no case of their being
involved. These were done at a fairly decent level in management.
These weren't the salesmen selling an individual helicopter. Those
sales have shown no such deals. So the individual salesmen we
shouldn't mix them up.
Senator G A R N . I understand what you're saying, but the SEC
report did indicate that there were several salesmen who were
aware of questionable practices but were not aware of the company
policy.
Secretary MILLER. Correct; but a vast number of salesmen for
Bell Helicopter were out doing their job selling helicopters directly
and did not get involved.
Senator G A R N . Since the committee's hearing 2 years ago, it's
been established by both Textron's special audit committee and the
SEC that in 1971 Bell officers and employees were involved in a
$1.6 million sale which also included payment of $300,000 to an
official of the Ghanian Government. During our earlier hearings
you were questioned about the sale and you assured the committee
that you would look into the matter and you reported back that
the sale appeared to be an overpayment without mentioning that it
was an improper payment. You did state that the structure of the
transaction appeared unusual and if known by you in 1971 it would
not have been accomplished in that manner.
Subsequently, we have found out that 1 day after Senator Proxmire requested information from you about the Ghana sale a Bell
employee destroyed a memo describing the need to make a payoff
in order to consummate the sale. This action thwarting the committee's review of the matter is but one such action detailed in the
SEC investigative report. Specifically, I'd like to know what review
you did make of the Ghanian transaction?
Secretary MILLER. After our hearings on January 2 4 or thereabouts when this subject came to my attention for the first time, as
I recall, I asked my associates in Textron who were involved with
this to get me as much information as they could. I find that what
happened was about three parallel investigations unfolded in response to that. I didn't know at the time the details, but the record
is now quite complete. There was an immediate start of an inquiry
by the lawyer for Bell Helicopter. There was immediately started a
review of this by outside counsel brought in especially to do it, and
there was a start of a review by the internal auditors. So three
different tracks were started, as I read the record. I don't have
personal knowledge of this. This all led up to providing me with

what I believe I indicated to this committee was preliminary information, that I informed you—I think I said at the hearing that
from what I had found out so far I didn't know enough to know
what was the real reason behind it, but it obviously looked bad to
me and I assume—and I was correct—that with the SEC investigation going forward that it would be dug into, and it was dug into. I
have no explanation. I think it was very unfortunate that anyone
would destroy a document and I don't know why or how it happened. I did not know about the Ghana sale, as you know, and it's
distressing to me. It should never have taken place in the first
place the way it was done and certainly should have been disclosed
without any tampering when this committee was interested.
Senator G A R N . With whom did you speak specifically at Bell
about the sale?
Secretary MILLER. It's a long time back, but I think I talked to
the group vice president of Textron and I believe our counsel was
here and I believe that I spoke directly with the president of Bell
about it, and they were gathering this information. I think we met
here in Washington maybe the night before I testified, and they
filled me in with what they had. They didn't tell me it was all over
because they still had the investigation going forward, but they
told me they knew enough about it that it looked like a bad
transaction and I tried to report that to this committee. I believe I
was very clear, trying not to hide from you that it appeared to be
improper.
Senator G A R N . I think one of the questions that arises with me,
going back to our hearings 2 years ago and reviewing that hearing
record, I don't think there's any doubt that the directives went out
as you have described and that that was corporate policy. But the
fact that there were so many people that didn't seem to know
about them and some who did, and in reading through the testimony and the SEC report I wonder if they thought it was window
dressing. Despite all that was done in trying to warn them, do you
think a lot of the employees did not take such policies seriously,,
that they felt it was window dressing as a cover and they would go
right ahead with these illegal payments?
Secretary MILLER. I spent many a night worrying about that. Let
me see if I can give you some insight. I don't know if it's correct or
not. As I read this record—and I read it only Tuesday—there was
only one division besides Bell Helicopter that had improper payments. So it seemed to be concentrated in foreign sales of Bell
Helicopter and I take seriously the special committee's finding that
no one did this for personal gain. They really thought they were
doing it for the company. I believe that what existed was a general
attitude and way of doing business in international markets in
aerospace that led these folks to believe that that's the way you
had to do it or that's the way you did it and it would help the
company and that they would conceal it and do it and think they
were doing a good thing for the company. They weren't, but I
believe that's what they thought. I don't believe they didn't know
of the policy personally. I think they merely thought if you want to
sell airplanes out in that world everybody else is doing this and if
you want to meet the competition you have to do it. I think that

was absolutely wrong, but I believe that's the background of why
this happened.
Senator GARN. Well, my time is up, but just one followup.
Secretary MILLER. I don't know if I'm correct on that. I have
worried about it. It didn't happen in other divisions of Textron.
Why here?
Senator GARN. Wasn't there some personal gain, though, just in
that they would receive commissions on the sales?
Secretary MILLER. Not the individual employees, no.
Senator GARN. The salesmen didn't receive individual
commissions?
Secretary MILLER. They did not.
Senator GARN. They were all salaried?
Secretary MILLER. They were salaried and they participated in
the growth and wealth and advancement of their division, but they
didn't get specific commissions.
Senator GARN. Thank you, Mr. Secretary.
The CHAIRMAN. Senator Cranston.
Senator CRANSTON. Following up on that, they would presumably
receive promotions if they made sales.
Secretary MILLER. Yes; they had personal gains in the sense—
that's a good point. They would have advanced their careers, that's
correct. That's correct.
Senator CRANSTON. I would congratulate you on your opening
statement. It was very candid. In effect, you said, "I was wrong. I
could have done better and should have and I apologize, but I acted
in good faith and I was honest." You said that you should have
recommended a special Textron investigation but you did not do so
because you felt that "we were conscientious in our endeavors to
maintain high standards and because such an investigation would
have been disruptive and expensive. In hindsight, I should have
proposed an investigation."
It was widely known, even notorious, as you have recognized
today, that bribery was a widespread practice in military sales.
Bell was successful in competitive sales. Didn't you have any
doubts about whether you were maintaining those high standards?
Secretary MILLER. Senator Cranston, in hindsight, there's no
excuse for it. I just must have been too confident or too assured
that people were listening and paying attention. During that period
I did begin to take a series of steps that I thought were assuring
me that we didn't have any smoke, and therefore, there must not
be a fire. I did begin to require specific provisions in dealer agreements, for example, that made the dealer accountable for guaranteeing that there would be no diversions of funds, and I thought
everybody seeing me doing this and knowing what I was trying to
accomplish would have surfaced any problems.
But you're correct. I was either too optimistic or too self-confident, and I was wrong. I should have proceeded. It would have cost
$1 million and I'm tight with money, I admit, which is a good thing
in the Treasury Department I suppose, but in hindsight, there was
no excuse. I should have done it.
Senator CRANSTON. Any thorough investigation would be disruptive and expensive.
Secretary MILLER. Surely.

Senator CRANSTON. Wasn't an investigation really necessary—
and I think you have recognized this—so that you would know in
fact you were maintaining the standards that you wanted?
Secretary MILLER. I should have done it, no question.
Senator CRANSTON. Were you concerned at all about what an
investigation would reveal?
Secretary MILLER. NO, that didn't concern me. I mean, I would
have rather—you know I have the capacity to face things. I
wouldn't have minded fighting it out. It was, as I say, I just had a
mistaken judgment that we were better than other companies.
Perhaps it's because it had been such a hard track of building the
company that I felt I knew it so well.
Senator CRANSTON. My concern, and I think our concern, is the
discrepancy between your obvious dedication to high standards and
the obvious defects in management at Textron to insure that those
standards were being met, particularly in the area of fraud, with
the danger of fraud as in military sales to foreign countries.
Can you help us further with that?
Secretary MILLER. Well, I can only—you know, everything I say
will be defensive because the truth is I should have thought otherwise. As I said, what I was doing is I was observing this problem as
it evolved in American industry and I was taking affirmative steps
to tighten up. I was beginning to require these things like the
statements that I mentioned. I was beginning to change contracts
and put in better controls. And perhaps I in some way or another
felt that since we had been in international business such a short
time—see, our company did very little international business until
the 1970's. Maybe that was one of my mistakes, too. Since we were
new, I wouldn't have thought we would have imitated these—about
10 percent of our business was in international business in 1969
and when I left the company a third of it was international and I
guess I built it up too fast and didn't put in adequate controls.
Senator CRANSTON. Part of the policy of the growth of Textron
was to take over a company, buy a company and keep its management pretty much intact, leave them running affairs as they were
running them?
Secretary MILLER. Yes, and when they first came in—we had a
philosophy that good companies would join us and they felt they
would have a good deal of autonomy. In the early days they were
left to their own devices. That's not true in the 1970's. I can't
excuse myself on that one. In the 1960's that would have been true,
but in the 1970's it was moving from founders to professional
management and I should have done better.
Senator CRANSTON. At your press conference on the SEC complaint you said:
I was not personally involved in any way, directly or indirectly, with any illegal
payments to Government officials in any place in the world, and even after 2 years
of extensive inquiry this is the fundamental outcome of the issues that were
involved.

In view of your statement this morning, I gather it's obvious that
you accept responsibility for what occurred and at least to that
extent you were involved, were you not?
Secretary MILLER. Yes, and I would say to you that I made that
statement before I had seen the SEC report and read all the

details, which I have now had the chance to read, which disclosed
more to me than I thought existed even at that point.
Senator CRANSTON. I went into these matters with you
Secretary MILLER. I'm not sure I made that clear. It was only
after that press conference that I received the SEC report and was
able to get the details. I had seen the complaint which only has
conclusions.
Senator CRANSTON. I went into these matters with you at the
time of your confirmation hearing before this committee and I'd
like to read just a little bit of our dialog.
I asked you:
I understand that you have a policy in your concern not to engage in improper
payments.
Mr. MILLER. That is absolutely correct.
Senator CRANSTON. I understand you have found it possible also to do business
without making improper payments.
Mr. MILLER. We have taken the view that the way to do business in the world is
to have superior products, to represent them thoroughly, sell them as hard as we
can, service them well, and win on the merit of our product. We have lost business
where business could be obtained in other ways, but we do not consider that to be a
detriment. We believe in the long run a company prospers better by making itself
competitive enough to win on its merit.

Will you explain or give examples of business you lost which you
could have obtained in other ways?
Secretary MILLER. Let me—at the time I had a list of them. I'm
not sure I can drum some up. One time in a foreign country
showing the controls occasionally worked, an official who was in
the chain of decisionmaking had suggested that he needed a sum of
money in order to look favorably upon our proposal. That's a case
where that problem was brought to me. So occasionally people did
understand this. And I declined absolutely to do so. I think we
were unable to get some of the business that we might have gotten
in that case, for example. I believe, but I'm not sure, that I had
been told that in some military sales that we had lost out where
apparently people did understand that there was to be no hankypanky and I can't remember the countries, but I believe I was told
in several we had lost out because we wouldn't pick up a certain
agent or deal with a certain group.
Senator, I would say that that philosophy that I expressed there
I would reaffirm today. You will recall that after the Air Taxi
incident, the termination of Air Taxi, that we did have an opportunity to bid on a much larger program in Iran and that I went to
Iran and negotiated personally, and it was the biggest contract we
ever entered into and we had no agents. We had nobody involved
and we sold it ourselves. So I believed you could do that. I believed
you could do it. Some of my associates may have been correct that
you couldn't in certain instances, but I believe you can. I believe it
today. I believe it's the proper thing for a company. If you try to do
it some other way, you're liable to not do the proper thing to
develop your products and you're liable to begin to become weak.
Senator CRANSTON. DO you think it was widely known in your
company in these instances that business had been turned down
because of the impropriety of the environment?
Secretary MILLER. It was known in the corporate office but I
couldn't say it was known in a lot of divisions because many of the
commercial divisions that dealt in consumer products weren't in-

volved in this kind of business at all where you would be tempted
because normally it was distribution of products in normal channels.
Senator CRANSTON. Why do you think the information trickled
up to you in those cases where nothing was done?
Secretary MILLER. Different channel, different division, different
people, and when it came to the corporate office it came to me, so
it's just—I guess one has to say that there was centered in Bell
Helicopter in a part of its international sales department an attitude that this was either desirable or acceptable. It didn't seem to
surface elsewhere.
Senator CRANSTON. Thank you. My time has expired.
The CHAIRMAN. Senator Heinz.
Senator HEINZ. Thank you, Mr. Chairman.
Mr. Miller, could you please turn to that part of your opening
statement where you dealt with the Internal Revenue Service disallowances of meals and entertainment for DOD officials and read
that part again, the paragraph or several sentences?
Secretary MILLER. Yes. I said that during the investigation, that
is the SEC and Textron's special committee investigations, it was
called to my attention that in 1969 and in 1971 I had received a
memorandum in each of those years, a memorandum from the
Textron tax department discussing tax audit adjustments which
indicated that expenses for entertainment of Government personnel were not documented and had been disallowed as tax deductions.
My recollection of that was that—well, I'll go on with the statement. As I said, I did not recall these items. This was probably
because the particular matters were agreed to by our tax department and not in dispute, and were relatively small compared to
other proposed adjustments. Tax returns and tax adjustments were
always reviewed by Textron's outside auditors and outside tax
counsel, so it was my usual practice to concentrate on larger items
that were in dispute and which, therefore, required some decision. I
think I have copies of those memos here actually. There are several
pages.
Senator HEINZ. Mr. Miller, is that your handwriting on the front
of the memo?
Secretary MILLER. Yes; and the handwriting on the top was for
people that I said I agree we should disagree. I was looking at the
places where we were in disagreement. Unfortunately, we'll have
to go to conference.
The CHAIRMAN. Would the Senator yield so these documents
could be put in the record?
Senator HEINZ. Yes.
Secretary MILLER. Fine. I would be happy to put them in. My
handwriting is on these memos. I received them. There's no question.
[The following memos were subsequently submitted on the
record:]

IX
M r . J.

B. Collin.son

August 8,

^(ZL
tr^s

Mr. J. P. Reardon

^
O

1969

Bell Aerospace Corporation
1966 Federal Incorne Tax Audit
i
The Internal Revenue Service has completed1 th c- e. d r m nation
the 1966 Federal income tax return of Bell Aerospace Corporation, v 5nc
- r ; v p : ? e d serve to ircrer.se taxable income by $18,
and
jf-esuit in a deficiency assessment of $9, 074, 054.
v
t ^
The primary changes proposed by the Revenue Service |.re:

^JK^"^
^
(ly--*
^

erve for

V
^

dti2£±C7ns

UtiD&a 5 UaC SJ

^e Helicoi^ter

(4)

Capitalizations of expenses claimed ^ ^ i Sas
v\
a amount
m o u a t of
oi $1. 704^
(V^l

Attached
are two schedules
analyzing^!)
. ..
_
_ysing'(l) the agents proposed income
changes-and (2) the computation of the deficiency assessment.
The adjustments proposed by the Revenue Agents arc discussed
bejov/:
Capitalisations
T h e JRS c a p i t a l i z e d a total of $ 1 , 7 0 4 , 14?. c l a i m e d as d e d u c t i b l e e x p e n s e s in the 1 966 tax return. Of this amount, $1, 1 50, 072 r e p r e s e n t e d
item:? of equipment e x p e n s e d by the d i v i s i o n s in accorda.rj.ee v/ith T e x t r o n ' s
A c c o u n t i n g P o l i c y #204, that is the $200 and $500 m i n i m u m c a p i t a l i s a t i o n
limits.
The b a l a n c c of '.he. capital;.-nations i n c l u d e d c.\-ponscs in the g e n e r a l

r
yv

Mr.

J. 3 . Collinsoi.

-Page £

nature o£ m o v a b l e p a r t i t i o n s , a i r conditioners, s t e e l shelving, parking l o t
e x t e n s i o n s and i m p r o v e m e n t s , tools and a r c h i t e c t and engineering f e e s
i n c u r r e d r e l a t i v e to the construction and r e m o d e l i n g of new and old buildings, respectively.
L e g a l and P r o f e s s i o n a l
T h i s a d j u s t m e n t ( $ 4 9 2 ) r e p r e s e n t s l e g a l f e e s expended in r e g i s t e r ing trade m a r k s in f o r e i g n c o u n t r i e s .
R o y a l t y and L i c e n s e A m o r t i z a t i o n

In r e v i e w i n g the A g r e e m e n t the Revenue A g e n t held that i n a s m u c h
as the A g r e e m e n t could.not be c a n c e l l e d until S e p t e m b e r 30, 1 9 7 1 , its
u s e f u l l i f e e x c e e d e d s e v e n y e a r s and adjusted the a m o r t i s a t i o n c l a i m e d
a c c o r d i n g l y . A s indicated on the attached s c h e d u l e , the d i s a l l o w a n c e
amounts to $ 1 1 6 , 7 1 0 . 6 3 , which will be r e c o v e r e d in l a t e r y e a r s .

---

. u^iiRtAATiOU

Mr.

J. B.

Page 3

Collinses.

UROER 5

bSl"

R e s e r / f t f o r Refunds Rede terminable

In 1 9 6 6 ,

T h i s r e s e r v e is s i m i l a r to the H e l i c o p t e r r e s e r v e d i s c u s s e d a b o v e .
the r e s e r v e change3 w e r e as f o l l o w s :
B a l a n c e January 1, 1966
Additions
T r a n s f e r - L e d e e n , Inc.
Deductions
B a l a n c e D e c e m b e r 31, 1966

$ 18,700.65
47, 9 5 4 . 9 1
24,783.37
( 1, 669.1 9)
$ 89, 7 6 9 . 7 4

Due to their s i m i l a r i t y , the p o s s i b l e c o u r s e of action c o m m e n t s
m a d e v/ith r e r p e c t to the Helicopter r e s e r v e a l s o apply in this c a s e .

C O N F I D E N T I A L business ikiOUMAIIO;,
EXEMPT FROM E!SCLOSLH!E
UKDER 6 USC §5 552(B) (4)

R e s e r v e f o r Inventory A d j u s t m e n t
La 1 9 6 6 H e l i c o p t e r credited to its r e s e r v e for inventory a d j u s t m e n t
$ 1 2 5 , 9 1 8 in o r d e r to w r i t e - d o w n the value of its Model 47 c o m p l e t e d p a r t s
and its s p a r e parts i n v e n t o r i e s .
The w r i t e - d o w n c o n s i s t e d of a revaluation
of t r a n s m i s s i o n p a r t s and a p e r c e n t a g e w r i t e - d o w n o f the M o d e l 47 i n v e n tories.
Since the p r o v i s i o n was based on e s t i m a t e ^ the A g e n t d i s a l l o w e d
the total amount.
It is interesting to note that, in this one c a s e , th.e y e a r end b a l ance in the r e s e r v e account ( $ 2 8 8 , 9 3 0 ) did not r e p r e s e n t the p r o p o s e d a d justment.
R e s e r v e f o r C o m m e r c i a l Financing
H e l i c o p t e r e s t a b l i s h e d this r e s e r v e in 1 9 6 6 to c o v e r its contingent'
l i a b i l i t y as a guarantor of notes held by D o r r a n c e Financial C o r p .
T h e Revenue A g e n t a r b i t r a r i l y disallowed the entire amount of the
r e s e r v e balance or $ 8 9 , 7 6 9 . 74.

DEPRECIATION
B y extending the l i v e s assigned to data p r o c e s s i n g equipment and
l e a s e h o l d i m p r o v e m e n t s at B e l l A e r o s y s t e r n s and H e l i c o p t e r , the IRS has
d i s a l l o w e d depreciation of $ 7 1 7 , 684 c l a i m e d on the 1966 return.
In 1 9 6 5
and 1 966 A e r o s y s t e m s purchased I B M data p r o c e s s i n g equipment which
had been p r e v i o u s l y l e a s e d . This equipment was being d e p r e c i a t e d o v e r
the remaining life established by I B M at the date of the l e a s e .
Whereas,
I B M u s u a l l y a s s i g n s a life of 50 months to its data p r o c e s s i n g equipment,

M r . J. B.

Colllnsoi.

Page 5

the Agent assigned a life of ten y e ; l r s i f r o m the original date of l e a s e and d i s allowed $395, 600 of depreciation claimed.
The Bell divisions depreciate leasehold improvements over the balance of the initial t e r m of the l e a s e . Since these l e a s e s provide f o r renewal
options the Agents challenged this practice and assigned lives to individual
improvements based on IKS guidelines and an engineer's recommendations.
Depreciation claimed on leasehold improvements has been disallowed in the
amount of $322, 084.
We believe that the life assigned to the data processing equipment
by I B M of 50 months is reasonable due to the high degree c.f o b s o l e s c e n c e
of this equipment. Further it is our belief that the Revenue. Age; to when
changing lives assigned to leasehold improvements failed to consider other
pertinent and important f a c t o r s which would justify a much shorter life
than that proposed.
p O V R n ^ V T i ^ Bl^KBS mfOmiiOu
Moving Expenses

feJVuSC

552(b)

t 4)

In 1966 Bell Helicopter's new t r a n s m i s s i o n facility 5A at Grand
P r a i r i e , [Texas, was completed. Tins facility was built under a 'Turn Key11
type contract where the p r i m e contractor was to build and equip-'.a facility
that would be completely operational upon completion. A study of the contract coot was made by A m e r i c a n A p p r a i s a l Company and Helicopter engineers in order to properly allocate the cost of this facility between land
i m p r o v e m e n t s , buildings, machinery and equipment, moving expenses,
and ether costs. The Agent during his examination disallowed the moving
expense deduction claimed in the amount of $272, 789 due to lack of substantiation.
It should be noted that the Agent agreed that the amount disallowed
was included in the contract price paid by Helicopter and also that he was
provided with the data r e s u l t i n g . f r o m the studies establishing the amount of
the moving expense deduction.

Entc rtainrricr.tS ;cp enses
Of the totsl $35, 1 62 disallowed $34, 662 represents entertainment
costs expended by Bell Helicopter with respect to government e m p l o y e e s .
F o r obvious rtar-ons, no substantiation was retained.
Sick B e r;e f i t A r. c r u a 1
A deda at ion of $31, 61 6 w a s taken on the r e t u r n r e p r e s e n t i n g the
iacrcari c in H e l i c o p t e r s s i c k pay accrual. Due to H e l i c o p t e r s p o l i c y conc e r n i n g p a y m e n t of s i c k p a y , the A g e n t c o n t e n d s that this r e p r e s e n t s c c f erred
c o m p - - a i: ation and, as s u c h , is d e d u c t i b l e w h e n p a i d .

Reserve for Disposal of Leased Equipment
The field Agent added to income a gain of $6, 061 realized by Aerosystems on the sale of leased equipment which they credited td reserve for
disposal of leased equipment*
Equipment Rental
The IRS disallowed $ 1 , 2 0 0 of 1966 rental expense as applying to the
month of January, 1967,
Tax Penalty
A deduction of $68 was taken on he return for an •unemployment tax
penalty paid in 1966. The IRS has disallowed thi.s. as tax penalties are not
deductible.
Net Operating Loss Deduction - Leceen
In May 1966, Ledeen, Inc. was liquidated into Bell and Bell's taxable income was offset by Ledeen's claimed net operating loss carryover in
the amount of $273, 987. 63. In examining Ledeen's final return for the period
January, 1966 to May, 1966, the IRS disallowed $24, 993. 56 of various items
of equipment and leasehold improvements expensed and allowed additional
depreciation in the amount of $4, 641. 06. The resulting reduction in Ledeen's
NOLD or $20, 352.50 serves to increase Bell's 1966 taxable income.
State Taxes
In 1966 Bell claimed a deduction for state and local taxes totaling
$845, 636. Consistent with prior practice, the Agent disallowed $36, 017
of the deduction claimed which represents the excess of state and local
taxes a c c r u e d o v e r that paid.

CONFIDENTIAL

R o yX a l t y! I n c o m e

E X

^
UNDER 5 USC
F T

BUSINESS INFOftMATIOi.

^CLOSURE
552(b) (4)

As in prior years the IRS has denied capital gains treatment on the
proceeds received under three of the agreements for which such treatment
was claimed. The disallowance is based on the Agent's contention that substantially all of the rights under the patent had not been sold.
It is believed that Bell is entitled to treat a substantial, portion of
thi3 income as capital gain.
Co n t r i bu ti on s
On the 1 966 return a deduction of $173 was claimed for the fair market
value of property contributed. The IR.S has disallowed this deduction.
Depr eciat: on pcc!v.c tionn
The depreciation deduct)onn r.]lowed with respect to current year

Mr.

J. B.

Collinson

Page 7

capitalizations w e r e computed by the s e v e r a l examining agents. A s s e t t l e m e n t s a r e negotiated at Appellate with r e s p e c t to amounts p r o p e r l y capital,
this allowance will he r e c o m p u t e d .
A t the s a m e t i m e . Bell will c l a i m a c c e l e r a t e d depreciation as a substitute f o r the straight line method u s e d by
the A g e n t s , w h e r e applicable.
T h e depreciation allowance on p r i o r R A R capitalizations in p r o p e r .
I n v e s t m e n t T a x Credit

With r e s p e c t to Section 38 property capitalizations * the IRS has a l l o w e d an additional credit of $ 8 8 , 5 0 0 . 8 1 , which is a p p r o x i m a t e l y c o r r e c t .
T h i s adjustment w i l l , of c o u r s e , change as the p r o p e r c a p i t a l i s a t i o n s a r e
determined.
Comments

BUyHfcSS

Recornnepdation.
Due to the magnitude of the p r o p o s e d d e f i c i e n c y and the a r b i t r a r y
nature of m a n y of the a d j u s t m e n t s , it is m y e a r n e s t recommendation, that
we d i s a g r e e with the p r o p o s e d changes p r a c t i c a l l y a c r o s s the board.

//J.

10.02 07 01'
J l r 71: k r t
c c : G. V/i}.1'.am M i l l e r
A M rv.;,,,,!

69-845 0 - 8 1 - 3

Reardon

» „ „ . t e x t r o n 1,
G. William Miller

From

Location

Corporate

Date

Subject:

B e l l Aerospace Corporation
1967 Federal Income Tax Examination

Office

J . F.

Reardon

September 2 3 , 1 9 7 1

The-Internal Revenue Service has completed the examination of the
1967 Federal Income Tax Return of B e l l Aerospace Corporation.
The changesproposed serve to increase taxable income by $ 4 , 1 6 4 , 7 3 8 . 6 3 and r e s u l t in
a d e f i c i e n c y assessment of $ 1 , 9 1 3 , 1 9 8 , 0 4 .
The primary changes proposed by the Revenue Serv5.ce are:
(1)

C a p i t a l i z a t i o n of claimed expenses t o t a l l i n g

(2)

Reduction of amortization claimed on costs incurred under
the Westland A i r c r a f t l i c e n s e agreement in the amount of

CONFIDENTIAL

$542,588.71.

$998,441,27.

BUSINESS

INFORMATION

EXEMPT FR013 DISCLOSURE
UNDER 5 USV §5 552(B) (4)
A t t a c h e d a r e two.- s c h e d u l e s i n d i c a t i n g ( 1 ) the A g e n t ' s t o t a l p r o p o s e d change to each d i v i s i o n and ( 2 ) the' c o m p u t a t i o n of the d e f i c i e n c y a s sessment.
The a d j u s t m e n t s p r o p o s e d by the Revenue Agent a r e d i s c u s s e d
ADJUSTMENTS ArTECTING TAXABLE INCOME
Capitalization

o f Expenses -

belov?:

$998,441.27

To a v o i d r e p e t i t i o n , the A g e n t ' s p r o p o s e d c a p i t a l i z a t i o n of c l a i m e d
e x p e n s e s t o t a l l i n g $ 9 9 8 , 4 4 1 . 2 7 r e l a t i v e to a l l B e l l d i v i s i o n s are d i s c u s s e d
on a combined b a s i s .
Of the t o t a l p r o p o s e d c a p i t a l i s a t i o n , $ 3 6 9 , 9 9 6 . 6 1
r e p r e s e n t s items v h i c h were expensed i n a c c o r d a n c e . - v i t h the then p r e v a i l i n g
T e x t r o n A c c o u n t i n g Manual P o l i c y £204 ($200 and ^$0ojc ap1ta 1 i r . a t i a a l i m i : s
r e l a t i v e t o f u r n i t u r e and p l a n t and equipment, r e s p e c t i v e l y ) .
The. Agent*
p r o p o s e d c a p i t a l i s a t i o n c f items expensed under the f o r m e r T e x t r o n p o l i c y
a p p e a r s p r o p e r , inasmuch as h i s d e t e r m i n a t i o n i s based upon the f o l l o w i n ? ;
t v o agreements r e a c h e d v?ith the IRS:
(1)
I:: a c c o r d a n c e w i t h the 1966 A p p e l l a t e s e t t l e m e n t ,
p l a n t and equip. 1 .ent with a c o s t between $400 and $5 Of? a r e to be

property,
. p i

"fextron]

G. William Miller

page 10

(2) Bulk purchases of items with an individual c o s t below the
agreed c a p i t a l i z a t i o n limits of $200 and $400 are to"be c a p i t a l i z e d where
the bulk purchase involves the i n s t a l l a t i o n of n new f a c i l i t y or .the signif i c a n t refurbishing of an area or f a c i l i t y . However, bulk, purchaser, of
such items -which involve normal procurement p r a c t i c e are cleaned properly
deductibleThe remainder of the proposed disallowance r e f l e c t s the c a p i t a l i z a t i o n of a r c h i t e c t and engineering fees incurred in the construction ov
remodeling of buildings ($155,402.70), movable partitions and s t e e l shelving
($218,800.75), repairs properly deemed c a p i t a l improvements ($163,388.90),
sales taxes ($44,650.51),, r e l o c a t i o n expenses properly c a p i t a l i z e d as l e a s e hold improvements ($13,679.88), and sundry other expenses of minor amounts.
The Agent's determination appears proper with only the c a p i t a l i z a t i o n
of sales taxes in the amount of $44,650.51 necessitating further explanation.
Inasmu'ch as the C a l i f o r n i a sales tax i s imposed on the d e a l e r , the tax, if
separately stated, i s only deductible by the consumer i f the item taxed i s
not used in the consumer's trade or business.- Therefore, the Agent properly
c a p i t a l i z e d the C a l i f o r n i a sales tax imposed upon items c a p i t a l i z e d by
K.R.&H. in 1967.
The adjustments proposed by the Revenue Agent pertaining to each
B e l l d i v i s i o n are discussed below:
Corporate Division - $101,543.87
State Taxes - $117,828.87

CONFIDENTIAL BUSINESS INFOR&ATLOF*
EXEKSPT FROES DISCLOSURE
(4)
& U S Q W 53? <U)

In 1967 Bell claimed a deducticn f o r state and l o c a l taxes t o t a l l i n g
$946,473.88. Consistent with p r i o r p r a c t i c e , the Agent has disallowed the.
excess of the deduction claimed over actual taxes paid in the amount of
$117,828.87.
Royalty Income $55,777.50
Capital Gain $(55,777.50)
In accordance with the 1966 Appellate settlement, the IRS has denied
c a p i t a l gain treatment cn certain proceeds received under two of the agreements f o r which such treatment was claimed. Capital gains treatment was
denied on r o y a l t i e s received r e l a t i v e to sales to countries where the licensee
had only acquired non-exclusive rights and allowed on r o y a l t i e s received pertaining to sales made in countries where the l i c e n s e e had exclusive r i g h t s .
The conversion frcm c a p i t a l gain to ordinary ( r o y a l t y ) income in the amount
of $55,777.50 is proper, inasmuch as the conveyance of non-exclusive, rir.hts
docs not meet the required capital gain t e s t which n e c e s s i t a t e s trie sa} e of
substantially a l l patent r i g h t s .

fextronl

Williaa Miller

CONFIDENTIAL b o s i n ® ihfomiwion
EXEMPT FRQK D l $ C L G i > U R f c .
UNDER*5 USC 552(b) (4)

Incentive Compensation -

($16,285.00)

The* Agent has allowed an additional deduction f o r i n c e n t i v e ccnapensation in the snctint of $16,285.00. The proposed adjustment i s proper
f o r i t represents i n c e n t i v e compensation*paid, but not deducted, in 1968
vhich was properly deductible in IS67.
Hydraulic Research D i v i s i o n - $415,804,67
Inventory - Costing of Ending Work-in-Process -

$248,279.92

At the end of 1967 R.R.& M reviewed certain f i x e d p r i c e contracts
and determined that several would r e s u l t in l o s s e s . In view of the f o r e casted l o s s e s , i t was determined that the related work-in-process i n v e n t o r i e s ,
stated at c o s t , were overvalued, therefore n e c e s s i t a t i n g inventory w r i t e downs in order to r e f l e c t proper market value at December 30, 1967.
The Revenue Agent examining R.R.6-M disallowed these write-downs
under the premise that they did not conform to Section 471 of the 1954 Code,
s i n c e they a l l e g e d l y did not conform to the best accounting p r a c t i c e of the
trade or business, did not c l e a r l y r e f l e c t income, and did net match income
with expense.
\-?e take exception with the Agent's contention that H.R.& M . ' s
method lacks conformity with the best accounting p r a c t i c e and did not c l e a r l y
r e f l e c t income. Our p o s i t i o n i s supported by the Agent's own explanation o£
K.R. & M's method of determining market value, f o r his explanation accurately
d e s c r i b e s the c l a s s i c example set f o r t h in the American I n s t i t u t e of C e r t i f i e d
Public Accountants' statement concerning the proper valuation of inventory
a t market.
The Agent states in his report that H.R..&M. computes the lower of
c o s t or market on work-in-process inventories involving l o s s jobs as f o l l o w s :
(a)

The estimated cost to complete i s subtracted f r c a the cont r a c t value.

(b)

Trie remainder i s then compared to w o r k - i n - p r o c e s s : i f the worki n - p r o c e s s i s greater than the remainder, the work-in-process
i s written down to this remaining value.

By comparison, the A . I . C . P . A . ' s statement in Accounting P r i n c i p l e s
b u l l e t i n -f43 r e l a t i v e to the determination of market value indicates that
,rMarket should not exceed the net r e a l i s a b l e value ( i . e .
estimated c e l l i n g
p r i c e ( c o n t r a c t value) ir: the ordinary course of business l e s s reasonably
p r e d i c t a b l e c o s t of completion and d i s p o s a l ) .

fextronl

G. W i l l i - Killer

s s s w s r "
E * ^

§§ 652(b)

"(4)

page 4

We " a l s o d i s p u t e the A g e n t ' s c o n t e n t i o n that H.R. & M's method does
n o t n a t c h income with expense s i n c e i t i s g e n e r a l l y a c c e p t e d t h a t the l e v e r
o f c o s t o r market method by valuing i n v e n t o r y i s an e x c e p t i o n to the matchi n g o f income with expense r u l e .
I f the Treasury had intended t h a t the
use o f i n v e n t o r i e s should r e f l e c t a p r o p e r matching o f - i n c o m e vsith expense>
the r e g u l a t i o n s under S e c t i o n 471 would ):•< >/e allowed o n l y c o s t as an a c c e p t a b l e method-of v a l u i n g i n v e n t o r y , s i n c e o n l y the c o s t method p r o p e r l y
matches income w i t h e x p e n s e s .
The Revenue Agent a l s o contends t h a t R e g u l a t i o n 1 , 1 6 5 - 1 ( d ) supp o r t s h i s disallowance of
i n v e n t o r y write- downs. This r e g u l a t i o n
s t a t e s t h a t the y e a r of d e d u c t i o n s h a l l be the t a x a b l e y e a r i n which the
l o s s i s s u s t a i n e d , whereby such l o s s i s evidenced by a c l o s e d end completed
transaction.
Here a g a i n , the A g e n t ' s c o n t e n t i o n c o n f l i c t s w i t h the use ox
the l o w e r o f c o s t or market method of v a l u i n g i n v e n t o r y , which a l l o w s a
taxpayer t o r e c o g n i z e l o s s i n i n v e n t o r y b e f o r e the l o s s i s a c t u a l l y r e a l i z e d .
Furthermore, the t a x p a y e r ' s r i g h t to v a l u e i n v e n t o r y a t market: in o r d e r t o r e c o g n i z e l o s s e s p r i o r to a c t u a l r e a l i z a t i o n through the s a l e o f i n v e n t o r y has
been s e t t l e d by the c o u r t s i n at ' l e a s t two c a s e s :
Space C o n t r o l s v . Comm i s s i o n e r and B l i s s Co. v . U. S.
I r . v e n t o r v - R e s e r v e f o r B e l l Audit Claim -

$143,158.92

In 1967 H.R.&M. s e t up t h i s r e s e r v e as a c o n t i n g e n c y a g a i n s t a
p o s s i b l e claim f o r e x c e s s p r o f i t s upon the a u d i t of H e l i c o p t e r r e l a t i v e t o a
j o b done under government c o n t r a c t .
Inasmuch as .this l i a b i l i t y i s e n t i r e l y
c o n t i n g e n t upon a p o s s i b l e f u t u r e c l a i m , the A g e n t ' s d e t e r m i n a t i o n t h a t t h i s
i s a c o n t i n g e n c y r e s e r v e , and t h e r e f o r e u n a l l o w a b l e , i s p r o p e r .
C o n s t r u c t i o n W o r k - i n - P r o g r e s s - Sales Tax - $ 5 . 7 0 3 . 5 1
See c a p i t a l i z a t i o n

summary.

C a p i t a l i z e Leasehold Improvements
See c a p i t a l i z a t i o n

(Moving Expenses) -

$13,679.88

summary.

Membership Dues - Hidden V a l l e y Ranch -

$500.00

The Agent has d i s a l l o w e d membership dues in the amount of $ 5 0 0 . 0 0
Inasmuch as the b u s i n e s s purpose c o u l d not be
f o r l a c k ' of b u s i n e s s p u r p o s e .
s u b s t a n t i a t e d , trie A g e n t ' s determination appears p r o p e r .
C a p i t a l i z e d S a l e s Tax -

$38.947.00

See c a p i t a l i z a t i o n

summary.

"fextron]

G. William Miller

page 10

UNDER'5
Reserve f o r Refunds Reaeterminable -

($17,803.07)

In 1966 the Agent determined that H.R»&M's Reserve f o r Refunds Redeterminable was a contingency r e s e r v e .
In accordance with the 1966 App e l l a t e settlement", the Agent has allowed an a d d i t i o n a l deduction t o t a l l i n g
$17,803.07, representing the a d d i t i o n to income of 1/10 of the opening 1966
reserve balance in the amount of $1,870.06 and an a d d i t i o n a l deduction of
$19,673.13 r e l a t i v e t c the net 1967 reserve decrease,.
Depreciation -

($16,661.49)

The Agent's computation o f a d d i t i o n a l allowable d e p r e c i a t i o n t o t a l l i n g
$16,661,49 r e l a t i v e t c 1967 and p r i o r year RAR c a p i t a l i z a t i o n s i s c o r r e c t
and proper.
B e l l Aerosystems D i v i s i o n -

$1,000,561.71

Reserve f o r Disposal of Leased Equipment - $6,556.81
The Agent added to income a gain of $6,556.81 r e a l i z e d by Aerosystems
on the s a l e of leased equipment which was c r e d i t e d to the r e s e r v e f o r d i s p o s a l
of l e a s e d equipment. This adjustment i s c o n s i s t e n t with p r i o r y e a r s .
R o y a l t i e s and Licenses - $542,588.71

Upon reviewing the agreement, the Revenue Agent determined that, i n asmuch as the agreement could not be c a n c e l l e d u n t i l September 30, 1971, the'
c o s t s incurred by Aerosystems should properly be amortized over a period ending
on the e a r l i e s t date of c o n t r a c t c a n c e l l a t i o n .
The resulting amortisation d i s allowance of $542,588.71 appears proper and w i l l be recovered in l a t e r years.
C a p i t a l i z a t i o n of Expenses - $520.9 75.21
Tne Agent has proposed c a p i t a l i z i n g expenses claimed by Aerosystem:
in the amount of $520,975.21, c o n s i s t i n g of the f o l l o w i n g :

fgxt-ronl

G . William Miller

C O N F I D E N T I A L BUSINESS INFORMATION
EXEMPT FRO^ DISCLOSURE
UNDER 5 USC S§ 552(b) (4)

C a p i t a l i z a t i o n of Expenses - $520,975.21
Manufacturing supplies
Portable t o o l s
Departmental equipment
O f f i c e equipment
Professional fees
Maintenance and repairs
Total

(continued)
$1,230.00
10,219.65
81,083.61
202,118.57
155,402.70
70,920.68
$520,975.21

See the c a p i t a l i z a t i o n summary f o r a discussion of the p r o p r i e t y
of the above-mentioned adjustments.
Entertainment Expense -

$29,525.48

The Agent has disallowed claimed entertainment expenses t o t a l l y
$29,525.48 f o r lack of s u b s t a n t i a t i o n .
Inasmuch as the major p o r t i o n of
the proposed disallowance represents entertainment c o s t s expended by Aerosystems with respect to government employees, f o r obvious reasons no subs t a n t i a t i o n was r e t a i n e d .
D e p r e c i a t i o n - $172.536.14 .
The Agent has proposed a net disallowance of d e p r e c i a t i o n
$172,586.14, r e f l e c t i n g the f o l l o w i n g d e p r e c i a t i o n adjustments:
(1)
(2)
(3)

total]ing

Additional d e p r e c i a t i o n re 1966 RAR
capitalizations
$(28,825.55)
A d d i t i o n a l d e p r e c i a t i o n re 1967 RAR
capitalizations
(38,421.76)
Disallowance o£ d e p r e c i a t i o n r e s u l t i n g
from the extension of asset l i v e s on
1966 and 1967 audits
239,833.45
Net disallowance of d e p r e c i a t i o n

$172,586.14

The Agent's ccaputanion cf a d d i t i o n a l allowable d e p r e c i a t i o n
$28,825.55 pertaining to 1966 RAR c a p i t a l i z a t i o n s i s c o r r e c t .

totalji::g

Included in the a d d i t i o n a l d e p r e c i a t i o n allowed on 1967 RAH c a p i t a l i z a t i o n s i s amortization of $362.17 pertaining to c a p i t a l i z e d a r c h i t e c t
f e e s incurred in the coir, true tier- of improvements at the Bell Tort Center.
A1 though the c a p i t a l i s a t i o n of these f e e s i s proper, we disagree v : h the
amortization allowed thereon f o r the l i v e s assigned to the t e s t center im-

G. William Miller

page 11

provements by the -Agent a r e e x c e s s i v e .
The remaining d e p r e c i a t i o n
on 1967 RAR c a p i t a l i z a t i o n s t o t a l l i n g $ 3 8 , 0 5 8 . 8 9 i s p r o p e r .

allowed

Of t h e A g e n t ' s t o t a l d i s a l l o w a n c e of d e p r e c i a t i o n in the amount of
$ 2 3 9 , 8 3 3 . 4 5 r e l a t i v e t o the e x t e n s i o n of l i v e s , the d i s a l l o w a n c e o f
2 1 , 3 1 4 . 7 3 , p e r t a i n i n g t o l i v e s extended on the 1966 a u d i t , and $ 2 8 , 1 7 6 . 6 0
p e r t a i n i n g t o a"'proper e x t e n s i o n o f t h e l i v e s of improvements c o n s t r u c t e d
a t t h e W h e a t f i e l d p l a n t i n 1967, i s p r o p e r .
However» v e d i s a g r e e w i t h the
remainder o f the d i s a l l o w a n c e t o t a l l i n g $ 1 9 0 , 3 4 2 . 1 2 , which r e p r e s e n t s the
e x t e n s i o n o f the l i v e s o f improvements c o n s t r u c t e d at the B e l l T e s t C e n t e r
i n 1967.
The Agent r e j e c t e d our c o n t e n t i o n t h a t t e s t c e n t e r improvements
s h o u l d p r o p e r l y be a m o r t i z e d o v e r the l i f e o f the l o n g e s t e x i s t i n g , g o v e r n ment c o n t r a c t i n v o l v i n g the use o f the t e s t c e n t e r , even though our c o n t e n t i o n v a s upheld a t A p p e l l a t e i n c o n n e c t i o n w i t h the 1966 a u d i t .
Our
p o s i t i o n i s b a s e d upon the premise t h a t the l i f e of the l o n g e s t e x i s t i n g
c o n t r a c t most a c c u r a t e l y r e f l e c t s the u s e f u l l i f e of test c e n t e r i m p r o v e m e n t s , inasmuch as B e l l o n l y has the c o n t r a c t u a l r i g h t t o u s e the B e l l T e s t
C e n t e r u n t i l c o m p l e t i o n of s a i d c o n t r a c t , and, t h e r e f o r e , may b e r e q u i r e d
t o l e a v e the c e n t e r and abandon i t s improvements upon t e r m i n a t i o n o f the
contract.
I f e e l t h a t A e r o s y s t e m s ' use of the l o n g e s t e x i s t i n g c o n t r a c t
i n d e t e r m i n i n g u s e f u l l i f e was p r o p e r and recommend r e j e c t i o n " of the p r o posed disallowance.
R e n t a l - X e r o x Machine -

($1,200.00)

The IRS has a l l o w e d an a d d i t i o n a l d e d u c t i o n f o r r e n t e x p e n s e of
$ 1 , 2 0 0 . 0 0 r e l a t i v e t o an item d i s a l l o w e d i n 1966 as b e i n g p r o p e r l y d e d u c t i b l e i n 1967.

CO^FIHFMTIAL BUSINESS informatiou
EXEMPT ¥B0B DISCLOSURE
UNDER 5 USC §§ H5?.(b) (4)

Bell Helicopter Division
Capitalization

$2.646,828.38

of Expenses -

See c a p i t a l i z a t i o n

$419,135.67

surmmry.

"fextron]
page 10

G. William Miller

Entertainment Expenses -

$54,642.51

The Agent has d i s a l l o w e d claimed entertainment: expenses t o t a l l i n g
$ 5 4 , 6 4 2 . 5 1 f o r l a c k of s u b s t a n t i a t i o n .
Inasmuch as the xaajor p o r t i o n of
the p r o p o s e d - d i s a l l o w a n c e r e p r e s e n t s entertainment c o s t s expended by H e l i c o p t e r w i t h r e s p e c t to government employees, f o r obvious reasons no s u b s t a n t i a t i o n was r e t a i n e d e

CONFIDENTIAL

BUSINESS INFORMATION

E X E t m FBOti DISCLOSURE
UNDER § USC §§ §52(b) ( 4 )

Reserve f o r Inventory Adjustment -

$224,362.46

In 1966 the Agent determined that t h i s was a c o n t i n g e n c y r e s e r v e ,
•inasmuch as the write-down of i n v e n t o r y was computed on a p e r c e n t a g e of i n v e n t o r y on hand b a s i s , w i t h o u t the establishment of a c t u a l l o s s . Cons i s t e n t with the 1966 d e t e r m i n a t i o n , the Agent d i s a l l o w e d the net 1967 r e s e r v e i n c r e a s e of $ 2 2 4 , 3 6 2 . 4 6 .

"fextron]
G. William Miller

page

CONFIDENTIAL BUSINESS

INFGKMATIOK

^ R J P I FRO* BBCLOSUR:
UKDER § OSC **

R e s e r v e f o r Commercial F i n a n c i n g -

(*>

$34,356.81

H e l i c o p t e r e s t a b l i s h e d t h i s r e s e r v e in 1966 t o c o v e r i t s c o n t i n g e n t
l i a b i l i t y as g u a r a n t o r c f n o t e s h e l d by D o r r a n c e F i n a n c i a l .
In 1966 a s e t t l e m e n t was r e a c h e d v h e r e b y t h a t p o r t i o n of the r e s e r v e p e r t a i n i n g to p r £ 1966 n o t e s vas deemed c o n t i n g e n t and t h a t p o r t i o n p e r t a i n i n g t o 1966 n o t e s
was a l l o w e d .
In 1967 H e l i c o p t e r b c e k e d a p r o v i s i o n of $ 7 8 , 0 4 3 . 5 2 , r e f l e c t i n g a
bad d e b t r a t e of 2% f o r n o t e s guaranteed in 1967.
In accordance, '..'it!; the
1966 A p p e l l a t e s e t t l e m e n t , the Agent a l l o w e d a d e d u c t i o n of $4 3,65C. 7!., r e p r e s e n t i n g 27o of the combined n e t i n c r e a s e in o u t s t a n d i n g 1966 and 19 67
n o t e s , and d i s a l l o w e d the remainder o£ the p r o v i s i o n in the ar.-.ount c :
$34,386.81.

"fextron]

G . William Miller

page 10

CONFIDENTIAL

BUSINESS ^ F O R M A T I O N

EXEMPT FROM DISCLOSURE
UNDEji 5 U3C §S 5 5 2 ( b )

Amortization

(4)

($221,743.23)

The A g e n t has a l l o w e d a m o r t i z a t i o n i n t h e amount o f $ 2 2 1 , 7 4 3 . 2 3
r e l a t i v e t o the p r e v i o u s l y d i s c u s s e d c e r t i f i c a t i o n c o s t s The b a s i s f o r
o u r d i s a g r e e m e n t w i t h t h i s a d j u s t m e n t was p r e v i o u s l y e n u m e r a t e d .
Depreciation -

($893,444.86)

The A g e n t ' s c o m p u t a t i o n o f a d d i t i o n a l a l l o w a b l e d e p r e c i a t i o n t o t a l l i n g $893,444.86, representing (1) a d d i t i o n a l d e p r e c i a t i o n of $375,535.82
r e l a t i v e t o 1967 RAX c a p i t a l i z a t i o n s , ( 2 ) a d d i t i o n a l d e p r e c i a t i o n t o t a l l i n g
$ 5 0 4 , 1 3 4 . 7 2 r e l a t i v e t o 1966 RAR c a p i t a l i z a t i o n s ,
(3) a d d i t i o n a l d e p r e c i a t i o n of $ 1 3 , 7 7 2 . 3 2 r e l a t i v e t o the e x t e n s i o n of a s s e t l i v e s , i R p r o p e r .
Although the a l l o w a n c e of a d d i t i o n a l d e p r e c i a t i o n r e l a t i v e to the
e x t e n s i o n o f a s s e t l i v e s i s an a p p a r e n t c o n t r a d i c t i o n , i t i s a p r o p e r a d justment.
I n 1967 H e l i c o p t e r , p e r a g r e e m e n t w i t h the DCAA, e x t e n d e d t h e
l i v e s o f c e r t a i n a s s e t s , w h i c h had b e e n e x t e n d e d on t h e 1 9 6 6 ' a u d i t - The
b o o k e x t e n s i o n was a c c o m p l i s h e d by r e v e r s i n g p r i o r y e a r d e p r e c i a t i o n e x c e s s e s ,
t h e r e b y c r e a t i n g an a d d i t i o n a l t a x d e d u c t i o n on the 1967 a u d i t .
TAX ADJUSTMENTS

I n v e s t m e n t Tax C r e d i t -

($98,705.32)

W i t h r e s p e c t t o S e c t i o n 38 p r o p e r t y c a p i t a l i z e d ,
l o w e d an a d d i t i o n a l i n v e s t m e n t t a x c r e d i t o f $ 9 8 , 7 0 5 . 3 2 .
p u t a t i o n of the a d d i t i o n a l c r e d i t i s proper.

the Agent has a l The A g e n t ' s com-

P>E CCKMEKpATION

rejection

W i t h r e s p e c t t o the a d j u s t m e n t s
o f the f o l l o w i n g :

p r o p o s e d by t h e I R S ,

(1)
The d i s a l l o w a n c e o f c l a i m e d F/-A c e r t i f i c a t i o n
t o H e l i c o p t e r ' s R e s e r v e f o r P r o d u c t Development:.
(2)
Test.Center,
$190,342.12.

recommend

costs

The A g e n t ' s method o f a m o r t i z i n g i m p r o v e m e n t s a t the
r e s u l t i n g i n the d i s a l l o w a n c e o f c l a i m e d d e p r e c i a t i o n

charged

Bell
totalling

G. William Miller

Recommendation -

page 11

(continued)

( 3 ) The d i s a l l o w a n c e o f i n v e n t o r y write-downs below r a n t r a c t
v a l u e r e l a t i v e t o R . R . & M's use o f the p e r c e n t a g e of c o m p l e t i o n method.
( 4 ) The d i s a l l o w a n c e of good c o s t s i n c l u d e d i n H e l i c o p t e r ' s
p r o v i s i o n f o r estimated d i s a l l o w e d c o s t s under CFFF c o n t r a c t s .
As i n d i c a t e d p r e v i o u s l y , 1 f e e l that the remaxnder of the a d j u s t ments a r e proper and recoL-mend- t h e i r a c c e p t a n c e .

"J.F. Reardon

CVJ/am
enclosures
10 02 08 06
c c : Messrs:

J.
J.
K.
C.

B. C o l l i n s o n
B. Henderson
J . O'Brien
Harnick

Senator

HEINZ.

And there were two memos, one

1969

and one

1971?

Secretary MILLER. N O question.
Senator H E I N Z . And as I understand it, in both memos, which
are very similar, the author, Mr. Reardon, explained that inasmuch, and I quote:
Inasmuch as the major portions of the proposed disallowances—

That is, by the IRS—
represents entertainment costs expended by the Bell Division with respect to Government employees, for obvious reasons, no substantiation was retained.

Is that not in the memo, more particularly the phrase, "for
obvious reasons, no substantiation was retained?"
Secretary MILLER. Yes. Let me read you both of them. Maybe you
don't want me to read them.
Senator H E I N Z . Will you put the memo in the record?
Secretary MILLER. Yes. There's such language in one of them.
The other one is differently worded. Both of them say "for obvious
reasons."
Senator H E I N Z . Here is what is happening as I understand it.
You have received two memos. You have written on them. The
memos say that Government employees are being entertained, that
there are expenses, that the documentation is not being kept for
obvious reasons. The IRS is disallowing these deductions because
there's no documentation. The numbers are large. They are up in
the hundreds of thousands of dollars, and the question I would
come to is, why is it not a reasonable supposition of your employees
or of anybody else that you're condoning what was a practice that
went on not just in 1969 and in 1970 but went on right through
1978 after you had written and distributed in 1976 I think it was a
very comprehensive management guide that said this kind of thing
is out of the question; don't do it? Is it not true that IRS was
disallowing these payments right on up through 1978 and in the
case of Bell Aerospace that that was at the level of several hundred
thousand dollars a year through 1 9 7 8 ?
Secretary MILLER. The amounts that were involved in 1 9 6 9 was
$ 3 5 , 0 0 0 for one division and $ 3 4 , 0 0 0 for another. In the memo I
have here in 1 9 7 1 it says " $ 2 9 , 0 0 0 . " So they weren't up in the
hundreds of thousands, but they were in those numbers. As I say,
these were old memos and as I say, when they were shown to me it
was clear I had received them. It was not clear to me—and these
items didn't ring a bell—as I said, I was generally aware of the
entertainment. I was aware that we were not—that they were not
being charged—a defense contractor would not be allowed these as
a cost on Government contracts, so they were identified so they
would be excluded from any charge on the Government contract.
Senator H E I N Z . But you have said now—and I think you said in
the past on many occasions, including as far back as before December 1972, that this kind of entertainment expense was wrong. Why
would you not take action on something that you apparently knew
about and was wrong, whether or not it was $10,000, $100,000, or
some other figure?
Secretary MILLER. The policy of being wrong has to do with
lavish and extravagant. Entertainment takes place all the time.

I'm sure in your business it does too. The policy was no one should
be involved with any gifts or gratuities or hospitality that was
lavish or extravagant.
The research found here there was no item that was as much as
$100 and that, in my opinion, furnishing of meals and—incidentally, DOD regulations were ambiguous and did allow visitors to take
meals under certain circumstances, but they were not lavish entertainments.
Senator HEINZ. Whether or not anybody may or may not believe
that taking a Defense Department official out for a sandwich in the
cafeteria is wrong doesn't seem to me to be the issue. The issue, it
seems to me, is why were you condoning the destruction of these
vouchers? My understanding is this was unique; you didn't destroy
vouchers for less than $100 in other parts of Bell or Textron; you
wanted your income tax deductions on all expenses.
These vouchers were being destroyed. Why, in this instance? You
knew, apparently; according to these memorandums, you knew
about it. You must have thought, I assume, either something was
funny or something was wrong, to condone the destruction of these
vouchers.
Secretary MILLER. Senator Heinz, let me be very clear.
Until these investigations, until this was disclosed to me in the
investigations, I did not know that the vouchers had not been
retained. I knew that there was limited documentation. I did not
know until this investigation. I learned—I didn't focus on these
earlier memos; I didn't recall them.
I would repeat to you that may have been a fault of mine, but I
didn't focus on them.
Senator HEINZ. Mr. Miller, your handwriting is all over them,
and I will be perfectly—I will leave it up to posterity to judge what
that means. You obviously read them; your handwriting is on
them; they've explained what was happening.
Let's go to another subject. I understand what you're saying for
the record is you didn't focus on them. And I am not going to
quarrel with that assertion. I will let the facts stand on the record.
Secretary MILLER. But, Senator, I must point out, so I do not get
misunderstood, the procedures at one of the divisions, was apparently—I learned this after the investigation; it's in the report—that
the individual who had taken someone either to lunch or dinner
was on an expense account like everybody else and had the documentation submitted.
Once it was approved, it would be returned to him; and it was up
to him, since it was not going to be claimed as a cost, for him to
decide whether it was a matter that he might be charged for
income and might have to justify his deduction.
In the other division, the same clearance was done, and then the
vouchers were discarded. That was true, and I did not know that.
One of them, they were kept by the employee. The other one, they
were discarded. And I did not know of either procedure.
Senator HEINZ. Mr. Chairman, I would like to request unanimous
consent that page 59 of volume II of the Textron internal audit be
introduced in the record.
The CHAIRMAN. Without objection (see p. 311).
Senator HEINZ. Page 59 states as follows, and I quote:

41
Mr. Miller and Mr. Collins told the committee—that is, the audit committee—that
they were generally aware of the practice of not retaining full substantiation for
such hospitality expenses, that they did not have specific discussions on the subject.
Both noted that the amounts involved were relatively small.

Mr. Chairman, Mr. Secretary, one other question. My time has
expired. I will return to it.
The C H A I R M A N . Senator Stevenson.
Senator STEVENSON. Thank you, Mr. Chairman.
Much of this hearing has been devoted to matters that are familiar to the committee and also to the public about questionable
payments to certain officials of countries in the Persian Gulf and
Southwest Asia. I have some question as to whether public discussion of those payments will add anything to our knowledge or the
public's of your conduct, Mr. Miller, and whatever is added is at
some risk of disserving the interests of the United States in a vital
and unstable region.
So, I, for one, hope that what more needs to be heard by this
committee, if anything—we've been through it before, the Finance
Committee has been through it—can be done by other and more
effective means.
Senator Heinz broached some new material—at least new to me.
I would like to continue where I believe he left off—with a discussion of the payments by Textron for entertainment of Defense
Department employees.
First, can you tell us what the full amount of these expenditures
were for this period, from 1971 through 1978, inclusive?
Secretary MILLER. I do not have personal knowledge of that. In
the SEC report, as I understand it, it was quoted as $490,000. I
have no reason to dispute that.
Senator STEVENSON. Have you the means by which to provide the
committee, if not now, later, with those figures, broken down per
year?
Secretary MILLER. We can request it from the company. I know
of no reason why they wouldn't supply it to you.
Senator STEVENSON. Thank you.
Did I understand you a moment ago to indicate that while you
did have general knowledge of these expenditures, you did not
believe that they violated Department of Defense regulations?
Secretary MILLER. I understood at the time that these were
meals and courtesies in connection with visitations, regular business sessions, information that we reported to the Senate, or,
rather, excuse me, the Joint Committee on Defense Production,
and that they were not illegal.
Senator STEVENSON. I didn't say illegal.
Secretary MILLER. Or improper.
Senator STEVENSON. It was your opinion that they did not violate
the Department of Defense regulations, nor that the recipients
were violating the Department of Defense regulations?
Secretary MILLER. T O the extent I had any focus on it—which I
really didn't—it was my understanding that we were not violating
the regulations, but they were.
Senator STEVENSON. TO what extent did you focus on or have
knowledge of these?
Secretary MILLER. In 1 9 7 5 , when Senator Proxmire wrote me, I
focused on it very thoroughly. As I say, I put out a very strong

directive that we would inform everyone. I think Secretary Clements was correct; he suggested we all get everyone informed and
we make sure. I think at that time the regulations were revised
and tightened, so we even had to change the rules. After the rules
were tightened, the practice in Textron disappeared over a couple
of years.
Senator STEVENSON. Over a couple of years. They continued
through 1978.
Secretary MILLER. They wound down and even under the existing
regulations—I don't know them today, but I am still told that there
are instances where there are—where it is appropriate to receive
meals. But I am not an expert on the regs.
Senator STEVENSON. Was it your feeling during this period that
such expenditures were a general practice and justified, as such?
Secretary MILLER. I understood them to be general practice in
the industry. I understood that the nature of the environment of
the industry, it was expected of defense contractors to provide
lunches and meals by those people who were in business.
Senator STEVENSON. Were these expenditures in the aggregate
amount of $490,000 solely for the benefit of officials in the Department of Defense, or were officials in other departments involved?
Secretary MILLER. The inquiry of Senator Proxmire went into
NASA and DOD, as I recall. And I am not sure whether Senator
Tower's letter suggested a broader definition of Federal. When we
say "Department of Defense personnel," here, we don't mean generals and admirals, particularly; we mean the people who are
constantly in the process of monitoring, visiting, auditing, dealing
with defense contracts. Large numbers of military and civilian
personnel are involved.
I don't recall that this went beyond DOD and NASA. And I don't
believe the accounts in those two divisions would likely include
anyone other than those branches of government. There would not
be many occasions to deal with the other branches.
Senator STEVENSON. Were you yourself, as the chairman of Textron, the beneficiary of such expenditures as, say, you authorized
or attend social events which were financed by Textron from these
funds?
Secretary MILLER. There were no funds. The question was did I
have
Senator STEVENSON. Did you make any such expenditures or
have knowledge of such expenditures by Textron for events at
which you were present?
Secretary MILLER. NO. I might say—I would like to make it very
clear because there have been misunderstandings—there were no
funds here. This was a case of on-the-book transactions where the
employee brought in a voucher; it was reimbursed and it was
reported on the books. There were no funds over on the side.
Senator STEVENSON. No funds, but there were expenditures.
Secretary MILLER. Well, people talk about funds as if it's, you
know, something off the books and kept in a clandestine way.
These were overt, on-the-books—I am sorry, I lifted my hand and
the shutters nearly drowned us out. [Laughter.]
When I get a hard question, I will lift my hands. [Laughter.]

The CHAIRMAN. The way we're going, you won't have to lift your
hand very much. [Laughter.]
Senator STEVENSON. NOW, Mr. Secretary, did you approve the
filings with the SEC under the Exchange Act of 1934 during this
period on review them before submission?
Secretary MILLER. Yes. As you know, these filings are extensive
documents. They include certificates by lawyers, by accountants;
and they are required to be signed by a majority of the directors,
the chief financial officer, and the chief executive. They were reviewed by all the experts, and I signed them or authorized those
signatures.
Senator STEVENSON. Does the same answer apply to the annual
reports of the corporation?
Secretary MILLER. The annual reports that are published for
shareholders would also include a letter from the chairman and
the president, and would include the financial statements certified
by the independent auditors. Those were not normally SEC filings,
although that would be part of SEC filings as a corporation.
Senator STEVENSON. YOU reviewed the annual reports and the
SEC filings with the annual reports.
Secretary MILLER. Yes, sir.
Senator STEVENSON. YOU were, therefore, aware that they did not
disclose these expenditures; were you not?
Secretary MILLER. Yes, I was.
Senator STEVENSON. Could you explain to the committee why it
is that, with such awareness, you did not take any action to assure.
full disclosure in compliance with the requirements of the SEC?
Secretary MILLER. Senator Stevenson, there are several reasons.
One is that these were considered by me to be normmal courtesies
and hospitalities that are proper. They were considered by me to be
minor in size, in relation to the size of the company. They were
considered, when we had fully disclosed them to the Senate and
House Joint Committee and the public document had been published and general awareness existed throughout the country that
this was done, not to be an unusual or unique situation or one that
would have required disclosure.
Today, I am still hard-pressed to know, if this was a widespread
practice, well known and publicized, why it now decided that there
should have been some other kind of disclosure. I am still not up to
speed on that one.
Senator STEVENSON. Was it discussed with your attorneys or
other experts at the time? And if so, were you advised not to make
such disclosures?
Secretary MILLER. It was not discussed.
I must point out that all of our tax returns and the audit reports
and the tax adjustment reports were reviewed by outside auditors
and outside accountants far more expert than me. I never had a
suggestion from them that any of these items required special
attention.
Senator STEVENSON. Thank you.
The CHAIRMAN. Senator Lugar.
Senator LUGAR. Mr. Chairman, I would like to raise a question,
first of all, of you with regard to the purpose of these hearings and
what steps, if any, could come from them. Could you outline the

69-845 0 - 8 1 - 4

potential scope of actions that the committee could take? Is our
purpose simply to air the questions so that others might make
some judgments? Or are we going to make a judgment, or what
sort of action do you contemplate?
The CHAIRMAN. That's a good question. I thought I spoke to some
extent to that in my opening remarks. But it's proper for us to
focus on what is going to come out of this. I indicated I thought we
ought to clear the record; we did not have a complete record of the
SEC complaint, which is new, and it represents a position by highly
respected agencies of a whole series of payments we didn't know
about before. They not old; they're new.
And I would like to ask Senator Riegle or Senator Stevenson to
point out—and I will go into this—anything after about page 4 on
the record here in the complaint that's old; we didn't go into any of
these before, and I think we ought to know about them.
No. 2, I think that we should have an understanding of whether
or not it would be necessary to go further. I hope not. I think this
is the kind of inquiry that should, I hope, terminate today—maybe
late today—but I hope we can terminate it today. It shouldn't drag
on.
We all know we come back a week from Monday and we couldn't
have another hearing until then, and I think it would be unfortunate to have the Secretary of the Treasury waiting to testify again
or to have other witnesses to testify. We may decide, however,
that's necessary. I don't think we ought to hesitate to call other
witnesses if we feel we have to do so after this is over. It's up to the
committee.
Frankly, I am also concerned about the possibility of an independent special prosecutor. I have talked to a number of Senators
not on this committee who are concerned about that, and I think
we ought to decide whether or not to do that. I think that's something that I would decide for myself, at least, whether I would
support that position based on the testimony we have today and on
the whole record.
I think that's what we have to do, No. 1, to get the record as
clear as we possibly can; No. 2—and this is new information—No.
2, to decide whether we should have further witnesses so that we
have an even more comprehensive record, which I hope we won't
have to go into; No. 3, to determine whether or not there should be
an independent special prosecutor.
STATEMENT OF SENATOR LUGAR

Senator LUGAR. Thank you very much, Mr. Chairman.
One reason that I asked that question is that apparently in an
action or in a statement last week the Attorney General of the
United States simply dismissed the idea of a special prosecutor.
This is obviously long before this committee had an opportunity to
take a look at the new evidence. I found that step extraordinary, to
say the least.
If, in fact, one of the things that we may be discussing here is an
action step, that action step could be the appointment of a special
prosecutor.
Mr. Chairman, let me just say at the outset that at the time of
the original hearings, when Mr. Miller came before us for the

Federal Reserve Board chairmanship, I think that a number of
us—but without associating anybody else, I will just say it for
myself, I took the position that the President ought to have a lot of
latitude.
Second, it appeared to me that, as Mr. Miller has stated today,
business practices in foreign sales, with entertainment of defense
contractors, a case could be made that a good number of companies
in America were doing things that are improper. Now, that may
have been remedied subsequently, but at least my disposition was
not go into ex post facto law with regard to changes that have been
considerable, however disastrous they are perceived now.
What I believe I am hearing, as I listen to the answers that Mr.
Miller is giving to the questions today, is what might be called a
"containment strategy," containment in the sense that Mr. Miller
could indicate that, as he looks back over these situations, they
were improper and he should have known more and should have
been more diligent.
And it seems to me that those admissions can be made without
coming to the heart of the matter, which is essentially a term used
in another inquiry, "What did he know, and when did he know it?"
And I am in doubt about that, I must say.
I simply find one potential course of action that could have been
taken is that Mr. Miller might have said:
Indeed, there were some things that went on in my company, and, indeed, as an
astute manager, I was aware of a good number of things. The raised questions didn't
come out the way we want to.

But I must say, as I listen to this new testimony, read the new
reports, I simply find it doubtful that Mr. Miller could have served
throughout this period of time without being aware of some of
these matters.
The action, you know, that you take in these sorts of situations—
and that's my procedural question, to begin with, whether I have
any doubt or not; I suppose it's just simply 1 Senator out of 100 and
this is not a court of law—specifically, there is no way that I know
that we're going to get to the testimony of the 11 Textron employees—who might shed some light—who have taken the fifth amendment during the SEC inquiry.
Our staff is not empowered to offer due process in a way that
might be appropriate in this case, and I say this mindful of the
considerations that I think were important in the initial inquiry
and likewise during the confirmation of the Secretary of the
Treasury.
That is, that William Miller's service, I believe, has been outstanding in both of his positions, and he's of very great value to the
President of the United States. And these are difficult times for
having this sort of confusion and continuing inquiry.
I think that sort of stymies a lot of our persistence. As a practical matter, life must go on. In essence, the Government must
function.
But let me just say, Mr. Chairman, for the record, I have no
questions this morning of Mr. Miller. I am inclined to listen with
favor to suggestions that are being made in our body for the
appointment of a special prosecutor. I have no way of knowing
personally anything more from this inquiry from reading the testi-

mony, I think, that would lead me to any further belief or disbelief,
until we really have it on the record through the regular
procedures.
And the Attorney General of the United States already precluded this, I think, in a rather peremptory move. At the same
time, maybe the ballgame isn't over in that respect. Maybe this is
something that we ought to discuss on the floor of the Senate or
encourage our colleagues on the Judiciary Commission to ask the
Attorney General to show cause why a special prosecutor should
not be appointed. And I say that advisedly, appreciating the disruption it will cause.
But at the same time, Mr. Chairman, I'm not going to persist,
really in the questioning on areas where I think we shall not get to
the facts without really having the proper authority that can help
us in that respect.
Senator STEVENSON. Mr. Chairman, might I just mention
The CHAIRMAN. Senator Riegle, would you permit us to encroach
on your time?
Senator RIEGLE. Not on my time.
The CHAIRMAN. I ask unanimous consent that Senator Stevenson
be allowed to continue.
Secretary MILLER. I just had some information I thought Senator
Lugar would like to know.
The CHAIRMAN. GO right ahead.
Secretary MILLER. I think there may be a little misunderstanding, because the Department of Justice—and I have not discussed
this with the Attorney General. He was at a Cabinet meeting. But
I have not discussed it with him. But you should know that the
Department of Justice had a parallel investigation over more than
a year and has had all this information, and settled their case with
Textron last July.
I think it may be a little unfair to the Attorney General to
indicate that there's some mass of information he now has and
that he made a peremptory judgment. I don't know what he said,
but the Department of Justice was fully involved over a long period
of time. So it isn't that they're coming in looking over someone
else's shoulder. They had a whole independent inquiry. I was not a
party to that.
They did not interview me, but I read in the paper and I know it
is notoriously known that they ended up coming to a settlement
with Textron and as far as criminal cases, discharging as to any
individual, so that they have no individual under investigation.
They filed in court in the District of Columbia here, so it's very
hard to see if they investigated and decided they had no case as to
any individual and so agreed in court. So it actually binds them.
But you might not have had that information, that's all.
Senator LUGAR. I appreciate that.
Mr. Chairman, may I have just a moment?
The CHAIRMAN. I think you still have time left.
Senator LUGAR. All right.
Mr. Miller, I appreciate what you're saying and I'm not certain
whether the Department of Justice would have covered all of the
same material as the SEC. Perhaps they have, perhaps they have
not. But it seems to me that the problem here is one in which you

could, as a corporate official coming before this committee for
confirmation to begin with, have pled that you were in fact a good
steward of your company, that the company had prospered, but
that as these allegations were made, in fact, there were some
problems out there in the field.
During those days it was a pretty tough ballgame in foreign
sales, and I think in essence you could have asked the committee to
say, judge me on the basis relative with a lot of other chief executives who were dealing with these tough problems.
You could have said at that point, I don't pose as one who really
came through this thing unscathed; there are a lot of problems and
there are some barnacles still hanging on. But that was not the
tack which you took, nor is it today.
Really, in essence, you're saying these things did go on in America and in foreign sales and in other companies and in Textron too,
but you simply did not know about them. If you conclude that you
should have been more diligent—but that's a very high standard.
Now, that's the problem, it seems to me, that we have in terms
of the credibility of the situation. And it needs to be a high standard, I presume, to be Secretary of the Treasury, somebody at the
heart of the Government of the United States. That's why I'm in
doubt about how we should proceed until we really finally get full
testimony and have a better determination really of what did you
know and when you knew it.
The CHAIRMAN. DO you want to go on further, Mr. Secretary?
Secretary MILLER. NO.
The CHAIRMAN. Senator Stevenson is recognized, and it's not out
of the Senator's time.
Senator STEVENSON. Thank you, Mr. Chairman.
I just want to respond to what you had said and make sure I am
not misunderstood. I tried to indicate that large parts of this
matter have been reviewed earlier by this committee, by at least
one other committee and by other agencies. If there remained
matters to be investigated, there were more appropriate ways of
doing so. And by that I mean not only with some attention to Mr.
Miller's interests and also the necessities of justice, but also with
some attention to the foreign policy interests of the United States
in a critical and unstable region.
Now, the possibility of a special prosecutor has been raised. If
you, Mr. Chairman, or other members are serious about a special
prosecutor, then this meeting should never have been held. We
should be conducting an investigation through a more appropriate
agency.
I'm not aware of any basis for a special prosecutor because I'm
not aware of any allegations, let alone evidence, of criminal conduct, unless, Mr. Chairman, you and perhaps others are suggesting
that the Secretary has perjured himself before this committee. And
if that is what you are suggesting, then let's get it out on the table.
Otherwise, there is, so far as I know—correct me if I'm wrong—no
allegation or any evidence of anything criminal. And with no such
evidence or any allegation, there is no basis for the appointment of
a special prosecutor, with the one qualification I mentioned.

The C H A I R M A N . Well, in response to Senator Stevenson—this will
not count on Senator Riegle's time. Til be as brief as I can. I
apologize to other members who have not had a chance to inquire.
I have a letter from the Deputy Assistant Attorney General John
Keeney. He said:
This letter is in response to your request in October 1979 for a status report on
the Textron/Bell Helicopter investigation. The investigation concerns possible obstruction of justice and perjury violations which may have occurred in the Banking
Committee's hearing on the nomination of G. William Miller to be a member of the
Board of Governors of the Federal Reserve.
The investigation is continuing. Any possible obstruction of justice during the
Committee's inquiry into Bell Helicopter was begun in 1971. We are approaching
the final stages of our investigation—

This was January 14, 2 weeks ago, 3 weeks ago—
with respect to the Committee's inquiry in Iran and possible perjury which may
have occurred during this inquiry, certain international investigative steps have
been taken. Another remains pending the approval of the foreign country involved.
As you may have noticed, the international investigative steps take several months
to complete and there are no guarantees for success. Consequently, it may be
several more months before the investigation would be concluded.
As soon as these remaining investigative steps have been completed, the Department of Justice will be in a position to evaluate the merits of the case.

Meanwhile, as Senator Stevenson knows, the Attorney General
has made a statement that in his judgment that clears the Secretary of any knowledge and indicated that there is no, as I understand it, that he doesn't contemplate any kind of prosecution with
respect to Mr. Miller, and on the basis of what he said a special
prosecutor would not be considered by him.
Now, I feel, and I'm sure you must recognize, that I can't think
of a more colossal conflict of interest. Here you have the Attorney
General, who sits on the Cabinet next to Mr. Miller, both appointed
by the President of the United States. You have a situation here
where the consequences of an investigation of Mr. Miller could
have very, very adverse consequences for the administration as
well as for Mr. Miller. And no matter what the findings of such an
investigation, having this persist for some time, as we have to,
would be a very serious political problem for the administration.
Conflict of interest couldn't be more blatant or clear under those
circumstances. It seems to me that on the basis of the inquiry
which this committee is making with respect to the hearings that
we've had before, which were incomplete and on which the SEC
complaint provides a great deal more information on, it seems to
me as I, as one Senator— perhaps Senator Lugar or other Senators
can come to their own conclusion, could decide whether or not they
want to, as a citizen, as any citizen can, as you know, under the
law request the Attorney General to appoint a special prosecutor.
It's my understanding that there are a number of Senators on
the Judiciary Committee who have been discussing this and considering the possibility of asking for a special prosecutor. And it
seems to me that since this committee has had by far the preponderance of Senate testimony on this matter, that we are certainly
in a strong position to make our own decisions on this.
If Senator Stevenson doesn't want to take part in that or is
strongly opposed to it, you have every right, of course, to oppose it.
But I don't see that, A, it compromises our inquiry this morning,

or, B, should prevent us from making whatever recommendations
we want to make.
Senator STEVENSON. Mr. Chairman, I can't make myself much
clearer. I will try once more.
If prejury is the offense which you have in mind, then this
meeting should not be held. Then the committee should conduct an
investigation. That was the point. And I have not challenged that
possibility. If there is a basis for making a recommendation on the
appointment of a special prosecutor
The C H A I R M A N . Senator, I'm not trying to build a record on the
prosecutor.
Senator STEVENSON. We ought to investigate it.
The C H A I R M A N . It is to clear the record as far as this committee
is concerned. We acted and recommended to the Senate that we
confirm Mr. Miller. We have a duty, it seems to me, to clear the
record in view of this much more recent information.
Senator Garn and I think Senator Tsongas would like to speak to
this.
Senator G A R N . Mr. Chairman, just a brief comment on this. Let
me be very candid about it. I talked to Secretary Miller yesterday
and told him that I wondered very much where these hearings
were going to go and what we could accomplish, what expertise our
staff had, particularly in relation to the 11 who took the fifth
amendment. There are no procedures to require their testimony,
offer immunity like a special prosecutor.
So if I feel that a special prosecutor might do the job, it certainly, as I explained to you yesterday, Mr. Secretary, is not with any
preconceived notions that you or anyone else are guilty of anything, but to try and settle it once and for all, for your sake and for
ours and the public, because it's gone on for more than 2 years, up
and down, like a roller coaster.
Maybe, Senator Stevenson, the only way to settle it once and for
all, not for our sakes, not for the public's alone, but for Mr. Miller,
so it can be put to bed one way or another, would be to prove what
he knows, what he didn't know, and clear him or not. It may be
the only way to do it, to have an independent view apart from any
politics whatsoever, in the best interests of everyone.
The CHAIRMAN. Senator Cranston?
Senator CRANSTON. I'd like to speak to the matter of the special
prosecutor. I'd like to state for the record that I am thoroughly
convinced that this matter does not warrant the appointment of a
special prosecutor. I concur entirely with the decision of the Attorney General.
The Department of Justice had full access to the SEC investigation and an even more comprehensive investigation by the special
committee of the board of directors of Textron. That's this report,
made exhaustively by an independent group of directors of Textron. I talked this morning to Frank Wheat, a former member of
the SEC, a man of outstanding legal ability and known for his
integrity, who did much of the work on this. He's a California
attorney. And I'm convinced, based upon my knowledge of what's
in this report and his statement of the comprehensiveness of this
study—and this is quite apart from any conclusion of the Department of Justice—that there's nothing in any of these investigations

that would warrant any criminal charge against Secretary Miller
or the appointment of a special prosecutor.
If you want to have long time and expense again—time and
expense may be necessary in some cases. I think it is not needed
here. Nothing new, I believe, would be found that is not covered in
this very comprehensive report by a totally independent, objective
group of outstanding attorneys.
Let me say one thing. The chairman spoke and I am concerned
about the responsibility of this committee in the confirmation process. I'm concerned about the impact on the administration.
But I'm far more concerned about the impact on the American
public at a time of international crisis, at a time of questioning
about the integrity of people in government, to have an ongoing,
long, dragged-out examination of a matter that has been thoroughly examined, when that examination would only prolong and increase these doubts and I think do severe damage to our country
and the fate of our people and our institutions.
I'm convinced that the end result, if we went through the special
prosecutor, would be to find nothing that is not set forth in this
report.
The CHAIRMAN. Senator Riegle has been very, very patient. I
think Senator Tsongas and Senator Heinz just want to speak.
Senator RIEGLE. Mr. Chairman, if I may, I think those of us who
have not had a chance yet have been extremely patient and appropriately so. But I think, with three of us who have yet to be
involved at all, I think we ought to have that chance. And then we
can debate for the rest of the day, because we all have thoughts
and theories about it. So if I may, I'd like to proceed with my 10
minutes at this time. And I'd like to pick up exactly where I think
the discussion is at the moment, that is, that it's sort of the nature
of the time and circumstance that are here that this kind of a
setting becomes some kind of a trial.
It is a type of trial, in my view. And I think Senator Stevenson is
not far off the mark when he uses the word "theater" as to what
can happen in a situation like this, and we're all part of it—
certainly all the members of the press, who are jammed in here
like sardines. Mary McGrory, when she came in, couldn't find a
seat and finally found one.
This is not the kind of situation that is particularly conducive to
any careful examination of issues or protection of rights. We each
have 10 minutes. Sometimes the witness in this case has an opportunity to respond; sometimes not. And I am concerned. I'm concerned about our capacity to do a thorough job, both for the
Senate, for the committee, for the issues, for Secretary Miller, for
the country. And I think this kind of process, as it moves in the
direction, without necessarily anybody's intention, but as it moves
in the direction of the kind of trial situation, we're on very sensitive matters.
I think it probably serves no good purpose and no good interest,
as I can see. Having said that, I think it's entirely appropriate that
these matters be looked at, examined, discussed, honed thoroughly.
We have a professional staff on this committee that is not small, is
highly competent, highly trained. They have spent literally, I am
sure, countless hours—I won't say hundreds of hours, but I know in

the past, in our hearings 2 years ago, they traveled to ascertain
information and facts as it was appropriate to do.
And so we come today with a lot of background information and
background record and history.
I would ask that my own remarks in the record of years ago, as
they related to an examination of the Iranian contract that was
discussed earlier by the chairman be made part of this record, at or
near the point at which that item was earlier discussed (see pp. 76
and 104).
Let me, if I may, just take two items here that have come up
earlier today, because this is very easy in a 10-minute period for us
to skip so quickly by information that it may seem to have a
meaning that it may in fact not have. And I refer, for example, to
the two letters that were the subject of the colloquy between Senator Heinz and Secretary Miller.
On one of the two memos, the one of August 8, it is correct that
Secretary Miller has written some notes on the front of this particular document which runs seven pages. I find no other notations by
him on any of the other pages. I certainly find none on page 5 at
the bottom, wherein three lines, we have an item which relates to
the entertainment expense item that we were discussing earlier, an
item of about $30,000 to $40,000 out of a package of items covered
in this entire letter.
Well, there are two figures cited: $18 million and $9 million, so
that's the range and the scope of everything that's contained in
this letter.
The other memorandum in which there's a very brief notation at
the top, the word "agreed: sign bill," no other notations anywhere
else in this memo, which runs 11 pages, the expense item here that
was the subject of the discussion an hour or so ago occurs on page 6
under the heading, "Entertainment Expense." The figure is
$29,000—$29,500—whereas the sum total of items covered in this
runs two figures. Cited are $4 million and then a figure of $1.9
million.
So just for the sake of trying to get some kind of useful context
around what we're discussing here, we are not discussing documents, at least insofar as I can judge, where either it's fair to
characterize the Secretary's comments as "all over the documents",
which I believe I heard, or second, that they are the principal items
in these documents.
This is not to say at the same time that they're not important. I
assume every item in the document is important and ought to be
looked at in terms of what importance it does have.
Now, Mr. Chairman, I said earlier, and I'd like to repeat now
that I have yet to hear any new information today that alleges any
illegal conduct by the Secretary at any time, that the items which
have been are, in fact, all items that have been discussed before,
and have been in the news. I have heard nothing new here, and
perhaps there will be still something new that is forthcoming. That
is not to say that it isn't entirely appropriate to chew over matters
that have been looked at previously.
I think that certainly is appropriate if there is some compelling
justification for it. It seems to me that Secretary Miller—there are
two ways you could judge this situation: One is that there were

improper activities, illegal activities, that he knew about and concealed, and he has claimed that that is not the case. And there
hasn't been a shred of evidence offered by anybody that disputes
that.
And on the one hand, we have to come down with an assessment
as to whether he is truthful. I'm prepared to assume that he is,
particularly on the basis of having nothing to the contrary to
suggest that he is not.
The second item has to do with the question of whether his
exercise of his executive responsibilities for Textron fell short of
the mark in terms of managing better to prevent any kind of
improper activities from going on within that corporation. I think
he said as plainly as words allow one to say today that he wishes
he had done more, that he has regret about anything of the sort
that has been talked about here today happening in his period of
stewardship at that corporation.
I'm frank to say that I doubt that there's any defense contracting
company in the United States that would not have some degree of
this kind of problem in their ranks, over the period of time regardless of who may have been sitting in the front office. That doesn't
excuse it. It doesn't ease the pain that I'm sure the Secretary feels,
wishing that he had somehow found a way to do some things
differently so that this might have been prevented.
But let me just, if I may, share with you a personal revelation
which I just came across by sheer chance. An administrative assistant in my office—a fellow named Jim Arbury, seated behind me
here—joined me in the last year but has been out in the private
sector for many years. Back in 1971, he was interviewed by Secretary Miller for a job as a division comptroller for one of the
divisions of Textron. In the course of the interview which lasted
nearly an hour, the one thing that Jim remembered most clearly
about that interview was how forceful Secretary Miller, then chief
executive of Textron, was about saying how important it was that
all of the accounting procedures be handled with great care and
propriety within that company, and that among other interviews
he had had, his recollection was that his stress and the emphasis
on making sure that the greatest care and pressure and the highest
standards were brought to that kind of work was more than he had
experienced in his conversations with other chief executives.
It's interesting that that would happen in terms of some of the
implied rather than direct charges, some of the implied suggestions
about Mr. Miller that surfaced 2 years ago and have surfaced here
today. So I would hope that unless we are able, Mr. Chairman, to
generate information that shows some reason to believe that illegal
activities have taken place that concern Mr. Miller or some other
new matter arises other than the matters which have been discussed before at great length, that I'm not sure that I see what
constructive purpose we serve.
That's just my view, and others here are certainly entitled to a
different view, but I do think that everybody who takes part has
some responsibility for what we accomplish. Certainly, the press
has that responsibility. Each of us as Senators have it, whether as
chairman, subcommittee chairman, or just members of the committee.

And in the kind of atmosphere that exists today, I think we're all
well advised to proceed with great care and great deliberateness in
deciding when charges are made, and how they are made, how
they're substantiated. As everyone here knows, whatever the ultimate truth is—and it's often very hard for the truth to catch up
with whatever the assertions or the allegations or any of the innuendos that might be made at the outset—I would hope that if
there's any serious thought of proceeding with some kind of a
criminal investigation, I'd certainly like to know on what basis that
would be done in terms of new, factual information. Like Senator
Cranston, I'm not aware of it.
But I would hope that we would do it in a manner that's far
more careful in terms of both the need to find the truth and to put
it on the record than we're able to manage in a setting like this
one.
The CHAIRMAN. Senator Sarbanes?
Senator HEINZ. Mr. Chairman, if you would, Senator Riegle mentioned my name while I was out of the room
The CHAIRMAN. Would Senator Sarbanes yield part of his time?
Senator RIEGLE. Let me say exactly how I mentioned his name
because
The CHAIRMAN. Your time has expired, Senator Riegle. Senator
Sarbanes, I want to impose on him. He has the time and Senator
Tsongas also. I'd like to ask both those gentlemen if they would
yield a minute to the Senator from Pennsylvania. Is that all
right—on his time? Unanimous consent without being taken out of
your time?
[No response.]
The CHAIRMAN. Without objection, go ahead.
Senator HEINZ. Mr. Chairman, I understand that Senator Riegle
indicated that the 1969 and 1971 memos condoning the destruction
of records involved—the proposed records only involved de minimus amounts. I think we ought to be all very clear that whether
the amount was $1 or $100,000, that is not the point.
The point is that documentation was being destroyed. Someone
wasn't being careless; someone was being careful that records
didn't exist.
Senator RIEGLE. Senator Heinz, that is not what I said.
Senator HEINZ. I don't yield.
These deductions which were taken were then disallowed quite
properly by the IRS because there was no documentation, and Mr.
Miller has indicated and has the document there that his handwriting was all over the documentation that condoned, indeed explained why the documentation was being destroyed.
That explanation was for obvious reasons. I thank my colleagues
for yielding.
Senator RIEGLE. Mr. Chairman?
The CHAIRMAN. Senator Sarbanes and Senator Tsongas, would
you object to a short response by Senator Riegle?
Senator RIEGLE. I won't ask for additional time. I'll be very brief
about it. That is that—Senator Heinz, you did not quote me correctly, and I would appreciate it because the matter is sensitive
enough that if you are going to attempt to quote me, that you do so
by referring directly to the record and not on the basis of some-

body's recollection of what I said when you were out of the room. It
was not my intention to engage in a debate with you on this
matter, but I feel very strongly that I resent and reject any attempt by you to characterize my remarks when you are not able to
hear them. And I would appreciate it if you'd examine the record
before you do that.
The CHAIRMAN. Senator Sarbanes.
Senator SARBANES. Thank you, Mr. Chairman.
Secretary Miller, I have some questions I wish to ask of you. I
would simply say preliminarily, Mr. Chairman, in response to the
discussion which has just taken place, that the statute with respect
to the Special Prosecutor has been rather carefully worked out.
There's a very detailed procedure to be followed. It's not a matter
to be treated lightly, and it involves important judgments about
criminal conduct.
I just underscore that aspect of the discussion. Mr. Miller, you
said in response to a question of Senator Cranston's that there
were instances in which attempts to get business through improper
activities were brought to your attention, and you rejected those
and said that the company does not engage in that practice.
Is that correct?
Secretary MILLER. I mentioned one that did come to my attention. I said I had heard of cases where perhaps the division had lost
business because we were unwilling to make a special arrangement.
Senator SARBANES. Did any of these instances involve the Bell
Helicopter Division of Textron, to your recollection?
Secretary MILLER. Not the one that came to my attention. That
was another division.
Senator SARBANES. And in others where you heard about business being lost, would they have involved Bell Helicopter?
Secretary MILLER. I was told by one of the Bell Helicopter officers of a couple of cases. I believe one was in the Philippines, as I
recall. That was a long time ago. They'd been told they had to
appoint a certain—this is very third-hand information. My memory
may be fuzzy. I think the Philippines was mentioned in this case.
Senator SARBANES. Why do you think those instances reached
your attention and the others did not, coming out of the Bell
Helicopter Division?
Secretary MILLER. The one that reached my attention was not in
helicopters, I think, because our procedure was working. The one I
mentioned to you in the helicopters did not come to my attention. I
was told this as an anecdotal matter in connection with my hearings 2 years ago.
Senator SARBANES. NOW, in 1 9 7 6 , you made a statement at the
shareholders' meeting that you quote in your statement here on
page 7, was that the first time that you had been prompted to
make such a statement as a shareholders' meeting?
Secretary MILLER. Senator Sarbanes, I don't recall. I think this
investigation by the SEC looked at the transcript, I think, of all
shareholders' meetings. I assume that they have cited the only
cases. They were in 1976 and 1977. There was a brief comment,
extemporaneous, and the one in 1977. I looked at the transcript,

and it was in the context of a discussion period in response to some
questions about our business.
Senator SARBANES. NOW, were you prompted to make that statement in 1976, do you assume, by the publicity and attention that
were being given to this issue?
Secretary MILLER. Well, if I can just for a second look, I think
the transcript would indicate that I was more or less indicating
some of the priorities of the company. I indicated that we gave—
priority No. 1 was to develop people. We also had to be sure that
we had high standards of conduct, and I went on to give a few
other comments in that regard. I think it was just more or less sort
of a general rundown of items cited.
I'm sorry. Excuse me. I'll come back to the other question in just
a moment. I'm reminded of the Textron committee report covering
this question of loss of business, and they do report that they found
some instances. I just couldn't remember. Excuse me.
Senator SARBANES. Did you have a basis in 1976 for making the
assertion, other than no such improper payments had been brought
to your attention? There had been no significant affirmative action
to enable you to check, to enable you to make that statement in
1976?
Secretary MILLER. I would say the only event that may have
been on my mind at the time is that about a month prior to the
shareholders' meeting, we had our annual management meetings
including all the directors, all the corporate and senior officers,
and division presidents. And because of what was being disclosed
around the country, I made a very sensitive presentation on the
question of standards of conduct, and I particularly called attention
to the responsibility of everyone in that room to advise us if they
knew of any violations.
I guess that was sort of on my mind. Other than that, I think it
was the continuation year after year of trying to emphasize the
controls and procedures. In 1977, of course, as I mentioned, the use
of the questionnaire signed by over 1,000 employees—that was the
next year.
Senator SARBANES. That's the next subject I wanted to go to. In
1977, you made a similar assertion. At that time you had the 1,100
questionnaires. Is it now clear that some of the 1,100 people lied
with respect to their questionnaire?
Secretary MILLER. I cannot answer that because some of them—I
just would say that some of the names that surfaced in the two
investigations, it looks to me like the possibility that there could
have been an overlap with the questionnaire, but I'm not sure.
One thousand one hundred people were chosen in 25 or 30 divisions among the senior-most corporate personnel. It was a special
memo from me pointing out that everyone should sign it who had
direct involvement in senior management, who had involvement in
purchasing which is always a sensitive area, in major sales responsibility, and it was spread out based on the function.
And I suspect that there could have been some possibility of an
overlap.
Senator SARBANES. Well, now, you helped to shape the questionnaire and the decision as to whom it would go to. Is that correct?

Secretary MILLER. Well the draft originally came from our auditors, and I think I edited it, and I sent it out with the memo
initially to introduce it as a new procedure that I felt was very
necessary to broaden affirmative responses to whether there were
any such events.
Senator SARBANES. And did you determine who should respond to
the questionnaire?
Secretary MILLER. I think it would be helpful—I don't want to
read it here—but I have a copy of my memo in this regard, and let
me just glance at it a moment. Then I'd be happy to submit it to
you.
In each Textron division or subsidiary, a statement should be
signed by the president and comptroller and also by such other key
personnel throughout the division, including its U.S. and non-U.S.
locations, as the president considers appropriate. Having had some
other comments prior to this statement because of the nature of
the disclosures, statements should be obtained from those in sales,
purchasing, accounting, finance, cash management, contract administration, international operations, public relations, or general
management who might have reason to know of matters
Senator SARBANES. Did the questionnaire reach deep enough into
the Bell Helicopter Division of Textron that employees there—who
it is now clear, or is as clear as the record before us can make it,
were engaged in these payments—responded to the questionnaire
and indicated that no such payments had taken place?
Secretary MILLER. I would say in hindsight that it did not go
deep enough, even though I listed a pretty broad list of people.
Senator SARBANES. I see counsel is counseling with you.
Secretary MILLER. Counsel was just reminding me as far as the
names of people who have been involved, you know, the names of
actual individuals involved, I have only seen the SEC report last
Tuesday that was pointed out today. So I obviously haven't had
that much time to do the name comparisons because that is the
first time that I had seen names of people who had been involved,
other than what we have in the record here.
Senator SARBANES. DO you feel that you had reached down and
tried to ascertain this and someone had misinformed you as to the
practice, and therefore that as a managing officer you have failed
to reach the area in which these activities were taking place; or
had you, exercising some degree of care and concern, reached down
there but then been given an erroneous answer, which you accepted at the time as being descriptive of the situation?
Secretary MILLER. I would consider it a complete breach to have
falsified the statements, and I instructed in this memo that each
division require these statements to be submitted to our independent auditors and to the corporate comptroller so that they could be
reviewed both by outside auditing and by our corporate accounting
people who had no axe to grind and were independent as far as
looking over the shoulder of people in the divisions. I would have
considered it, you know, a very serious, matter indeed had someone
not given correct information.
Senator SARBANES. DO you think that's what happened?
Secretary MILLER. The names, I just would not want to implicate
anyone. As I said, the possibility exists, I have not—I don't have

the forms myself; they were not filed with me. They were filed with
our auditors, and they were made available to the audit committee,
as I recall.
The CHAIRMAN. Senator Tsongas.
Senator TSONGAS. Secretary Miller, do you think that illegal
foreign payments are still practiced in international trade?
Secretary MILLER. I would say "Yes." I would say it is very
unlikely to be practiced by American corporations, but it is very
much a practice in the world.
Senator TSONGAS. That view is, I would think, shared generally
by most officials in corporate America; would you not agree?
Secretary MILLER. I think that's correct. And most people recognize that this is widely done in international activities. I have
always felt it's not good business practice regardless. People tend to
sell for their own reasons and develop a basis for their own reasons. But I don't think it's good practice.
Senator TSONGAS. That would be a consensus position of all your
colleagues in various other corporations?
Secretary MILLER. I would think so. I mean, I have not done a
survey, obviously. But I always hear the talk about exports of the
United States. I always hear people saying, "Yeah, we've got a few
people who use different techniques."
Senator TSONGAS. Did the same consensus exist as to how one
entertains the Pentagon?
Secretary MILLER. Looking back at that incident, which, I say, I
got into in 1975-76, I would say that there was a widespread
feeling that visitors from the Department of Defense would be
given the courtesies of lunches and meals as a routine matter. I
say, that was a widespread attitude.
Senator TSONGAS. Isn't it also the case that people competing
with companies from other countries that are less queasy than we
are, perhaps, about these kinds of practices often express a frustration about the inability to compete and about restrictive U.S. laws
and so forth?
Secretary MILLER. Yes. Some of our restrictions go quite beyond
even the private payments and bind us up even in other ways. The
degree of responsibility an American corporation has today, not
only for their own conduct but verifying the conduct of the other
side, is so extensive as to make it difficult, yes.
Senator TSONGAS. It's your view that illegal foreign payments is
perhaps, or was perhaps, the rule rather than the exception. Is
that a recent view?
Secretary MILLER. I have not really had any view on this until
the improper-payment issue began to surface in the 1970's, and
because of the number of instances, I think we all came during
that period to believe that it was a widespread practice.
If you had asked me in the early 1970's, I would have had either
no opinion or believed that that isn't the way that American
corporations behaved. Our attitude was we shouldn't be doing it.
So, I guess I assumed that it wasn't being done.
I don't remember what the time—I think it was toward the mid1970's, perhaps after 1973-75, in there, when this began to surface,
it became apparent to me or anyone else who saw the large numbers of disclosures that there was a practice, undoubtedly.

My efforts to tighten up our procedures were not enough. I
should have gone further and done surveys myself.
Senator TSONGAS. That response from someone who has a lesser
reputation than you do for personal integrity, I would find to be
incredible. You know, it's a tough world out there. You compete
with the French, the Germans, and the British and others, companies with a great deal of money being thrown around, they need to
compete to survive. Could one conclude that that willingness to
perhaps live with the morality of the time was accepted in the
business community.
Secretary MILLER. I think so. But I must confess that my ambitions in business were slightly different, not from the point of view
of improper payments, but I have always felt that if one goes to
differentiated products in higher technology to things that are
differentiated, that you can sell them on their merits. That was a
fundamental objective of our company, not to sell commodities, but
to sell highly differentiated products in which you didn't even have
to worry about the norms of the community, because you had a
market, because you had something to sell.
So, I think, you know, that the more you were in an undifferentiated product, the more likely that you would be drawn into the
norms of the time.
Senator TSONGAS. Since I represent a State that is highly involved with high-technology equipment, I must say that your view
is not shared totally by many of your colleagues.
I guess what it comes down to is a question of what one ends up
believing. I hate to bring up technology but—I watched Congressman Kelley the other night. It really came down to the question of
do you believe this person, and your decision is based on what you
know about the person's background, the same way we make a
decision about your testimony, because there is some strain of
credibility.
I have the greatest respect for your background, and I have
checked into your background. A lot of people thought you were a
good person. Everything that has come back has been quite favorable. This committee hasn't really laid a glove on you, in my opinion, but in many respects, that's almost irrelevant.
And let me go into a subject that I wish someone else had raised,
but it's left to me.
Do you feel that this whole process—I was here Monday; Senator
Riegle had a hearing on inflation; there were three people in the
audience, on the witness list, and you look at the response today—
do you believe that the process that we're now engaged in has so
compromised you that you cannot continue effectively as Secretary
of the Treasury?
Secretary MILLER. NO, I do not.
Senator TSONGAS. Are you committed to seeing this process
through?
Secretary MILLER. Yes, I am.
Senator TSONGAS. DO you think that this country has incorporated a dual standard for the average citizen, on the one hand, and
those in public life, on the other, and that perhaps people in public
life have to accept the inevitably of that dual standard?

Secretary MILLER. I don't know if it's so much of a dual standard
as it is that the opportunity for visibility and drama is higher.
Maybe there are dual standards elsewhere, but the opportunity for
high drama is certainly greater in public life. Therefore, the degree
to which there is exaggeration and magnification can be better
seen.
The other side is that while this is a painful period for me, all
my family and friends, and so forth, there is always a good thing to
learn, and that is that so many people have volunteered to offer
their encouragement and support that that offsets my worry about
my being undermined by this.
Senator TSONGAS. Given your strong feelings expressed that you
feel that you are innocent and that perhaps you feel in your heart
that this process is basically unfair, is there still not a thought in
your mind that this is a result of a political judgment, this is
indeed an election year involving the President of the United
States, that there may be circumstances, perhaps, under which,
irrespective of innocence and irrespective of fairness, that one must
contemplate perhaps an alternative that knows no restriction on
innocence or fairness?
Secretary MILLER. Senator Tsongas, when this investigation
started in 1978,1 think everyone expected that it would be completed in 6 months. The length of it is because of the pressures to do
more and more and more to leave no stone unturned. And it's by
coincidence that the SEC report comes out, you know, in an election year. I don't think the SEC intended that. Therefore, I don't
think the timing was that way.
So, I can only answer your question if I know what happens
today, if this committee addresses this, finds an allegation, then
they should go in a certain direction. If they address it and find no
such allegation and continue to persecute me, then I would think
we would have to judge whether it is for some other reason than
the facts.
Senator TSONGAS. My question really went to a different consideration. There are obviously people in the White House who are
concerned, and not only with the question of your innocence or
guilt and the question of fairness or unfairness, but also the political implications. You saw the Herblock cartoon this morning in the
Washington Post. That goes across the country. That kind of a
thing, if that kind of drumbeat continues, has a political price.
Secretary MILLER. Perhaps it does. It has a political price, yes.
Senator TSONGAS. YOU don't have to answer this if you don't
want to. But have you had any discussions with people in the
White House about the implications of this, irrespective of the
substantive issues?
Secretary MILLER. I have not.
Senator TSONGAS. N O one has approached you?
Secretary MILLER. NO, sir.
Senator TSONGAS. Well, I would say that, for myself, I don't
think we can ever get a handle on this issue, perhaps, in interviewing the other people at Bell. Your reputation is such that my
inclination is to believe what you say. I find some of it difficult
because of what I know is the practice in the international trade
community. But absent the capacity of this committee to cross69-845 0 - 8 1 - 5

examine those other people at Bell, I don't think we will ever know
what indeed the real facts were. And I don't think we should
proceed until we have that capability.
I for one, given what's happened in Congress the last few weeks,
have some hesitation about perhaps pursuing this, although I recognize that perhaps that's the way it has to be and we should
accept it.
Thank you, Mr. Chairman.
The CHAIRMAN. Mr. Secretary, when I was last questioning you, I
was reading from the Complaint. A Senator has raised the question
that in discussing payments, particularly in the Middle East, that
this might have an upsetting effect on our foreign policy.
This is absolutely beyond me, in view of the fact that the Complaint is public record, widely publicized. And I simply read from
the record and ask for your response. If this has an adverse effect
on our foreign policy, it's beyond my imagination to understand
how.
When I questioned you, I asked you about payments by Textron/
Bell, of $155,000 to an official in the Mexican Air Force by Textron/Bell, $200,000 to its dealer in the United Arab Emirates,
$275,000 by Textron/Bell to Oman. In each case, they were questionable payments, in which it is said that Textron/Bell knew or
had reason to know that these would go into the hands of foreign
officials who could use their influence to get the sale for Textron/
Bell.
So, let me persist in this. Let me ask you about the Complaint
14.
In 1973 and 1974, Textron/Bell paid approximately—

This is from the SEC report—
$40,000 to a sales agent for Ceylon, knowing or having reason to know that all or
part of the sum would be transferred to an official of the Government of Ceylon in
connection with the contract secured in or around February 1972, under which
Ceylon would receive under the grant-in-aid program of the United States Government, four helicopters and related spare parts, totaling about $460,000.

Did you know about that?
Secretary MILLER. NO, sir.
The C H A I R M A N . The next charge is that—
In 1974 Textron/Bell paid $100,000 to a sales agent from Morocco, knowing or
having reason to know that all or part of that sum would be transferred to Moroccan military officials. The payment was made in connection with a $1,700,000
contract between Textron/Bell and the United States Government which was promoted by senior Textron/Bell officials

Secretary MILLER. That's the divisional officials.
The CHAIRMAN [continues reading]:
Who knew or had reason to know, as early as 1971, that payments to the sales
agents would be shared with Moroccan military officials and result in the Government of Morocco receiving two helicopters and related parts.

As you point out, this is the Bell senior officials, and you did not
know of it.
Secretary MILLER. NO, sir, I didn't know. The word "Textron/
Bell" means Bell Helicopter Division of Textron. It's important to
remember that.
The C H A I R M A N . I think that's a good point, but I am reading
from the text.

Secretary MILLER. Yes.
The C H A I R M A N . The next charge is that—
From 1971 to 1975, Textron/Bell paid about $400,000 to its dealer for the United
Arab Emirates in connection with contracts pursuant to the Dubai Police Air Wing
of the United Arab Emirates defense force, agreed to purchase helicopters for about
$4,600,000, knowing or having reason to know that senior officials of the DP A W and
the private secretary to the UAE minister of defense had a financial and management interest in Textron/Bell's UAE dealer.
As early as 1975-76, Textron/Bell officials, in addition to Textron/Bell personnel,
were aware that foreign military officals continued to promote further sale of
helicopters to the UAE through this dealer from 1977 to 1978.

Do you know about that?
Secretary M I L L E R . N O , sir.
The C H A I R M A N . Of course, in each case, they say that Textron/
Bell did know, that your officials did know. That's the charge.
Secretary M I L L E R . Yes. And behind this, you can look at the
names of various people and judge their level of management. The
SEC report, which you have, of course, backs this up.
The C H A I R M A N . I am going to continue, but I think that we
should keep in mind that these were substantial sums: $50,000,
$100,000, $150,000, substantial sums, certainly, as bribes go; and
that it is the allegation by the SEC that officials—in some cases,
senior officials—of Bell Helicopter knew about it, but somehow did
not disclose it to you.
Now, the next charge is that—
In 1972, Textron/Bell paid $50,000 to an aviation adviser in an agency of the
Government of Indonesia, Pertamina, knowing or having reason to know that the
aviation adviser would transfer part of this sum to other Pertamina officials in
connection with the dealer's resale of the helicopters to Pertamina at an inflated
price. This payment was made contrary to Textron/Bell's longstanding operating
procedures, as an advance against the dealers commission account.

Do you know about that?
Secretary M I L L E R . N O , sir.
The C H A I R M A N . The next charge is that—
In or around August 1973, Textron/Bell paid about $196,000 to its dealer for the
Government of Colombia, knowing or having reason to know that all or part of the
sum would be transferred to Colombian military officials; and paid about $30,000 to
an intermediary, knowing or having reason to know that all or part of the sum
would be transferred to a Colombian military official in Washington, D.C., in connection with the contract pursuant to which the Government of Colombia agreed to
buy six model helicopters for about $2,900,000.

Do you know about that?
Secretary M I L L E R . N O , sir.
The C H A I R M A N . The next charge is that—
In or around December 1976, Textron/Bell paid the Colombia dealer about
$250,000, knowing or having reason to know that all or part of the sum would be
transferred to a Colombian military official in connection with a contract pursuant
to which the Government of Colombia agreed to buy seven helicopters for about
$6,400,000.

Do you know about that?
Secretary MILLER. N O , sir.
The C H A I R M A N . The next charge is that—
In 1977, Textron/Bell paid about $60,000 to or for the benefit of one or more
military officials of the Dominican Republic armed forces in connection with the
contract secured in or around September, 1976, pursuant to which the Dominican
Republic agreed to buy two helicopters and related spare parts for about $1.4
million.

Do you know about that?
Secretary MILLER. NO, sir.
The C H A I R M A N . The next allegation by the SEC is that—
In 1971 Textron/Bell remitted to Tropical Aircraft Sales through its Ghanian
sales agent about $300,000 in proceeds through the sale of two helicopters to the
Ghana Air Force, in addition to a commission of about $60,000, knowing or having
reason to know that a $300,000 payment would be transferred to a senior official of
the Ghanian Air Force in connection with the purchase by the Ghana Air Force of
two helicopters through Tropical at an inflated price.

Do you know about that?
Secretary MILLER. Senator, this is the transaction you brought to
my attention, I think, on January 24, 1978. I had preliminary
information on it and reported on February 28 telling you that
what I'd learned at that time was incomplete and indicating I
believed it to be an improper transaction. That's all I know about
it, except what I've learned in the reports since.
The C H A I R M A N . What I might point out is that everyone of the
payments that is talked about were not known by the committee,
were not discussed
Secretary MILLER. Except the Air Taxi.
The C H A I R M A N . Except Air Taxi and Ghana. That's right.
All the rest of these were new. So this isn't old stuff.
Between 1973 and 1977, the Fafnir Division of Textron, which
manufactures ball and roller bearings, paid about $465,000 to its
Iraqi sales agent's commissions. The allegation by the SEC is that
Textron/Bell knew or had reason to know that these funds would
be transferred in whole or in part to officials of the Government of
Iraq in connection with sales to the General Automobile Co., an
agency of the Iraqi Government, totaling over $3 million.
In one instance, Textron/Fafnir knew or had reason to know
that its agent had inflated an order from $20,000 to $600,000 in
order to receive excess commissions. Textron/Fafnir was informed,
prior to paying the agent a significant amount of commissions, that
it was illegal under the Iraqi law for the agent to receive such
money.
Do you know about that?
Secretary MILLER. N O , I do not.
The C H A I R M A N . The next charge is that Textron in connection
with at least four of the above foreign payments directed payments
to banks outside the home countries of the recipients.
I think this is significant, because this isn't simply a matter of
bribes being paid. It's a matter of having the structure so built and
constructed and fabricated that it could be concealed.
In 1974, at the request of its sales agent, Textron/Bell, says the
SEC report, transmitted about $100,000 in commissions to a Swiss
bank account of a principal of its Moroccan agent, knowing or
having reason to know that all or part of this sum would be
transferred to Moroccan military officials.
Do you know about that?
Secretary MILLER. That's the same transaction we've just gone
over.
The C H A I R M A N . It's the same transaction, but the fact that you
used a Swiss bank or Textron/Bell used a Swiss bank account, you
didn't know they used the bank? Not for that purpose?
Secretary MILLER. NO, sir.

The CHAIRMAN. In 1 9 7 5 , at the request of its dealer, Textron/
Bell—and again, this is something which we've discussed as far as
the instant bribe is concerned but not as far as the Swiss bank
account—in 1975, at the request of the dealer, Textron/Bell transferred about $ 2 0 0 , 0 0 0 to a Swiss bank account to a principal of its
United Arab Emirates sales agent, knowing or having reason to
know that this sum would be transferred to an entity owned by a
senior official of the Government of Oman.
Do you know about that?
Secretary MILLER. NO, sir.
The CHAIRMAN. In 1 9 7 6 , at the request of its dealer, Textron/Bell
transferred about $ 2 7 5 , 0 0 0 to a Swiss bank account of a principal
of its United Arab Emirate dealer, knowing or having reason to
know that this sum would be transferred to an official of the
Sultanate of Oman.
Do you know about that bank account transaction?
Secretary MILLER. NO, sir.
The CHAIRMAN. Then from 1 9 7 1 through 1 9 7 5 , at the request of
its dealer, Textron/Bell transferred a substantial portion of the
commissions ostensibly paid to your UAE dealer to a Swiss bank
account of an official of the Dubai Police Air Wing, who also served
as managing director of Textron/Bell's UAE dealer, and from 1971
through 1977, at the request of a sales agent of Textron/Fafnir,
transferred a substantial portion of the commissions ostensibly
paid to Textron/Fafnir's Iraqi sales agent to a Luxembourg bank
account, knowing or having reason to know that all or part of the
commissions would be transferred to Iraqi officials.
Did you know about that?
Secretary MILLER. NO, sir.
The CHAIRMAN. Could you tell the committee about Fafnir and
its supporting relationship to Textron during this period? I understand Fafnir is a division not separately incorporated.
Secretary MILLER. Yes. The normal operation, except in foreign
countries, was operated through divisions which were incorporated
designations of business units within a single corporation. Usually
all of the operations of the divisions—Fafnir was a substantial
company in precision ball bearings and was organized in our company similar to all other divisions, reporting to a group vice president in the corporate office, who then reported to the President.
The relationship was the same as exists for the other divisions.
The CHAIRMAN. My time is up.
Secretary MILLER. Fafnir had one incident, so it appears to be an
aberration rather than a pattern.
The CHAIRMAN. My time is up, but I hope Senator Heinz, who
has a reception that's very important from the Pittsburgh Steelers
downstairs—it can't be more important; they're winners—would
permit me simply to ask, do you have any explanation for the fact
that here we've gone through a whole series of payments—admittedly the total amount of sales was relatively small compared to
your total sales. The bribes, while enormous by any usual judgment, were perhaps not unusual for a very large corporation. And
yet you had no knowledge—although in some cases, senior officials
of your subsidiary were said to have knowledge or had reason to
know.

Secretary MILLER. Senator, this is the whole subject we've been
about for 2 years. These were uncovered after 2 years of investigation. While it was discovered in that process that there were these
transactions with payments, I think, over a period of IV2 years and
an aggregate sum of $2.5 million which were either through inadvertence or through deliberate action, I did not know about them.
And for the reasons I mentioned, I should have perhaps been
more forceful.
The CHAIRMAN. Senator Heinz.
Senator HEINZ. Thank you, Mr. Chairman.
Mr. Miller, one of your answers to one of my colleagues about
why you did not investigate further or in greater detail some of the
wrongdoing or questionable practices that have been identified in
the SEC report, you said, I think, to paraphrase you in any event,
had you seen smoke, you would have investigated further.
Now on August 16, 1976, you did put forth a memorandum on
standards of conduct, a policy as to representatives, agents, consultants, dealers, or distributors. That memorandum is, I believe, a
part of the record. You subsequently followed up a year later with
a second memorandum of May 12, 1977, and it dealt with a related
issue of overbillings or accommodation payments in which you say,
quite properly, that overbillings and accommodation payments are
not acceptable.
Well, that's well and good. But shortly after that in the summer
of that year, 1977, according to page 81— excuse me, page 82 of the
SEC staff report—your associate who reports directly to you, Mr.
James Atkins, comes and he has a request that a commission be
transmitted to a bank account maintained by a dealer in the
United States—in other words, an accommodation payment.
Now you quite properly tell him that that's wrong, and your
general counsel also tells him that's wrong. Yet here is a man who
has come to you after he has received a memorandum a month or
two previously, and he proposes to make an accommodation payment in violation of the policy.
The question is, Did you ever think to ask him why he would
propose something that was wrong or illegal or improper—to
borrow some of the words from your 1976 and 1977 documents? It
seems to me that this is smoke. Here is the next highest officer to
you in this area, proposing an accommodation payment.
It would seem logical that you would ask why such a kind of a
payment would be proposed, not only that it would be wrong to do
it. Did you ask him why such a payment was made?
Further, I would ask, Mr. Atkins later on apparently did consumate an arrangement which involved a payment that was described as follows :
On June 17, 1977, a $430,000 check was given to the Korean Kai Yu Rim at Fort
Worth. The check was made payable to Rim rather than the Bell dealer, United
Industries International.

This absolutely contradicts your policy on accommodation payments.
And I would really like to know how it's possible that this check
could have been issued after the conversation you had with Mr.
Atkins? I'd like to know what you said to Mr. Atkins and whether

you inquired why he first proposed making accommodation payments in addition to your saying it was wrong.
Secretary MILLER. Senator, you've asked a large number of
things. I don't know if you intend for me to start back with the
first memo you called attention to or not.
Senator HEINZ. I'm particularly interested in the meeting you
had with Mr. Atkins.
Secretary MILLER. But you put it in such a large context I've got
to sort out what you said and why you think—let me try to answer
you.
Senator HEINZ. Let me concentrate it for you.
Secretary MILLER. Let me answer, please. Please let me try to,
because you're asking me to give, you know, an answer without
quite having had to put this in context. Obviously, I didn't want
and opposed what you call accommodation payments.
It had surfaced to my attention that some divisions had made
payments of this kind of nature were not illegal. I had discussed
this in my hearings in 1978. While they may not be illegal, I don't
think they're good practice. I wanted to make sure everyone understood that.
I'll have to read the memo, but I think it pointed out that you
had a series of things to consider. I think the fact that Mr. Atkins,
who was not the next senior to me—he reported to me through a
group vice president, so he was a layer below—took the trouble to
check with the corporate office of counsel for an interpretation of
that policy would have not indicated that there was smoke, but
indicated that I put out a policy people wanted to make sure they
understood. They were asking, well, this is the kind of thing—can
we do this or can't we?
We said no. He said fine. And apparently he didn't do it. That's
all I know about it, and it did not occur to me that because a man
comes and says, "Look, I want to know if this is the kind of thing I
can't do," and I say, "That's a thing you can't do," that doesn't
mean to me that he has been out violating rules.
You asked me about another transaction that I have no knowledge of, and I could not and would not implicate him, because I
don't know if he was involved. You'd have to look at the SEC
report. I don't know.
Senator HEINZ. Then when Mr. Atkins came to you and he said,
"I would like to make an accommodation payment"
Secretary MILLER. Let me add, I don't recall him coming to me.
I'm sure he did, and I'm sure that's what I would have said, but
you know
Senator HEINZ. YOU recall nothing about the meeting?
Secretary MILLER. I don't happen to recall it. This is one of these
things like a million other things that come by. I know what he
would have asked. I would have said no. But it must be an accurate
report.
Senator HEINZ. Mr. Chairman, what concerns me—and many
have asked this question—is what the committee really has in
mind, having this hearing. I think it's been clearly stated there are
at least two reasons for having the hearing. There are questions of
fact. One is that there's been a lot of new information put on the
record by the SEC since the committee last held hearings. The

second is that the Justice Department, if I understand the Attorney General's statements correctly, has terminated any investigation of you that they have.
Those two facts indicate a wide possibility of problems. Some
people have asked if the committee is looking for perjury. It need
not necessarily look only for perjury. It can look for a pattern of
concealment, what at least one member has described as containment. There are questions of impropriety. There are questions of
the appearance of impropriety.
I would have to say it appears very improper for the Secretary of
the Treasury to be investigated by the Attorney General, as has
earlier been stated by the Chairman of the committee. That, at
best, is an appearance of impropriety, when the Attorney General
issues a clean bill of health, and I would remind the committee
that Mr. Civiletti was at the Justice Department, if my recollection
serves me right, during the probe of the Bert Lance affair. And I
would have to characterize the initial response of the Justice Department to that particular probe, which has now led to numerous
indictments, as anything but straightforward and lacking in propriety until finally a Special Prosecutor was at least in one instance
appointed.
I think, therefore, we've got to be very clear that a lot of various
people's credibility is involved. It focuses not on one individual
particularly or necessarily at all, but on many people. And questions have arisen.
And, I believe, unless the committee does its job—and I think
Mr. Miller appreciates this—questions that have arisen and remain
unanswered will continue to arise.
Mr. Miller, you are the Secretary of the Treasury. You are
entitled to the respect of this Nation. You are entitled to be credible. Indeed, we don't want you any other way.
And it's very important, it seems to me, that our committee lay
out on the record any concerns of the various members so that
they may be properly dealt with by us or by others, and that
remains to be seen.
My time has expired.
Secretary MILLER. May I just make an observation, Senator
Heinz. I listened carefully to what you said. I had thought in 1978
in February that this committee had said that there is an agency
that can investigate this situation thoroughly and independently
and we can rely upon it, and that's the SEC. And I thought that
had been done.
And I hear today the sort of comments, "Well, why don't we do
another investigation?" I thought we'd spent 2 years—you know, I
wonder is there enough? Am I ever to be free?
Senator HEINZ. Mr. Miller, if I may respond, Mr. Chairman,
although my time has expired—Mr. Chairman, may I respond?
T h e CHAIRMAN. Y e s .
Senator HEINZ. Mr. Miller, I

don't think anybody—you or me—
likes the idea of having more investigations. They take time. I
don't think anybody on this committee has reached the conclusion
as to the appropriate next step. But if the new facts on the record
warrant it, if the investigation of the Justice Department warrants,

or if the hearing record we develop today warrants it, there will
have to be a continued inquiry into this matter.
I am not prepared to make that judgment at this time.
The CHAIRMAN. Would Senator Cranston yield to me for just 1
minute? I'd appreciate it very much.
In the first place, let me just say that the Justice Department
says, as I pointed out, on January 14, through a continuing investigation of Textron separate and apart from that, the Attorney General has said there is nothing to connect the Secretary of the
Treasury with any kind of improper payment or any other kind of
improper activity.
The problem here is that the SEC cannot make an investigation
leading to any kind of action with respect to obstruction of justice.
Only the Justice Department can do that.
I have the highest respect for Attorney General Civiletti. I think
he is a man of great integrity. He's tough. He's honest. And I'm
sure he'd do a good job in every respect.
However, I simply pointed out that Mr. Civiletti has as complete
a conflict of interest here as anyone I can imagine. And I think
whether one believes that Mr. Civiletti's statement, there's going to
be a great lack of credibility in the country as a whole—they can
see it's the Attorney General who is making this judgment, and it
would be astonishing if he made the other judgment. And it may
well be that the finding that he's made clears the Secretary of the
Treasury.
But you have the problem here of the SEC not being qualified to
investigate an obstruction of justice, No. 1. Isn't that right?
Secretary MILLER. Mr. Chairman, that is not correct. The SEC
has full power to take a case and refer it to the Department of
Justice, I understand, for prosecution. I think you must realize
that.
I think you also, it seems to me, are getting on strange ground. I
think Congress enacts the laws of the land. I think Congress has
decided that the Attorney General would decide upon these matters. To say now that we have found out that if he decides not to
investigate it is a conflict of interest—it means Congress has
passed a law they don't like, so change it.
I don't think it should suddenly color our thinking about this.
The CHAIRMAN. Mr. Secretary, it's my understanding, and I
think it's correct, the SEC cannot look into an obstruction of justice.
Secretary MILLER. May I have my counsel speak, please?
Mr. KLEIN. Your Honor—excuse me. [Laughter.]
The CHAIRMAN. I think you should repeat that. [Laughter.]
Mr. KLEIN. That's right, I'm quite sure. I'm quite sure. [Laughter.]
Senator Proxmire, as you probably are aware from reviewing the
SEC's budget annually, every statute of the Commission includes
the specific authority of the SEC to make references to the Department of Justice of any evidence indicating the commission of any
offense. You'll find that. You can look at section 21 of the 1933 act,
and I believe 22 of the 1934 act.
It was my understanding, moreover, that the agency has, in the
last 6 to 9 months, clarified this policy so as to make that an

informally continuing practice of the staffs and that we not go
formally through the agency and the Commission itself.
It is further my understanding that the Department of Justice
was involved with the Securities and Exchange Commission
throughout its investigation, and the Department of Justice had an
opportunity to review extensively the documentation and testimony gathered. In fact, with respect to certain of the people who in
the SEC reports have pled the fifth, certain of those people were
immunized, as I understand it, by the Department of Justice so
that they would go ahead and testify.
The CHAIRMAN. I'm going to ask our lawyer to respond to your
lawyer. [Laughter.]
The CHAIRMAN. Mr. Marinaccio?
Mr. MARINACCIO. I would like to point out, Mr. Chairman, that
on May 10, 1978, you asked the then Attorney General Griffin Bell
to make inquiry into the matter of a possible obstruction of justice
of this committee's function, to wit, the requirement under the
committee's subpena that all documents relative to the Ghana
alleged payment be supplied to the committee. The committee
found out subsequently, after Mr. Miller was confirmed, that
during the course of looking into the Ghana situation a document
was destroyed by a Textron-Bell employee.
It was that situation that caused a reference from the chairman
of this committee to the Attorney General to look into the possible
obstruction of justice of this committee's function under title 18 of
the United States Code.
The SEC has no jurisdiction to enforce title 18 of the United
States Code. The SEC is limited to jurisdiction under the securities
laws. And the reference from the chairman of this committee to
the Justice Department was separate and apart from any alleged
violation of the Securities and Exchange Commission laws.
Mr. KLEIN. I don't mean to debate with you at all. The three
statements you've made—the second one I believe is incorrect. The
agency has the power, if not the responsibility, to refer whatever
information comes to its attention to the Department of Justice. It
says so in the statute and we can resolve the matter by looking at
the books.
You could also inquire directly, it seems to me, of the Department of Justice to find out, in fact, what happened here with
respect to the communication between it and the agency.
I do not know the answer to that question.
Mr. MARINACCIO. The S E C , if I may respond finally, the S E C
certainly, as any other agency of the U.S. Government does have
and indeed has the responsibility to forward to the Justice Department any allegation that it uncovers relating to a crime that may
have been committed or possibly may have been committed.
The SEC has no jurisdiction to prosecute the crimes. It has no
original authority to have referenced to it a violation or a possible
violation of the title 18 obstruction of justice statute.
Mr. KLEIN. We agree.
The CHAIRMAN. The hour of 1 o'clock having arrived, I am going
to suggest that the committee stand in recess until 2:30, when we
will resume the hearings.

[Whereupon, at 1 p.m., the hearing was recessed, to reconvene at
2:30 p.m. the same day.]
AFTERNOON SESSION

The CHAIRMAN. When we finished, Senator Cranston was next
up. Senator Cranston, go ahead.
Senator CRANSTON. Thank you very much, Mr. Chairman.
Mr. Secretary, I thank you for appearing under what I know are
very difficult circumstances for you. I suggested this hearing, and I
think it's performed a constructive public service. It has given us
the opportunity to consider all appropriate matters and new evidence since your confirmation hearing before this committee.
I think you have made a clarifying opening statement that is a
commendable acceptance of responsibility for your stewardship at
Textron and an admission of some significant failures in corporate
management. But there appears little question that your successes
and your capabilities in business and government far outweigh
these failures and limitations.
I also believe that your testimony, your responses to questions,
constitue a vindication of your integrity, your good faith, and your
good intentions. Certainly, there is absolutely no evidence of any
kind that any criminal conduct or intent is involved. And your
testimony today is in marked contrast to your position of adamant
purity and perfection before this committee last time and in your
recent press conference.
Therefore, at this point, I do not have any further questions. I
hope this hearing and the whole matter will come to a conclusion
with reasonable dispatch, and you now have my vote of confidence.
But in casting that vote, Mr. Secretary, I must express one
caveat, as did Senator Tsongas. As demonstrated by my prior questions, it's very difficult to understand the gap between your standards of behavior and your failure to investigate or to find out about
the conduct involving foreign military sales which occurred while
you were chief executive officer at Textron.
Your answers to these questions and your opening statement are
taken as true because of your known and long-established integrity
and because there is absolutely no evidence arising from the several investigations to the contrary. Indeed, the call for a special
prosecutor, as I stated this morning, is, in my opinion, totally
without factual or legal basis.
But the lingering doubt remains and is one from which you may
never be free, that perhaps you did not really want to know, or you
would have ordered an investigation. If you had known, you then
would have had to take painful corrective action or become a
participant in the concealment—not a pleasant alternative to face.
And the doubt persists.
When you left business to enter Government, you realized that a
problem of confirmation existed and perhaps only adamant purity
and stonewall perfection would suffice for confirmation. Therefore,
your prior testimony before this committee and in response to my
questions at the time of your confirmation was not as candid as it
could and should have been.
But, Mr. Secretary, we are a government of people, not of saints.
And this hearing has convinced me that these matters should be

resolved in your favor. I wish the resolution could be 100 percent,
but nothing in life is that certain.
I, as a U.S. Senator, however, am satisfied that you are a good,
highly competent person and deserving of the high posts you hold
and have held. I hope that whatever lingering doubts I and others
still have will never become realities, and, again, I thank you for
your appearance here.
The CHAIRMAN. Mr. Secretary, would you like to respond?
Secretary MILLER. I appreciate both the words and certainly,
Senator Cranston, shall endeavor to overcome whatever shortcomings there may be.
Senator CRANSTON. Thank you.
The CHAIRMAN. Senator Riegle?
Senator RIEGLE. Thank you, Mr. Chairman.
I, too, would just offer a brief summary comment. I think today
has been an instructive day in terms of how best to deal with a
matter of this kind. I would just like to make this observation.
I think that in the future, if we run into a situation where after
previous investigation and debate and analysis we think there may
be some additional questions that have to be answered, that a more
effective way to do that would be to meet in executive session as a
committee, with all the members present, and to invite the Secretary, in this case or whoever it might be in other cases, together
with their counsel—and also, for that matter, include the Justice
Department if there is a concern that there might be an illegal
action or prosecutable action that needs to be looked at—and to
examine that in executive session fully with counsel present on
both sides. It would take 2 hours, 2 days, 2 weeks, or whatever it
might take.
In the case of a sitting Cabinet officer or anybody else, for that
matter, I think our purview is such that we ought to be involved in
that fashion, but with a very careful and deliberate finding of fact,
to pin down exactly what the situation is. If there is a judgment
that some offense has occurred that requires prosecution or a serious effort by the Justice Department, that would then be the
appointed recommendation.
At that point, it seems to me, all facts ought to be laid on the
public record. And then I think it's entirely appropriate—in fact,
necessary—that there be a public side to that effort and to share
those facts in the broadest possible way.
What I am suggesting is not in any way an effort to not get the
facts out and on the record for the public. I think it's essential that
they be put there. What I'm talking about is the most appropriate
process for doing that. What are the steps that ought to be taken to
enable that to happen?
The reason I make the point is because I think today— not that
it was anybody's intention that it should evolve in this fashion—
but it has become something of a show trial. And it's perhaps best
illustrated at one point when the counsel addressed the chairman
here as his honor, thinking he was in court, because it does take on
the character and the trappings of a court procedure, but without
any of the safeguards and any of the care that any court procedure
ought to have.

Whether you're talking about examining a Cabinet Secretary or
whether you're talking about examining a citizen off the street, the
reason we have a court system with an elaborate set of constitutional safeguards is to get the truth and get it in a fashion that
protects rights and the integrity of the search for truth.
And we lose a lot of that in this kind of a setting. Everybody
that's been here today knows that. That's part of what goes with
the kind of process that we've been following.
So I would hope that if there is any suggestion of new information that would imply or lead to suspicion of criminal misconduct,
that that ought to be taken up in that appropriate fashion.
Like Senator Cranston, I've heard none of that today. I have
attended all of the hearings up until the present time, and I've yet
to hear anything that I consider to be new in terms of the charge
of illegal conduct that can be laid at the witness' door.
I think that in your statement, Mr. Secretary, you made it clear
that you feel regret and sorrow at things that you did not do that
you might have done and wish now that you had done in your
discharge of responsibilities as the chief executive officer of the
Textron Corp. I infer from that that those are painful lessons, and
I take what you say at face value that those are things which have
caused you to reflect deeply, and they are things that you reflect
upon with some personal pain.
I would also infer from that that in the future, wherever your
work takes you, in or out of government, that those lessons would
be valuable ones in terms of how they would be applied to your
own future decisions and conduct, as they will be for all of us as
they relate to things that we sometimes have the benefit of knowing from hindsight but not necessarily from foresight.
So I would hope, too, that we could resolve the matter. I would
hope that we could resolve them today, and I would say to the
chairman and my fellow committee members that if anything new
is developed that has not as yet been disclosed, if committee staff
work finds any significant item of new information that has to be
considered with respect to direct responsibility tying to the Secretary, I would hope that we could reconvene. I would think it most
appropriate that we would go into executive session first, deliberate
with counsel and the Justice Department if necessary, and have it
out, and then when that is done, share it fully in the public sense if
there is something to share.
With that, Mr. Chairman, I would reserve the balance of my
time until later.
The CHAIRMAN. Thank you, Senator Riegle.
Well, let me just respond very quickly. I wholly disagree that we
should have had an executive session today.
I think it's been healthy and proper that we had an open session.
The fact is that Mr. Miller has been before us before in open
session. I can't imagine that we would have had a closed session
when he first came before us.
The fact is that when we have an executive session, there are
always leaks. There are always charges and allegations. The press
finds out one way or the other. I think having this in open session
is much better. I know of nothing that's been said here today or is
likely to be said that would in any way seriously change the

attitude one might have with respect to Mr. Miller. I think it's
right that he comes before us openly, and Senator Cranston, of
course, did not ask for a closed session. He asked for a session of
the committee.
We can only poll the committee under unusual circumstances.
We can vote formally and on the record. Here's one circumstance.
Who would vote against this? It has to be a rare and unusual
occasion that we have an executive session, certainly not in a
matter of such great public importance, and when we already have
on the record so much public material that affects the witness.
Mr. Secretary, let me proceed with the complaint. The 24th item
in the complaint is that in connection with and in furtherance of
the course of business described in the paragraphs I've gone
through—18 through 23.
Textron/Bell—and, as you say, that's Bell Helicopter—attempted
to pay directly or indirectly officials of at least two foreign governments—I understand those were the Philippines and Nigeria—in
connection with prospective contracts. Those contracts were not
secured and payments were not made, but the attempt apparently
is charged by the SEC.
Do you know about that?
Secretary MILLER. SO far as I know, I have no recollection of
these items. This, of course, doesn't name the countries. I have
read the SEC report, and I was not familiar with those cases.
The CHAIRMAN. All right, sir.
Secretary MILLER. The complaint itself doesn't name any one, so
I'm saying
The CHAIRMAN. That's right. I understand they were the Philippines and Nigeria.
Then the next allegation is that Textron filed with the Commission a current report on form 8K for the month of May, 1978—the
May 8K report to supplement the representation Textron had
made in early 1978 with respect to Textron/Bell's Ghanian transaction in connection with the nomination of G. William Miller, then
chairman of Textron, to the Board of Governors of the Federal
Reserve System. The representations were false and misleading.
Exposure in the May 8K report is deficient in that it (a) fails to
state the two senior officers of Textron/Bell. These were senior
officers—and I understand they were Mr. Sylvester, who is vice
president of international marketing for Bell, and Mr. Treff, who is
treasurer of Bell—knew as early as 1971 that the transaction
would be structured to facilitate a payment to an official of the
Government of Ghana.
Did you know—these were senior men. Did they communicate
with you in any way?
Secretary MILLER. Mr. Chairman, I would only point out, this
filing took place after I left Textron. I was not involved in it.
The CHAIRMAN. Yes. I should have made that clear. That was
May of 1978. You left in January.
Secretary MILLER. SO I had nothing to do with this filing, but no,
I had no communication from these two people.
The CHAIRMAN. But the allegation is that they knew as early as
1971.

Secretary MILLER. Yes. I have no knowledge of that. I did know—
and I repeat, I knew when I was confirmed that the Ghana transaction appeared to be an improper transaction. I did not know who
the individuals were who knew about it as early as 1971.
The CHAIRMAN. It further goes on to say that Textron failed to
state that Textron/Beirs then executive vice president, Mr. Atkins,
also obviously a senior executive, had reason to know prior to the
consummation of the sale that the transaction had been restructured indirectly.
Secretary MILLER. I had no knowledge of that.
The CHAIRMAN. Mr. Miller, at your press conference and in the
hearings, you made the repeated point, and I quote, that "employees of the company were involved but senior officers and the officers on whom I relied had no knowledge of any improper
payments."
In view of the fact that seven senior officials of Bell or Textron
either knew of questionable payments or that foreign government
officials owned or were associated with Bell's agencies abroad, were
those statements not incorrect, false statements?
Secretary MILLER. Mr. Chairman, I'm sorry. I was listening to
another comment. But the statement at my press conference
The CHAIRMAN. Yes, sir. I'll repeat the question. At your press
conference and the hearings, you made the point, and I quote, that
"employees of the company were involved." You conceded that. But
you said "senior officers and the officers on whom I relied had no
knowledge of any improper payments."
My question is, In view of the fact that seven senior officers at
Bell or Textron either knew of questionable payments or that
foreign government officials owned or were associated with Bell's
agencies abroad, was that initial statement that senior officers on
whom you relied had no knowledge—was that not a false and
incorrect statement?
Secretary MILLER. I don't believe it's false and incorrect. I believe
it was false in the sense that, to the best of my knowledge still
today, I don't know of any senior—I may be wrong, maybe I
haven't read this complaint properly—but I don't recall any Textron, any senior Textron people who have been alleged to have
knowledge of these improper payments. This indicates that a very
senior officer of Bell Helicopter was involved, and I think I was less
than complete in the statement in the press conference.
I had not read, as I mentioned, the SEC report at that time, and
I was less than complete in not making clear that I would certainly
have to count that person as a senior official.
To that degree, I was incorrect. There may be others in here.
The CHAIRMAN. Let me follow up on that, because I think I have
some officials that we may want to discuss specifically as to whether or not you would regard them as senior, and why you wouldn't,
if you didn't.
The allegation on page 10 goes on to say:
In fact, during the Senate committee inquiry, relevant and material information
about Textron/Bell's Ghanian transaction was known to and not revealed by certain
Textron/Bell officers and employees aware of the Senate committee inquiry. Such
information was not disclosed to the Senate committee, the Commission, or the
public."

It goes on to say:

74
Textron, through its then chairman at the 1976 annual meeting, informed Textron shareholders that there had been no payments that are illegal or any payments
that are improper anywhere throughout the company.

That statement was made by the Chairman. It says in the SEC,
"without his having a reasonable basis in light of the course of
business described in paragraphs 8 through 23 above, was erroneous and misleading."
Do you agree that that's correct?
Secretary MILLER. This is the subject, Mr. Chairman, I addressed
this morning. In the SEC report itself, it has some important words
that are left out in the complaint. The words from the transcript
are that so far as we know, there have been no payments. I think
that's a different kind of statement to say there have been no
payments and to say, on the other hand, that so far as we know
there have been none. I addressed this this morning. I will express
again my personal regret and disappointment that my statement at
the shareholders' meeting in 1976 has turned out on the facts to be
incorrect.
I believe I was reasonable in saying that as far as I knew, there
were no such payments.
The CHAIRMAN. In 1 9 7 7 , again—not 1 9 7 6 , but 1 9 7 7 — the following year, at the annual meeting of Textron shareholders, you informed Textron shareholders, and this is a quotation: "We know of
no case in Textron"—"We know of no case where there has been
any improper payment, illegal payments."
Again, they say the statement made by the chairman without his
having a reasonable basis, in light of the course of business, described in paragraphs 8 through 23 above, was erroneous and misleading.
Do you agree with that?
Secretary MILLER. I addressed this this morning, also.
Let me read you in the quote from the transcript that is in the
SEC report, the final sentence of the report:
We cannot assure that there is no person in our company who does not have bad
standards, who might try to steal from the company or do something else. But we
have found none. None is authorized, and none is condoned by management, in any
sense.

Again, I pointed that out this morning. I do say again that I
believe, in the light of the reviews that had been made and the
review that we had made at the annual management meeting, that
it was reasonable for me to feel that we knew of no such improper
payments. The facts have proved me to be incorrect. And I regret
that.
The C H A I R M A N . NOW, let's go through the officials, and these
were officials who knew about payments in the United Arab Emirates, in Morocca, Ghana, or in Sri Lanka. In one of those four
instances. These were: Edwin Ducayet—what's Mr. Ducayet's
position?
Secretary MILLER. He was president of Bell Helicopter for a
number of years; in a transition, management change, served as
chairman for a while. His successor in the transition succeeded
him.
The C H A I R M A N . He was also on the board of directors of Textron.

Secretary MILLER. Yes. After he left Bell Helicopter, not during
that time. After he retired as an employee of the company, he
became a member of the board.
The C H A I R M A N . Because on page 2 6 of the S E C report, it says:
Beginning in 1971, certain Bell officials, including Bell's president, senior vice
president, vice president for international marketing, participated in promoting a
foreign military sale to the Moroccan Government, knowing that the commissions
paid to its Moroccan agent would be shared in whole or in part with Moroccan
Government officials.

Wasn't Mr. Ducayet a senior official named in the report?
Secretary MILLER. Absolutely. I repeat that when I was at the
press conference, I had not seen this report or these names. But
you're absolutely correct: He was a senior official.
The C H A I R M A N . What do you say about it now?
Secretary MILLER. I think I was incorrect.
The C H A I R M A N . My time is up. I have got some more questions.
Senator RIEGLE. Why don't you continue, Mr. Chairman?
The C H A I R M A N . Let me just tell my colleagues, because my time
is up, anytime they want to come in, I will, of course, yield to them
for 10 minutes or any other amount of time they would like to, to
make that up.
Now, as I understand it, Mr. Secretary—and you have testified to
this this morning—you told your board of directors that it was
unnecessary to have an investigation suggested by the SEC; it
would be disruptive and expensive. And you'd indicated that you
would rather that decision, if you had to do it over again, you
would have done it differently, but that was the decision made at
that time.
Secretary MILLER. That's correct.
The C H A I R M A N . However, your board of directors, in the investigation they finally conducted after you left the corporation, made
the following finding, and I quote—this goes with what Senator
Garn was talking about, but I think it has the force of coming from
your own directors. They said: "No specific policy directives as to
questionable payments were issued prior to 1976."
So, during all of this time when these payments were being
made, there were no specific policy directives, according to the
board of directors investigation.
Secretary MILLER. I am sorry, where is that?
The C H A I R M A N . Regarding questionable payments.
Secretary MILLER. Could you point out where that is, Mr. Chairman?
The C H A I R M A N . It was in the report. I think it's on page 46; 46,
47, or 48, volume 1.
Secretary MILLER. I would like to read that.
The C H A I R M A N . It's on page 4 5 . I beg your pardon. It's in the
italics, about halfway down that paragraph. It says: "However, no
specific policy directives as to questionable payments were issued
prior to 1976."
Secretary MILLER. I, of course, cannot know what other people
read or intended. This is a finding of this special committee, I
understand. Is this correct? This is what
The C H A I R M A N . This is the report of the special committee of the
board of directors of Textron.
69-845 0 - 8 1 - 6

Secretary MILLER. All right. The point is that, as distinguished
from the management guide that laid out the entire policy, which
included the quotes that I have made this morning, that I indicated
this morning, that there was to be full compliance with the letter
and the spirit of the law, that beyond that we were to live up to
the high standards of ethics.
I will have to read the words, to include it with this paragraph:
"It's important to emphasize that this list is by no means inclusive,
because there are many other possible situations for prior cognizance of Textron cooperation officers"—I am sorry, I am reading
the wrong thing, I think.
Here it is. It said: "Textron's policy in this regard is broader and
more encompassing than the mere statement that the laws must be
observed." This is from the policy of the company. "It includes the
responsibility and loyalty as measured by principles or standards of
behavior which, although not codified, represent the ethical sense
of the community."
Now, there was a general policy. This conclusion seems to say
that there were not specific ones. I just don't know if I can answer.
The CHAIRMAN. YOU see, the problem I have is that here you
have directors of the corporation who, of course, are responsible for
a very extensive and vital investigation. Their conclusion was that
there were no policy directives.
Secretary MILLER. There were no specific ones.
The C H A I R M A N . You're right: no specific policy directives.
Secretary MILLER. That's what I was trying to point out. Apparently, they felt that the general statement that you had to do these
things, plus the discussions that I could show you here that have
taken place, did not represent specific statements.
And I think that's true. The "Ten Commandments" undoubtedly
do lay down a certain code of conduct, but no doubt we would add
to that interpretation and specifics, to a great extent, over time.
And it is true that our statements were ones of general compliance,
and we did not have specific lists of "Thou shalt not do this, that,
and the other thing," until this began to surface and we began to
put out additional memos to say, "Take care of this specific problem—this specific problem."
Senator RIEGLE. Mr. Chairman, excuse me. Would you yield at
that point, on this matter?
T h e CHAIRMAN. Y e s .
Senator RIEGLE. I appreciate

your yielding.
In the hearings of 2 years ago, on page 32, we got into this very
matter with Mr. Ducayet, the fellow you were just referring to, a
member of the board of directors. There is a very relevant exchange that goes right to this particular issue, and I would like to
quote it here. It will just take a minute.
I posed a question at that time to Mr. Ducayet, and to the other
man who was at the table, whose name was Mr. Yost, I believe. I
asked this question— and I am quoting the record:
Is there, do you remember, do you recall getting any indication from Mr. Miller,
either at the time he was chief operating officer of the company or whether he
would be in a lower level than that, any indication as to his feelings about bribes or
push money or any of these kinds or sorts of under-the-table arrangements with
people in foreign countries?

77
Did he ever express himself in writing to give you some clear sense of how he felt
about that kind of activity and what his predisposition toward it would be? I might
say, parenthetically, this addresses the period presumably before the time that
there were written procedures here.

Mr. Ducayet replies, and I quote him:
I am sure that Mr. Miller at various time and many times probably has made it
quite clear that he will not tolerate, and Textron will not tolerate, any under-thetable dealings, any shady dealings, any coverup. We were expected to be the highquality company that they procured. We had good policies at that time.
Senator RIEGLE. Let me just stop here. I don't think it's enough to say that you
think he said that. In other words, do you know for a fact he said that? Can you
recall either a combination of times and ways in which it was said that this—or is
this now a presumption on your part?
Mr. DUCAYET. NO, I do not recall specifically what was said. But I am quite sure
that more than one time Mr. Miller has made it quite clear that the policies of
Textron would not tolerate such actions.
Senator RIEGLE. Well, do you think to the extent that you got that tone from him,
did you think you got the tone when he was saying it one way but he was sort of
winking at the same time to let you know that, "Well, that was part of the spoken
code, but that you know over and beyond that, if it took a little bit of wheeling and
dealing to get the contract, that that was okay.
Mr. DUCAYET. NO. It was exactly the reverse of that.
Senator RIEGLE. What was his reputation within the company? Was it as a hardnosed, straight-line, sort of straight-arrow type? Or was it that he was a flexible sort
of a guy, where just about anything that had to go would go?
Mr. DUCAYET. NO. Mr. Miller was straight-nosed—he turned this into straightnosed—if you want to call it that. He would never tolerate deviations or any
dealings that were other than the policy of the company.
Senator RIEGLE. DO you know of any situations where he personally or through
his involvement turned down a sales opportunity someplace where there was some
kind of an underhanded component to it? Do you know of any?
Mr. DUCAYET. I know of no such question ever having been brought to him or of
his having turned it down.

And it goes on in this vein. I just thought it would be helpful to
put that in the record at this point. Also for others who want to
follow this thoroughly there is a very long, exhaustive committee
record from 2 years ago that bears on everything that's been talked
about today.
And I thank the chairman for yielding.
Secretary MILLER. Mr. Chairman, may I just take a second?
The C H A I R M A N . Yes, of course.
Secretary MILLER. The reason I was being careful in how I responded to your question is, I wanted to see specifically how this
referred to it, you know, in this whole area that developed. There
are special words of art. The terms "illegal, improper, and questionable payments" became the way in which this was identified.
That's why I was hesitating, because I think what they're saying
here, there were no specifics about that kind of "questionable
payment" that we're dealing with, in this sense. There were many
other specific directives about not receiving kickbacks or gratuities.
But in terms of this sort of thing, I suspect this committee is
right. I don't know of any case where we've set it out specifically as
distinguished from general guidelines.
I just wanted to be sure I interpreted that correctly.
The C H A I R M A N . Let me pursue that, because they go on to say—
this was in 1976—that "Even after that, the next words are,"
Textron did not have an effective monitoring program to insure
"that specific policies were communicated and complied with
within the divisions."

Now, Mr. Secretary, you, I think, highly competent, and you a
seasoned manager now and you were a seasoned manager then.
You weren't a babe in the woods. You'd been president of this
corporation since 1960, and you brought it along very vigorously
and you knew what was going on.
How could you expect a no-bribery policy to be effective if, as
your directors found, you issued no directives on bribery until 1976,
and even then you established no monitoring system, according to
their findings—this isn't my conclusion—to see that it was working
and that your dealers out in the field understood it?
Did they have any basis at all for complying with the so-called
no-bribery policy?
Secretary MILLER. Mr. Chairman, you've now changed "questionable payments" to the word "bribery." You use the word "bribery"
then you're talking about violation of law. And we had very explicit rules that laws would not be violated.
The CHAIRMAN. Let me just interrupt for a minute there. It was
not a violation of the law until we passed our bill, which I authored
last year.
Secretary MILLER. Payments overseas to certain countries may
not have been illegal, but bribery is the payment of funds to induce
action which is illegal.
The CHAIRMAN. I am talking about foreign bribery, which was
not illegal.
Secretary MILLER. I know we get into semantics, but if you go
back to "questionable payments" and put it into context, you're
absolutely correct. And as I said this morning, in hindsight, my
decision to rely upon the talking and working through levels of
management that included principally corporate officers and division presidents, turned out to be inadequate.
This conclusion that it wasn't getting down the line is true, and
it is what I mentioned this morning, in which I said, in hindsight, I
should have done more and could have done more to make sure
that the corporate office did carry it out.
The C H A I R M A N . I appreciate that, Mr. Secretary, but it appears
that you did very little.
Let me just quote again, page 4 of the SEC staff report:
The evidence gathered by the staff showed that several salesmen traveled overseas and were aware of questionable activities, but were unaware of any such policy
statement and that there was no formal mechanism for distributing the memorandum to Textron employees at all levels.

That was the memorandum you promulgated in August of 1976,
entitled "Standards of Conduct: Policies for Representatives,
Agents, Consultants, or Distributors." This is page 4 of the SEC
report, where they say that there was no formal mechanism for
doing anything about it. It looks like it was boardroom rhetoric.
Secretary MILLER. I don't think we're talking about the same
issue. There was a procedure. There was a communication. But
when you read the words—I am going to have to find where you
are now. "Distribute at all levels," that is true, as I mentioned this
morning. We had a method of distributing very large numbers of
these policy directives. We had a system that put very high responsibility on division presidents to disseminate information within
their divisions. And it was inadequate.

It's the same point, though; it's a repeat of the same thing.
The CHAIRMAN. That may well be. But it appears, then, that this
policy, even though enunciated in 1976 in your August 1976 memorandum, was not distributed to the men in the field who would be
a part of this payment, would be involved in it. They didn't know
you had that policy.
Secretary MILLER. Let's look at the August—I guess we're talking
about the same directive. The August 1976 directive required that
every new agreement with a sales representative, agent, or consultant, and any renewal of existing agreements, would require a
certain clause where we would bind up by contract a representation on the other side that none of the commissions would be
diverted or used for any improper purposes.
Now, that isn't for a salesman to do; that is for those who
approve and enter into dealer agreements. So that particular
memo was requiring top management to get these clauses into the
contract. The salesmen work only after the contracts were in
existence.
I do admit—and I do not want to either underdo or overdo the
restatement of what I said this morning—the system was not adequate to get it down to all levels. And I agree with that.
The CHAIRMAN. Well, what happened was, as you've indicated, in
case after case after case—in 14 cases— these bribes were paid, and
it would appear that the people involved in some of these cases did
not know that that was against the policy of the corporation. They
were swimming in a sea that was polluted, as you pointed out. This
was something which was done by many other firms at the same
time. So, I would think it would be an assumption that, absent a
positive, clear-cut enunciated policy that people in the field thoroughly understood, that this kind of activity was going to go on.
Secretary MILLER. I believe at the time that it didn't take any
special instruction for people to know that it was wrong to bribe.
The CHAIRMAN. On page 11 of the complaint, it's asserted by the
SEC that in the course of business that they describe there was
failure to disclose by Textron in connection with—at least Textron/
Bell, I should say—in connection with at three contracts Textron/
Bell made false and misleading representations to the U.S. Government, as follows:
"Textron/Bell falsely and misleadingly represented to the U.S.
Government that no payments were being made in connection with
the Ceylon transaction."
Do you know anything about
Secretary MILLER. That's the same transaction.
The CHAIRMAN. It's the same transaction commented on. I am
talking about something different now. I am talking about falsely
representing to the United States that no payments were ever
made.
Secretary MILLER. Apparently—I don't know anything about it—
but apparently, not only did the improper payment get made,
which I think was disguised and hidden from the U.S. Government—this was probably foreign military sales, as I recall, in
which case it would have required not only that it be handled
properly, but that it be disclosed to the U.S. Government.

The CHAIRMAN. The next example says Textron/Bell falsely represented to the U.S. Department of Defense the nature of its agreement with its Moroccan sales agent in connection with the Moroccan sales transaction.
Secretary MILLER. I did not know about that. I read the report
and it appears to be improper handling and paying back agreements, all of which were improper and contrary to policy at the
time.
The CHAIRMAN. The next instance was Textron/Bell falsely represented to the U.S. Export-Import Bank that there was no discount allowance, rebate, commission, fee, or other payment in connection with the Ghanian transaction.
Secretary MILLER. That's the same one we've gone over.
The CHAIRMAN. Here was a case where the Export-Import Bank,
they should have accurate representations. They didn't have it.
Secretary MILLER. That 3 0 0 , 0 0 0 being diverted was very, very
bad, sir.
The CHAIRMAN. NOW, it is not only a matter of the payments
with respect to Colombia. The next allegation is that Textron/
Bell's employees altered documents in Textron/Bell's Colombia
files in an attempt to conceal and falsely document the improper
nature of the Colombian payments.
Did you ever know about that? Was that ever called to your
attention?
Secretary MILLER. NO, sir, it looks like these transactions are
broken down into two or three components and they're repeated
and it looks like that transaction not only had an improper payment, but then some effort to cover.
The CHAIRMAN. Then there was false recording and false documentation with respect to the Dominican Republic payments or
commissions to a sales agent who had no involvement in the underlying sale. Any knowledge of that?
Secretary MILLER. I had no knowledge of that.
The CHAIRMAN. Then Textron either false reported or did not
make and keep books, records and accounts which actually reflected the true nature and disposition of most or all of the commissions
paid by Textron, and Textron/Bell false recorded the payments to
the sales agent for Ceylon as paid pursuant to a consultant agreement, under which no services were performed.
Secretary MILLER. I had no knowledge of that, sir.
The CHAIRMAN. On page 13 of the complaint, item 3 6 , it says
that, although reports filed by Textron purported to accurately
describe the operations and the financial conditions of Textron and
its subsidiaries, the reports were false and misleading and omitted
to state material facts necessary to make the statements made
therein not misleading regarding the practices of at least six Textron divisions of overbilling foreign purchases or their products
whereby Textron adjusted inflated invoices and omitted the
amounts overpaid to the purchaser or applied the amount overpaid
against the purchaser's account with the division.
Were you aware of that?
Secretary MILLER. I'm going to have to elaborate on this. I'll
have to check each of the six, because you'll remember, Mr. Chairman, that this subject came up in my hearings in 1978.

The CHAIRMAN. It did indeed. I was going to ask a question
relating to that.
Secretary MILLER. What happened at that time, as I recall, is
that in connection with these affirmative statements that we required, a number of divisions had indicated questions about certain
of their practices which I felt were bad practices. So I issued a
directive that these kinds of overbillings should not be followed.
We discovered as a result of that directive several cases where
they had been done. They were corrected. And I believe I outlined,
I thought, five at the time I was before this committee. My information about them was obviously obtained as the result of those
hearings, and some of them were still in investigation by our
auditors. I don't know if there have been one or two discovered
since. But it would be the same class. It would be ones in which I
had issued instructions that it not be done. And I think that there
were a number of them that were being surfaced and cleaned up as
the result of my directive in 1977.
The CHAIRMAN. Let me go back to that hearing. During your
confirmation hearings, you indicated that the practice of overbilling of accommodation payments, and I quote—this is on page 211
of the hearings—"is perfectly proper." You said you did not consider them improper, illegal or questionable.
Now, let's examine the overbillings first. The SEC found testimony from your officials and your records that Textron overbilled
customers and agents $1.3 million over 8 years. The SEC says that
Textron recognized the purpose of these overbillings was to evade
taxes and currency regulations in many cases.
So that, first, let me again—you may have responded to this one,
but let me make sure that you did. When did the practice of
overbilling by Textron first come to your attention? Was it in the
hearings or was it before that?
Secretary MILLER. The overbilling?
T h e CHAIRMAN. Y e s , s i r .
Secretary MILLER. No; some

of them had come to my attention
before because of the process I had already started.
May I take your time, Mr. Chairman, to call your attention to
the directive I issued in May 1977 that said that these practices
were not proper for Textron, even if legal or allowable, and pointed
out that even if they were legal, they could be used to avoid taxes
or exchange controls, and I thought it was unwise to have that
possibility open.
So I had raised that issue directly in the company. I'll have to go
back and look at page 211 and read the context in which we were
talking. I think my context at that time was to point out that there
may be cases where overbilling is legal and proper, there may be
cases where they can have these abuses which I had in my memo
to the company; but regardless of whether they were legal or
proper, I think my testimony says that I do not like the practice, I
do not condone it, I would not want it to be used at Textron.
Therefore, we were in the process of making sure that this was not
done.
So we'd already surfaced this.
The CHAIRMAN. My problem, Mr. Secretary, I think is a matter
of timing. When you appeared first in February was when I be-

lieve, or during that period, when you indicated that the combination payments were perfectly proper. Later, on May 12, 1977, you
made that statement against overbilling, as I recall.
At any rate, when did the practice of overbilling by Textron first
come to your attention?
Secretary MILLER. Oh, it would have been on the basis of just my
recollection, and I'm not absolutely sure of this. My memo was
issued in May 1977, and I think it followed fairly promptly, after
first coming to my attention.
I responded by taking this action to require that these practices
be eliminated or avoided.
The CHAIRMAN. And when did you become aware, either in
theory or practice, that overbillings could be used to evade taxes
and currency regulations?
Secretary MILLER. That was my own general knowledge of how
the world works, because obviously an overbilling means that a
foreigner, in this case foreign or domestic, is being charged more
than the normal price.
The CHAIRMAN. That's what I have so much trouble with, that
statement on page 211 that you made that they were perfectly
proper, overbillings and accommodation payments were perfectly
proper.
Secretary MILLER. Yes. I was going to say, you have to read the
whole thing in context. It says: "Is it a clearly unethical practice?
No, sir, it's often, in an international transaction, for the convenience of maintaining credit balance."
That's true, there are perfectly legal forms of it. I think the
problem is to take one sentence. I think if you read the whole
thing, I was pointing out there are cases where it's legal and there
are cases where it can be abused. But whether it's legal or illegal,
we were not going to do it under the new policy I had issued.
The CHAIRMAN. Did you ever personally conduct an investigation
into overbillings or request that such an investigation should be
made?
You made the statement, and you made it very clear, in May of
1977 that they were wrong.
Secretary MILLER. Let me tell you what. Let me just review my
recollection. You recall that we talked this morning that in connection with the audit of the 1976 accounts we required affirmative
statements from some 1,100 employees as to the absence of certain
kinds of transactions.
In the course of that audit, as I recall, two or maybe three
situations arose where the divisions asked whether this kind of
transaction—and I can't remember whether they were overbillings
or accommodation payments—were proper. Our response was, at
least my response and the company's response was, well, whether
legal or not, we don't want to do it. And we issued a directive to
make it clear to everyone.
And then there was a followup investigation of all transactions,
and there was a followup investigation in the following year of
some others, and we were endeavoring, through the statements of
the policy, to surface any such things and to investigate them and
put them on the right track. That's the context I think in which
this should be put.

The CHAIRMAN. Mr. Secretary, one of the most troublesome aspects of this whole investigation and one of the reasons why there's
still such a serious credibility problem is the fact that 11 officials of
Textron invoked the fifth amendment and refused to testify about
matters important to the SEC investigation of Textron. Until we
know the full story on that fifth amendment procedure, it's hard to
know who communicated what to whom and who knew about what
was going on and who didn't know.
So let me go over each of the individuals and see if we can make
some progress in this direction. These individuals are Jack Reardon, Frank Sylvester, Ormond Moore, Robert Fitzsimmons, Rex
Marion, Gene Autry, Robert Caster, Mr. K-u-y R-i-m—I guess that's
Kuy Rim—Brian Werford, Andrew Bogle, and David Einhorn.
Let me ask you specifically, did Jack Reardon ever discuss any of
the bribes of foreign officials with you?
Secretary MILLER. NO.
The CHAIRMAN. Any information about the bribes or questionable payments?
Secretary MILLER. He was head of the tax department in Providence. I can't imagine why he would be involved in any way in
those.
The CHAIRMAN. Did he ever discuss destruction of documents
with you?
Secretary MILLER. NO. Destruction of documents; you mean deliberately? Documents—if you're going back to the failure to retain
documents in the DOD entertainment
The CHAIRMAN. Did he discuss that?
Secretary MILLER. I don't remember him discussing it. But everybody talks about that as destruction. That's not destruction. That's
just failure to retain.
The CHAIRMAN. Did he write you a memorandum on that subject?
Secretary MILLER. It was a memorandum that we talked about
this morning and put in the record. And I had commented on
those.
The CHAIRMAN. Did Frank Sylvester ever discuss any of the
bribes of foreign officials with you or give you any information
about the bribes?
Secretary MILLER. NO; he did not.
The CHAIRMAN. And Mr. Sylvester, his title?
Secretary MILLER. He was vice president for international sales
of Bell Helicopter.
The CHAIRMAN. Bell Helicopter?
Secretary MILLER. Yes.
The CHAIRMAN. What matters did Mr. Sylvester discuss with
you?
Secretary MILLER. Mr. Sylvester would not normally be in my
reporting chain. But when I went to Bell Helicopter several times a
year for business reviews, I would say probably twice a year, he
would have been in briefings where he would brief on the outlook
for international markets, where sales were going, what models
were required, and discussion.

I may have seen him also, perhaps if I attended sales conferences, which I did from time to time, or attended the Paris Air
Show every other year, I would see him.
The CHAIRMAN. What were Mr. Sylvester's responsibilities?
Secretary MILLER. He had responsibility for international sales
at Bell Helicopter.
The CHAIRMAN. Would he be in a position to know more about
this than most would?
Secretary MILLER. I said his area of responsibilities—I have no
personal knowledge that he knew.
The CHAIRMAN. Why wouldn't it have been very vital for him of
all people to be most fully aware, in conversations with you, of
your policy on questionable payments?
Secretary MILLER. I can tell you categorically that he must have
known about these policies, because I discussed them before those
management groups frequently. He had to know of them.
The CHAIRMAN. Did you discuss it with him specifically?
Secretary MILLER. I discussed it with the management group at
Bell Helicopter. In my opinion, he would have to know the policies,
and he also would have to have a copy of the management guide,
unless somebody just completely failed to distribute that, as he was
one of the persons who would have to sign the kind of statements.
The CHAIRMAN. Who did Mr. Sylvester report to?
Secretary MILLER. He would have reported to probably—from
different times, there may have been different assignments. But I
would think probably to Mr. Weichsel, who was the senior vice
president.
The CHAIRMAN. The next individual is Mr. Ormond K. Moore.
What was his responsibility?
Secretary MILLER. The name I have is Alfred O.K. Moore. That's
the same one. I think I have met him. He's listed as being in the
international sales area. I am sure I have met him, but I am really
not well acquainted with him.
The CHAIRMAN. He also took the fifth amendment. Did he ever
discuss any of the bribes with foreign officials with you or give you
any information about them?
Secretary MILLER. NO. If I ever spent any time with him, it
would be infrequently.
The CHAIRMAN. Robert Fitzsimmons. Do you know him?
Secretary MILLER. I don't know him that I can remember.
The CHAIRMAN. YOU don't know him?
Secretary MILLER. A S far as I know, the name doesn't ring a bell.
The CHAIRMAN. He was the regional sales manager for Europe.
Secretary MILLER. I don't recall him.
The CHAIRMAN. He took the fifth amendment. Did he ever discuss any of these bribes of foreign officials with you or give you
any information about the bribes?
Secretary MILLER. NO, he did not.
The CHAIRMAN. Specifically, did Rex Marion ever discuss any of
the bribes of foreign officials with you or give you any information
about the bribes and questionable payments?
Secretary MILLER. Mr. Chairman, the name I have listed is Roy
Marion. I don't have a recollection of knowing him, and he did not
discuss anything with me.

The CHAIRMAN. Mr. Marion was the man who saw the document
on Ghana that was destroyed the day after I had requested it.
Secretary MILLER. That still means nothing to me and was news
to me when it happened, when I found out about it, as you did,
later.
The CHAIRMAN. The next is Gene Autry. I take it that's not the
cowboy?
Secretary MILLER. If he's the cowboy, I don't know that he would
need any foreign payoffs. He'd have enough money. [Laughter.]
Secretary MILLER. But I do not recall knowing him. He did not
discuss with me any such matters.
The CHAIRMAN. I understand that Mr. Robert Caster was commissioned payments at Bell. Did he ever discuss any of the bribes
of foreign officials or give you any information about the bribes?
Secretary MILLER. Mr. Robert Caster, if he's the correct person, I
believe worked in our corporate office for a time as group comptroller, as I recall it. He moved down. I believe he was a person I did
know. He never discussed any such things with me. But I did know
him.
The CHAIRMAN. YOU say Mr. Caster worked with you?
Secretary MILLER. He worked in the Providence office as a group
comptroller, underneath the corporate comptroller.
The CHAIRMAN. Did he have any direct responsibility to you?
Secretary MILLER. NO, it was not direct responsibility. Group
comptrollers work closely—when he was in Providence, he was a
resource for group vice presidents in working with their divisions,
and when we went on business reviews group comptrollers usually
accompanied us and we had discussions on matters involving their
divisions. They usually went with us. So there was frequent contact. But he was not reporting to me.
The CHAIRMAN. Our information may be wrong.
Secretary MILLER. Maybe it's the wrong person.
The CHAIRMAN. It is that he disbursed commission payments.
Secretary MILLER. I'm sorry. He was first in the corporate office
and transferred to Bell Helicopter, if I'm thinking of the same
person. And then you describe a duty that he had in Bell Helicopter, and that could be.
My point of pointing out to you his former corporate assignment
was so that you know that I did know him and had many, many
contacts with him. I did not know he'd taken the fifth. He's not
even on my list. And he's never discussed foreign payments or
disbursements with me that would be improper.
The CHAIRMAN. The next employee who took the fifth amendment was Mr. Kuy Rim, K-u-y R-i-m. I understand he wasn't an
employee, he was a Korean agent. Did you know him at all?
Secretary MILLER. I don't know him at all and I don't even have
him on my list. He took the fifth amendment and I don't believe he
was an employee.
The CHAIRMAN. At any rate, you never discussed any of the
payments with him?
Secretary MILLER. No, sir, I did not.
The CHAIRMAN. The next man I have here who took the fifth
amendment was Brian Werford, a Bell dealer in Indonesia, where a
questionable payment was made.

Secretary MILLER. The name I had was Brian Woodford. I do
know him. When I traveled around the world developing our international business about 1970, I went through Singapore, where he
was the manager of the Bell Helicopter dealers. It's part of a larger
British corporation. He was a local manager and I met him.
So I had discussions with him. That would have been in 1970.
The CHAIRMAN. When you met him, was it simply a brief meeting? Did you have any opportunity to have a discussion with him
at all on business?
Secretary MILLER. My reason for being in Singapore was to begin
to explore the possibility of Far Eastern operations for other operations in Textron. He was about the only person in Singapore who
had contacts, and he was just a resource to show me around
Singapore and tell me where the industrial sites were. So I spent a
day.
The CHAIRMAN. Did you discuss any questionable payments with
him?
Secretary MILLER. NO, I did not. I probably had dinner with him.
On that occasion, I think I was in Singapore 2 days.
The CHAIRMAN. The next person to take the fifth amendment in
the investigation was Andrew Bogle, B-o-g-l-e, is the way I have it
spelled. That was Bell's agent in Jamaica.
Secretary MILLER. That I have no knowledge of and have never
discussed anything with him. As far as I know, I've never met him.
The CHAIRMAN. The next is David Einhorn. I guess he's the last
one. He was the intermediary in Colombia.
Secretary MILLER. A S far as I know, I don't know him and never
discussed any such payments with him.
The CHAIRMAN. NOW, according to the S E C report, during 1 9 7 1 77, Textron's accommodation payments totaled $13 million. Accommodation payments, as I understand it, are payments or dealer
commissions made to accounts in countries other than where the
dealer does business. And the accommodation payments can assist
the dealer in tax fraud in the country of residence.
Indeed, Mr. Rim, a Korean Bell dealer, was assisted in this
respect by Bell because Rim did not want a commission confirmation sent to Korea, as this would better enable Korea to audit it.
Why did Textron, under your leadership, as a policy until 1977
make accommodation payments?
Secretary MILLER. I think, Mr. Chairman, I tried to indicate that
accommodation payments were not known to me to exist. When
they began to be possibilities as a result of our affirmative action
to obtain statements, I directed that they not be utilized and that
they were not acceptable practice. Therefore, we began a process to
make sure that our auditors and our comptrollers and our personnel do this.
And we did not carry out business in that form.
I think accommodation payments are also like overbillings. They
can be legal or they can be abused. But in either case, I did not
want the temptation, so I did not want us to do them.
The CHAIRMAN. Then in 1977, as you have testified, you promulgated a policy to prohibit accommodation payments.
Secretary MILLER. Yes, sir.

The CHAIRMAN. But you excluded payments made by check at
Bell offices. Thus, after the new policy, Rim was paid $430,000 by
check at Bell and assisted by Bell in opening a checking account at
a Texas bank.
Is that indicated even under your new policy, your new policy
that tax fraud in foreign countries was accommodated?
Secretary MILLER. My policy continued to allow—I don't recall
that; I am trying to find that in the memorandum.
The CHAIRMAN. Page 83 in the S E C report.
Secretary MILLER. Page 83?
T h e CHAIRMAN. Y e s , s i r .
Secretary MILLER. I will

try to track it in my memo because I
don't recall there was an exception like that. Maybe there was.
The CHAIRMAN. Footnote 1.
Secretary MILLER. Footnote 1.
The CHAIRMAN. The top of the page.
Secretary MILLER. Oh, I am sorry. Yes.
The CHAIRMAN. In an August 26, 1977, letter to dealers, Bell
retained as one permissible means of payment the issuance of
checks.
Secretary MILLER. I think that was not my policy, Mr. Chairman.
It says at the top that when Bell ultimately took steps to implement my directive, they retained as one permissible means of
payment the issuance of checks. That was not my policy. They
decided to implement it that way, as I read this.
The CHAIRMAN. It was a policy, then, that could be violated.
Secretary MILLER. It wasn't a policy that could be violated. I
mean, any policy can be violated. But it was certainly not my
intention, as I recall, to have such an exception. And I would be
happy to stop, if you would like, and read through the whole, but
just read—I don't mean read aloud, but just read through the
whole memo myself and see if I can find any such words. But I
don't remember any such exception.
The CHAIRMAN. What steps did you take to make sure that your
policy was carried out?
Secretary MILLER. A S I said, we were starting then not only to
make everyone aware of this, but we continued the process of
requiring affirmative statements. It seems to me that no such
policies could have been established at Bell without it being a
fairly responsible official.
The CHAIRMAN. Does that indicate a failure to follow up on your
policies?
Secretary MILLER. I don't know. If this was done immediately, we
may not have had a cycle where we could have caught it. One cycle
of affirmative action to catch these policy matters.
To implement a policy, if someone doesn't do it just right, you
have to go through a cycle of disclosure before you pick it up
directly.
The CHAIRMAN. Let's examine the practice of accommodation
payments. During your confirmation hearings—oh, I beg your
pardon. Did you want to finish anything? •
Secretary MILLER. I hope you were satisfied with that, because,
you know, you will instantaneously collect things and you'll go
through a cycle of payments.

The C H A I R M A N . Let's examine the practice of accommodation
payments. During your confirmation hearings I asked about secret
Swiss bank accounts. You responded there were no secret accounts
but that there were Swiss accounts because, as you said,
When you operate a business in Switzerland, Senator, you deposit your money in
Swiss banks. If you have subsidiaries, you sell products and carry on business in
Switzerland.

In that respect, Mr. Miller, wasn't that a naive or misleading
response to my question, considering that Textron paid off foreign
officials in three countries—Morocco, Oman, and Iraq—on five occasions between 1971 and 1977, amounts averaging $100,000 or
more, each by transmitting these payments directly to Swiss accounts, which, contrary to your assertions, were not open accounts—private personal accounts of the Government officials involved.
Please also consider in your response that SEC testimony indicates that Textron officials knew or had reason to know that these
sums would end up in the hands of Government officials.
Secretary MILLER. I hope that in my prior testimony I did not—
and I certainly didn't intend—to mislead you, Mr. Chairman. I
repeat today: I do not know today of any secret Textron bank
accounts in Switzerland. It is apparently true, from the evidence,
that disbursements were made to bank accounts of other people,
and I do not gather, from what you have told me, that they were
secret, but, you know, merely disbursements to accounts of other
people.
That should not have been done. I wouldn't for a moment defend
them under our policy. But you have to distinguish the bank accounts of third parties to whom we paid money, which, in this case,
was improperly disbursed to them, as from Textron. And I do not
believe—and I don't believe it is true your investigation has disclosed any secret bank account of Textron, unnumbered bank account. I may be incorrect and there may be something in this
record I haven't found, but I am not aware today of such a secret
account.
The C H A I R M A N . These were accommodation payments to agents
in third countries.
Secretary MILLER. But they weren't secret accounts. You were
reading from the prior testimony where I said that Textron had no
secret bank accounts.
The C H A I R M A N . When I asked about it, you said that there were
no secret accounts.
Secretary MILLER. Of Textron.
The C H A I R M A N . The payments were made to secret accounts.
Secretary MILLER. NO, they weren't secret; were they?
The C H A I R M A N . They were private personal accounts. If you tried
to find out about them, they won't tell you.
Secretary MILLER. If we paid disbursements, due to Senator Proxmire, in his account, that isn't secret. It has his name on it, and it's
in the bank.
The secret account is when you have a number; you don't disclose the name of who owns i\ and ft Jkhidden from
The C H A I R M A N . If an agent is in 1ST m take Morocco.
Secretary MILLER. And YOU P^Y him IN Switzerland.

The CHAIRMAN. What's the purpose of paying him in Switzerland, except it goes to a private personal account?
Secretary MILLER. Payment outside Morocco is perfectly wrong.
Perfectly wrong.
The CHAIRMAN. That was what was done on three occasions.
Secretary MILLER. It was paid into a named account. I don't
mean to quibble with you, but it's a wrong payment but it's wrong
for the reason that it shouldn't have been paid in Switzerland. It
wasn't wrong in that it was secret. It was secret in Morocco, but
not in Switzerland.
It was wrong. Let's be sure we understand that.
The CHAIRMAN. NOW, in this testimony, there are reasons for
both sides, of course, but there is a feeling that on no occasion—
and this has been repeated by me and by others—did the SEC find
or the independent directors find or the committee find that you
had knowledge of payments.
Now, there is one where you had knowledge, but it was a different kind of a thing. I understand in the SEC reports that Mr.
Atkins assisted a General Toufanian's son, who was having difficulty in obtaining a medical residency in Texas, which he did in
November 1973. Atkins said he discussed the matter with you
directly. He also is said to have discussed a contribution by Textron
to the hospital with you. According to the report, Textron contributed $100,000 to the hospital in April of 1974.
And then subsequently, General Toufanian's son was admitted.
General Toufanian, for those who aren't aware of who he was, was
the minister of war in Iran, and, of course, he had immense authority and he had some influence, along with others, as to the purchase of helicopters.
At any rate, can you explain this situation? Textron's contribution to this hospital appears to have arisen solely because of General Toufanian's son's admission, with Mr. Atkins help and your
knowledge.
Secretary MILLER. Mr. Chairman, I will tell you what I know
about the situation. It's fairly well spelled out in the SEC report.
General Toufanian's son was—what?—an intern, I believe, a
medical student in the Dallas area. I was aware he was there
because I had attended a dinner when General Toufanian was
visiting and his son was present. And Mr. Atkins, I cautioned him
to be sure that we did not do anything other than normal courtesies for friends' children who were in the area, so that we would
never have a chance of being misunderstood.
That is why I believe he told me that he was serving as a
reference for Dr. Toufanian to get into residency. It also shows in
the record that two of my associates seemed to have been present
at a later time, at a disassociated time, when Mr. Atkins mentioned to me that he was being asked to contribute for the company, to make a contribution to the medical foundation in the Dallas
area that included this hospital that you're talking about.
It's reported that my reply was that any such matter should be
taken up separately and on its merits and that's the only way it
could be considered. I don't recall having said that, but it would be
self-serving for me to remember saying it.

So, I just point out that their impression was that I said that if
there was going to be any contribution to anybody it would have to
be solely on the merits.
Mr. Chairman, I want to go ahead and fill in and tell you about
charitable contributions because it's one of the areas which, many
years ago, was an administrative problem, because what happens
in corporations I suppose happens in your family. Everybody
knocks on your door wanting charitable contributions. All your
friends want you to give to their colleges, their schools, their hospitals. That's true of corporations as well as individuals.
And so, to avoid the pressures on senior management to always
be looking at these kind of things, we set up a rather complete
procedure with a separate charitable contribution committee with
personnel who were staffed with a permanent administrator so
that we could review the many, many applications we received so
we could review the budgets that were submitted to the divisions
each year and so we could keep separate from pressure on senior
officers or directors the constant claims upon the budgets of the
corporation for charitable giving.
This record shows that in due course Mr. Atkins did make a
recommendation for a contribution, as you say, of $100,000 over 3
years to this medical foundation. It shows that it came through the
vice president; he approved it and pushed it and forwarded it to the
charitable contributions committee whose job it was to check every
such contribution, make sure that the organization was meritorious, that it was sound, that it was approved, that it was in good
standing, and that it served a charitable purpose that was consistent with our policy, which was mainly to help organizations that
were in areas where we had employees. This all happened.
The next administrative step was to bring it from the charitable—incidentally, I was not involved in any of that—it came to the
administrative committee, which was made up of senior officers
and it was on the agenda. I attended that, and it was approved.
Then it went to the board of directors, to the executive committee,
and was approved.
So, it went through a jillion hurdles, and, as far as I know, in all
those hurdles, it was treated—and incidentally, that foundation
covers a number of very important medical facilities in the Dallas
area which serve a large number of Federal employees. So, it
seemed to be a meritorious situation. It was unrelated to any
reference that Mr. Atkins may have given for Dr. Toufanian, and I
don't see how that could have had any effect on the institution.
I have often given references to friends' children to go to universities, and whether or not I give contributions to the universities is
certainly unrelated.
The C H A I R M A N . All right, sir, let me read from the record, and
then let me briefly specify the facts that make it a problem. This is
on page 94:
On or about December 17 and 18, 1973, Miller and Robert Ames visited the Bell
plant with other Textron executives to participate in a two-day Textron review of
Bell's operations. During this visit, Atkins took Ames and Miller aside to inform
them that a decision had not been rendered by the medical school on Toufanian's
application and that some time in the future, we, Bell, might want to consider
making a contribution to the Southwest Medical Foundation, because I had learned
a little bit about it and thought it was a worthy cause.

91
According to Atkins, Miller replied that " A contribution is something we should
consider at the appropriate time on its own merits." The discussion ended.
In his appearance before the staff, Miller did not recall this conversation.
He goes on to say the medical school approved Dr. Toufanian's application by the
end of December 1973. The contribution was then made in April of 1974 by the
corporation. Atkins learned of Dr. Toufanian's admission. He telephoned Atkins to
thank him for his help.

That certainly seems to be—perhaps it's not a coincidence. How
many contributions of this size did the corporation make to medical
schools?
Secretary MILLER. We made very few of that size, and we never
do it in 1 year. Notice this one was spread over 3 years, because we
wouldn't make that size contribution in 1 year.
Mr. Chairman, the only thing I would say about this is this has
been looked at by both these investigations. The Textron special
committee found no impropriety, and the SEC did not include it in
its Complaint, which would indicate to me that both these investigations concluded that this was not a situation that involved any
impropriety.
The C H A I R M A N . These things are always a matter of judgment.
Secretary MILLER. We have two independent ones looking at it,
in this case.
The CHAIRMAN. I asked you was there any other contribution by
Textron or by Bell to a medical hospital of this size during this
period or in the preceding 3 or 4 years or the following 3 or 4
years?
Secretary MILLER. Let me tell you about Textron's philosophy on
charitable giving. The highest priority was given to United Way
programs in the communities where we had employees and where
we had the most employees got the most contributions.
Second, there was support for education, mainly through scholarships for children of employees and especially for minority children
and matching contributions to encourage employees to give to educational institutions.
There was always a look to balanced support for cultural activities, for medical activities, where you were more likely to see large
capital kinds of contributions than in annual giving. Over the
years we had a large number of contributions to hospitals and
medical systems, usually very erratic. The building program in
Connecticut, we give one there; there would be a program somewhere else.
There were some divisions who gave $1,000 or $2,000 a year to
local hospitals, but mostly medical facilities were periodic capital
funds, sometimes multiyear contributions, as I recall.
I could go on down the list, but those were some of the kinds of
priorities we looked at. And our staff had the duty to make sure we
were getting balance and to make an analysis each year to see
what percent of our contributions were going to what kind of
activity to make sure we were not distorting our purpose of charitable support.
The CHAIRMAN. Was there any previous contribution to this
medical school?
Secretary MILLER. I believe this was the first one.
The C H A I R M A N . Was there anyone subsequently?
69-845 0 - 8 1 - 7

Secretary MILLER. Well, I had left before this one was completed,
I think. Let's see. This one started in what year? 1974
The CHAIRMAN. 1 9 7 4 was the first contribution. 1 9 7 4 , 1 9 7 5 , 1 9 7 6 ?
Secretary MILLER. I don't know of any contributions since then.
That would be consistent with the periodic kind of gifts we give.
The CHAIRMAN. It just seems to me that this is a very interesting
coincidence, that the only contribution to this particular medical
school was when the son of the head of the armed forces of Iran
was applying for admission. As soon as he gets it, apparently that
matter was discussed and called to your attention and within 3 or 4
months after he got admission, the first payment of a $100,000
payment to the medical school was made.
Secretary MILLER. I don't think it's so unusual. I doubt that
anybody had noticed Mr. Atkins as a potential donor until this
happened, and I think he found out that it was a very worthwhile
hospital and several others, a teaching facility, he probably found
it to be meritorious. Undoubtedly, he was encouraged to make a
contribution to someone who solicited, I guess.
The CHAIRMAN. The medical school didn't come to Mr. Atkins'
attention until after Toufanian's son applied for admission.
Secretary MILLER. I think he found out about it, but I don't think
that was the reason for the contribution.
Incidentally, may I say that I understand when that conversation
took place, nobody had accepted anyone. I also understand—I have
been told; I don't know if this is a fact—that there was no chance
of Dr. Toufanian's being accepted, but someone who'd been accepted decided not to come, and he was just fortuitously put into the
slot.
My understanding was they had already turned him down and
that his appointment was only because another person—I have
heard that; I don't know if it's true.
The CHAIRMAN. I'd like to focus on a payment of $ 3 1 0 , 0 0 0 that
was made to a senior military official in Ghana in connection with
a $1.6 million sale of two Bell helicopters to the Ghanian Air Force
in 1 9 7 6 .
We discussed that, but I'd like to get into some real detail on it.
As you recall, the committee was concerned that questionable
payments were made and I asked you in the January 24 hearing to
report back the details—I am quoting now—"as fully as you can on
the transaction and the activities of Bell sales agents in that deal."
You assured the committee that you personally looked into the
Ghana sale and that no Bell Helicopter officer knew of it. "Bell
Helicopter officers themselves had rejected it," you said.
Now the SEC report and the report of the Textron special committee presents evidence in testimony that shows that the report
provided to the committee was neither complete, nor accurate.
The SEC report shows that Bell structured a $300,000 bribe to a
senior military official of the Ghanian Government in connection
with the sale of a $1.6 million helicopter.
Why didn't you insure that the committee was made aware of
the Ghana bribe at the time, especially since the committee specifically asked you about the Ghana transaction?
Secretary MILLER. Mr. Chairman, I'd like to turn, if you'd just
bear with me a moment, to my testimony at that time.

Let me once again say that following the January hearings, my
associates did, as I understood it, put together information for me
on this subject.
I also believe at the time I came back in February, that I reported what I had learned, which was obviously second-hand. And I
believe the context in which I reported to this committee was one
in which the information was incomplete and that it obviously,
therefore, needed investigation, which I assumed would go forward
because several investigations had already started.
I gave the following statement, I think, in response to a question
from Senator Brooke.
Senator, I learned of that situation in the hearing on the 24th
when I looked into the story, which is as follows. I outlined what I
then knew.
At the end of that I said, in my opinion, that was not handled
properly. To my mind, it should have been surfaced through the
top management of Bell and should have come to my attention.
I don't know at this point that anything wrong was done. It was
a strange transaction.
I think it was wrong and I would not approve it. I did not know
of it. I regret and apologize to you that we didn't find that incident
and surface it. We should have.
Going on, on the surface, I don't like it at all. I don't see that
Bell Helicopter people got any benefit from it. But I don't know
why, after we've already rejected the order, they had it rebilled
and accepted.
So I'm saying I don't know yet the answers. But to me, it looks
like it's wrong. And I think that that was the context in which I
was reporting.
But I hope that that was the way that it was understood because,
as I understood it, I could not have in that time have run down the
payment. As I say, outside counsel was still proceeding, as I understood it, to make a deeper investigation.
I did not have all the answers. I was disturbed by it. I apologize
to the committee for not having known about it.
The CHAIRMAN. The SEC report shows that James Atkins, Bell's
president, and Frank Sylvester, Bell's vice president for international marketing, and Theodore Treff, Bell's treasurer, certainly all
senior officers of Bell, all were aware that the Ghana transaction
was eventually approved by Bell and was structured to facilitate a
payment to a foreign government official.
You testified earlier that had a questionable payment to a government official been made, and I quote, "That should have been
surfaced through top management of Bell and should have come to
my attention."
Secretary MILLER. Absolutely.
The CHAIRMAN. HOW do you explain the fact that senior officials
of Bell who reported to you did not bring your attention to the
Ghana bribe?
Secretary MILLER. I don't think that I was given a candid and
full report at the time that I reported to this committee. And I'm
disappointed by it and surprised.
The CHAIRMAN. Why didn't you make sure that the committee
was given full information?

Secretary MILLER. Senator, the purpose, as I saw, of the committee was to examine my credentials. I was absolutely clear and was
able to state to you under oath, as I do now, that I did not know of
that transaction. I was able to state to you that, in my opinion, it
was not properly handled.
I was able to state to you that I did not know why, and it should
have been handled differently.
So I don't know that I ever undertook to do an SEC-type review,
or a special committee type review. I intended to inform you what I
discovered was what I thought you needed to know, that we had an
improper transaction for which further investigation would have to
be put forward to find out who, what, and why.
The CHAIRMAN. When you testified on the Ghana transaction
January 24, 1978, you were requested to report on the Ghana
transaction. And the next day, January 25, a Textron employee
destroyed a document called for by me which showed that a bribe
had to be paid in Ghana to make a sale.
The SEC report says that you did not make any personal inquiry
into the Ghanian transaction referred to at the hearing.
Your testimony before the SEC was that you were too busy
winding up your office as chairman of the conference board and
chairman of the Polish-U.S. Trading Council.
In light of the subsequent facts that we now know about the
Textron bribe in Ghana, how would you rate your response to the
committee's request for information, then?
Secretary MILLER. This one, Mr. Chairman, I just have to disagree. If I had gone to Fort Worth personally and started pulling
out file cabinets, I don't think I could have gotten any more
information.
We had three different inquiries going forward: One by the internal auditors of Bell; one by the chief counsel of Bell; and one by
outside lawyers.
And I don't believe my going forth personally and trying to
interview people would have surfaced any more.
The CHAIRMAN. Why couldn't you pick up the phone and talk to
these people?
Secretary MILLER. I did talk to them and ask them to get the
information for me. The names of people that I did not know were
involved, it would be hard for me to talk with because only now do
I know these people had any knowledge of it.
I did not know at that time who had knowledge of this.
The CHAIRMAN. Well, the logical person would be the president
of Bell or the vice president of Bell.
Secretary MILLER. I did talk with them and they were the ones
getting this information.
You'll find in this record of the SEC, Mr. Atkins got back to Fort
Worth. He called me.
The CHAIRMAN. Here we have the assertion by the S E C that this
man you talked to, Atkins and Sylvester, these two men you talked
to, as well as Treff, all were aware that the Ghana transaction was
eventually approved by Bell and was structured to facilitate payment to a foreign government official.
They knew it.

Secretary MILLER. Senator, I'm not sure, you know, what the
implications are because I had no personal resources to carry on an
investigation of my own, personally. I had no responsibility.
The CHAIRMAN. What I'm getting at is whether or not these
people deceived me?
Secretary MILLER. Yes, I think I did not get a candid report.
The CHAIRMAN. You asked them and they told you something
that was not true?
Secretary MILLER. I don't think that I got a full and candid
report at the time my report was made. I did not think it was false
because my clear indication to the committee was that this was not
yet resolved.
The CHAIRMAN. But it seems to me very puzzling as to why these
people didn't give you a candid report. After all, when your nomination was pending, a vital part of your life, and these people were
your top officials in one of your principal subsidiaries, they should
have been responsible to you to tell you the truth, under those
circumstances, especially.
Secretary MILLER. Perhaps they were embarrassed by the situation. Perhaps they were falsely thinking that wasn't relevant to me
because I wasn't involved in it.
I don't know.
I mean, I was not involved in the Ghana transactions. Perhaps
they were just feeling that it wasn't the highest priority for them.
I cannot explain it. I would mislead you if I thought I could give
you the answer.
The CHAIRMAN. According to the S E C report, Williard R. Gallegher, who was Textron vice president for international—that's
Textron—testified to the SEC that he had reported directly to
Textron's executive vice president frequently discussed business
matters with you.
Mr. Gallegher said that he knew in 1975 that Bell sales agency
for the United Arab Emirates was owned by Dubai's secretary of
defense.
Mr. Gallegher also sent in 1975 a copy of the letter about the
ownership of sales agent, Robert Ames, who was Textron's vice
president overseas for Bell Helicopter and reported directly to you.
Mr. Ames testified that he was concerned in late 1977 about
Bell's United Arab Emirates dealer and possible violation of the
Foreign Corrupt Practices Act.
The SEC report said that Mr. Ames also testified that he told
Tom Soutter, Textron's general counsel, of his concerns. The issue
was raised by Mr. Suiter by other Textron officials in late February 1978.
James Atkins, president of Bell Helicopter, told the SEC that he
was also aware of the problem with the UAE sales agent in February of 1978.
Between 1971 and 1975, about $400,000 in commissions were paid
by Bell to its agents there. It's clear from the SEC report and
testimony that those officials were in close contact with you, did
have knowledge or were informed of the likelihood that the commissions paid on United Arab Emirates sales were going to foreign
government officials.

So let me ask you: Did you ever ask any of those officials whether they knew of payments being made in the United Arab Emirates or any other country by Textron?
Secretary MILLER. The question specifically is did I ask them
about UAE? I certainly don't recall it. I'm quite certain that they
did not inform me of any such knowledge.
It appears from the record that this became something they
became aware of and began to look into.
They did so, I gather, mostly after I left the company, as I read
this.
Is this correct?
The CHAIRMAN. Ames and Soutter were senior officials, were
they not?
Secretary MILLER. Yes, no question.
The CHAIRMAN. Well, they didn't seem to look into it.
Secretary MILLER. I was just looking for the dates when they
found out about this, whether I was with the company or not.
The CHAIRMAN. December 1 9 7 7 . That was after.
Secretary MILLER. The dates I'd have to check, but they did not
discuss it with me. They were senior people. They apparently were
concerned and beginning to look at it, but they did not discuss it
with me.
The CHAIRMAN. HOW do you account for the fact that these top
people with this knowledge, Textron people didn't discuss that with
you?
Secretary MILLER. I'm not sure that I should speculate because I
don't know why. I suppose either because they expected to take it
up in their own channels and correct it, or find out about it, or
clarify it.
I don't know.
It's foolish for me to speculate. I just don't know.
The CHAIRMAN. YOU see, that doesn't seem to square with your
standards that you testified when you appeared before us as follows: "I have insisted that I be fully informed about any question
of ethics that comes up in these matters. I suppose that my associates would say that I have on occasion been too much involved
with details of the business because I consider it essential to be
vigilant. I do not seek to be protected; I seek to be involved so that
I can guide our officers in a way that will protect them from
making mistakes."
Now in view of that, it's hard for me to understand if that is the
policy, why they didn't report this to you?
Secretary MILLER. I think the senior officers you're talking about
maybe—I'm just checking.
The CHAIRMAN. Suiter and Ames.
Secretary MILLER. Found out about it in 1 9 7 8 . The others who
found out about it were probably not in the chain or did not realize
its implication.
I don't know. I agree with you. It is somewhat distressing to me.
The CHAIRMAN. Can you tell us what you know about the United
Arab Emirate payments?
Secretary MILLER. I know nothing about them and I don't recall
having any knowledge about any helicopter sales or payments to
the UAE.

The CHAIRMAN. NOW the SEC reports shows that top Bell Helicopter officials, including president Edmund Ducayet, Hans Weichsel, who was Bell's senior vice president, Frank Sylvester, Bell's
vice president for international markets, knew from at least 1971
that the commissions paid on military sales from Morocco would be
shared with Moroccan Government officials.
About $ 1 0 0 , 0 0 0 was paid to Bell's Moroccan sales agent in 1 9 7 4 ,
the SEC said.
Now here's another case where top Bell officials, including Mr.
Ducayet, who reported directly to you, knew of questionable
payments.
Did you play any role at all in the Morocco sale?
Secretary MILLER. NO, sir.
The CHAIRMAN. Did you ever ask any of the officials whether
they knew of any payments being made to Morocco?
Secretary MILLER. Well, Senator, that kind of question, the
answer is "no." But I'm afraid it's not the usual way to proceed, to
list a series of countries and ask someone if they know.
The reverse is usually the way I proceeded. We must see that we
have no improper payments and you must inform me if you know
of any.
That would be ones in any countries. I don't think I ever specifically asked anyone, do you know about Morocco, do you know
about here, do you know about there?
The CHAIRMAN. HOW do you account for the fact that Mr. Ducayet didn't discuss this with you? Did you mistrust him?
Secretary MILLER. I can't account for that.
The CHAIRMAN. Remember, when you testified last time, you said
that you hired trustworthy executives, ones that you could rely on.
Secretary MILLER. I remember that I did so.
The CHAIRMAN. What happened in these cases?
Secretary MILLER. I think that these statements in the SEC
report are ones that are new to me. I saw them for the first time
last Tuesday.
As I told you, when I read this, I was very distressed. These
executives were long serving with Bell before they came to Textron. I believe them to be reliable and I would want to hear their
side of the story before I would judge otherwise.
But it did disturb me to read this.
The CHAIRMAN. Let me ask you this: If you were still the head of
Textron, what would you do with these people? Would you fire
them?
Secretary MILLER. Well, Senator, if the cases of breach of our
standards in terms of improper payments were demonstrated to my
satisfaction as being correct, I would feel that that was cause for
disciplinary action, depending on the degree of involvement and
knowledge.
It would include discharge.
The CHAIRMAN. Mr. Secretary, Bell paid $ 2 7 5 , 0 0 0 and $ 2 0 0 , 0 0 0 in
1975 and 1976, respectively, to Omani Government officials in connection with the sale of helicopters to that country.
The SEC report presents evidence that Bell officials knew that
the sales agent Bell had in Oman was operated by government

officials and that questionable payments to government officials
had to be made if the sale was to be completed.
Those Bell officials included D. Mitchell, Hans Weichsel, Bell's
senior vice president, Frank Sylvester—Mr. Weichsel and Mr. Sylvester were both senior Bell officials in contact with you.
Did Mr. Mitchell, Mr. Weichsel, and Mr. Sylvester ever discuss
with you the questionable payments made in connection with the
Omani sale?
Secretary MILLER. NO, sir, they did not.
The CHAIRMAN. Did you ever discuss with any of these officials
questionable payments made in Oman?
Secretary MILLER. NO, sir.
The CHAIRMAN. What do you know about the Oman sale?
Secretary MILLER. I was not familiar with it at all.
The CHAIRMAN. Who did Mr. Weichsel report to?
Secretary MILLER. In the time frame that we're talking about
here
T h e CHAIRMAN. 1 9 7 5 - 7 6 .
Secretary MILLER. Mr. Atkins, the president.
The CHAIRMAN. He was a senior official, right?
Secretary MILLER. Very, yes. He was a senior vice

president, as I
recall
The CHAIRMAN. In 1 9 7 3 and 1 9 7 4 , Bell paid a total of $ 4 0 , 0 0 0
that went to top officials in the government of Sri Lanka in connection with the sale of Bell Helicopters to that country.
The SEC report states that Hans Weichsel, Bell's senior vice
president, approved these payments to Sri Lanka and was instructed to approve these payments to the Sri Lanka Government officially.
Weichsel, as I have just said, is a top Bell official with whom you
were in contact. Did Weichsel or any other Bell official ever discuss
with you the question of payments to Sri Lanka officials?
Secretary MILLER. NO, sir, they did not.
The CHAIRMAN. Did you ever discuss with Mr. Weichsel that
questionable payment?
Secretary MILLER. NO, sir.
The CHAIRMAN. HOW much contact did you have with Mr.
Weichsel?
Secretary MILLER. Mr. Weichsel was quite a senior person at
Bell, and I would say that my visits to Bell Helicopter—it's a very
large division. Perhaps three times, maybe more times a year or on
other contacts. I would see him on business reviews, business sessions that often, and have considerable discussions with him and
reviews of business strategy.
He had sort of an overall look at the strategy on product development and overall marketing and was a very key person.
The CHAIRMAN. NOW the S E C report says that Bell paid $ 6 0 , 0 0 0
to the Dominican Republic Government officials in 1977 who were
responsible for clearing the sale of Bell Helicopters to that country.
D. Mitchell, Bell's sales manager, who reported directly to Mr.
Sylvester, Bell's vice president for international marketing, Mr.
Sylvester, testified to the SEC that he understood that a payment
would have to be made to government officials in connection with
the purchase.

Could you tell the committee what you knew about the questionable payment to the Dominican Republic, if anything?
Secretary MILLER. I knew nothing, sir.
The CHAIRMAN. Mr. Sylvester was the head of Bell's international marketing department. What were your contacts with Mr.
Sylvester?
Secretary MILLER. Yes, he's the one I mentioned a moment ago.
I would see him less frequently than someone like Hans Weischel. But he would be at a number of our meetings during the year.
Not always, because sometimes our meetings would discuss research or engineering or other areas.
But any time he came in to review overall outlook or 5-year
plans, the international marketing would always be a part of it.
They would have a place in the program, and he would report to
and inform me.
I would also see him, if I attended, as I occasionally did, sales
conferences or airshows, where we demonstrated our aircraft.
The CHAIRMAN. Would you classify Mr. Sylvester as a senior
official?
Secretary MILLER. Yes. Of Bell Helicopter, not of Textron.
He would be a third layer executive. The president would be the
top. Then you had some senior vice presidents and he would be
reporting to one of those senior vice presidents at a third level.
The CHAIRMAN. Mr. Miller, it's been a long day for you, I'm sure.
I must say that your demeanor has been exemplary.
I'm sure it's been very, very painful and difficult for you. But
you've been very responsive and I think I've rarely seen a witness
who's conducted himself better under tougher circumstances than
you have.
And I really mean that.
But there's one fundamental fact, in conclusion, which has come
out of this morning's hearings which is uncontested, but which was
contested at the original hearing.
No one now contends—or contests, I should say—or questions the
fact that bribery did take place. It's not an allegation now; it's a
fact.
Not only that, but there was the context in which it occurred.
Officials in almost every country, and I'm talking about Bell officials, knew that it was taking place.
Officers in virtually every American company, especially those
selling overseas, knew it.
Your company operated both in products where it was most
notorious. We all know that there was not only bribery paid by
your corporation, but there were bribes paid by Lockheed, Grumman, Boeing, and we could go on and on.
Now you repeatedly said in the past, seven, or I should say as
late as your press conference of a week ago today, that senior
officers, according to you, did not know it.
It's now clear that senior officers did know it. Bribery took place.
It took place in spades. It took place repeatedly in your company.
Therefore, while it is regrettable, it is nonetheless true and
beyond question that your original testimony to this committee was
incorrect, erroneous, false, misleading.

100

The real issue is not whether your testimony was erroneous,
false, incorrect, or misleading, but whether you knew whether it
was false, erroneous, incorrect, and misleading.
That's the issue we're trying to winnow out through these hearings. It's an issue which is exceedingly hard to resolve under the
circumstances.
We have a situation, however, where $5,400,000, at least, was
paid in bribes. The 14 bribes were paid, paid in a number of
countries—10 countries.
There was a failure to investigate, 11 employees who could cast
further light took the fifth amendment. They may well have been
unwilling to testify because if they had, it would have disclosed
information that would be vital to our consideration.
Some documents were destroyed. And we come to the point that's
extraordinarily tough because, on the one hand, you're an official
of the greatest importance to our country. You have great authority. It is most important that you be able to operate without operating under a cloud.
But at the same time, we have an obligation to do our best to get
all the facts. As you say, you have been investigated by the Securities and Exchange Commission, been investigated by the Justice
Department. The Securities and Exchange Commission found nothing against you, although they found very considerable criticism of
your corporation under your management.
The Justice Department has not completed their investigation,
apparently, of Textron, but they've completed their investigation of
you and have said so.
Here, as I said this morning, there is a perfectly collosal conflict
of interest, a situation where, with an attorney general of great
integrity and toughness and honesty, and certainly Mr. Civiletti
has those qualities, nevertheless, it's very hard for the American
people, it seems to me, to believe that he can act without a conflict
of interest that would make it difficult in this election year for his
view, for his position, to be accepted.
So that I feel, under the circumstances, there should be a special
independent prosecutor appointed who should have the authority
to act on this.
I think this is precisely the kind of situation for which a special
independent prosecutor was created. I can't think of a situation
where it would be more appropriate.
We have a mountain of circumstantial evidence. We have absolutely no direct evidence involving you.
But I think that the best and most reliable way that we can
handle this situation is to have an independent special prosecutor.
Again, I want to commend you on your demeanor and your
responsiveness and the way you've conducted yourself under the
most trying and difficult and painful circumstances.
Secretary MILLER. Thank you, Mr. Chairman. I appreciate the
way in which you've conducted this hearing. I think it has allowed
us to use a forum where we can explore objectively the questions
that are of concern to me and are of concern to you.
I've learned a lesson. I hope it will serve me well. I shall try to
make it serve me well, though I would not like to endorse every

101

statement made here today in terms of the implications of the
facts.
But I recognize the difficulty that you're struggling with and I
appreciate your cooperation.
The CHAIRMAN. Thank you very much.
The committee stands adjourned.
[Whereupon, at 4:20 p.m., the hearing was adjourned.]
[Additional information ordered inserted in the record follows:]

APPENDIX

JUSTICE DEPARTMENT CONCLUSION
U . S . DEPARTMENT OF JUSTICE,
CRIMINAL DIVISION,

Washington, D.C., November 6, 1980.
H o n . WILLIAM PROXMIRE,

Chairman, Committee on Banking, Housing and Urban Affairs,
U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN: On March 11, 1980, Attorney General Benjamin R. Civiletti
responded to your February 13, 1980, request for a special prosecutor to investigate
whether Treasury Secretary G. William Miller committed perjury in 1978 before the
Senate Banking Committee during hearings on his nomination to be Chairman of
the Federal Reserve Board. In the Attorney General's March letter, he recited the
history of the Justice Department's investigation into this matter, noting specifically the problems inherent in overseas payments investigations. He further advised
you that the Department would complete its investigation with all possible speed
and report the results to you in such detail as the rules of grand jury secrecy
allowed. The investigation is now complete.
The Department's investigation, insofar as it related to Mr. Miller, focused on five
primary allegations:
(1) Whether Mr. Miller committed perjury when he denied knowing that General
Khatami was a part owner of Air Taxi, Textron's agent in Iran.
(2) Whether Mr. Miller participated in obstruction of justice in connection with
the failure of Textron, Inc. to timely furnish to the Committee a March 1971
memorandum identifying General Khatami as the real interest behind Air Taxi,
which memorandum had been subpoenaed by the Committee.
(3) Whether Mr. Miller committed perjury when he testified that he was not
aware of any bribery in connection with a sale of helicopters in Ghana.
(4) Whether Mr. Miller participated in obstruction of justice in connection with
the destruction of a memorandum by a Textron employee, which memorandum
discussed the necessity of paying a bribe in Ghana.
(5) Whether Mr. Miller committed perjury when he testified that Textron did not
engage in foreign bribery.*
All of the individuals who invoked their Fifth Amendment privilege against selfincrimination before the Securities and Exchange Commission have now been granted use immunity and their evidence has been taken.
Further, the Criminal Division lawyers conducting the investigation have followed
all relevant leads and their efforts at gathering evidence here and abroad have been
completed. Extensive analysis of this evidence was conducted. Every possible theory
of prosecution was explored with respect to the facts as developed.
Since March of 1980, twenty witnesses have given evidence, in addition to the
thirty-five witnesses who had given evidence previously.
During the course of our exhaustive investigation, no evidence has been developed
which substantiates any allegations of criminal conduct by Secretary Miller.
As the Attorney General promised in his letter of March 11, 1980, should you so
desire, we will make available to the Committee the investigative record to the
extent we are permitted to do so by law. To this end, the Criminal Division is
prepared to brief you privately, to the extent permissible under Rule 6(e) of the
Federal Rules of Criminal Procedure.
* In addition, our inquiry included investigations of possible criminal conduct by a number of
Textron and Bell Helicopter employees as well as the corporate entities, in connection with
ssible charges of perjury, obstruction of justice, and contempt of Congress arising out of the 1978
nate Banking Committee Hearing, the 1980 Senate Banking Committee Hearings and the
Grand Jury proceedings.

(103)

104
I am confident that the thoroughness of the Criminal Division's investigation will
allay any concerns you may have had with respect to this matter.
Very truly yours,
PHILIP B. HEYMANN,

Assistant Attorney General,
Criminal Division.

[The following excerpts from the earlier hearing before the
Senate Banking Committee on the nomination of Mr. Miller, dated
February 27 and 28, 1978, are reprinted at the request of Senator
Riegle:]
*

OPENING STATEMENT OF SENATOR RIEGLE

Senator RIEGLE. Thank you, Mr. Chairman. I was not present when the hearing
began this morning and you made your statement, so I would like to just briefly
make a comment of my own before addressing some questions to the witnesses if I
may.
First, I want to make it clear that I have the highest regard for both the
chairman of the committee as well as the professional staff and I think they
proceeded with great diligence in pursuing the matters that are before the committee at the present time.
I myself have expressed some reservation and some concern last week that I
thought our investigation, while thorough and proper, was beginning to become—
and the term I used at the time—was very close to a fishing expedition, and I
thought that then and I think now and that in no way however detracts from the
facts that others here feel differently about it and feel the fact that these questions
have to be pursued really at great length, and I have no objection to that being
done, though that doesn't mean that I hold the same opinion.
I think the basic issue that we are facing here and I think we can track this
particular issue for additional weeks and months probably because going back and
putting the pieces together on the transaction that's a decade old is never an easy
thing to do, but I think the basic issue that's before the committee is the question of
William Miller's integrity and whether or not he's a person that is honest and is a
person who is properly suited by background and capacity to be Chariman of the
Federal Reserve.
I have taken a close look at that issue—his personal history, professionally, and
his private life, his activities at the community level and other things—and I find it
very difficult to find even the beginning of a basis for reaching a judgment that the
man would not only be dishonest but would come before our committee and lie. And
that really is at the heart I think of what we are endeavoring to do here, is to try to
find out if in the end Mr. Miller—I think a man of considerable reputation—has at
this point in his career been willing to in effect come here and make false statements in behalf of his nomination to be chairman of the Federal Reserve.
Now that's not the way today's inquiry is being postured, but that's really the
basic question—as to whether or not this man is honest and forthright in terms of
the representations that he's made to the committee.
I'm really much less interested in the discussion among the people here at the
table, although it's interesting, than I am this basic question of the integrity and
the honesty of Mr. Miller because after all that's presumably why we are here.
And so far, at least I have not seen nor heard a scrap of information by anybody
that suggests that Mr. Miller has not been honest and not been forthright with this
committee.
I might say that if I ever find that that's the case, there will be no one on this
committee that would be more vigorous in their opposition to his nomination than I
would be, but failing that finding, I guess there comes a question in my mind as to
how long one is prepared to put forward and leave standing really a profoundly
negative presumption about somebody's character and good faith.
It seems to me that after a while it takes something quite substantial to be
willing to put forward, even if it's done silently, the presumption that a man
basically is a liar and
The CHAIRMAN. Would the Senator yield?
Senator RIEGLE. I will in just a second—that he would have come here and
committed perjury and that's the way I see it. I see that as the question—as to
whether or not Mr. Miller has been truthful to us. I happen to believe, based on my
best judgment, that he was truthful to us. Nobody can prove that beyond any
question whatsoever, but in the end we will have to make our judgment, but that's

105
the basic judgment that I have reached, barring some clear finding of fact that
would in effect set aside an entire work career and professional career of a person
who has been active in his community and on the State and national scene for
decades.
So I want to make sure that we keep what we're doing here in some kind of
perspective because in the end that's the question that seems that we have to come
to and resolve because that's really the issue—not whether or not, for example,
these particular arrangements did or did not take place and how one reconstructs
this history based on the ability of one witness at the table to reconstruct events at
that time versus another. I'm not saying they are not important and I'm not saying
that I don't feel that it's necessary to track this through and it's not being done in a
proper manner, but what I'm saying is that its final relevance in my judgment
relates to the issue that is before us, and that's the question about Mr. Miller. It's
not a question about Mr. Bell or Mr. Ducayet or Mr. Jose or whoever, in my
judgment. I think the issue is profoundly a question of Mr. Miller and, of course, I
do yield to the chairman.
The CHAIRMAN. May I say to my good friend from Michigan, for whom I have
great respect and admiration, that I don't know how in the world this can be
characterized as a fishing expedition. In the first place, there was a specific motion
by Senator Heinz that we investigate a particular act, and that's entirely what the
committee has been confined to.
Now a fishing expedition would be quite different. I call to the attention of the
Senator a letter that's been distributed to all members of the committee dated
February 22, from the Securities and Exchange Commission Chairman. He points
out there are four specific areas in which they are investigating Textron and Miller,
including the use of push money, salary contributions and other promotional proxies by another Textron subsidiary, including the instances of overbilling, underbilling and other billing practices employed by several divisions of Textron to accommodate their customers, including with respect to informational regarding numerous
proceedings brought by Federal and State governmental authorities regarding alleged employment discrimination on the basis of race, sex, age, religion, and so
forth.
Mr. Williams says there could be other inquiries too that they are going to engage
in.
Now this committee isn't going into these things. We haven't authorized—at least
not so far—we haven't decided that we are going to investigate that at all. There's
no fishing expedition here that I can see at all.
Furthermore, there is no presumption by any Senator here—there's certainly
been no presumption by the staff—that Mr. Miller is a liar or that we want to prove
that he's a liar or anything of kind.
The fact is that we have this information that General Khatami owned an
interest in Air Taxi. We have information that this was known to some extent at
the time and we have a duty, therefore, to find out what all the facts are and
question Mr. Miller on it. Mr. Miller is going to have his day in court tomorrow.
Senator RIEGLE. Mr. Chairman, if I may respond—and then I'll be happy to yield
to the Senator from Massachusetts—first of all, I think the chairman knows the
great personal regard I have for him so my comments are not to be taken in any
light other than that. I have read SEC Chairman Williams' letter and it is true that
they are undertaking certain inquiries about Textron, but they are not—and I'm
being very careful about the choice of words here—investigating Mr. Miller per se,
at least insofar as I know.
The CHAIRMAN. He was the head of Textron. He was the chief executive officer.
Senator RIEGLE. We are also talking to people here who were at Textron who
were directly involved in one form or another with the matter we are discussing,
but as far as I know there isn't any evidence that I have seen or the committee has
assembled—and if there is I would like to hear it now—that ties Mr. Miller, not
somebody else but Mr. Miller, to this activity; and I'm just saying in the abence of a
shred of fact to that effect—and when he comes and makes assertions that he was
not involved—it seems to me that our unspoken assertion here is that we expect at
some point that we may find some link that would connect him directly to that
transaction.
The CHAIRMAN. Well, there's no fishing expedition. As I say, we have all kinds of
oceans to fish in and we are not fishing in them.
Senator RIEGLE. I would agree with the chairman and my exact quotation which
was in the Wall Street Journal last week was that I said it had come very close to
the point of being a fishing expedition, and what I meant by that and I want to say
it again so nobody is confused about it—that is the issue in my judgment here—is
the integrity, the honesty, the character of Mr. Miller, and the degree to which this

106
inquiry or any others that we want to propound finally comes back around as a
cross-check on this basic question of Mr. Miller because we are not here to confirm
these men as head of the Federal Reserve. We are here to confirm Mr. Miller.
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Senator RIEGLE. I can be very brief. There are two questions that I'd like to pose
to the Textron people here, the people who were with Textron.
Do either one of you, as nearly as you can remember, ever recall getting any
indication from Mr. Miller either at the time when he was chief operating officer of
the company or when he would be at a lower level than that—any indication from
him as to his feelings about bribes or push money or any of these kinds of sort of
under-the-table arrangements with people in foreign countries? Did he ever express
himself in writing or verbally to either one of you that would give you some clear
sense for how he felt about that kind of activity and what his predisposition toward
it would be?
Mr. DUCAYET. I'm sure that Mr. Miller at various times and at many times
probably has made it quite clear that he will not tolerate and Textron will not
tolerate any under-the-table dealings, any shady dealings, any coverup work. We
were expected to be the high quality company that they procured. We had good
policies at the time.
Senator RIEGLE. Let me just stop you there. I don't think it's enough that you say
that you think he said that. In other words, do you know for a fact he said that?
Can you recall either a combination of times and ways that he would have said that
or is this now a presumption on your part?
Mr. DUCAYET. NO, I cannot recall specifically when it was said, but I'm quite sure
that at more than one time Mr. Miller has made it quite clear that the policies of
Textron would not tolerate such actions.
Senator RIEGLE. Well, do you think to the extent that you got that tone from
him—did you think you got the tone when he was saying it one way that he was
sort of winking at the same time to let you know, that, well, that was sort of the
spoken code that, you know, over and beyond that, if it took a little bit of sort of
wheeling and dealing to get a contract that was OK?
Mr. DUCAYET. NO. That is exactly the reverse of that.
Senator RIEGLE. What was his reputation within the company? Was it as a
hardnosed, straight-line sort of straight-arrow type, or was it that he was a flexible
sort of a guy where just about anything that had to go would go?
Mr. DUCAYET. NO. Mr. Miller was straight-nosed, if you want to call it that. He
would never tolerate deviations or any dealings that were other than the policy of
the company.
Senator RIEGLE. DO you know of any situations where he personally or through
his involvement turned down a sales opportunity someplace where there was some
kind of an under-handed component to it? Do you know of any?
Mr. DUCAYET. I know of no such question ever having been brought to him or his
having turned it down.
Senator RIEGLE. Mr. Jose, do you have anything to add to either of those two
questions?
Mr. JOSE. I didn't deal directly with Mr. Miller so I wouldn't have been in a
position to hear it, but from knowing Mr. Ducayet and Mr. Atkins, there was no
question in my mind about the way that we were expected to conduct ourselves and
the kind of business arrangements that our company would retain.
Senator RIEGLE. What was Mr. Miller's reputation within the company from your
vantage point?
Mr. JOSE. Mr. Miller was not the sort of man who would wink and say something.
Senator RIEGLE. In other words, his reputation was one of being direct and to the
point?
Mr. JOSE. Direct and to the point and no funny business.
Senator RIEGLE. I certainly have taken enough time now and I look forward to
another chance later.
The CHAIRMAN. Senator Riegle.
Senator RIEGLE. Some years ago, I had the opportunity to work in an area called
plant and lab accounting coordination for IBM, and one of the functions that I had
at that time was to be a part of efforts to carry out certain auditing responsibilities,
to try to find out if things that people said were so, were, in fact, so.
And the normal practice that I remember, and I think the practice that would
logically apply here, is that in the first instance, when you're trying to figure out if
something is right and proper, is you look at the facts of the case. Is there something that sticks out, that looks strange, that looks odd?

107
If the commission, for example, were an unusually large one in terms of a percent
of the sale, if the commission were out of line, if there had not been an act of
negotiation to sort of beat down the cost of the commission with the person who had
been serving as the agent, if there was a failure of evidence in terms of an outside
independent certification of ownership.
But, in this case, if I put myself in your shoes, looking at this particular transaction, the amount wasn't out of line the amount clearly was not out of line as a
percentage or in terms of any kind of standard yardstick for commissions of sales of
this size.
Secondly, had there been a tough negotiation on the commission? Clearly, there
has been. It is obvious, from the history we've heard here, that there was a
thorough, tough pressure applied here to keep this commission at a maximum. And
percentagewise 6/i o of 1 percent, it looks to me as if it was.
Thirdly, did you have some independent sense of who the owners were? Yes, you
did. There was the independent certification of ownership by Dun & Bradstreet. It
turns out that Dun & Bradstreet was misled.
It seems to me if Senator Brooke is correct, that Khatami owned part of Air Taxi
secretly, that in the same way that Dun & Bradstreet was mislead, it appears to me
your own company was misled.
But if that is the case and if, in fact, there was a fraud, there was a fraud on the
part of Air Taxi, not on the part of Textron. And that, to me, is the critical issue.
And when we take and we blur that distinction and we take whatever fraud that
Air Taxi may have successfully carried off, not just against you but against Dun &
Bradstreet, and to then make that serve as, in fact, an indictment of Textron, and
we sort of work that along until we start impugning key corporate officers, we find
ourselves finally in the situation that we are in. And that is through that kind of
purported change of events we can end up drawing some very negative inferences
and end up using the language that something is irregular and improper. And I
think that is just phony.
In other words, if anybody wants to take the time to put these facts together in
the sequence in which they occur, they were neither irregular nor improper, appearing on their fact. And there was substantial evidence that they were, in fact,
regular and, in fact, proper.
Now, is one wants to assert that behind all of this that Air Taxi, through a very
clever subterfuge, had a partner that was hidden from view, that may very well be
so. Senator Brooke is satisfied that that is the case. Then it's interesting to me that
Mr. Atkins, your president, based on what is still available to him, is not yet in his
own mind convinced that that is so.
Perhaps that is just a difference of opinion, but it seems to me that when you look
at the facts that you were being asked to take a look at, and you were doing it for a
purpose, it was not that somebody cried out, " D o we have a problem?" As I
understand it; you correct me if I'm wrong, it was not that somebody cried out and
said. " W e have a problem with the payment to Air Taxi."
What happened was you were in the middle of an SEC certification process, and,
as a matter of course, it was required for you to go out and do sort of an examination, to take a look at each one of the items that would have to be talked about that
would fit that time period that this certification process applies to.
And so you did that, and you went to the people who were involved. And on the
fact of it, it all made sense. The amount was appropriate. There had been a tough
negotiation. You had an independent verification from Dun & Bradstreet.
Now, how, with all of that information and this being just—this is not the only
item we're paying attention to, but other things were going on at the same time—
how you are to be expected at that point to somehow have the genius to figure out
that even though everything was fine on the face of it that somehow something was
not quite right here and that back in Iran Air Taxi, in fact, had a secret partner
who somehow was getting a piece of this frankly undersized commission, if one
looks at the size of the sale.
Now, I think that is an unreasonable presumption, quite frankly. I think for
somebody to expect you to have that kind of sort of sixth sense to spot a possible
fraud that had been concealed by Iranians is to ask something that I don't see, quite
frankly, the Senate needs.
W e as Senators don't have that sort of spectacular insight where we spot things
like that where everything is fine and dandy, at least as to appearance on the
surface.
The CHAIRMAN. Would the gentleman yield?
Senator RIEGLE. In just a moment, I will.
It's easy for me to understand that the people that have testified here, starting
with Mr. Miller, or with Mr. Atkins today, could have great difficulty understanding

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108
why it would be so easy for us to jump to a presumption that somehow everybody
was in on the deal of perpetrating some kind of a fraud in this situation, because,
frankly, as I look at the whole pattern of facts, it suggests just the reverse to me,
and frankly, if the case has to hang to a very large extent on Mr. Bell as a witness,
you know then I'm doubly troubled, not because he may not be truthful, but because
he is not a disinterested party.
The CHAIRMAN. Would the Senator yield?
Senator RIEGLE. Yes, I will yield to the chairman.
The CHAIRMAN. YOU see, there is no point in this investigation at all. If you make
the assumptions that the Senator from Michigan, as I understand him—and maybe
I am unfair to him—makes.
The whole point in making investigations is to determine whether there was
anything illegal. You have to inquire and determine whether or not that $2.95
million payment was illegal.
Now, what does "illegal" mean? What does "improper" mean? Obviously, if it is
on the basis that the various witnesses have described they thought it to be, then
there is nothing to investigate.
But this was in the context of a letter that I wrote to Mr. Garrett, with which Mr.
Soutter said he was familiar and was part of his investigation to investigate questionable payments.
Now, how do you investigate a questionable payment? You find out where the
payment went, who got it. Obviously, if it simply goes to three people who are not
officials, that is the end of it. But if you're going to conduct an investigation to
determine whether it is questionable or not, it seems to me you ought to do more
than just interrogate the three top people who were involved in this payment and
who themselves have an interest in having the payment legal and proper.
It is hardly an investigation worthy of the name if you stop at that point and then
if you don't go through the various documents that we did with the kind of
investigation that our staff made in just a few days down there disclosed this.
Senator RIEGLE. I appreciate the point you're making, and let me pursue it,
because I think we are right where we need to get to. And that is the question of
whether or not it was a questionable payment or rather the appearance, whether
there was any probable cause at that time to view this as a questionable payment,
as if this was something that would sort of stand out as being out of the ordinary.
And, as I try to apply the test, as we have reconstructed this thing, that I think
would flag it for me if I had been sent to do the investigation, if the size had been
percentagewise as a payment, as a commission, on the sale had been inordinately
large, that would have been a trigger in my mind. If I had not had an independent
verification from somebody like Dun & Bradstreet, that would have been another
thing that would have been a red flag in my mind.
If there had not been a protracted period of negotiation, if the company had not
been trying to beat down the agent here and reduce the size of the commission, that
would be another thing that would stand out as a red flag in my mind.
But all three of those things were present. So, it seems to me that an auditor
going in and an investigator going in and looking at this and finding that this
package of facts makes sense and was coherent and did not have the appearance of
being a questionable payment, that for one to then make sort of the leap of
judgment and imagination to imagine that hidden agent is a hidden partner—I
mean, I think that really stretches things.
The CHAIRMAN. Well, may I point out that the defense contract audit agency
singled out this particular payment as one that they thought was unusual and bore
investigation.
They singled it out. They thought it was sufficient. At page 296 of volume 3 of the
hearings
Senator RIEGLE. Well, whatever their particular view and whatever factor they
were coming in on, I think what is more significant is what the internal auditor of
the company being asked to take a look at this situation in light of the facts that we
have just discussed, what is a logical presumption on that person's part?
Let me ask you this. I mean, based upon what he has testified that he knew, what
would have flagged it for you? What would have flagged it for somebody on the
committee staff at that point? I am just hardpressed to see what it would be.
The CHAIRMAN. Well, in the first place, they themselves—and I'm talking about
Mr. Soutter—and Mr. Miller agreed—thought that this should have been investigated.
Senator RIEGLE. It had to be. The SEC requirements, I think, made it necessary
that they examine this situation. Is that not correct? I understood that to be the
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109
The CHAIRMAN. There was nothing mandatory. They did not have to investigate
this if they thought it was a routine that did not require to be investigated. They
decided they would. At any rate, they decided that, and I think that although the
Senator has his view of that $2.9 million payment, I have mine, and I think I've
made it pretty clear in the course of questioning that I thought it was a payment
that did merit inquiry.
Senator RIEGLE. Based on its size?
The CHAIRMAN. Yes, based on its size.
Senator RIEGLE. 6/IO of 1 percent?
The CHAIRMAN. Sure. In relation to the volume. Yes, indeed. In relation to the
amount of work.
Senator RIEGLE. Well, it's 10 years of time. I mean, there's a buildup to the time
that they finally closed the
billion order, and $2.9 million as a percentage of
that—I mean, maybe we just disagree on that, but that seems to me to fall very
much within the bounds of reason. In fact, I think it is on the short side.
The CHAIRMAN. It was the largest payment on the largest contract they've ever
made.
Senator RIEGLE. Are you suggesting that there were other
billion contracts
and situations similar to this where there were smaller commissions paid? I mean, I
don't know the history. Perhaps you know of some.
The CHAIRMAN. Well, we just discussed them. I had a $28 million contract on
which $90,000 was paid.
Senator RIEGLE. But they said that was an altogether different set of case facts,
and that is a lot different than a $x/2 billion order.
The CHAIRMAN. Well, General Toufanian said that in his judgment the Government of Iran would not pay costs measured as a percentage of sales, even V2 of 1
percent of a $100 million transaction, which was Vs this size. It would be clearly
disproportionate to real services and real value to the Government of Iran.
Senator RIEGLE. Well, I think they've also made the point, however, that they felt
that there was a legal obligation here, that they have been involved in a contractual
relationship for a long period of time, and that they felt they would have to go to
court to settle this thing if they were not able to work out an agreement out of
court, which they finally did, and the figure was $2.9 million.
I'm simply saying that that figure, as a percentage of the volume of business, was
of a size that would prompt one to say, on the face of it, that this looks phony. I'm
just saying that it does not come close to meeting that test, at least in my mind.
If it were 10 percent, or if it were 15 percent, or if there were some other sort of
strange nuance; if there had been a negotiation; then I think it would not smell
right, and it would not look right. And therefore, I think you would derelict if we
did not pursue it, if we did not find out why there had been negotiation, and if we
didn't find out why the payment had been excessively large.
But I think within the pattern of the way this whole situation unfolded, I think
this falls within the bounds of what an auditor would find to be a reasonable
pattern of events.
The CHAIRMAN. Well, Senator Riegle, it all depends on how you look at this. You
could argue that what you seem to be implying, that a small bribe isn't that
important.
Senator RIEGLE. I'm not saying that whatsoever. I don't think any bribe is justified.
The CHAIRMAN. Well, again, you have to look back and examine what was done,
and the judgment was—well, we've been over and over that. Unless you have more
questions of the witness, I think we should conclude the hearing.
As the Senator knows, we have a long day coming up again tomorrow.
Senator RIEGLE. I just want to conclude by thanking the chairman for his patience. It is seldom that we disagree on things, and it is painful when we do, because
I much prefer to be in agreement with the chairman than in disagreement. And I
suspect that will continue to be the case once we get this particular issue resolve.
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STATEMENT OF G . WILLIAM MILLER, CHAIRMAN OF THE BOARD, TEXTRON; NOMINEE
T o BE CHAIRMAN OF THE FEDERAL RESERVE BOARD

Mr. MILLER. Mr. Chairman and members of the committee, I do want to thank
you for giving me this opportunity to be back with you today in order to clarify
some of the matters that have arisen.
Let me say that when President Carter invited me to serve in this position, I
looked at my personal life and at my business life, and I honestly knew of no
circumstances that would in any way embarrass the President or the Senate or the

110
Federal Reserve or Textron or me or my family. I accepted his invitation on the
belief that that was the case.
As you know, the allegations about Air Taxi came as a complete surprise to me.
At the previous hearing I testified—and I want to confirm now—that I had no
knowledge of any undisclosed ownership by Gen. Khatami in Air Taxi. I also stated
then—and I would like to conform now—that had such ownership existed and been
known to me I would not have approved the contractual payments to Air Taxi.
In the course of this committee's investigation, there has been no suggestion that
I knew of an undisclosed ownership. In this Air Taxi matter I dealt with James F.
Atkins, the president of the Bell Helicopter Division of Textron, and there has also
been no suggestion that he knew of any such undisclosed ownership.
In my opinion, Mr. Atkins is a highly competent executive and a person of honor
and integrity. I believe that I was fully justified in relying upon him to handle the
Air Taxi matter. He has testified here that he had no knowledge or reason to
believe that General Khatami had an undisclosed ownership interest. He therefore
could not have intended that any of the money paid to Air Taxi would go to General
Khatami.
Likewise, at no time did I have any intention that payments to Air Taxi would
benefit any military or civilian official of the Iranian Government or that such
payments would be for any purpose other than compensation of a legitimate sales
representative.
I think the witness this morning confirmed that that has been our policy and it
continues to be our policy. It seems to me that I should not reasonably have been
expected to discover such an undisclosed ownership under the circumstances. If
General Khatami did have an undisclosed interest in Air Taxi, then Mr. Atkins and
I have been deceived. Deception by others certainly should not be the basis for
impugning the integrity of innocent parties.
A word about Textron. In 1973 I was president of the company serving both as
chief executive officer and chief operating officer. There were then about 30 divisions. Bell Helicopter was one. There were 60,000 or more employees operating
through about 200 plants and major facilities throughout the United States and in
many countries of the world. The company was growing and has continued to grow.
Supervision of such an enterprise is a demanding task, and it was necessary for me
to delegate substantial responsibilities to corporate group officers and to division
presidents. I also relied upon corporate staff.
The performance record of the company has been excellent. Textron endeavors to
maintain the highest standards of conduct. This has been a subject discussed at
every major management meeting during my 22 years with the company. The
subject has been continuously covered at divisional review meetings, at controllers
meetings, at executive training programs, and in a variety of other forums. Written
statements and guidelines and special memos have been widely circulated. The
record of corporate conduct has been good.
As might be expected in a company of such scale and scope, there have been a few
instances of shortcomings. In such a large company, I cannot guarantee to this
committee that there will not be isolated cases of noncompliance with company
policy in the future. Textron employees are dedicated, competent, loyal, honest men
and women, but it is inevitable that some individuals will fall short of their
responsibilities from time to time.
To assure that Textron maintains high standards, there is a regular process of
internal and external audit to verify compliance with company policies. There are
also Government contract audits, GAO audits, Internal Revenue audits; we are
audited as much as a bank.
For the past 2 years Textron has also required statements from over 1,000 key
employees certifying as to the absence of any knowledge of illegal, improper or
questionable payments. All these company procedures include as a purpose the
detecting and correcting of noncompliance.
Textron management has strived to be diligent to its commitment to excellence.
Textron's reputation is important to me, and I feel a great responsibility to its
present 65,000 employees and 90,000 shareholders to maintain the company s good
standing. I am therefore anxious to assist this committee in any way I can to reach
a conclusion on this matter which I feel confident will confirm Textron's good name.
In the process, I hope I will be able to merit your affirmative judgment as to my
own qualifications and integrity. Thank you very much.
The CHAIRMAN. Thank you very much, Mr. Miller.
Mr. Miller, when you testified before here the last time, you said, and I quote, In
1973 or in 1969 before the law or after the law, I would be opposed to paying money
to agents, money which goes to government officials buying goods from us.
Now that's an excellent policy. However, let's look at the facts.

Ill
First, General Khatami owned Air Taxi. Second, Air Taxi was and is Bell Helicopter's agent in Iran. Third, General Khatami and Air Taxi helped Bell Helicopter get
its biggest contract, a minimum of $500 million. Fourth, responsible management
officials at Bell Helicopter were told that Khatami owned Air Taxi. So Bell Helicopter paid $2.9 million a substantial part of which went to Khatami through Air Taxi.
To me, the facts ring loud and clear.
Senator SCHMITT. Mr. Chairman, will you yield at that point?
The CHAIRMAN. NO. TO me, the facts ring loud and clear. Textron bribed Khatami.
In retrospect, Mr. Miller, do you believe everything you could have or should have
done was to guard against improper payment?
Mr. MILLER. Senator, I disagree with everything you said.
The CHAIRMAN. All right. In the first place, General Khatami owned Air Taxi.
Mr. MILLER. I have no knowledge of that. I have heard no testimony and I see no
evidence to that effect.
The CHAIRMAN. Have you read the record we have provided here?
Mr. MILLER. Senator, I am not going to defame a dead man. I have no such
knowledge.
The CHAIRMAN. Have you had a chance to read the record that we have provided
here?
Mr. MILLER. The stack of books? Of course not; no, sir.
The CHAIRMAN. Well, then, how can you make the flat
Mr. MILLER. I'm here to testify about myself, sir.
The CHAIRMAN. Well, I'm not asking you whether you knew at this point.
Mr. MILLER. I see. Well, Senator, if you know that he was an owner, you know
something I don't know. I say that's a statement and I accept it. But I don't know
that he was an owner and I do know my company did not bribe anybody. You're
saying we bribed General Khatemi, and that means that Mr. Atkins or I must have
had an intention to do so. Bribery does not exist if somebody surreptitiously obtains
money from Textron. A bribe is a payment which must include an intent to
influence a decision. I do not believe Mr. Atkins paid money to influence a decision.
I know that I did not authorize such a payment or approve it, nor would I do that or
condone it at any time, any place, anywhere. So I'm sorry, but I think that you
made a conclusive statement which is interesting. It's an interesting speech, but it
doesn't give me a question I can answer.
The CHAIRMAN. Well, let's go over these points one by one. I say General Khatami
owned Air Taxi. You say you don't know whether he did or not. Is that correct?
Mr. MILLER. I have no knowledge of his ownership. I find nothing in the record of
the summary report that would verify it.
The CHAIRMAN. YOU find nothing in the summary report that would verify that?
Mr. MILLER. I find allegations, sir, but I do not find evidence with which I would
be willing to defame a man.
The CHAIRMAN. Would you deny the fact that until 1965 it was official on the
official record that General Khatami was an owner of Air Taxi?
Mr. MILLER. Senator, I would say that your report states that, but I have not seen
the documentation.
The CHAIRMAN. Well, we have the State Department letter in response to our
inquiry.
Mr. MILLER. I have not seen it. If you say he was an owner of record at that time,
I don't dispute it.
The CHAIRMAN. Did your company ever check the public records to determine
whether or not General Khatami owned Air Taxi during that period of time?
Mr. MILLER. In 1965? I have no knowledge of it.
The CHAIRMAN. During much of that period they were your agent in Iran.
Mr. MILLER. Well, sir, at that time we did practically no business in that part of
the world, and my attention was on other matters of current interest and importance. I was not—as I said before—I was not at all aware of the Air Taxi representation before 1965 or after until the 1970's. It became necessary for me to become
interested then as business began to develop; it became a matter that would come to
the attention of the president of Textron then because of its scale and importance.
The CHAIRMAN. Well, let me go over these points again.
Air Taxi is Bell Helicopter's agent in Iran. Is that correct?
Mr. MILLER. It is. Since 1973, it has not been the sales representative in Iran for
government business. It continues to be our sales representative in Iran for civilian
helicopters.
T h e CHAIRMAN. 1 9 7 3 ?

Mr. MILLER. I do not believe we have sold any civilian helicopters during that
period.

112
The CHAIRMAN. Would you deny that General Khatami and Air Taxi helped Bell
Helicopter get its biggest contract?
Mr. MILLER. Air Taxi was the sales representative that participated and assisted
in obtaining the order in 1973 for 489 helicopters, which is among the largest orders
we have ever received. I think that we may have had contracts with the U.S. Army
that ran to larger numbers over their life.
The CHAIRMAN. Would you deny that responsible management officials at Bell
Helicopter were told that Khatami owned Air Taxi?
Mr. MILLER. I have heard testimony that Mr. Jose and Mr. Orpen, who testified
here this morning, had heard of that rumor.
The CHAIRMAN. They were told it.
M r . MILLER. T o l d it.

The CHAIRMAN. Told it by Attorney Bell.
Mr. MILLER. Sir, someone who tells you something may or may not know the facts
himself. The person who told it may have believed it; the person who heard it may
not have believed it. I heard the testimony you heard, which says that these
gentlemen understood this to be a rumor. I heard Mr. Orpen say this morning that
his purpose was to be sure that we had a reputable sales representative in Iran, and
that it would be wrong and would not be condoned by the company if there was any
ownership or participation from government officials in that sales representative.
He said that just a few minutes ago.
The CHAIRMAN. This is more than a cocktail rumor. This was an attorney who
came to your office, sir
M r . MILLER. M y o f f i c e ?

The CHAIRMAN. I beg your pardon. Not your office. Who came to the office of Bell
Helicopter in Fort Worth for a business purpose who sat down and talked to some of
your officials. They admitted that they heard from Mr. Bell that this was the case.
It wasn't a matter of picking this up somewhere or somebody saying maybe this is
true, maybe not. He came and made that assertion and he represented the man who
was your agent at that time in Iran and he wrote a letter to you—he wrote a letter
to Bell officials in which he made this assertion in writing. The document is in the
files.
Mr. MILLER. Senator, I have heard the testimony you have heard, and we can all
go back and read it. I don't think my purpose should be to interpret testimony
before this committee. I think you are able to interpret the testimony.
The CHAIRMAN. When you testified before the committee I asked you about an
investigation you had developed and a report about questionable payments. You
said, as I recall, and as I understand the record reflects, that you conducted no
specific investigation. Later we found that Mr. Soutter had done an internal investigation focused on the $2.9 million. After the issuance of a subpoena, that document
was supplied to the committee. Now why didn't you inform me at your confirmation
hearing that Mr. Soutter had conducted an internal investigation on the $2.9
million payment? Were you fearful that the inadequacy of the investigation might
prove embarrassing?
Mr. MILLER. Senator, I may be in error, but I think the investigation you are
talking about now was one in 1975, and I think we were talking about 1973 at my
confirmation hearing. So I may have been confused, but I had no reason not to
inform you and would be delighted to inform you now that Mr. Soutter reconfirmed
to me in 1975 that the transaction appeared from his review to be a proper
commercial transaction with no indications that he could find of any questionable
aspects. I would be happy to confirm it to you here.
The CHAIRMAN. When I asked you about the investigation of questionable payments, did you simply forget that that investigation had been conducted or did you
not consider it an investigation?
Mr. MILLER. If your question was about questionable payments in general, I may
have misinterpreted it—I certainly apologize if I did not get my time frame correct.
I think I said at that time, however, that I was sure I had my attorney look this
matter over. I believe I said that, but perhaps I did not.
The CHAIRMAN. Well, we can't find anything in the transcript in your response
with respect to 1973.
M r . MILLER. 1 9 7 3 , sir?

The CHAIRMAN. YOU just said
Mr. MILLER. I said I may have had the time frame wrong, but I certainly didn't
intend not to inform you. And, as I say, my recollection is that I did inform you that
I was sure I had had my attorney check the matter.
The CHAIRMAN. Now in your testimony before this committee you said that the
$2.9 million payment had been through the group vice presidents. It's curious to me
that despite three amendments to the contract and the payment of a substantial

113
commission that was discussed at the highest levels, there were no memos written.
It appears to me that great care was taken to see to it on this questionable payment
nobody left a paper trail.
Mr. MILLER. I'm not sure that I understand, the first part of your statement about
group vice presidents. I don't recall any statement about group vice presidents.
But in any case, let me be perfectly responsive to what I think is the thrust of
your question. In running a business we talk on the telephone with our associates.
We discuss business matters, we authorize transactions. We have a record of hiring
and employing trustworthy executives, and I think it's justified. The written record
in Air Taxi would be the agreement. Did I approve that which Mr. Atkins negotiated to pay, $2.9 million? I say yes; the record of it would be that Mr. Atkins had a
signed agreement that confirmed it.
The CHAIRMAN. What puzzles me is this was the biggest payment you made, as I
understand it. This was one of the biggest sales, this $500 million helicopter sale,
and I'm puzzled by the fact that although there were three amendments—you
amended it three times—one time you cut it down from $10 to $6 million and then
to 1 percent and then to $2.9 million—but at no point were there memoranda on
this very important series of transactions and agreements.
Mr. MILLER. I don't know what memoranda there should be, Senator. The officer
carried out exactly what we agreed to and signed exactly what we agreed to. You
know, quite often an attorney will come into my office and say, " W e are negotiating
an acquisition, and the issue is whether we agree to this;" and I make a decision.
The evidence of my decision is what the attorney writes into the contract. I don't
know what the purpose would be of my writing a memo saying that I said to write
into the contract what is written into the contract. I'm sorry. I'm not familiar with
the way the Senate does business, but in the world I work in we have an agreement,
we mark it up and put what we want in it, and we type it up—and that's the
evidence. I don't know what other evidence you're looking for.
*

The CHAIRMAN. Senator Riegle.
Senator RIEGLE. Thank you, Mr. Chairman.
Mr. Miller, I have a few thoughts that I would like to share with the committee
and others here at the outset and until I finish those thoughts I will not yield,
although I will be happy to yield after I have completed them with whatever time I
have remaining.
Mr. Miller, I think you are one of the best nominees that the administration has
put forward and I don't take these proceedings lightly. I have been in the Senate a
year and I have had the opportunity to go through other experiences on other
committees. I have had the privilege, for example, of sitting on the Judiciary
Committee when we were examining the qualifications of Judge Bell to be Attorney
General and I was not satisfied and so I voted against his confirmation and spoken
against it.
I have done that other times with respect to other nominees here in the Senate.
Most recently Mr. Tucker who was a nominee to the Civil Aeronautics Board before
the Commerce Committee on which I served, whom I thought clearly was an
unsatisfactory nominee and I might say that nomination was withdrawn. It's with
seriousness with which I take this new responsibility.
On the other hand, I have been involved in the Congress for a longer time. I spent
ten years in the House on various committees and so I have had some experience in
trying to go through committee examination processes and evaluating the credibility of witnesses and things of that sort and I must say that I have very deep and
strong feelings about the situation that I think has taken place with respect to your
nomination. I think in many respects what has happened has been excessive in
terms of what has actually transpired, what the facts warranted.
I think your reputation has in effect been damaged. I think unfairly so. Frankly, I
am troubled about it and I am not just troubled about it from the point of view of
you personally or the point of view of the fact that I think that does not reflect well
on this committee, both of which are concerns of mine, but I think there's a bigger
issue involved. I think we are at a point where the process we use to try to examine
the honesty and capability of high officials who seek to take posts in the Federal
Government, who respond to requests to serve, has gotten to a point where it is not
doing the job the way it should be done and I'm not exactly sure why it's come to
this. I know Watergate clearly has something to do with it. I have watched this
situation unfold very carefully and I said to you—I have said publicly and I said to
you privately—if I found one shred of evidence to the effect that you were involved
in improper or illegal activities or had in any way misled this committee, I not only
would not vote for your confirmation, but I would work with a vengeance to prevent
it, and I think you and others know that's exactly how I feel.

114
But I think you have been very badly used by the process we have been following.
And the concern I have goes far beyond you. I think it is necessary for us to attract,
in larger numbers, good people from the private sector, some from business, others
from labor, the professions, what-have-you, to come and take positions of responsibility in the Federal Government.
We are an abysmally run Government. The executive branch of Government is,
and this is a pile-up of deficiencies over many many years, almost a model of
inefficiency. The Senate, by the way, is not far behind in terms of our own operating
procedures.
One doesn't have to look far to find the conditions of bad management, frankly,
within our own internal Senate process.
We badly need to attract new talent into the Government. It means going out into
other areas, where people of quality and decency have established their reputation
as effective performers, who can come into the Government and who for a period of
time can serve and hopefully serve with distinction.
And I am pleased that you were willing to accept the call from the President to
come and serve as chairman of the Federal Reserve. I think you will do an exceptionally fine job. I think it is a major improvement, frankly, in the Federal Reserve.
I mean no disrespect for Arthur Burns, we had disagreements on issues, but I will
feel much better, much better, with you in that particular position.
But I think what has happened here, is in effect sort of a minitrial. You have not
really been the focus of the trial, I think you have sort of been a central player in
the trial, I mean a central character, but I don't think that has really been the
point of the exercise, because I think what is happening here is that we have gotten
to a point where the process is not really a straightforward process of an effort to
have a finding of fact, a civilized discussion and a presumption of innocence until
there is some finding of guilt, but I have watched the press accounts very carefully,
I have read them, and the press people here in the room know exactly what I am
speaking about as well as the other members of the committee.
There hasn't been a single item developed here in the committee that was not
first presented in expose fashion in the press ahead of time.
That is where the essential part of the conduct of this sort of trial has taken
place.
Now I am not here to pick a fight with the press, because that is not my purpose,
and you don't win those fights anyway. But I think it is important for the press to
reflect a little bit on the way they are sometimes used in a situation of this sort.
Because you are not Robert Vesco, not Bert Lance, not Mr. Tucker, and not a lot of
other people whose personal records were highly questionable, and where I think
people ought not to have been put forward as nominees, and in some cases when it
later developed they ought not to be in government, they were finally denied
appointment.
I must say, Mr. Chairman, you know the friendship and regard I have for you,
and I just want to make a very personal comment about it, because you were kind
enough to allow me to take the chairmanship of the Consumer Affairs Subcommittee of this committee, and I was honored to do so. I knew this was a subcommittee
chairmanship you felt very keenly about and I have done the best I could to carry
out that responsibility.
I have been honored by the showing of trust and faith that was represented by
you in me.
So I feel badly commenting with respect to what I took to be your opening
question to Mr. Miller. Because, I must say that I thought it was needlessly provocative. I thought the points were presented in an accusatory fashion. I think built into
the way it was phrased was essentially a presumption of wrong-doing or bad faith. I
don't think it was fair. I don't think it is a fair representation of how I think you
think and work, and I don't think it gives a fair impression to people here in the
room, and I don't think it probably gives a fair impression to Mr. Miller.
I think these questions can be tracked down, we can get the answers to them, in
the most civilized way.
After all, if Mr. Miller is confirmed, we are going to have to work together as part
of this Government. That doesn't mean we are going to agree on each and every
issue. That is really not the point. The point here is the fitness to serve and a very
careful finding of fact. I don't think that that has to be done in the framework of
basically the conduct, in a sense, of a trial, where there is a bill of particulars, that
is basically put forward through either leaked information or through questions
that are put that you don't have a direct opportunity to answer for some period of
time.
And then we finally wind back around, and even when all of the facts are on the
table, and I think it is absolutely crystal clear that there has been nothing improper

115
that Mr. Miller has been involved in and that his nomination is really an exceptionally fine nomination, for anyone to kid themselves and to say that a shadow hasn't
been cast is quite incorrect. It has been cast, it was cast I think as a very natural
and logical consequence of the way we have been behaving and the way we carried
this thing out.
I don't think anybody here ought to kid themselves about the fact that that is
what has happened.
The reason I make that point is not because of just yourself or this committee, but
I think unless all of us, at least pause to consider the way we are handling this
process, I think we are going to do a good deal more damage than we are good.
I am not going to say that there shouldn't be the most rigorous kind of examination of candidates proposed for high public office. I would like it to be more rigorous.
But I think there are bounds of fair play and directness and presumptions of
innocence until there is some guilt shown that we ought to abide by.
I think that we have not done this in this case nearly as well as we might have.
And I think it is sort of an accumulation of a long buildup. But I think it is
important for us to reflect on, because while no one else here might think of
themselves as some day sitting in your seat, they might be.
But I am concerned because I want other good people to be willing to come
forward and sit where you are sitting today and be willing to accept serious
assignments in the Federal Government.
I think that is absolutely vitally necessary. I think it is a strategic need and
shortfall in the United States today. And to make that process such an ordeal, and a
harassing experience, that while you may have the fortitude to stick with it and
come through it, is absolutely no guarantee it won't send great numbers of other
people who are out involved in other activities running in the opposite direction,
because they say, well, who needs this.
So this is why the object lesson is important. I think if we don't take the time to
understand what has happened here, we make a great mistake.
I know my time is up, and if it were not, I would have asked you the question of
why it was you agreed to take this job. And I ask this in great seriousness, because I
think it is important that the public and every member of this committee have an
opportunity to hear from you and to reflect carefully upon what your purposes and
motives are, why it is that you have agreed to accept this job, if confirmed, what
your feelings about it are, what your intentions are, how you would like to carry it
out.
I think if there is one question that is most important to have an answer to, I
think it is probably that question.
Now in the traffic jam of accusations and other things, that has sort of gotten
lost. But on the same point, and my time is up, I would like to pull that out of some
of the wreckage and try to get it elevated again, because I think it is part of what is
essential to restoring some equity and directness and fairness and elevation to the
kind of proceeding this ought to be.
Mr. MILLER. Senator Riegle, the chairman has been kind enough not to give me a
time limit. So I might answer your question, because it can be answered very
simply.
This Nation has certainly been good to me. From the time of my early days until
this time, I have been blessed with progress beyond what I might have expected.
The reason I accepted the assignment is simple: I don't think we can always take;
we must also give.
Senator RIEGLE. Thank you. I thank the chairman, by the way, for his patience in
allowing me to finish.
*

GIBSON, D U N N & CRUTCHER,

Washington, D.C., February 11, 1980.
H o n . WILLIAM S. PROXMIRE,

Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, D.C.
DEAR SENATOR PROXMIRE: We have served as counsel to the Special Committee on
the Board of Directors of Textron, Inc. which prepared a report dated July 24, 1979,
to the Board. The staff report of the Securities and Exchange Commission which
was furnished to you and to Senator Long on July 26, 1979, and which has now been
printed (on February 8) as an extension of the record of the Banking Committee's
1978 hearings into the nomination of G. William Miller as Chairman of the Federal
Reserve Board, contains a page discussing the work of the Special Committee and
its report (page 101 of the SEC staff report). It has been called to my attention that
page 101 was omitted—no doubt inadvertently—from the version of the staff report

116
printed by the Committee although reference to it appears in the table of contents. I
am calling this to your attention as I know you will want the Committee's record to
be complete.
For your information I am also transmitting herewith five copies of the final
printed version of the Special Committee's two volume Report. Since both Mr.
Miller and a number of the members of the Committee quoted portions of the report
during the Committee's hearing last Friday, you may wish to include the entire
report in the record of the Committee's proceedings in this matter.
Sincerely,
JOHN F. OLSON.

Enclosures.
I X . INVESTIGATION BY THE SPECIAL COMMITTEE TO THE BOARD OF DIRECTORS OF
TEXTRON, INC.

In May 1978, the Board of Directors of Textron authorized the creation of a
Special Committee to consider an investigation of questionable payments and practices. The Special Committee determined to commence such an investigation and
retained the law firm of Gibson, Dunn & Crutcher in July as counsel. Counsel to the
Special Committee consulted with the Staff during the course of the Special Committee's investigation. The Special Committee has been helpful to the Staffs investigation and, where appropriate, has received cooperation from the Staff. On July 22,
1979, the Special Committee presented its report of investigation to the Board of
Directors of Textron. On July 24, 1979, the Commission received a copy of the final
draft of the Committee's report. The Commission has been advised that the Report
of the Special Committee is being filed with the Commission as a public document
on or before July 27, 1979.

U . S . SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, D.C., February 13, 1980.

H o n . BENJAMIN CIVILETTI,

Attorney General of the United States,
Department of Justice, Washington, D.C.
DEAR MR. ATTORNEY GENERAL: In January and February 1978 Secretary Miller
appeared before the Senate Banking Committee in connection with his nomination
to be Chairman of the Federal Reserve Board. As Chairman of the Banking Committee, I am concerned about the possibility that Mr. Miller may have committed
criminal perjury before our Committee. Here is why:
Mr. Miller made a series of false and misleading statements to the Committee. We
know the statements to be false and misleading simply by comparing them to the
complaint of the Securities and Exchange Commission against Textron, its Staff
Report and Mr. Miller's own admissions before the Committee recently under oath
respecting his 1978 statements.
The purpose of this letter is to transmit to you specific information that Secretary
of the Treasury Miller "has committed a violation of any Federal criminal law other
than a violation constituting a petty offense" within the meaning of Section 591(a)
of the Ethics in Government Act of 1978.
The specific information is as follows:
On January 24, 1978 and on February 28, 1978, Secretary Miller testified before
the Committee on Banking, Housing and Urban Affairs on his nomination to be a
member (Chairman) of the Federal Reserve Board.
The Committee had received information that in 1973 Textron paid a $2.9 million
commission to its Iranian sales agent, Air Taxi, in connection with the sale of
helicopters to the government of Iran and that General Khatami, the head of the
Iranian Air Force, had a financial interest in Air Taxi. If General Khatami did have
an interest in Air Taxi and if Textron knew of the ownership interest, the $2.9
million commission payment would have constituted a bribe by Textron to an
Iranian government official.
The Committee also had received information that Textron may have paid a bribe
to a Ghanian government official through a Nigerian front in connection with the
sale of helicopters.
The Committee was also concerned that overbilling and accommodation payment
practices at Textron and payments to Swiss bank accounts were being used to
facilitate the payment of bribes to foreign government officials and for other illegal
purposes.

117
Mr. Miller's stewardship of Textron during the period 1960-1978 was relevant to
his qualifications to serve as Chairman of the Federal Reserve Board. The Committee endeavored, therefore, to develop a complete record through Mr. Miller's testimony on whether Textron had paid foreign bribes to gain business, and specifically
on the Air Taxi, Ghana, overbilling, Swiss account and accommodation payments
matters.
In his testimony before this Committee in 1978, Mr. Miller denied that General
Khatami had an ownership interest in Air Taxi; denied that Textron knew of
General Khatami's ownership of Air Taxi; and denied that he himself knew of
General Khatami's ownership interest in Air Taxi.
In his testimony before this Committee in 1978, Mr. Miller was requested to
report to the Committee on Textron's sale of helicopters to the government of
Ghana and the activities of its agent. Mr. Miller reported to the Committee that he
had examined the transaction and although he did not approve of the way it was
structured, he did not know of any impropriety.
In his testimony before this Committee in 1978, Mr. Miller repeatedly denied that
Textron engaged in the bribery of foreign government officials. Mr. Miller testified
that Textron had a policy against foreign bribery and that he was familiar in detail
with the operation of Textron and that neither he nor his senior officials knew
about or condoned the bribery of foreign officials.
In his testimony in 1978 before this Committee, Mr. Miller denied that there was
anything improper or illegal with Textron's overbilling or accommodations payments practices and that Textron made no payments to Swiss accounts for improper
purposes.
Based upon the complaint of the Securities and Exchange Commission and its
Staff Report and Mr. Miller's own admissions under oath, it appears clear that Mr.
Miller's testimony before this Committee in 1978 was false and misleading. Further,
there is every good objective reason to believe that Mr. Miller knew his testimony
before this Committee in 1978 was false and misleading. Secretary Miller, therefore,
may have committed perjury before this Committee in 1978.
The SEC complaint states that General Khatami had an ownership interest in Air
Taxi and that General Khatami received $500,000 of the $2.9 million paid to Air
Taxi by Textron in 1973. The SEC complaint and Report together with information
supplied to this Committee show that Textron knew and had every reason to know
that General Khatami owned Air Taxi. Officials of Textron who were in contact
with and reported to Mr. Miller had knowledge of General Khatami's interest in Air
Taxi. Documents in Textron's files showed that General Khatami had an ownership
interest in Air Taxi. In fact, General Khatami's ownership of Air Taxi was common
knowledge in Iran as testified to by State Department personnel and public source
documents including a Commerce Department World Trade Data Report supplied to
Textron by the Commerce Department pursuant to Textron's request. These objective facts strongly infer that Mr. Miller had reason to know that General Khatami
had an ownership interest in Air Taxi at the time he denied such knowledge before
this Committee in 1978.
The SEC complaint and Staff Report show that the sale of helicopters to the
government of Ghana was structured to facilitate the payment of a bribe to a
Ghanian government official. Mr. Miller failed to report this fact to the Committee
although objective facts strongly indicate he had reason to know that a payoff was
made in the Ghana transaction. On January 25, 1978 one day after Mr. Miller first
appeared before this Committee and was requested to inquire into the Ghana
matter, Textron destroyed a document which revealed that a bribe was paid to a
Ghanian government official. Senior officials at Textron knew that the Ghanian
bribe had been paid. Mr. Miller discussed the Ghana transaction with those officials
in connection with his testimony to this Committee on the Ghana transaction. I
believe Mr. Miller had reason to know that a bribe was paid by Textron in Ghana.
Mr. Miller did not report the true facts to this Committee concerning the Ghana
transaction.
Contrary to Mr. Miller's testimony before this Committee in 1978, the SEC complaint and Staff Report set forth a course of conduct at Textron during an eight
year period in which Mr. Miller was either the President or Chairman of Textron in
which Textron bribed foreign government officials in ten different countries. The
facts are clear: under Mr. Miller, Textron had a worldwide policy of bribery of
foreign government officials. Mr. Miller's testimony before this Committee in 1978
was that Textron did not engage in foreign bribery. The SEC complaint characterized statements to the same effect made by Mr. Miller to Textron stockholders in
1976 and 1977 as "erroneous and misleading" and without a reasonable basis. Mr.
Miller had every reason to know that his testimony to this Committee in 1978
concerning Textron bribes was false and misleading. Senior Textron officials in

118
direct communication and reporting relationship to Mr. Miller had knowledge of the
bribes in foreign countries. Based upon the objective evidence, it is unreasonable to
conclude that Mr. Miller did not know of the bribes in foreign countries.
Contrary to Mr. Miller's testimony to this Committee in 1978, the SEC complaint
and Report show that overbilling and accommodation payments were used by Textron to facilitate the bribery of foreign government officials and tax fraud by foreign
entities in their home countries. Contrary to Mr. Miller's testimony to this Committee, and according to the SEC complaint and Staff Report, Textron made payments
to Swiss bank accounts to facilitate the bribery of foreign government officials.
If Mr. Miller knew in 1978 that these statements were false or misleading—that is
when he made them—he committed perjury.
Did he know?
There was every opportunity for Mr. Miller to know in 1978 that the statements
he made to our Committee were false or misleading. Here's why: Mr. Miller was
known to be a vigorous and competent chief executive of Textron who made a
practice of knowing the details.
His senior executives—Mr. Miller's subordinates—who reported directly to him—
knew—according to the established record—at the time Mr. Miller testified that
some of his statements were false.
Did these senior officials tell Mr. Miller before he testified what the truth was
about Textron bribery—in any of the fourteen cases of bribery? If they did, Mr.
Miller committed perjury before this Committee.
I believe that the facts which I have recited and which are readily available to the
Justice Department by comparing Mr. Miller's testimony before this Committee
with the SEC complaint and Staff Report make a strong case for the appointment of
a special prosecutor under the Ethics in Government Act of 1978 to inquire into
whether Secretary Miller committed perjury or obstructed justice before this Committee in connection with his nomination to be a member (Chairman) of the Federal
Reserve in 1978.
There are strong indications that Textron engaged in a deliberate policy of
obstructing this Committee's function in inquiring into Mr. Miller's qualifications to
serve as a member (Chairman) of the Federal Reserve in 1978. Last October the
Wall Street Journal published an investigation report which discussed the destruction of documents at Textron as follows: "In anticipation of the Senate (Miller
confirmation) hearings, sales managers in the international marketing department
now say they were told to look through correspondence files with dealers overseas.
The stated purposes was to make sure that nothing in the files could be "misinterpreted" by Mr. Miller's critics, chiefly Banking Committee Chairman William Proxmire of Wisconsin. To some managers, these instructions meant that the files should
be cleaned out". The SEC complaint and Staff Report show that the day after Mr.
Miller's first appearance before this Committee a Textron document was destroyed
which revealed that Textron had paid a bribe to a Ghanian government offical. On
other occasions, Textron's submission of documents to the Committee were timed to
stonewall the Committee's effort to get to the bottom of General Khatami's ownership interest in Air Taxi and whether Textron had paid a bribe to the Iranian
General.
Textron officials failed to make the Committee aware of the existence of a
document relating to an internal inquiry into the $2.9 million payment to Air Taxi
until after the Committee has discovered the existence of the document in accounting work papers of Arthur Young and Company, Textron's accountants, even
though the Textron document was called for by the Committee's initial document
letter request.
The existence of documents in Textron's possession relating to William French (a
Textron sales agent) and his attorney and which were called for by a Committee
subpoena were not made known to the Committee until after the Committee found
out about the existence of the documents through Mr. French's lawyer, C. Robert
Bell of Wichita, Kansas, and made a further request on Textron.
Frank M. Sylvester (a key Textron divisional Vice President for International
Marketing) testified under oath that he had no knowledge of General Khatami's
influence over military purchases by Iran. Over two weeks later, Textron supplied
the Committee with a document which it earlier had failed to turn over pursuant to
a Committee subpoena showing that Mr. Sylvester had discussed General Khatami's
influence in Iran over military purchases with other Textron employees. The document appears to directly contradict Mr. Sylvester's testimony.
On the morning of the final Committee vote on the nomination of G. William
Miller, just prior to the convening of the Committee, Textron tendered documents to
the Committee which it said came "into our possession at this last minute" confirm-

119
ing that public records in Iran showed General Khatami to have been Chairman of
Air Taxi.
Furthermore, a March 1971 Textron memorandum which contained evidence that
General Khatami owned Air Taxi, and which was discussed by senior officials of
Textron was not delivered to this Committee until June 21, 1978, months after Mr.
Miller's confirmation as a member (Chairman) of the Federal Reserve.
I believe that the foregoing specific information concerning Secretary Miller
satisfies the statutory standard for the appointment of a special prosecutor under
the Ethics in Government Act of 1978. In addition, there are overwhelming compelling public reasons for the appointment of a special prosecutor in Secretary Miller's
case.
A central purpose of the special prosecutor provisions of the Ethics in Government Act of 1978 is to ensure the public that information concerning wrongdoing by
Cabinet level officials forming part of the President's team will be vigorously
investigated by someone independent of the President's Cabinet team. The Attorney
General is a Cabinet official. And while I have the highest faith in your own
personal integrity, the public simply will not be satisfied by a prosecutorial review
of the information concerning Secretary Miller unless undertaken by a special
prosecutor.
Consider the fact that eleven Textron officials of Textron agents took the Fifth
Amendment in the SEC investigation and their testimony was not obtained and the
further fact that senior officials of Textron having direct contact with Mr. Miller
while he served at Textron and who had knowledge of the bribery of foreign
government officials have not as of this date been interviewed by the Justice
Department.
Neither the Securities and Exchange Commission nor this Committee can immunize witnesses and conduct an inquiry before a grand jury to learn the whole truth
of Secretary Miller's knowledge that his statements to this Committee in 1978 were
false and misleading. Only a prosecuting agency like the Department of Justice or a
special prosecutor has that kind of power.
But the Department of Justice has a glaring conspicious conflict of interest. Mr.
Miller is in the same administration as the Attorney General. They are fellow
cabinet officers. It is an election year. An adverse finding against Mr. Miller by the
Attorney General would hurt the Administration, compromise the prospects of the
President's continuation office after the next election and possibly bring down the
present Attorney General as well as the President.
The difficulty posed by one Cabinet official passing on information relating to the
criminal activities of another cabinet official is well illustrated by what has occurred in Secretary Miller's case. The SEC filed its complaint in the Textron matter
on January 31. The facts in the complaint together with those in the underlying
Staff Report made clear that senior officials of Textron had knowledge of bribery.
These officials were in communication with Mr. Miller when he headed Textron.
Despite the fact that the Justice Department had written to me on January 14 that
its investigation of obstruction of justice before this Committee would take several
months to complete and the fact that the senior Textron officials had not been
interviewed by the Justice Department, on February 5, 1980 you appeared before
the Senate Appropriations Committee and stated that Mr. Miller had no knowledge
of foreign bribes. I believe that your conclusion on February 5 was at least premature.
The facts concerning Secretary Miller make a more compelling case for the
appointment of a special prosecutor than in the case of Hamilton Jordan where a
special prosecutor was appointed pursuant to your request. In the Jordan case you
found that although prosecution was not warranted, further investigation could not
be ruled out. In Secretary Miller's case not only is further inquiry necessary but
prosecution cannot be ruled out. Certainly Secretary Miller's case meets the statutory standard for appointment of a special prosecutor.
It is for precisely this situation for which the office of special prosecutor has been
created under the law. Mr. Miller may be guilty of perjury. He may be innocent.
But exoneration of Mr. Miller by the Attorney General will not be credible to
millions of Americans.
For the reasons I have stated, I believe that a special prosecutor should be
appointed under the Ethics in Government Act of 1978 to investigate whether
Secretary Miller committed perjury or obstructed justice in his confirmation hearings before the Senate Banking Committee on his nomination to be a member

120
(Chairman) of the Federal Reserve. I look forward to your prompt reply to this
letter.
Sincerely,
WILLIAM PROXMIRE,

Chairman.

OFFICE OF THE ATTORNEY GENERAL,

Washington, B.C., March 11, 1980.
H o n . WILLIAM PROXMIRE,

Chairman, Committee on Banking, Housing and Urban Affairs,
U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN: I am writing in response to your letter of February 13, 1980,
requesting that I seek to have a Special Prosecutor appointed under the provisions
of the Ethics in Government Act of 1978 to investigate whether Treasury Secretary
G. William Miller committed purjury during hearings on his nomination to be a
member of the Federal Reserve Board in 1978.
As you know, in early 1978, at the instance of your Committee and others, the
Criminal Division opened an investigation to attempt to determine whether or not
there was evidence to support perjury or obstruction of justice charges against
anyone in connection with these hearings. As we reported in January 1980, our
investigation is continuing.
In support of your request, you cite the SEC complaint against Textron filed
January 31, 1980, and that agency's staff report. Throughout the course of the SEC
investigation, attorneys for the Criminal Division were kept informed of the nature
of the material developed by the SEC. They are, as nearly as we can tell, fully
familiar with the evidence which formed the foundation for the SEC staff report of
July 26, 1979, which is the basis for the recent SEC complaint. Significant evidence
in the report was, in fact, made available to the SEC by the Department.
W e have reviewed again the SEC staff report and the complaint, as well as the
testimony before your Committee during the 1978 confirmation hearings. W e have
also reviewed your Committee's staff report and have had the attorney in charge of
our investigation attend the testimony before your Committee in February. W e find
nothing from any of these sources which enlarges upon the preliminary view given
to you by the SEC in its letter of January 28, 1978, in which Chairman Williams
said, " . . . we have no indication of involvement of Mr. Miller in the activities
under investigation." The very same facts you now outline were known to the
Senate Finance Committee during its hearing on Mr. Miller's nomination to be
Secretary of the Treasury. At that time, Senator Long remarked to Mr. Miller
concerning the SEC staff report on the issue of Mr. Miller's knowledge of the
foreign bribery: "it does not at any point suggest you knew about it or you approved
it." As you took pains to point out, as recently as your Committee's hearings on
February 8, 1980,1 there is nothing in the record before your Committee, the SEC or
the Textron Special Committee investigation, either in testimonial or documentary
form, linking Secretary Miller to any improper activity in the Textron matter.
The continuing investigation of the Criminal Division has not revealed evidence
that Mr. Miller was informed by anyone of improper payments by Textron and Bell
Helicopter, or that Mr. Miller learned about such payments in any other way. There
is some evidence that certain Textron and Bell Helicopter officials who reported to
Mr. Miller were told of information relating to some payments. However, all but
two of them have denied under oath any recollection of being told. Of the remaining
two, each has testified that he did not believe the information and, in any event, did
not tell Mr. Miller.
As in the Lance and Carter Warehouse cases, the transition provision of the
statute presently bars appointment of a Special Prosecutor since the grand jury
investigation of this matter which was underway prior to the enactment of the
Special Prosecutor Act and all the information to which you refer was received
prior to the conclusion of the statutory transition period. Section 604(2), 28 U.S.C.
591 note. Accordingly, I must respectfully decline to petition for the appointment of
a Special Prosecutor in this matter.
Even if the Ethics in Government Act of 1978 were applicable, I have very serious
doubts that specific information sufficient to trigger the Act has been developed
indicating that Secretary Miller has violated any criminal law.
1 "Let me say first and most emphatically that nothing in the record—not the investigation by
the Committee staff, and it was a thorough investigation, not the staff investigation by the SEC,
not the investigation by the independent directors of Textron—has uncovered any testimony or
document linking Secretary Miller to any foreign bribe or the destruction of any record or any
other improper activity relating to foreign bribes." (Hearings, Feb. 8, 1980, p. 5).

121
In view of your concern and that of your Committee, I would like to outline,
before closing, the history of our investigative efforts, with particular reference to
some of the comments in your letter.
Pursuant to a plea agreement, Textron entered a guilty plea to a felony charge
arising out of the Criminal Division's investigation of foreign payments by the
company. As in the overwhelming majority of such pre-FCPA cases, no charges
against individual officials were filed because the evidence would not support such
charges. The plea agreement specifically excluded, among other things, obstruction
of justice and perjury which were the subjects of your referral and on which our
investigation centers.
It is important to note the necessary factual predicate for possible charges of
perjury in the context of this investigation. First, of course, there must be proof of
the underlying improper payments in order to demonstrate that the testimony was,
indeed, false. Second, and far more difficult, there must be evidence that the witness
knew the testimony was false at the time it was given. Admissions by the witness
that he subsequently became aware that the testimony was false are not sufficient.
The fact that the witness "should have known" is far from adequate proof.
The evidence-gathering process in a foreign payments related case involves seeking evidence abroad both for its own value and as a predicate for detailed questioning of witnesses in the United States. In this connection we have sought, and
continue to seek, the assistance of foreign governments in obtaining both testimonial and documentary evidence. To date, requests have been made to four foreign
governments. We have sent our lead attorney to Europe in pursuit of this evidence.
It is a time-consuming process, especially where, due to the nature of the requests,
all cannot be made simultaneously.
Your letter states that "eleven Textron officials or Textron agents" invoked the
Fifth Amendment privilege before the SEC and then goes on to state that "senior
officials of Textron having direct contact with Mr. Miller * * * and who had
knowledge of the bribery of foreign government officials have not as of this date
been interviewed by the Justice Department." You then comment that only this
Department or a Special Prosecutor can immunize witnesses who invoke the Fifth
Amendment privilege. From the above, I infer that you believe that an unjustified
failure to immunize persons close to Mr. Miller at Textron has stalled the investigation. That is not accurate.
We, of course, do hesitate to immunize anyone whose quilt we may be able to
prove and we like to develop a full factual predicate, including foreign evidence,
before questioning key witnesses. But in this case the Fifth Amendment privilege
was invoked by only one Textron official and this was on a matter unrelated to the
subject of your letter. Also, one Bell Helicopter official refused to testify. The
balance of the Fifth Amendment invocations was by sales agents and lower-level
employees of Bell Helicopter. Of this latter group, several have been given immunity. I anticipate that virtually all of the persons to whom you refer will be called to
testify before the grand jury, and where necessary, their testimony compelled.
In summary, none of the investigation since early 1978 has substantiated any
assertion of a criminal violation by Secretary Miller.
Senator, I have tried, within the constraints of Rule 6(e), Federal Rules of Criminal Procedure, to outline for you some of the investigative steps we have taken in
this matter in the hope of persuading you that we are meeting our responsibilities
as prosecutors. The investigation has taken longer than either of us would like but
thorough criminal investigations involving foreign transactions take time. This has
proved true in each of our foreign payment cases. However, we anticipate completing the interviews of all witnesses who are amenable to process within the near
future. I have directed the Criminal Division to proceed with all possible speed.
If, upon completion of our inquiry, you are dissatisfied with the results, I shall,
upon receipt of an appropriate request, make available to the Committee the full
investigative record to the extent that I am permitted to do so by law. Meanwhile,
should substantial new evidence be developed, please be assured that I will consider
the propriety of the matter continuing to be handled in the Department.
I hope that I have been able to allay some your concerns in this matter.
Very truly yours,

BENJAMIN R . CIVILETTI,

Attorney General.

122

REPORT
OF
THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS OF
TEXTRON INC.

Richard T. Baker
Paul M. Fye
Webb C. Hayes, III, Chairman

GIBSON, DUNN & CRUTCHER,

Counsel

July 24, 1979

VOLUME ONE

123

To The Board of Directors

July 24, 1979

TEXTRON INC.

Submitted herewith is a report of the Special Committee appointed by
the Board of Directors on May 31, 1978 and directed by the Board (i) to
conduct an investigation to determine the extent and nature of any
questionable and illegal payments and practices and (ii) to report its
findings to the Board and to the Securities and Exchange Commission
("SEC").
In accordance with the Board's instructions, a copy of this Report will
be delivered in the immediate future to the SEC.
Our Report consists of two volumes. Volume One includes four Parts.
Part I is a general overview of the Committee's findings. Part II outlines the
background of the Committee's appointment and describes the nature and
scope of the investigation. Part III presents the Committee's findings as to
specific matters. Part IV sets forth the Committee's recommendations, based
on itsfindings,as to actions deemed desirable to insure continued implementation of the business conduct guidelines already adopted by the Board and
to prevent the recurrence of past problems identified by the Committee.
Volume Two sets forth details of the Committee's findings and
background as to the development of corporate conduct policies at Textron.
The Committee's findings represent the considered judgment of the
members of the Committee based on the information obtained during the
investigation. The Committee's counsel have advised that they are of the
opinion that the Committee's findings are reasonable and fully supported by
the evidence which was considered by the Committee. The Committee has
unanimously approved this Report and the recommendations it contains.
The Committee acknowledges with appreciation the cooperation it
received from Textron's management and the managements of all Textron
divisions.
RICHARD T . BAKER
PAUL M . FYE
WEBB C . HAYES, III, C h a i r m a n

69-845 0 - 8 1 - 9

124

ii
TABLE OF CONTENTS
VOLUME ONE
Transmittal Letter
Table of Contents
Table of Appendices
Names Frequently Abbreviated in this Report
PART I General Overview of the Committee's Findings
PART II The Committee's Work: Scope and Conduct of the
Committee's Investigation
A. Background of the Committee's Appointment
B. Appointment and Organization of the Committee
C. Scope of the Committee's Investigation
D. Conduct of the Investigation
1. Staff Assistance
2. Questionnaires
3. Preliminary Document Review
4. Division Reviews
5. Special Procedures at the Bell Helicopter Division
6. Interviews of Non-Employees and Other Procedures
7. Pertinent Aspects of the Interview Process
8. Special Assistance Provided by Outside Auditors
9. Relations with the SEC Staff
E. The Fact-Finding Process
F. Use of Names in the Report
PART III Summary of the Committee's Findings as to Particular
Transactions
A. Textron — An Overview
B. Summaries of Findings as to Foreign Sales of Bell Helicopter .
1. Introduction
2. Ghana
3. Dominican Republic
4. Country " A "
5. Country " B "
6. Country " C "
7. Country " D "
8. Country " E "

i
ii
vi
vii
1
6
6
7
9
10
10
10
11
11
12
13
14
14
15
15
16
16
16
18
18
21
22
22
23
24
24
25

125

iii

9. Country " F "

10. Country " G "

11. Country " H "

12. Country " I "

13. Country " J "

14. Country " K "

15. Other Countries

Summaries of Findings as to Foreign Sales of Divisions Other
than Bell Helicopter
1. Introduction and Overview

31
31

2. Fafhir

3. Shuron

4. Bell Aerospace

5. Questionable Practices of a Less Important Nature

Occasions on which Textron Divisions Rejected Requests for
Improper Payments or for Other Questionable Actions

Summary of Findings as to Accommodation Payments and
Overbillings as to Foreign Sales

Summary of Findings as to Sales Practices with Respect to
Domestic Operations

Summary of Findings as to Political Contributions

Summaries of Findings as to Miscellaneous Matters Examined
by the Committee

1. The Sixty Trust: Sale of Property in Country X

2. A Charitable Contribution to a Medical Foundation

3. Bell Helicopter's 1978 Inquiry into the 1971 Sale to the
Government of Ghana

Findings as to Accounting Practices Related to Questionable
Transactions

Findings as to Senior Officers of Textron

PART IV The Committee's Recommendations

Introduction

Recommendations

1. Establishing and Communicating Standards of Business
Conduct

2. Oversight of the Corporate Compliance Program

126

iv
3. Control of International Marketing Activities
4. The Audit Committee and the Internal Financial Controls Environment
5. Particular Recommendations with Respect to Bell
Helicopter
6. Textron Legal Department Liaison with the Divisions ...
7. Disciplinary Recommendations

53
55
60
62
62

i
1
1
1
5
8
11
13
15
17
20
23
24
25
27
28
29
32
42
42
42
45
47
50
50

127

E.
F.

2. Accommodation Payments
3. Overbillings
Additional Information with Respect to Domestic Operations .
1. Marketing to the United States Government: Hospitality Expenses
2. Findings as to Domestic Commercial Marketing
Practices Generally
3. "Push Money" Payments
Additional Information as to Political Contributions
Additional Information as to Miscellaneous Matters Examined
by the Committee
1. The Sixty Trust: Sale of Property in Country X
2. A Charitable Contribution to a Medical Foundation
3. Bell Helicopter's 1978 Inquiry into the 1971 Sale to the
Government of Ghana
A Short History of the Development of Textron Business
Conduct Policies
1. The Period 1971-1975
2. The Period 1976-1978
3. Programs to Assure Compliance with the Foreign
Corrupt Practices Act
4. Development of the Business Conduct Guidelines
5. Additional Steps in Conjunction with Outside Auditors .

52
55
57
57
59
61
61
64
64
67
69
72
72
75
78
79
80

128

vi
TABLE OF APPENDICES

(In the order of reference in the Report)
A.

The SEC's Order of Investigation

Letter from Chairman Harold M. Williams of the SEC to the Senate
Banking Committee

Text of the Board Resolution Appointing the Committee

Report of the Committee to Textron's Board of Directors, June 28,

The Committee's Questionnaire

Letter to Presidents of Textron Divisions from G. William Miller
Dated May 12, 1977 Regarding Standards of Conduct

Statement of Objectives, Policies and Functions of the Audit Committee (April 1979)

Instructions to Division Chairmen and Presidents Regarding Internal
Audit Objectives (December 1978)

Letter to Presidents of Textron Divisions from G. William Miller

Forms of Statement as to Illegal, Improper or Questionable Payments
Used in Connection with 1976 and 1977 Audits
Table of Contents, Textron's Business Conduct Guidelines (November 1, 1978)

1978

Dated August 16, 1976 Regarding Standards of Conduct

129

Vll
N A M E S F R E Q U E N T L Y ABBREVIATED IN T H I S REPORT

Agusta

—

Construzioni Aeronautiche Giovanni
Agusta, Bell's licensee for Europe
and other parts of the world

Arthur Young

—

Arthur Young & Company, Textron's
independent auditing firm throughout the period under review

Bell

—

the Bell Helicopter Textron division of
Textron Inc.

Bell Aerospace

—

the Bell Aerospace Textron division of
Textron Inc.

Committee or Special Committee

—

the Special Committee appointed by
the Board of Directors of Textron
Inc. on May 31, 1978

Corporate Office

—

the headquarters office of Textron located in Providence, Rhode Island

DOD

—

the United States Department of Defense

DOJ

—

the United States Department of Justice

IRS

—

the United States Internal Revenue
Service

—

the period 1971 through the date of
appointment of the Special Committee, May 31, 1978

—

the Senate Banking Committee, which
held hearings on the nomination of
G. William Miller to the Board of
Governors of the Federal Reserve
System in January-February 1978

SEC

—

Textron, or the Company

—

the United States Securities and Exchange Commission
Textron Inc.

Period under review

SBC

130

PARTI
GENERAL O V E R V I E W OF THE C O M M I T T E E ' S

FINDINGS

The Committee's investigation covered the period January 1, 1971
through May 31, 1978, the date of the Committee's appointment.
The following table summarizes questionable payments and other
payments the Committee deemed worthy of note made during the period
under review:

Type of Payment

Domestic political contributions
Foreign political contributions
Payments to officials of foreign governments as to which Textron employees had direct participation
Estimate of amounts received by officials of foreign governments from
payments made to Textron dealers
or agents which Textron employees
knew would be shared in whole or
in part with such officials
Payment in settlement of commission
claims made to the Iranian dealer
for the Bell Helicopter Division
("Bell")

Number of
Divisions
Involved

Number of
Countries
Involved

3
1

—
1

870,700.

885,400.

2,950,000.

Amount

975.
200.

It should be observed that during the period under review Textron's
total sales were approximately $16.3 billion and its total international sales
(through December 31, 1977) were approximately $4 billion.
The Committee considers the last item in the table, namely the $2.95
million settlement paid in the years 1973-75 to Air Taxi Company, Bell's
dealer in Iran, to be a special case not properly included in any of the other
categories of payments summarized in the table. The most significant of the
circumstances and conclusions relating to this payment are briefly outlined
below. Further details are included beginning at page 32 of Volume Two of
this Report.
(a) Based on evidence available to the Committee, it is highly
probable that General Mohammed Khatemi, the deceased former

131

2
Commander of the Iranian Air Force, had a secret financial interest in
Air Taxi, or in commissions earned by Air Taxi, during the time Air
Taxi acted as Bell's dealer in Iran and the settlement was agreed upon;
( b ) There is evidence that in 1966 Mr. Edwin J. Ducayet, then
President of Bell, was orally informed that General Khatemi was a
part-owner of Air Taxi. Mr. Ducayet has stated that he has no
recollection of being so informed and there is no evidence that any such
information was transmitted by Mr. Ducayet to his successor, Mr.
James F. Atkins, or to anyone else;
(c) In 1967, good and sufficient business reasons existed for
replacement of the dealer which had represented Bell in Iran since
1964. In early 1968, Air Taxi was selected as the new dealer by Bell's
Vice President for Commercial Marketing, on the recommendation of
certain of his subordinates. At the time the selection was made, the Vice
President and his subordinates had received information indicating that
General Khatemi very likely possessed a financial interest in Air Taxi.
In addition, Bell personnel in 1967 ordered a U.S. Department of
Commerce report that stated that General Khatemi "reportedly has
financial interests in the firm." However, the international marketing
function was transferred to a new department in 1969 and the Vice
President for Commercial Marketing ceased his involvement in and
responsibility for international sales.
(d) During the three years 1968-70, only modest efforts were spent
in attempting to develop Bell's international sales. Early in 1971, a
lengthy and optimistic report concerning business possibilities in Iran
was prepared by a Bell employee based in Brussels (who had traveled
to Iran) and circulated to Bell's International Marketing personnel.
There is evidence that the report was seen by both Mr. Ducayet and Mr.
Atkins, although neither of them recalls it. Referring to Air Taxi, the
report states that "the real influence behind the Company is General
Khatemi . . . in reality anything that flies he has an 'interest* in."
After giving consideration to all of the foregoing factors and to other
pertinent facts and circumstances, the Committee has drawn three conclusions which it believes to be significant in evaluating the conduct of Bell
in respect of its Iranian business:
1. On balance, the Committee is of the opinion that those senior
officers of Bell who actually negotiated the payment of $2.95 million

132

3
which Bell made to Air Taxi did so without knowledge or belief that
General Khatemi had a financial interest in Air Taxi, and that they did
not intend or anticipate that part of such payment would go to the
General, directly or indirectly.
2. Based on extensive inquiries, the Committee is satisfied that the
sale of 489 helicopters to Iran which generated the commission claims
settled by the payment to Air Taxi was effected by reason of certain
significant and unusual characteristics of the Bell product which made it
suitable for the purposes intended. There is no evidence that the sale
was made by reason of influence exerted by General Khatemi.
3. There is no evidence that any Bell officer or employee sought to
cause General Khatemi to use his influence on the decision to purchase
helicopters from Bell. Although because of his background and position
General Khatemi was concerned with all aircraft matters in Iran,
another Iranian military officer of highest rank had the basic responsibility for that decision. In addition, the Committee found no evidence
that any officer of Textron had any information which indicated a
possible interest of General Khatemi in Air Taxi.
The Committee is satisfied on the basis of its investigation that no
officer of Textron or any of its divisions sought or obtained any personal
financial gain in the course of any of the transactions described in this
Report. Where employees were involved in questionable activities, the
evidence is that they genuinely, albeit mistakenly, believed their activities to
be in Textron's best interest.
The questionable activities which were found by the Committee cannot
be condoned and are a matter of serious concern for the Board of Directors.
However, such activities related to only a few of Textron's 26 divisions. With
the exception of minor political contributions made at several divisions and
certain transactions involving the Fafnir Division, all payments summarized
above related to the international marketing activities by Bell. There was no
evidence of impropriety in connection with the overwhelming majority of
international transactions and no evidence of a bribe in a domestic
transaction.
The Committee made the following additional findings:
• Bell's sales representatives in two countries and a subdealer in
another country appear to have been owned by or closely related to

133

4
government officials of those countries. In one instance, information
came to the attention of two officers of Textron in the years 1975 and
1976 which should have resulted in further inquiry as to the ownership
of the representative, but no inquiry was made nor were any other
Textron officers made aware of the information. Except for this instance,
the Committee found no evidence that any officer of Textron had
knowledge prior to the 1978 Senate Banking Committee ( " S B C " )
hearings of any of the questionable activities described in this Report.
• The Committee found that, during the period under review,
accommodation payments (that is, payments made at the request of a
creditor to a third party or to a location other than the creditor's regular
place of business) were made by 14 Textron divisions. Certain other
undesirable practices (principally overbilling of foreign customers at a
customer's request to establish a credit balance for the customer in the
United States) were engaged in by 11 divisions. When these practices,
which were not unusual in American business, came to the attention of
Mr. G. William Miller, then Chairman and Chief Executive Officer of
Textron, the Company issued a directive dated May 12, 1977 prohibiting them. However, in a number of divisions these practices continued
for varying and substantial periods. This failure to implement a specific
Company directive is a matter of concern for the Board of Directors.
The Committee's recommendations, which begin at page 48 of this
Report, focus on more effective implementation and monitoring of such
policy directives.
• The Committee found that two divisions, Bell and Bell Aerospace, did not maintain documentation as to reimbursement for meal
and beverage expenditures for Department of Defense ( " D O D " )
employees and that this practice was not effectively stopped until 1978
at Bell and Bell Aerospace. Senior officers of Textron as well as division
officers were aware of the practice.
• The Committee reviewed in detail the internal inquiry which Bell
conducted in early 1978 in response to questions raised at the SBC
hearings on Mr. Miller's nomination to the Board of Governors of the
Federal Reserve System about a 1971 sale of two Bell helicopters to
Ghana. The Bell inquiry was the basis of information furnished to the
SBC which did not include the fact, known to a number of Bell
employees, that a highly questionable payment had been made with
Bell's participation in connection with the 1971 sale. The Committee

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has concluded that the Bell internal inquiry was impeded by the failure
of Bell's International Marketing Department employees and Bell's
Treasurer to be forthcoming with the facts and by the deliberate
destruction of an important document by Bell's International Sales
Manager. Moreover, the inquiries were never completed and were
handled in a careless manner. However, the Committee is satisfied that
no other Bell officer and no Textron officer either knew of the 1971
payment at the time of the Miller confirmation hearings or knowingly
gave incomplete information to the SBC.
• The Committee reviewed the activities of the Textron charitable
contributions program and, in particular, examined one large charitable
contribution to an institution related to a hospital at which the son of an
influential official of a government customer of Bell was a resident. The
Committee also reviewed the circumstances of retention and payment of
a foreign law firm which advised the Textron employees' pension trust
as to a sale of property to a foreign government in which an inactive
partner of the law firm was a high official. The Committee found no
evidence of impropriety as to either of these matters.
• The Committee found that in general Textron-followed sound
and appropriate accounting practices, although in some instances questionable transactions were accompanied by inappropriate practices.
These instances are described beginning at page 42 of this Report.
Neither the questionable payments nor the inappropriate accounting
practices found by the Committee had any material effect on Textron
financial statements issued during the period under review.
It is important to note that the Committee found a number of instances
in which Textron rejected overtures for improper payments. Some of these
instances are described beginning at page 36 of this Report. Even more
important, the Committee is convinced that Textron's management has
historically been and is today committed to a policy of maintaining high
standards of business ethics and compliance with the law. During the year
that the Committee's investigation and the parallel federal government
investigations have been underway, Textron has taken a number of effective
steps to implement and enforce that policy. The Committee's recommendations for further steps are intended to build on what is already a solid
foundation.

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P A R T II
THE COMMITTEE'S W O R K : SCOPE AND CONDUCT
OF THE COMMITTEE'S

INVESTIGATION

A. B A C K G R O U N D O F T H E C O M M I T T E E ' S

APPOINTMENT

In January 1978 President Carter sent to the United States Senate the
nomination of Mr. Miller, then Chairman and Chief Executive Officer of
Textron, as a member of the Board of Governors of the Federal Reserve
System and indicated that, if Mr. Miller was confirmed, he would be
designated as Chairman of the Board. The SBC, under the chairmanship of
Senator William Proxmire, conducted hearings on the Miller nomination,
beginning on January 24, 1978.
Several questions were raised at the hearings as to the following
international marketing activities of Bell: ( 1 ) the 1972-73 agreement to pay
and subsequent payment of a $2.95 million settlement in lieu of commissions
to Bell's former representative in Iran, Air Taxi Company, and possible
ownership of an interest in Air Taxi by General Mohammed Khatemi; ( 2 )
the 1971 sale by Bell of two helicopters to its representative, Tropical
Aircraft Sales Company, with immediate resale of the helicopters to the
Government of Ghana at a price increase of approximately $300,000; ( 3 )
the training of Ugandan helicopter pilots by Bell; and ( 4 ) sales of
helicopters to Algeria by Bell's Italian licensee, Agusta. (The third and
fourth questions were answered to the apparent satisfaction of the SBC and
have not been raised subsequently.)
Following the SBC hearing on January 24, the SBC staff conducted
additional investigations, including extensive interviews of Bell employees
and an examination of documents produced by Bell. The focus of these
investigations was upon Bell's sale of helicopters to Iran and its payment of
$2.95 million to Air Taxi.
On February 16,1978, while the SBC staff was conducting its inquiry, the
SEC issued an order of investigation with respect to Textron. A copy of the
order is Appendix A to this Report. Chairman Harold M. Williams of the
SEC thereafter wrote to the SBC outlining the scope of the SEC's investigation. His letter of February 22, which has been made public, is
Appendix B to this Report.

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On February 27 and 28, 1978, the SBC hearings on the Miller
nomination resumed and additional information was presented with respect
to the questions raised in the earlier hearings. On March 2, 1978, the SBC
reported favorably on the Miller nomination, and on March 3, 1978, Mr.
Miller was confirmed by the Senate.
As a result of the questions raised during the Miller confirmation
hearings, the Department of Justice ( " D O J " ) and the Internal Revenue
Service ( " I R S " ) also instituted new or extended existing investigations into
certain of Textron's business practices. The DOJ investigation focused on
Bell's international marketing practices. The IRS investigation related
primarily to Textron's 1973 tax return and in particular the deductions on
that return (and on returns for 1974 and 1975) for the payments to Air Taxi
and for expenses incurred in providing hospitality to DOD personnel.
Thus, by mid-March 1978, Textron found that it was the focus of
ongoing investigations by three separate agencies of the United States
government. Yet Textron itself had never conducted a comprehensive
inquiry into the matters under investigation or into the broader matters of
possible questionable payments and accounting practices.
B. A P P O I N T M E N T A N D O R G A N I Z A T I O N O F T H E

COMMITTEE

On May 31, 1978, after reviewing the status of the three pending
government investigations, Textron's Board of Directors appointed the
Special Committee on the recommendation of the Chairman of the Audit
Committee. The Special Committee, which is composed of three nonemployee directors of Textron, was given wide powers to investigate all
aspects of Textron operations which might have involved questionable
payments or related improper accounting practices.
The members of the Committee are:
Webb C. Hayes, III, Chairman of the Committee, is Managing Partner
of the Washington, D.C. office of the Cleveland and Washington, D.C. law
firm of Baker & Hostetler. He became a Director of Textron in April 1970.
He is also a Director of the National Bank of Washington.
Paul M. Fye has been President of Woods Hole Oceanographic
Institution since 1961. He became a Director of Textron in December 1969

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and presently serves as a member of the Executive Committee. He is a
member of the United States Department of State's Advisory Committees
for Ocean Affairs and for the Law of the Sea. He is also a Director of Arthur
D. Little, Inc., four mutual funds of the Lord Abbett group, and Development Sciences, Inc.
Richard T. Baker has been Consultant to the firm of Ernst & Ernst,
certified public accountants, since 1977. He has been associated with Ernst &
Ernst since 1940 and was the Managing Partner of that firm from 1964 to
1977. He became a Director of Textron in May 1978. He is also a Director
of Anheuser-Busch, Inc., General Electric Company, Hershey Foods Corporation and Louisiana Land & Exploration Company.
The text of the Board's resolution appointing the Committee is contained in Appendix C to this Report. The Board resolution specifies that
Textron will not assert the attorney-client privilege with respect to documents and data obtained by the Committee during its investigation.
Immediately after appointment, the Committee retained the law firm of
Gibson, Dunn & Crutcher as counsel to the Committee. The Committee
then met with counsel and prepared a report to be presented to the Board of
Directors at its next meeting. The report outlined the proposed scope of the
Committee's investigation and requested supplemental authorizations from
the Board. A copy of the Committee's report, which was presented to and
unanimously approved by the Board on June 28,1978, is Appendix D to this
Report.
On June 27, 1978, the Committee and its counsel met with the
Company's Director of Internal Audit, who briefed the Committee as to
preliminary investigative work which had already been undertaken by his
staff at several Textron divisions. On the same day, the Committee met with
senior representatives of Textron's independent auditors, Arthur Young &
Company ("Arthur Young") and received a briefing as to their prior
inquiries, the obtaining of employee certifications regarding the absence of
questionable payments for the years 1976 and 1977, and matters suggested
for investigation by the Committee. The Committee made preliminary
arrangements for review of Arthur Young's Textron workpapers and
considered other ways in which that firm might assist the Committee in its
work.

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On June 28, 1978, the Committee and counsel met with the Audit
Committee of Textron's Board of Directors and discussed the ways in which
the Audit Committee could cooperate with the Special Committee.
Promptly after the Committee's appointment, the Chairman of the
Committee and counsel met with the Director of the SEC's Division of
Enforcement and the members of his staff responsible for the SEC's pending
investigation of Textron. Meetings with the SEC staff have continued at
approximately monthly intervals throughout the course of the Committee's
investigation.
C.

SCOPE OF THE COMMITTEE'S

INVESTIGATION

Under the definition of scope of inquiry approved by the Textron
Board, the Committee was directed to inquire into "possible questionable
payments" and related improper accounting practices, which were defined
as payments to government officials or political candidates; off-balance sheet
funds or accounts; incomplete, false or misleading recording of entries on the
books and records of Textron; commercial bribery; improper receipt of
payments or gratuities by Textron employees; and overbilling, accommodation payments and other practices which were contrary to Textron
policies. The Committee's scope of inquiry did not extend to matters other
than questionable payments, so defined, and related improper accounting
practices. For example, the Committee did not inquire into compliance with
equal employment opportunity, environmental, antitrust, anti-boycott, or
other laws or regulations, or into Textron's compliance with its reporting
obligations under securities or other laws.
Reported incidents of questionable payments by other American companies have usually involved their foreign sales, and the questions raised
with respect to Bell during the Miller confirmation hearings related entirely
to foreign sales. For these reasons, the Committee paid special attention to
the international marketing activities of those Textron divisions which made
sales abroad. However, the Committee did not confine its inquiry to foreign
transactions. Its questionnaires, interviews and document reviews also
sought information as to relevant domestic matters including marketing
practices, political contributions and entertainment of United States government officials.

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D. C O N D U C T OF T H E INVESTIGATION
1. Staff Assistance
The Committee appreciates the assistance it received from many
persons in performing its investigation.
The primary staff work for the Committee's investigations was carried
out by the Committee's counsel, Gibson, Dunn & Crutcher. Other staff work
was supervised by counsel.
The Committee called upon the Textron Corporate Office in Providence
for significant assistance. Members of the Legal Department helped to
schedule interviews and to locate documents and conducted particular
inquiries under the direction of the Committee and its counsel. The staff of
the Financial Departments assembled and prepared supplemental financial
data as to all Textron divisions for analysis by the Committee and provided
other assistance, particularly in connection with the Committee's review of
accounting practices.
2. Questionnaires
As the first step in its investigation, the Committee prepared a
comprehensive form of questionnaire, which was reviewed with representatives of Arthur Young and with the SEC staff. The form of questionnaire is
set forth as Appendix E to this Report. The Committee prepared a list of
key employees of all Textron divisions based on an analysis of employee
compensation data and a review of job descriptions. In late July 1978
questionnaires were mailed to the 1,771 employees on the list with instructions to return responses directly to the Committee. The Committee received
1,691 responses and accounted for all questionnaires not returned (in most
instances because the recipient had left Textron's employ). Of the returned
questionnaires, 276 contained pertinent information which was reviewed
and indexed by the Committee and its counsel, and used as a basis for
further inquiries.
Some key employees—notably members of the Corporate Legal
Department and Internal Audit staffs—were interviewed by counsel rather
than being asked to respond to the questionnaire. Because these employees
had extensive indirect knowledge acquired in the course of their duties, the
Committee determined that comprehensive interviews would be the most

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useful approach. All information accumulated from such interviews was
reviewed by the Committee.
3. Preliminary Document Review
In connection with the government investigations of Textron, Textron's
outside counsel, Arnold & Porter, had established a Document Depository
before the Committee's appointment. The Depository contains hundreds of
thousands of documents subpoenaed by one or more federal agencies and
many additional documents which have been reviewed for responsiveness to
subpoenas. The resources of the Depository and its staff of paralegal
assistants were made fully available to the Committee and were used
extensively. In addition, the Committee's counsel received, reviewed and
organized, by Textron division and by subject, duplicate copies of every
document furnished by Textron to the federal agencies. Copies of important
documents were furnished to members of the Committee.
4. Division Reviews
Following completion of the foregoing preparatory procedures, the
Committee conducted Division Reviews of all Textron operating divisions.*
In the case of Bell, special procedures, described below, were followed.
Division Reviews were conducted by teams of Gibson, Dunn & Crutcher
lawyers joined, in some instances, by members of the Committee. In each
instance, the interview teams took the following steps:
( a ) Prepared for the division visit by reviewing the questionnaire
responses, cataloging and analyzing all information derived from the
preliminary document review and reviewing the detailed historical
marketing and financial data for the division assembled by the Textron
Financial Departments under the direction of the Committee;
( b ) Visited the division's headquarters facility and, in appropriate
instances, other division facilities; and
* A limited Division Review, consisting of review of questionnaire responses
(which indicated no significant concerns) and interviews of key employees, was
conducted for Valentine Holdings, a division engaged in the printing business which
is based in Australia. The Willco Division in Germany was reviewed by a Germanspeaking member of the Textron Legal Department under procedures supervised by
the Committee's counsel.

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(i) Reviewed with division management the process of document production in response to the federal agency subpoenas;
(ii) Independently reviewed significant files at the division
offices, with particular emphasis on files related to international
marketing activities; and
(iii) Conducted comprehensive interviews of division personnel including, in each instance, senior executive officers, those
responsible for financial and marketing management and personnel whose questionnaire responses included information pertinent
to the Committee's inquiry.
The Committee's counsel also conducted interviews and document
reviews in Europe with respect to all material European operations of
Textron divisions.
As a result of the Committee's Division Reviews, some documents were
located which, in the Committee's judgment, were relevant to the ongoing
SEC investigation. These documents were called to the attention of the
Company's outside counsel and made available to the SEC staff.
All told, the Committee's Division Review process, exclusive of its
extensive review of Bell, comprised more than 60 days of interviews and
document examination at division locations in the United States and abroad.
More than 150 separate interviews were conducted at divisions other than
Bell.
5. Special Procedures At The Bell Helicopter Division
The Committee made a particularly comprehensive investigation of Bell
because the primary focus of the government investigations and the most
serious allegations as to possible questionable practices related to Bell.
At Bell's Fort Worth headquarters, the Committee's counsel conducted
more than four weeks of interviews of key employees. In addition, all Bell
senior executive officers were interviewed in Fort Worth or in Washington,
D.C. with one or more members of the Committee participating in most such
interviews. Prior to the interviews, and as they continued, counsel for the
Committee reviewed, analyzed and prepared chronological summaries of
relevant documents and information obtained from previous interviews.

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More than 50 separate interviews were conducted as part of the
Committee's inquiry into Bell.
The Committee's counsel also received briefings from members of the
SEC staff, Textron's outside counsel and counsel representing several of the
officers and employees of Bell. In January 1979 the SEC staff agreed to
make available to the Committee and its counsel, with the consent of each
witness' counsel, transcripts of testimony of all Bell and other Textron
employees questioned by the staff. Most of this testimony related to events
at Bell. Approximately 25 transcripts were reviewed by counsel and, in the
case of significant witnesses, by all members of the Committee.
6. Interviews Of Non-Employees And Other Procedures
Former employees of Bell were interviewed in the United States and in
Europe as were former employees of certain other Textron divisions,
particularly the Shuron Division. Other non-employees were also interviewed, including Bell representatives operating in the Arabian Gulf, the
Caribbean, Mexico, Korea and Southeast Asia. Employees of banks and
governmental agencies were interviewed. Counsel retained by Textron for
particular engagements and litigation relevant to the Committee's inquiries
were interviewed, and their files reviewed, with the consent and cooperation
of Textron.
Where third parties were unwilling to be interviewed, they often agreed
to permit their legal counsel to brief the Committee's counsel or to supply
requested documentary information to the Committee through its counsel.
Wherever practicable, the Committee sought confirmation of its conclusions
from more than one witness or participant.
The Committee's requests for interviews were refused in only a few
cases. Two present and two former Bell employees refused to be interviewed, the present employees because of an expressed desire to protect
their Fifth Amendment rights. One former employee each of the Bell
Aerospace and Fafnir Divisions and the general manager of the former Bell
dealer in Iran, Air Taxi Company, refused interview requests. Other Bell
employees, including Mr. Frank M. Sylvester, the Vice PresidentInternational Marketing, and several members of his staff, agreed to limited
interviews only under conditions agreed upon with their counsel but did

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respond through their counsel to supplemental questions covering all areas
of concern to the Committee.
7. Pertinent Aspects Of The Interview Process
It must be recognized that the Committee is not a governmental agency
and does not have the power to compel testimony or the production of
documents. The Committee's interviews were not taken under oath and
were not stenographically recorded, although counsel prepared memoranda
following each interview. If requested, witnesses and their counsel were
given an opportunity to review and comment on such memoranda. The
Committee believes these relatively informal procedures, supplemented by
the opportunity to review the transcripts of formal testimony of employee
witnesses before the SEC staff and by access to all subpoenaed documents,
were the most efficacious method of gathering all possible relevant information within reasonable constraints of cost and time.
Persons interviewed by the Committee were notified that information
furnished to the Committee would be made available to the SEC and other
governmental agencies and were accorded the right to be represented by
counsel. Except as noted above, the Committee received full cooperation
from all Textron employees and, where counsel were engaged, from their
counsel.
8. Special Assistance Provided By Outside Auditors
Arthur Young, Textron's independent auditors, undertook several
special engagements at the direction of the Committee.
First, under instructions prepared jointly by Arthur Young and the
Committee, Arthur Young's offices outside the United States which had
been significantly employed in Textron audit work conducted a review of
workpapers in their possession with respect to the period under review for
references relevant to the Committee's inquiry. The resulting extracts from
workpapers were indexed, translated into English where appropriate, and
made available to the Committee. (Arthur Young had previously made a
similar review of workpapers in the United States pursuant to an SEC
subpoena and had furnished responsive extracts to the SEC. Copies of those
materials were also reviewed by the Committee.)

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Second, Arthur Young supervised for the Committee a detailed analysis
of foreign representatives' accounts at Textron's Bell, Bostitch, Fafnir,
Shuron, Sheaffer Eaton and Talon Divisions, these divisions having been
selected by the Committee because of their large amounts of export sales.
This analysis resulted in a multiple volume summary of all transactions in
representatives' accounts at these divisions during the period under review.
This information was of substantial assistance to the Committee in conducting the Division Reviews for these divisions.
In addition to the two specific engagements undertaken for the Committee, Arthur Young responded to questions of the Committee and its
counsel on numerous occasions, and permitted the Committee to make a
comprehensive review of management letters, field memoranda and other
relevant materials prepared by it in connection with its audits of Textron for
the period under review.
9. Relations With The SEC Staff
Throughout its investigation, the Committee and its counsel had
frequent contact with members of the SEC staff who were of great assistance
to the Committee in suggesting matters for inquiry. However, the findings
and recommendations in this Report are those of the Committee, based
upon the Committee^ own fact-finding process, and arrived at independently of any consultations with the SEC staff or anyone else.
E. T H E FACT-FINDING PROCESS
The Committee's findings are based on a weighing of the evidence
obtained by the Committee as a result of its investigations. In order to avoid
protracting this Report unduly, the Committee has not set forth the evidence
it has considered in detail. It must be recognized, however, that in reaching
its findings the Committee has had to resolve conflicts in the evidence,
including the testimony of witnesses, and to make the other choices inherent
in any fact-finding process. This Report includes summaries of conflicting
evidence only in a few instances where a conclusion was particularly
important and exceptionally difficult to reach.
In all other cases, the
Committee's findings are set forth without noting, except here, that they are
of necessity the product of judgment.

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F. USE OF N A M E S IN T H E REPORT
The Committee has determined not to name countries or persons other
than Textron employees involved in questionable transactions described in
this Report except where public disclosure has already occurred as a result of
the SBC hearings or other matters. As to employees, the Committee has in
general named only those relatively senior employees whose actions are of
direct concern to the Board of Directors and who had responsibilities for
making policy decisions. The Committee believes that it can fully meet its
obligations without naming more names and the Committee is concerned
that Textron and its employees and others might be exposed unnecessarily to
adverse consequences, including potential physical danger to individuals in
some cases, if more names were used.

PART III
S U M M A R Y OF T H E C O M M I T T E E ' S FINDINGS
AS T O PARTICULAR TRANSACTIONS
A. T E X T R O N - A N O V E R V I E W
Since its founding in 1923 as a processor of synthetic yarns, Textron has
grown into a diversified company conducting operations through 26 divisions in five groups—Aerospace, Consumer, Industrial, Metal Products and
Creative Capital. The " N e w Textron" was born 26 years ago when its then
chief executive officer, Royal Little, became dissatisfied with the cyclical
nature of the textile business and conceived the idea of operating a number
of unrelated businesses in a single corporation. By 1978 Textron had
become one of America's largest corporations with over 70,000 employees
and $3.2 billion in annual sales.
Textron's multimarket concept was developed and refined in three
stages: phase I (1953-1959), building a large base of sales through acquisition of leading companies in small or medium-sized industries; phase II
(1960-1970), internal growth "and refinement of operations coupled with
selected acquisitions; and phase III (1970-present). While Textron continued in phase III to emphasize the objectives it had pursued in phases I and
II, it also sought to extend these concepts through new initiatives, principally

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in the international area. Thus, while the majority of Textron's divisions are
presently headquartered in the United States, 18 divisions now have offices
or plants abroad and two divisions are based outside the United States.
In 1978 Textron operated 46 plants and had 13,500 employees (19
percent of its work force) outside the United States. Approximately $1
billion or 31 percent of Textron's total sales in 1978 were either export sales
($519 million) or sales by operations located outside the United States
($556 million, including $58 million represented by the resale of components manufactured in the United States).
Decentralized authority is a central principle of Textron's operations.
Each Textron division is a complete, self-sufficient enterprise conducting
business under its own name with its own operating officers and management.
Division managers have direct responsibility for the division's
products and services (including research and development, manufacturing
and marketing), and for achieving the performance criteria established by
Textron's management.
It is the responsibility of Textron's executive staff at the Corporate
Office to provide the centralized coordination and control needed to set
overall standards and assure performance in accordance with them. Textron
has historically operated with a relatively small Corporate Office staff which
presently includes five Group Vice Presidents, who serve a liaison role
between the Corporate Office and assigned divisions. Each of these "Group
Officers" has responsibility for monitoring the activities of the several
divisions in his group and working with division management in areas such
as planning, product and market development and capital programs. These
Group Officers are the links in a two-way communication system which
contemplates that the goals and policies of Textron will be interpreted for
and communicated to the divisions, and the plans, progress, needs and
problems of the divisions will be communicated to the Corporate Office.
They are assisted by Group Controllers who, under the supervision of
Textron's Vice President and Controller, provide liaison with the financial
officers of each division.
By 1978 this relatively small Corporate Office staff supervised the
operations of 26 Textron divisions, many of which had begun developing
substantial international markets for the first time in the 1970's. Bell
developed the largest volume of export sales, and it is there that the

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Committee has found that Textron experienced the greatest problems with
questionable payments.

B. S U M M A R I E S O F FINDINGS AS T O FOREIGN SALES OF BELL
HELICOPTER
I. Introduction
Despite its world-wide reputation as a leading helicopter manufacturer,
Bell historically made only limited efforts to market its aircraft outside the
For many years, the company directed its production
United States.
capacity toward supplying the United States Army, which has traditionally
been Bell's largest customer. Supplying this heavy domestic demand of its
major customer traditionally preoccupied the attention of the most senior
levels of Bell's management.
By virtue of this preoccupation with domestic military markets, international sales efforts in the 1960's were carried out by a small group of
personnel within Bell's Commercial Marketing Department. Bell had no
separate international sales department; the small international sales staff
reported to Mr. Dwayne Jose, Director of Commercial Marketing, until 1969.
Mr. Jose, although experienced in aircraft sales, had no background in
international sales and devoted his attention almost exclusively to developing commercial sales in U.S. markets.
Until the late 1960's, Bell's foreign distribution system consisted generally of independent companies in Europe, Latin America and the Far East.
These companies were typically engaged as independent representatives on
a commission basis, granted an exclusive sales territory and encouraged to
develop service facilities, including inventories of spare parts needed to
supply Bell aircraft already in operation.
During this period, Bell was not active in such world markets as the
Middle East and Africa. Bell's European-based licensee, Agusta, which had
extensive helicopter manufacturing facilities in Italy, enjoyed exclusive sales
rights with respect to most Bell models throughout these two regions, as well
as in some European countries such as Italy and Switzerland.

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In 1969 with the decline in U.S. military sales attendant to the windingdown of the Vietnam conflict, Bell's management expanded the company's
international marketing efforts. The international sales force was enlarged
and organized into a separate International Marketing Department. An
experienced international salesman, Mr. Frank M. Sylvester, was brought to
Bell from the international division of the Piper Aircraft Company to head
the new department.
Following Mr. Sylvester's arrival, Bell's international sales increased
rapidly. Bell established dealers in countries where the company had not
been represented previously and embarked upon a program to upgrade or
replace marginal dealers in other countries where sales had been few or
nonexistent. Bell sales personnel called upon dealers more frequently to
improve the quality of the dealers' sales and service capabilities.
As part of this program of expansion, a European sales office was
established in Brussels in 1970. The Brussels office was headed by an
individual who had been one of Mr. Sylvester's colleagues at Piper. The
office was staffed with both sales and technical personnel, and, until it was
closed in 1975, the Brussels office aggressively pursued sales in markets
previously dominated by Bell's competitors, including its licensee, Agusta.
The program of building and streamlining Bell's international distribution system worked effectively. From a modest level of 10 to 15 percent
of Bell sales in 1969, international sales grew dramatically during the 1970's
to approximately 50 percent of Bell sales in 1978, the percentage increase
being due in part to the fall-off in total sales to the United States Army.
As Bell's foreign sales expanded, transactions arose periodically in
which Bell personnel perceived that payments to foreign government
officials might be required in order to make helicopter sales to foreign
governments.
No formal policy with respect to such payments was
promulgated by Mr. Sylvester or the Bell senior managers to whom he
reported. A number of employees in the International Marketing Department have told the Committee that there was a general understanding in the
Department that, while Bell should not make questionable payments itself,
Bell's dealers, as independent businessmen, could do as they wished with
their commissions, including making payments to or sharing commissions
with foreign government officials.

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The involvement of Bell's own personnel in such questionable transactions took various forms, as will be evident from the next section of this
Report which deals with specific questionable payment transactions in
several countries. In a number of instances, such personnel were merely
aware that a dealer intended to make payments out of commissions to
government officials. In other instances, International Marketing Department personnel ( 1 ) personally negotiated with government officials or their
representatives who were requesting a payment and structured the transaction so that the payment would be funded, or ( 2 ) negotiated an arrangement with a dealer whereby the dealer assigned his commissions in advance
to third parties, apparently including government officials. On one occasion,
International Marketing Department personnel made an advance payment
prior to delivery and receipt of payment from the ultimate customer in order
to facilitate payments to a person whom Bell personnel assumed would in
turn pay government officials. These varying degrees of participation
culminated in 1977 in a transaction in which a Bell International Marketing
employee admits to having personally carried cash outside the country in
order to make a payment directly to a foreign government official. Thus, in
some instances the level of involvement of Bell personnel went beyond the
passive attitude implied by the philosophy that an independent dealer could
do whatever he wanted with his own money.
It would be misleading, however, to conclude that questionable payments were the rule in Bell's foreign marketing activities. The Committee
found evidence of questionable payments as to relatively few of Bell's
international sales. Indeed, Bell policies discouraged questionable payments
in several important respects: Bell management vigorously enforced a policy
that the company would not sell aircraft at prices above standard list price,
thus preventing a device reportedly used by other firms to fund questionable
payments. Nor would Bell pay additional or excessive commissions in
response to local sales exigencies, another device sometimes used by others
to enable a foreign dealer to more easily fund payments. The evidence is
that Bell's commission structure was widely perceived by its sales representatives to be relatively low.
The following segments of this Report deal in summary fashion with
the Committee's findings as to individual countries in which Bell's sales or
attempted sales involved the possibility of questionable payments. Included

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are all countries in which questionable payments were found to have been
made and certain other countries where it was deemed important for the
Committee's investigation to be outlined in some detail. More detailed
information as to each country will be found in Volume Two of this Report.
In the course of its inquiry into Bell international sales transactions, the
Committee analyzed files and conducted interviews as to numerous countries
other than those covered specificially in this Report. In particular, the
Committee examined transactions in Argentina, Brazil, Greece, Kuwait,
Japan, Sudan and Taiwan with respect to which questions were raised by
information received by the Committee. After a thorough review, the
Committee found no basis for concluding that any questionable payment
was made by Bell or its dealers in the course of Bell's sales activities in any
of these countries.
2. Ghana
The Committee has concluded that in 1971 Bell personnel participated in
arranging a transaction which resulted in a payment of $300,000 requested by
a high official of the Ghanaian government in connection with the sale of two
Model 212 helicopters.
The transaction involved Bell's sale of two helicopters through its dealer
for West Africa, Tropical Aircraft Sales Company ("Tropical"), to the
Ghana Air Force for use in transportation of senior government officials and
visitors. In the early stages of the negotiations, Bell personnel, including the
then International Sales Manager, learned from the dealer that a payment
had been requested by the Ghanaian government official. Bell personnel,
including the International Sales Manager, the then Manager of Contract
Administration and the Manager of Credits and Financing, then structured
the transaction so that the sale would be made to Tropical, with an
immediate resale by Tropical to Ghana at an inflated price, which included
the amount of the payment to the high government official.
The evidence is that Bell's Treasurer, Mr. Theodore R. Treff, knew in
1971 that a questionable payment would be made. Several employees have
testified that, in their judgment, Mr. Sylvester also knew of the payment and
documentary evidence indicates that he at least knew that the transaction
involved a resale by Bell's dealer above list price. Although a former

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22
employee of Tropical has told the Committee that he was under the
impression that Mr. James F. Atkins, then Executive Vice President of Bell,
knew of the questionable payment, the weight of the evidence is that the
payment was not known to or approved by Mr. Atkins. There is no evidence
that any other Bell officer or any officer of Textron knew of the questionable
payment.
3. Dominican Republic
The Committee found that in 1977 a Bell Regional Manager personally
made two direct payments totaling approximately $60,000 to a government
official of the Dominican Republic. These payments included approximately
$30,000 in cash, which the Regional Manager handcarried outside the United
States to the Dominican Republic.
Bell traditionally had no dealer in the Dominican Republic and made
no helicopter sales there until 1976. In that year, Bell sold two Model 205Als to the Dominican Republic Air Force. In connection with this sale, a Bell
employee has testified that payments were made on two occasions to a
government official. These payments were made after the issuance of a
Textron directive signed by Mr. Miller dated August 16, 1976 which made it
clear that such payments were contrary to Textron policy. The Bell Regional
Manager has testified that Mr. Sylvester was made aware that a questionable payment would be made. In addition, the Committee has concluded
that several key employees of the International Marketing Department, in
addition to the Regional Manager, were aware that payments to one or
more government employees were contemplated in connection with the sales
to the Dominican Republic, although they were not aware of the method by
which the payments were made. The Committee has further concluded that
no other Bell officer nor any Textron officer had knowledge of any
questionable feature of the transaction.
4. Country " A "
The Committee has concluded that, in the course of the sale of two
aircraft to Country A in 1973, Bell made payments to a company that was
known or suspected to be a conduit for payments to one or more government
officials of Country A.

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23
In 1973 Bell sold two Model 212 helicopters to the United States
government for immediate resale to the government of Country A.
A
commission of approximately $100,000 was paid to a Bell representative in
Country A whose shareholders, Bell personnel were informed, included
government officials in the country with power to influence the purchase of
the helicopters.
The evidence is that personnel in Bell's International Marketing
Department, including Mr. Sylvester, were aware of the fact that government officials were to share in the commission. In addition, a Bell employee
has told the Committee and the SEC staff that Bell's then Chairman, Mr.
Edwin J. Ducayet, and Senior Vice President, Mr. Hans W . Weichsel, Jr.,
were informed that commissions might be shared with a government official
of Country A. Neither Mr. Ducayet nor Mr. Weichsel, who have been
interviewed by the Committee, recalls receiving any such information.
There is no evidence that any other officer of Bell or any officer of Textron
was aware of these matters.
5. Country " B "
The Committee has concluded that, in connection with the sale of aircraft
to the government of Country B in 1973, Bell's dealer made a payment which
probably went to a foreign government official with the knowledge and
participation of Bell International Marketing Department personnel\ including Mr. Sylvester. In addition, Bell's International Sales Manager and a
Bell Regional Manager were aware that Bell's dealer in Country B employed
two other government officials as advisors during the period 1971-77.
In connection with a 1973 sale to the Air Force of Country B, the Bell
Regional Manager assisted the Bell dealer in negotiating a payment of
$29,150 to a person who identified himself as a friend of Country B's
Military Attache in Washington, D. C. Although the contract had already
been approved by the responsible Air Force officials in Country B, the
payment was made in order to obtain the signature of the Attache on the
Bell sales contract. The Committee has concluded that all or part of the
money probably went to the Attache. Several International Marketing
Department employees, including Mr. Sylvester, were aware of and approved this payment which was made by Bell and debited to the dealer's
commission account. So far as the Committee has been able to determine no
other Bell officers and no officers of Textron were aware of the payment.

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24
In addition, Bell International Marketing Department personnel, including the International Sales Manager and the Regional Manager for the
area including Country B, were aware that two Air Force officers of Country
B served as advisors to Bell's dealer during the period 1971-1977. The
Regional Manager has testified to the SEC staff that he assumed that these
officers were being paid by the Bell dealer. He has also said that the
International Sales Manager, Mr. Dee E. Mitchell, instructed him to have
documents referring to such advisors altered. Mr. Mitchell denies giving
such an instruction. The documents were in fact altered.
6. Country " C "
The Committee has determined that Bell International Marketing personnel were knowledgeable about and participated in a transaction whereby
Bell's dealer assigned approximately $275,000 in commissions to a relative of
the ruler of Country C. The relative was a former government official who
continued to carry out governmental functions at the time of Bell's sales.
In 1974 and 1975, in connection with an $8 million dollar sale to the
government of Country C, Bell's dealer and a subdealer assigned their
commissions totalling approximately $275,000 to a relative of the ruler of
Country C.
The relative served as the ruler's personal assistant on
diplomatic affairs and was a former high government official.
This
assignment was done with the prior knowledge of Bell International
Marketing personnel, including, apparently, Mr. Sylvester. The Committee
has found no evidence that any other officer of Bell or any officer of Textron
was aware of these facts at the time. However, two months after the
transaction, Mr. Weichsel, the Senior Vice President of Bell, was advised by
a Bell employee that the Bell dealer had given its commission to an
unnamed third party. Mr. Weichsel did not inquire further into the matter.
In addition, it appears that the parent company of the subdealer for
Country C was owned, in part, by another high official of the country and
members of his family. This fact was known to Mr. Weichsel and Mr.
Sylvester. The Committee has found no evidence that any other Bell officer
or any Textron officer was aware of this fact. The subdealer was paid
commissions of approximately $200,000.
7. Country " D "
In connection with Bell's*sales to Country D, the Committee has, after
careful review, been unable to determine whether ownership of interests in

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25
Bell's dealer by one or more government officials violated any law of Country
D or was otherwise improper. The Committee found no evidence of any
payments to government officials by Bell or its dealer, other than whatever
benefits the government officials enjoyed as owners of the dealer.
During the period 1971-3977, Bell made several sales to Country D's
defense forces. During this time, the Managing Director of Bell's dealer in
Country D also served as head pilot for Country D's defense forces.
Another officer of the defense forces may also have had a financial interest
in the Bell dealer. In addition, the dealer's Chairman served as private
secretary to the son of the ruling family of Country D, who was also the
senior defense official of both Country D and an organization of states of
which Country D is a member. Later, the dealer's Chairman became a
senior defense official of the organization of states.
The senior employees in Bell's International Marketing Department,
including Mr. Sylvester, were aware of the relationships summarized above
when Bell's sales were made. Mr. Weichsel at Bell and two officers of
Textron, Mr. Willard R. Gallagher and Mr. Andrew J. Beck, received
information in 1975 and 1976 that put them on notice as to some of these
relationships. The Committee found no evidence that other officers of Bell
or of Textron had knowledge of such matters prior to early 1978.
Counsel in Country D has advised the Committee that mere ownership
by a government official of an interest in or receipt of a commission from an
organization dealing with the government is not a violation of the laws of
Country D or the organization of states. However, receipt of a payment or
benefit to influence a governmental decision or the acceptance by a civil
servant of compensation for work outside his official duties, unless approved
by his supervising minister, may violate certain laws.
The Committee found no evidence of any benefit or payment to a
government official in Country D other than the benefits accruing from the
financial interests in the dealer which appeared to be well known to the
governing authorities of Country D and the organization of states.
8. Country " E "
In connection with the 1972 sale of four aircraft to the government of
Country E, the Committee found that Bell represented to the United States

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government that no commissions were being paid to the dealer on the sale but
thereafter entered into a consulting agreement with the dealer's key employee
under which no additional services were expected. Correspondence from the
dealer to Bell indicated that payments were made to the Air Force Commander of Country E and perhaps to a United States Military Attache.
The 1972 consulting agreement was entered into with a key employee
of the dealer as a means of compensating him in the amount of $39,000 for
his marketing efforts in securing the sale. In addition, correspondence in
Bell's files from Bell's dealer in Country E during the years 1972-1973 makes
what appear to be clear references to questionable payments by the dealer to
the Air Force Commander of Country E and a United States Military
Attache. The Bell employees who received the correspondence have told the
Committee that they are aware of no questionable payments and that the
suspicious references in the correspondence likely referred to arrangements
for payment of training expenses of Country E personnel.
The Committee interviewed the former key employee of the dealer who
was the author of the correspondence. The dealer's employee has told the
Committee that in the course of his sales efforts for Bell he paid the travel
expenses of and furnished airline tickets to the Commander of the Air Force
of Country E but made no other payments of any kind to the Air Force
Commander. According to information provided by the employee to the
Committee, these expenses reached the level of approximately $5,000. The
employee has also told the Committee that, while a gift was given to the wife
of the United States Military Attache, it was of modest value and that no
payment was made to the Attache.
Although Mr. Weichsel approved of the consulting agreement, there is
no evidence that any Bell officer or any Textron officer was aware of the
highly suspicious references to questionable payments in the correspondence
from the dealer or of the expense reimbursements and gift which the dealer's
employee has stated were made.
9. Country " F "
The Committee has determined that Bell employees participated in the
making of questionable payments on one or more occasions to government
officials in Country F. The payments to one such official amounted to over
$150,000.

69-845 0 - 81 - 11

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27
In 1973, in connection with a sale of helicopters to the Air Force of
Country F, Bell issued checks totalling $157,550.50 to an Air Force officer of
Country F. These amounts were paid from and debited to the commission
account of Bell's dealer. A Bell International Marketing Department
employee has stated that he believed at the time that these monies would go
to a high government official of Country F who had authority to effect the
purchase. The Bell employee has also stated that he was told by the dealer
after the fact that the dealer had split a 1975 commission of $160,000 with the
same high official and that small payments to other government officials had
been made. The Committee found no evidence that any Bell or Textron
officers were aware of any of these questionable payments, before or after
the fact.
10. Country " G "
The Committee found that in 1972 at the request of a dealer Bell made a
$50,000 payment, which was advanced by Bell and charged to the dealer's
account, to an individual employed as an advisor by a government-owned
enterprise in Country G, in anticipation of the sale of one helicopter to that
enterprise.
Bell International Marketing Department personnel have told the
Committee that they assumed that all or part of the $50,000 payment would
be shared by the advisor with one or more officials of the enterprise.
The Committee found no evidence that any Bell officer outside of the
International Marketing Department or any Textron officer knew or approved of this transaction.
11. Country " H "
In its marketing activities in Country H, Bell made a $1,000payment to a
government official and entered into an arrangement with a company
suspected to be serving as a front for the interests of a key government official.
In 1973, in the course of marketing helicopters for VIP transportation,
Bell made a direct payment of $1,000 to a high-ranking official of Country H
out of the dealer's commission account. In the same year, Bell personnel
arranged for commissions which would accrue on another prospective sale to
be assigned to a company which Bell personnel, including Mr. Sylvester,
according to the testimony of his subordinates, suspected was a front for one

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or more high-ranking government officials. No payments were in fact made
under this arrangement, as the prospective sale did not materialize. No
evidence suggests that Bell officers outside the International Marketing
Department or officers of Textron knew about either of these transactions.
12. Country " I "
Bell's dealer in Country I has stated that he has furnished gratuities,
including small amounts of cash, to government officials of Country I.
Bell International Marketing personnel were aware that payments or
gratuities of some sort were in fact made to government officials by the
Country I dealer. Bell also routinely complied with the dealer's requests for
accommodation payments, including the furnishing of airline tickets and
travel expense money to Country I officials which were charged to the
dealer's account with Bell.
Although Bell's dealer for Country I has told the Committee that
gratuities, including small amounts of cash, are customary in Country I, the
Committee is advised by counsel in Country I that the cash payments and
gratuities may well have violated the laws of that country. No evidence was
found by the Committee, however, which indicates that the payments made
by the dealer were directed at securing or retaining specific business with the
government of Country I. There is no evidence that any officer of Bell
outside the International Marketing Department or any Textron officer had
knowledge of such payments.
13. Country " J "
The Committee found that in connection with a potential sale to the Air
Force of Country J in 1973 Bell International Marketing Department
employees proposed to Mr. Hans W. Weichsel, Jr., Bell's Senior Vice
President, that Bell's dealer in Country J be asked to assign its commission on
the sale to a consultant who would be engaged by Bell. The consultant was
referred to by a Bell employee as probably the "bagman " of a high government
official of Country J.
Mr. Weichsel rejected the proposal and instructed that commissions be
paid only to the established dealer. The International Marketing Department employees interpreted this instruction to mean that Bell's dealer was
free to engage the consultant. Accordingly, one of them tried unsuccessfully

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to persuade the dealer to give up most of its commission to the consultant in
order to conclude the sale. The sale, however, was never consummated as
the Air Force refused to do business with Bell's dealer.
14. Country " K "
Despite suspicious references in correspondence from Bell's dealer, the
Committee's investigation failed to yield any evidence that payments to
government officials in Country K were made by Bell, either directly or
indirectly.
Although the Committee's attention was drawn to Country K by two
communications in Bell's files from a Bell dealer which made references
indicating the possibility of questionable actions, a thorough investigation
failed to turn up any evidence that any questionable payments were offered
or made to officials of the government of Country K by Bell or by any Bell
dealer in connection with sales efforts in that country. Apparently no officer
of Bell or Textron was aware of either of the communications.
15. Other Countries
(a) Country "L"
The Committee found no evidence that questionable payments were
offered or made to any government official in Country L.
Bell delivered in excess of $10 million of helicopters to the government
of Country L in the late 1960's and early 1970's. It paid no commissions to its
established dealer in Country L because the helicopters were sold to the
United States government for delivery to the government of Country L
under the United States government's Grant-in-Aid program. The dealer
sued Bell in 1972 for commissions on the sale and was eventually paid
$90,000 in settlement of the case. At one juncture in the settlement phase,
Bell's outside counsel for the lawsuit expressed concern that a high military
official of Country L was "on the payroll" of the dealer during the relevant
period. The Committee made a careful inquiry, including an interview of
the outside counsel and review of his records, to determine if there was any
basis for this concern or if there was any evidence that the dealer made
questionable payments to government officials in Country L. No such
evidence, or other factual basis for counsel's concern, was found.

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(b) Country "M"
The Committee has concluded that a payment of $1,000 was made to the
relative of a government official in Country M.
At the request of its dealer in Country M, in 1972 Bell International
Marketing Department personnel helped effect a $1,000 payment to the wife
of a key government official who had responsibilities over an agricultural
spraying program which utilized helicopters. In an unrelated transaction in
1971, which did not originate with the Country M dealer, a proposed
arrangement calling for payment of a commission to a third party, who in
turn contemplated payments to government officials of Country M, was not
consummated because the sale was not made. There is no evidence that
officers of Bell outside the International Marketing Department or officers of
Textron knew or approved of either of these transactions.
(c) Country "N"
Even though a former dealer has made a charge that Bell's present dealer
in Country N shared his commissions with military officers of Country N, the
Committee found no evidence to support this charge.
In 1978 Bell's former dealer in Country N filed an amended complaint
in its pending antitrust lawsuit against Bell, alleging that the dealer which
replaced it in 1970 was connected with the military of Country N and had
shared commissions on sales with military officers of that country's Air Force
in order to persuade them to purchase from Bell. A second lawsuit is also
pending between Bell and its former dealer. Bell has denied all such
allegations. The Committee was able, through counsel, to examine all the
litigation files and interview the new dealer. Although the new dealer would
not respond to all of counsel's questions concerning his personal affairs, no
evidence was found that either Bell or the new dealer paid any bribe to a
government official of Country N.
(d) Country "O"
Despite an unusual pricing arrangement, the Committee found no
evidence of improper or questionable conduct in connection with Bell's sales of
two helicopters in 1973 to Country O.
In connection with a 1973 sale to Country O, Bell arranged to provide
its dealer with compensation in addition to its regular commission by
invoicing the government of Country O at the newly established, higher

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price while charging the dealer the previous lower price and crediting the
dealer with the difference of $25,000. Because of these unique circumstances, the Committee inquired carefully into the facts surrounding this
sale. N o evidence was discovered which would indicate that any questionable payments were made.
C. S U M M A R I E S OF FINDINGS A S T O FOREIGN SALES OF DIVIS I O N S O T H E R T H A N BELL HELICOPTER
1. Introduction And Overview
In order to market approximately $2.25 billion in goods and services
outside the United States from 1971 through 1978, the Textron divisions
other than Bell utilized a wide variety of marketing practices. Despite this
variety, the Committee found the following factors present at almost every
non-Bell division:
1. an absence of company-owned retail outlets;
2. very few "big ticket" items, as contrasted with a multitude of
products with moderate retail prices whose profitability depended to a
material degree on substantial sales volume;
3. substantial reliance on the sales efforts of non-employee third
parties.
The bulk of foreign marketing by these divisions was found to have
been handled through one or more of the following methods which do not
require an employee sales force:
1. dealers or distributors who purchase products from a division
and resell to third parties from their own inventory;
2. agents or representatives who, in return for a percentage fee
paid by the division and based upon the sale price charged to the
purchaser, either ( a ) arrange for the purchase and sale of the division's
products, or ( b ) act as a finder in bringing the division into contact with
a potential buyer;
3. licensees who pay a royalty to a division for the right to use
certain knowledge or equipment and either manufacture the division's
products for their own use or manufacture and sell such products to
third parties.

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In 1978 Textron divisions had relationships with approximately 1,100
international agents and distributors who were engaged in selling Textron
products in almost every country in the world.
Transactions of a questionable character which occurred at three
divisions, Fafnir, Shuron and Bell Aerospace, are summarized below.
Practices of less significance but still of a questionable nature which occurred
at six other divisions are noted starting at page 34. More detailed findings as
to these matters appear in Volume Two of this Report.
2. Fafnir
The Committee found that the Fafnir Division made substantial sales to
a foreign government agency through an agent even though some Fafnir
executives had knowledge that the agent was making questionable payments to
officials of the purchasing government agency.
The Fafnir Division is a major manufacturer and distributor of
automotive and other bearings and related products. It has production and
distribution facilities in Europe as well as in the United States, Mexico and
Australia. Between 1972 and 1977 Fafnir's agent in Country P secured sales
aggregating in excess of $3,160,000 to a government controlled enterprise in
Country P. Documents located in Fafnir's files and information obtained
from employee interviews in the United States and Europe clearly indicate
that the agent paid a portion of his commissions to an unidentified
government official who was in a position to influence the buying decisions
of the state enterprise and that this fact was known to the senior executives
of Fafnir in Europe, who had the most frequent contact with this agent.
There is substantial evidence that Mr. Hans W. Deutsch, Fafnir's Vice
President-International Operations, knew at least by 1976 that there were
questionable aspects to Fafnir's arrangement with the agent, including
questions as to the legality of Fafnir's having an agent in Country P. There is
also evidence that Mr. Thomas E. Sherer, Fafnir's President, should have
been aware by 1976 that the agent's activities were questionable. Nevertheless, they failed to bring the matter to the attention of the Textron
Corporate Office or to effectively stop dealings with the agent, which
continued for at least another year. The Committee found no evidence that
the arrangement was known to any officer of Textron.

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3. Shuron
The Committee found that in 1977 the Shuron Division used a third
party to continue overbilling practices which the Division managers thought
were in possible conflict with Textron policies then in effect.
The Shuron Division manufactures and distributes eyeglass frames and
lenses. Its production facilities are in the United States but it makes
significant sales through foreign distributors.
In 1977 after becoming
concerned that its practice of overbilling certain foreign distributors in
Country Q at their request might violate Textron policies, Shuron arranged
to make sales to foreign distributors at standard Shuron list prices through a
United States-based export company. The export company would then
resell to the foreign distributors, overbilling as they might request. Based on
the understanding that Shuron's involvement would cease upon Shuron's
sale to the export company, outside legal counsel issued a favorable opinion
on this new arrangement. Textron's Legal Department was neither consulted nor informed of the fact that Shuron had obtained such advice from
its counsel. In fact, the export firm carried on no substantial independent
operations and Shuron's then Manager-International Operations, who is no
longer employed by Shuron, participated in preparing at least two pro
forma, overbilled invoices addressed to its distributors in Country Q to be
used by the exporter. A single sale eventuated through this means. The
practice was discontinued in 1977.
The former Manager-International Operations has stated that he informed Mr. Egil G. Ruud, a Textron Group Vice President, of the use of the
export company. Mr. Ruud denies it. There is no other indication that the
subject ever came to the attention of Textron's Corporate Office or any
Textron officer prior to 1978.
Any Shuron officers who may have had knowledge of the arrangement
whereby the pro forma invoices were prepared, with the exception of the
Vice President-Marketing who has told the Committee he did not know of
the preparation of the pro forma invoices, are no longer employed by
Shuron.
4. Bell Aerospace
The Committee found that in 1975 and 1976 Bell Aerospace continued,
albeit without success, to pursue a large sale of a new product to a foreign

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34
government agency under circumstances where Bell Aerospace personnel
received strong indications that questionable payments would be required to
make the sale.
During the mid-1970's, the Bell Aerospace Division was engaged in
attempting to effect overseas sales of an important new product, the
"Voyageur," a hovercraft which travels over water on a cushion of air.
Information received from a representative seeking sales in Country J as to a
proposed sale there in 1975 should have alerted Bell Aerospace personnel to
the possibility that payments to government officials in Country J were
contemplated in connection with the proposed hovercraft sale; however, no
inquiry into the matter was made and the representative's commission rates
were raised for a time to exceptionally high levels. No sales were made, and
the Committee is satisfied that no questionable payment was made.
Although Textron officers were consulted on several occasions regarding the commission levels, the evidence credited by the Committee is that
they were not made aware of the information received by Bell Aerospace
regarding potential questionable payments. Textron's officers insisted that
representations be obtained from Bell Aerospace's representatives in Country J that no such payments would be made.
5. Questionable Practices Of A Less Important Nature
In addition to the incidents of questionable conduct discussed in this
Report with respect to the Bell, Bell Aerospace, Fafnir and Shuron
Divisions, the Committee obtained information concerning the following
questionable practices of a less important nature during its examination of
the foreign marketing activities of Textron's divisions. All of these practices
were terminated prior to the commencement of the Committee's investigation and none related to sales which were a material portion of the
sales of the divisions involved. There is no evidence that any officer of
Textron was aware of any of these practices when they occurred.
(a) Inaccurate Invoices
Misleading or inaccurate invoices, designed either to eliminate an agent's
or customer's need to obtain an import license from a foreign country or to
eliminate or reduce the amount of the import duty to be paid on imported
products, were provided to agents and customers by employees of the Bridgeport Machines, Gorham, Shuron and Waterbury Farrel Divisions.

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These invoices either failed to mention certain products included in a
shipment, mislabeled them, misstated their price, or stated that they were
being supplied free of charge. On occasion, to avoid the imposition of
import duties on shipments above a minimum size, several small invoices
were supplied rather than a single invoice reflecting the entire shipment.
(b) Sales To Possible Smugglers
At the Sheaffer Eaton and Shuron Divisions, products were sold at
reduced prices to domestic dealers. Sheaffer Eaton personnel told the
Committee that, although they had no certain knowledge, they suspected the
dealer of smuggling or facilitating the smuggling of tfie products into a foreign
country. A Shuron employee told the Committee that a Shuron dealer
informed him that Shuron products had been smuggled into the same foreign
country.
The prices for these goods were below standard wholesale prices at
Shuron because the products were seconds; at Sheaffer Eaton, the dealer
secured a reduced price for the products as part of an agreement by which
he acquired a plant licensed to make the products in the country into which
they were allegedly being smuggled.
(c) Payment Of Possibly Illegal Commission
In connection with a sale of approximately $300,000 of spare parts to an
agency of a foreign government, the Hydraulic Research Division paid a
commission to an agent despite the fact that the division believed such a
commission to be forbidden under applicable foreign law.
The commission of approximately $17,800 was viewed as a "one-time"
commission and was applied to an outstanding debt owed to the division by
the agent. The agent did in fact perform substantial services to help the
division obtain the sale. Further sales to this governmental agency were
made directly and without payment of commissions.
(d) False Documentation
At the request of their foreign representatives, the Bridgeport Machines,
Fafnir, Shuron and Waterbury Farrel Divisions provided inaccurate
documentation to foreign governments on some occasions.
These documents consisted of inaccurate import declarations, certified
price lists which showed distributor export prices which were substantially in
excess of the actual prices and documents which understated commissions or

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failed to respond accurately to questions concerning commissions which had
in fact been paid.
Although most of these practices were engaged in without the knowledge of the executive officers of the divisions involved, there were occasions
when such actions were taken with their knowledge. The Committee found
no evidence indicating that any officer of Textron was consulted before
implementation of any of these practices or was aware of them when they
occurred.
D.

OCCASIONS

WHICH

TEXTRON

DIVISIONS

REJECTED

REQUESTS FOR QUESTIONABLE PAYMENTS OR FOR OTHER
QUESTIONABLE

ACTIONS

Although the Committee's investigation focused on questionable actions
by Textron and its divisions, the Committee found that a number of Textron
divisions from time to time during the period under review refused requests for
questionable payments or for other questionable actions. These rejected
requests range from suggestions that payments be made to government
officials to requests to furnish incorrect documents to customers.
One example of a rejected impropriety occurred in December 1977. A
team from Bell Helicopter International ( " B H I " ) , part of Bell, went to
Country R to make a presentation to a government corporation as to a
proposed training program. The BHI team presented its proposal to military
officers who were the senior managers of the corporation. Later a member
of the BHI team was approached by an individual who claimed to represent
one of the officers. The representative stated that for BHI to obtain the
proposed sale, his firm would have to be retained as a consultant and that
the consultant would split its fees with the officer. The BHI team members
flatly rejected this proposal. BHI informed the minister of the department of
government with which it dealt in Country R of the improper proposal and
ofBHI's policy against such arrangements. BHI's training program proposal
was not accepted.
Similarly, in 1972 a Bell International Marketing Department employee
rejected a suggestion by an employee of Bell's dealer in Country S that a
questionable payment be made in connection with a proposed sale. Shortly
thereafter, the employee discontinued working for the dealer.

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In 1975 the President of Bell refused a request from the International
Marketing Department to appoint a retired United States Air Force officer
as Bell's representative in Country T because that officer was known to have
a special personal association with the head of the government of the
country. Also in 1975, the President of Bell rejected a proposed transaction
in another country that would have potentially involved payments to
government officials.
In 1975 or 1976, Bostitch management refused a demand for payment
from government officials in Country F where Bostitch maintains a manufacturing facility.
Another division of Textron received a request for a questionable
payment in connection with a sale to an Eastern European country in 1972.
This request was brought to the attention of Mr. Miller and was rejected.
In addition to the foregoing specific instances of requests for direct
payments, the Committee found that Textron division personnel have on a
number of occasions refused to deal with third parties who indicated that
they planned to make questionable payments to others, or expected to
receive such a payment from the division. For example, in the early 1970's
Bell made sales proposals to the Police Air Wing of Country U rather than
to the Interior Ministry because officials of the latter Ministry had, at that
time, a reputation for demanding payments.
A second example involved a refusal on the part of Bostitch to enter
into an arrangement for sale of products to a United States company for
distribution in Country J because the American company stated that bribes
were necessary to do business in that country.
A third example concerned Sprague Meter's bid on a contract for a
state-owned gas utility in Country Q. Sprague retained a lawyer in Country
Q to perform legal services in connection with the bid. The lawyer referred
Sprague to an agent in the country who stated that he would assure
Sprague's award of the contract in exchange for five percent of the contract
price. The agent proposed to pay a portion of the five percent to a member
of the state-owned utility's bid judging committee. Sprague's top management rejected the agent's proposal. Sprague did not bid on the contract.
The President of Dalmo Victor, a division of Bell Aerospace, also
rejected the use of agents for sales proposals to the governments of

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Countries V and W because he feared that the agents would make
questionable payments. Dalmo Victor received a contract in Country V
without the use of any agent, but Dalmo Victor's President believes that the
sale in Country W was lost because of his refusal to approve the use of an
agent.
During the course of its investigation, the Committee also discovered
instances in which Textron divisions rejected customer requests for false
invoicing. These included requests for understating the value of products on
invoices to help customers avoid customs duties or inventory taxes, requests
for improper dates on invoices, requests for false statements on foreign
customs documents in order to conceal the receipt of commissions, and
requests for overbilling to hide non-compliance with minimum pricing
regulations.
The information obtained by the Committee shows that Textron
divisions and Textron's Corporate Office have also refused the following:
( 1 ) sales to Rhodesia which would have been in violation of the international sanctions against that country, ( 2 ) furnishing of false price lists to
customers, ( 3 ) political contributions, ( 4 ) large gifts (including vacation
trips) for customers' employees, ( 5 ) large gifts from suppliers, and ( 6 ) a
requested payment to an important customer in connection with the
proposed sale of one division's plant.
EE S U M M A R Y

FINDINGS

ACCOMMODATION

P A Y M E N T S A N D OVERBILLINGS AS T O FOREIGN SALES

During the period 1971 through 1978 fourteen Textron divisions made
accommodation payments in substantial amounts and seven divisions effected
overbillings with respect to export sales. These practices were prohibited by a
Textron directive dated May 12, 1977. The Committee has found that they
nevertheless continued at several divisions for substantial periods of time.
Neither division managements nor the Textron Corporate Office took
sufficient action to assure that the 1977 directive was implemented.
"Accommodation payments" and "overbillings" were apparently not
unusual practices in American business during the period under review and
occurred to a significant degree in many Textron divisions. These practices
came to the attention of Textron's management early in 1977 in connection

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with the 1976 Textron audit. Mr. Miller issued a Textron policy directive on
May 12, 1977 to all division presidents stating that such practices were not
acceptable in that they had a potential for abuse as methods for avoiding
foreign tax and exchange control laws. A copy of the directive is Appendix
F to this Report. Accommodation payments and overbillings nonetheless
continued to occur at a number of Textron divisions into 1978. The evidence
is that such practices have now been terminated at all divisions.
Specific findings as to accommodation payments and overbillings and
as to management failures to promptly and effectively implement the May
1977 directive are set forth in Volume Two of this Report.

F. S U M M A R Y O F FINDINGS A S T O SALES PRACTICES
RESPECT T O D O M E S T I C OPERATIONS
1.

WITH

Marketing To The U.S. Government

During the period under review, both Bell and Bell Aerospace reimbursed
their employees for business lunches and dinners provided to DOD personnel.
The reimbursement expenditures were properly segregated in special accounts
which were not charged to DOD contracts, but the divisions did not retain
documentation supporting the reimbursements. Bell and Bell Aerospace were
generally aware that DOD regulations, although subject to ambiguity, very
likely prohibited DOD employees from accepting such hospitality. The senior
officers of Bell, Bell Aerospace and Textron were aware of this practice.
The practice of not retaining supporting documentation, which is of
concern for the Board of Directors, began prior to the period under review at
the Bell divisions and was known to and approved by all of the senior
officers of both divisions. The practice was apparently instituted to avoid
embarassment to D O D employees. As early as 1968 Textron's senior
officers, including Mr. Miller and Mr. Collinson, received memoranda
referring to the disallowance of tax deductions for certain of these undocumented expenses. In 1976 the practice of providing such hospitality to D O D
personnel was largely curtailed at Bell, although it continued at Bell
Aerospace until 1978 when it was finally stopped at both divisions. A full
description of these practices is set forth in Volume Two.

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Apart from the foregoing, no questionable payments were found in
connection with sales by any Textron division to the United States government.
2.

Marketing To Commercial Customers

The Special Committee found few transactions or practices associated
with domestic commercial marketing which violated internal Textron policy or
were otherwise considered to be questionable.
The Committee's specific findings as to such matters are set forth in
Volume Two of this Report.
G. S U M M A R Y OF FINDINGS AS T O POLITICAL CONTRIBUTIONS
During the period 1971 through 1978, the Committee discovered that in
isolated instances four Textron divisions made a total of 12 minor political
contributions, two of which were made in a foreign country. Political
contributions are against Textron policy even if lawful. The contributions
aggregated $1,175.
No political contributions were made by the Textron
Corporate Office, nor were any officers or employees attached to the Textron
Corporate Office reimbursed for political contributions which they may have
made.
The evidence indicates that no Textron corporate officer was aware of
any of these contributions, although division officers were aware of each of
them. Specific findings as to political contributions are set forth in Volume
Two.
H. S U M M A R Y OF FINDINGS A S T O M I S C E L L A N E O U S M A T T E R S
E X A M I N E D BY T H E C O M M I T T E E
The Committee carefully reviewed three matters which did not involve
possible questionable payments by Textron but which the Committee
deemed relevant to this Report. Details as to each of these matters are
provided in Volume Two.
1. The Sixty Trust: Sale Of Property In Country X
In 1971 the Sixty Trust, Textron's employee pension trust, retained a
law firm in Country X to assist in negotiations for sale of property it owned

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to the government of that country. Officers and employees of Textron
responsible for administration of the affairs of the trust engaged the law firm
with knowledge of the relationship between that firm and a high official of
the government of Country X , an inactive partner in the firm, with the
expectation that the relationship might benefit the trust in its dealings with
the government. Moreover, although Textron employees considered the law
firm's fee to be high, they were careful not to offend the law firm and
ultimately paid almost the full amount billed. However, the Committee
found no evidence that a questionable payment of any kind was made to or
for the benefit or any government official in connection with the transaction.
The Committee has concluded that the fee charged by the foreign law firm
was not unusual and it appears that the foreign government was fully aware
of the trust's representation by the law firm. The evidence is that the sale of
the property was on terms that were commercially reasonable and fair both
to the foreign government and to the trust.
2. A Charitable Contribution To A Medical Foundation
The Committee examined the charitable contributions made during the
period under review by the Textron Charitable Foundation Trust, the
Company's vehicle for making all substantial charitable contributions. The
Committee found no evidence that any charitable contribution was used as a
vehicle for a questionable payment and found no evidence of any other
impropriety in connection with charitable contributions.
The Committee did, however, examine in great detail the circumstances
surrounding a $100,000 contribution made at the request of Bell to a
Medical Foundation, a well-established charitable organization affiliated
with a medical school. This inquiry was made because of a possible
relationship between the contribution and the admission of the son of a high
military official of an important government customer of Bell's to the
school's medical residency program. The Committee found no impropriety
in connection with the contribution.
3.

Bell Helicopter's 1978 Inquiry Into The 1971 Sale To The
Government Of Ghana

The Committee reviewed the circumstances surrounding the internal
inquiry conducted at Bell in early 1978 into the 1971 sale of two helicopters
to Ghana, a subject which was raised during the first day of Mr. Miller's

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confirmation hearings before the SBC. The Committee was concerned with
Bell's 1978 inquiry for several reasons. First, in its investigation the SEC
staff raised serious questions as to the conduct of the inquiry and the
accuracy and completeness of the resulting information furnished to the SBC
by Bell's Chief Legal Counsel. Second, the Committee concluded that a
number of employees of Bell's International Marketing Department, as well
as Bell's Treasurer, Mr. Theodore R. Treff, were aware that a payment was
made to a high Ghanaian government official by Bell's dealer in the course
of the 1971 Ghana sale. This information was not reported to the SBC or to
the SEC staff until some weeks after the SBC hearings, when Textron's
outside counsel learned of it. Finally, an important document relevant to the
internal inquiry was destroyed by Bell's International Sales Manager on the
day after questions about the Ghana sale were raised in the Miller
confirmation hearings.
After careful review, the Committee has concluded that the Bell inquiry
was impeded by the failure of International Marketing Department personnel and Mr. Treff to come forward candidly with the facts known to them
about the payment. Moreover, the Committee has concluded that the
inquiry, which was never completed, was handled in a careless fashion. The
inquiry thus failed to bring to light the critical facts that a payment to a
government official was made with the knowledge of several Bell employees,
including one and possibly two Bell officers. This mishandling of the inquiry
led to the furnishing of incomplete, partially inaccurate reports to the SBC
and to the SEC staff.
However, it is the Committee's conclusion that, with the exception of
Mr. Treff and possibly Mr. Sylvester, the Vice President-International
Marketing, no officer of Bell or of Textron knew of the 1971 payment to the
Ghana government official at the time of the 1978 inquiry. The Committee
has further concluded that no other officer of Bell nor any officer of Textron
engaged in withholding or misrepresenting facts known to him about the
1971 transaction.
I.

FINDINGS

QUESTIONABLE

ACCOUNTING

PRACTICES

TRANSACTIONS

The Committee found that in general Textron followed sound and
appropriate accounting practices. Where questionable transactions did occur,

69-845

0 - 8 1 - 1 2

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there were related accounting practices which in some instances were not
appropriate. These relatively infrequent instances are described below.
The Committee found several instances of off-book accounts, including
a payroll account at a Sprague Meter Division facility in the United States,
unbooked "petty cash" checking accounts for several United States branch
offices of the Fafnir Division, and a relatively small off-book account which
apparently existed at one time at the Milan office of the former WECO
Division. The Committee found no evidence that any such accounts were
used to make questionable payments. The domestic accounts have been
closed or recorded. (Records as to the account maintained by the WECO
Division, which was sold in 1978, were not located.)
Certain of the political contributions which the Committee found had
been made in violation of Textron policy were reimbursed to employees and
not properly recorded as political contributions. The total amount involved
was less than $1,200.
The Committee found no evidence of any secret fund, offshore fund,
slush fund or similar unaccounted for asset or source of questionable
payments.
As noted elsewhere in this Report, the Committee found a number of
instances of overbillings (at eight divisions) and/or inaccurate or "split"
invoicing practices including underbillings (at four divisions). In such
instances, the invoices for goods sold did not reflect the true price and there
was no indication on the face of the invoice that an overbilling or
underbilling was involved. As a result, book entries as to sales or revenues
were at times overstated or understated. These overstatements or understatements were almost invariably offset by entries to a credit (or debit)
account for the customer or dealer or to expense accounts for commissions or
selling expenses. Thus, in general, net income was not affected except as to
timing and the effect was not material. Nevertheless, the Committee does
not approve of overbilling or underbilling practices or of accounting
practices which do not correctly record sales or revenues. The Committee
notes with approval that Textron management took action to terminate such
practices in 1977. However, as noted elsewhere in this Report, implementation of the directive to terminate such practices was not fully effective until
1978.

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Textron's Sprague Meter Division billed some utility customers for
purchases in advance of shipment in order to accommodate the customers'
budgetary constraints. However, no sales were booked with respect to such
billings until payment was received or shipment actually made.
The
Committee notes with approval that the Sprague Division has now been
instructed that any such advance billings are to be clearly labeled as such.
As noted in Section III.E. which begins at page 38 of this Volume, a
number of Textron divisions made accommodation payments at the request
of sales representatives or customers. The Committee has reviewed the
accounting procedures used with respect to such payments and has noted
that in many instances they were made on oral authorization of the
principals of the sales representative or customer and without obtaining any
receipt or confirmation from the recipient. Although the Committee has not
found any instance where this practice has led to a dispute as to a payment,
it is not acceptable from the standpoint of control of disbursements.
Pursuant to the Textron directive of May 12, 1977 (Appendix F), accommodation payments by Textron divisions were proscribed.
Although
accommodation payments were made after that date, the Committee is
satisfied that the directive has now been effectively implemented and such
payments, and the related lack of recorded authorizations and confirmations
of receipt, have ceased.
The Committee considered the practices of the Bell and Bell Aerospace
Divisions with respect to recording of expenditures for hospitality furnished
to government officials. These practices are summarized beginning at page
39 of this Volume. From an accounting standpoint the Committee was
concerned as to the effect of the failure to retain full substantiation for such
expenditures on the audit of Textron's financial statements and on the ability
of Textron to maintain adequate internal controls. The Committee consulted with Arthur Young, Textron's independent auditors, in regard to
these matters. Based on the advice of Arthur Young and its own review, the
Committee is of the view that, while the failure to retain full supporting
documentation cannot be approved, it did not impede the conduct of the
regular audits of Textron's financial statements or affect the validity of the
financial statements. The Committee is of the further view that, while the
failure to retain full supporting documentation was a weakness in internal
accounting controls, the weakness was not material, considering the amounts

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involved and the other controls exercised over the expenditures. The
Committee notes with approval that the practice of not retaining supporting
documentation was substantially curtailed at Bell in 1976 and terminated in
1978 and that the practice of returning supporting documentation to the
employees rather than retaining it was terminated at Bell Aerospace in 1978.
The Committee noted a single instance where an employee of the Bell
Division was able to obtain large sums of cash which may have been used
for an improper purpose. See Section III.B.3 of this Volume beginning at
page 22. The Committee notes with approval that Bell has now developed
additional internal controls that, if followed, will prevent the recurrence of
this breach of accounting safeguards.
The Committee reviewed a number of other accounting practices during
its inquiry. Within the scope of the Committee's inquiry, no questionable
practices other than those mentioned above were noted.
J. F I N D I N G S A S T O S E N I O R O F F I C E R S O F T E X T R O N

No evidence was found that Mr. Miller or any other senior officer of
Textron had knowledge or approved of any questionable payment at or before
the time it occurred. The evidence is that the senior officers of Textron had
generally high standards of ethical business conduct and attempted to
communicate those standards to others. However, no specific policy directives
as to questionable payments were issued prior to 1976 and, even after that,
Textron did not have an effective monitoring program to assure that specific
policies were communicated and complied with within the divisions. In its
recommendations in Part IV, the Committee has proposed improvements that
should be made in the manner in which Textron's corporate policies are
formulated and communicated and in follow-up to assure adherence to those
policies.
The federal investigations of Textron were initiated or expanded in
response to the SBC hearings on the nomination of Mr. Miller to the Board
of Governors of the Federal Reserve System. Mr. Miller's attitude towards,
and knowledge of, any questionable practices were thus a critical point in
the government investigations and were given similar attention by the
Committee. The Committee extended its concern to other senior officers of
Textron.

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The Committee conducted extensive interviews of Mr. Miller and of
presently serving senior Textron officers, including Mr. Joseph B. Collinson,
the Chairman and Chief Executive Officer, Mr. Robert P. Straetz, the
President, and all other senior corporate officers. All members of the
Committee participated with counsel in the interview of Mr. Miller and
members of the Committee participated in the interviews of other senior
officers, including Messrs. Collinson and Straetz.
All SEC and SBC
testimony of each officer who had testified before those bodies was carefully
reviewed. Documents produced by such officers pursuant to SEC subpoenas
and other documents located by the Committee were reviewed. Mr. Miller
and each of the senior officers were questioned concerning each incident of
questionable conduct at the Textron divisions where there was a possibility
that they might have had knowledge of the conduct.
No evidence of knowledge at or before the time of occurrence of any
questionable payment was found as to Mr. Miller or any other senior
corporate officer of Textron. In particular, there was no evidence that Mr.
Miller or any other senior officer of Textron had any knowledge as to any of
the following:
(1) the possibility that General Khatemi had an interest in Air
Taxi Company, Bell's agent in Iran, during the period 1971-1973 when
Bell made a sale of 489 helicopters to the Government of Iran and
made a settlement of $2.95 million with Air Taxi;
( 2 ) any of the questionable payments made in connection with
Bell international marketing activities as set forth in Section III.B. at
pages 18 to 31 of this Volume;
( 3 ) the political contributions made by several divisions of
Textron mentioned at page 40 of this Volume; or
( 4 ) the transactions at the Fafnir and Shuron Divisions that are
described beginning at page 32 of this Volume.
Mr. Miller and several other senior corporate officers did have knowledge of the charitable contribution described at page 41 and of the
employment of foreign counsel by the Textron employee pension trust under
the circumstances described beginning at page 40. However, the Committee

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found no impropriety in either transaction. As to Mr. Miller, the evidence
indicates that he had no direct involvement in, and only very general
knowledge of, either transaction.
The evidence indicates that Mr. Miller, Mr. Collinson and other senior
corporate officers knew of the expense reimbursement practices which were
followed by Bell and Bell Aerospace as to meals provided government
employees and which are summarized beginning at page 39 of this Volume.
The Textron officers considered the practice of paying such expenses to be
customary and acceptable so long as only meals and beverages, rather than
lavish entertainment, were involved. They understood that the failure to
maintain documentation was to prevent embarrassment to DOD personnel.
These practices were not effectively curtailed until 1976 at Bell or stopped
until 1978 at Bell Aerospace. The senior officers of Textron must share the
responsibility for not seeing that they were effectively terminated at least
after the DOD, in 1976, reemphasized the importance of not providing any
gratuity to DOD employees. The Committee has noted, however, that the
practices engaged in by the two Textron divisions were apparently common
in the aerospace industry' and that the ambiguity of DOD regulations
presented difficulties for American contractors seeking to abide by the
regulations. In addition, the amounts involved, both in individual instances
of hospitality and in the aggregate in any year, were modest.
Questions were raised during the SBC hearings as to the reasonableness
of Textron's failure to undertake a comprehensive voluntary questionable
payments investigation prior to 1978. The Committee found that the
question whether to make such an inquiry had been considered informally
prior to 1978 by Mr. Miller and Textron's Board of Directors. Mr. Miller
recommended against such an investigation on the ground that it was
unnecessary and would be expensive and disruptive, and the Board agreed.
It is apparent to the Committee that Mr. Miller's recommendation was based
on the fact that, unlike other companies which had undertaken such
investigations, no information had come to Textron corporate management's
attention that questionable payments had been made by Textron. However,
in the Committee's judgment, in the light of the information now available,
the decision not to have an investigation was a mistake in judgment.

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PART IV
THE COMMITTEE'S

RECOMMENDATIONS

A short history of the development of Textron's business conduct
policies is set forth in Volume Two. That history should be reviewed for
additional background information as to the environment to which the
Committee's recommendations relate.
A.

INTRODUCTION

The Committee recognizes and appreciates the decentralized operating
philosophy which has been followed by Textron since its first acquisition
outside the textile field. Decentralization has produced important benefits
for Textron and its shareholders: it has placed responsibility for important
entrepreneurial decisions and for profitable, efficient performance directly
on the divisions where relevant market and product information is available
and response can be prompt; it has made it possible to attract and hold top
quality division management; it has thus contributed significantly to Textron's success.
Accordingly, the Committee believes that decentralization should be
retained as an operating principle. However, the Committee also believes
that the principle of decentralized authority carries with it a particular
obligation to assure effective centralized control so that objectives and
policies set by the Company are followed and the Company's management
and directors are able to meet their obligations to direct the management of
the Company's business in the best interests of the Company and its
shareholders.
Effective centralized control requires clear communication to the divisions of the policies and objectives of the Company, effective information
gathering and feed-back from division management, sound audit functions
to monitor performance, and adequate follow-up to assure compliance with
corporate policies and objectives.
The Committee's recommendations, which follow, are intended to
strengthen essential centralized controls while retaining Textron's traditional
principle of decentralized authority.

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B.

RECOMMENDATIONS
1.

Establishing And Communicating Standards Of Business
Conduct

Relatively little specific guidance was provided to Textron employees
with respect to standards of business conduct prior to 1976. Rather, the
Company relied upon its traditions of integrity and ethical business practices
and upon general statements as to business standards in its publications and
in speeches by senior executives.
A more formal compliance program was undertaken in late 1976 and
has since been expanded.
In 1978 and 1979, with the adoption and
implementation of new Business Conduct Guidelines and significant steps
taken to assure education about and compliance with the Foreign Corrupt
Practices Act of 1977, Textron now has a generally well-developed compliance program which the Committee believes should be effective.
The Committee commends the progress made to date. The Committee
has noted the following areas where it believes further steps should be taken.
(a) Policies Have Been Promulgated Without Sufficient
Involvement Of Division-Level Management
In general, policies are proposed at the Corporate Office with appropriate legal and other expert advice but without involvement of division-level
management.
The Committee believes that, at times, this process has
resulted in policies that have been insufficiently responsive to the operating
realities of the divisions. Thus, division management, having had no role in
developing the policies, has been less likely to understand and apply them.
When the Business Conduct Guidelines were developed in 1978,
significant opportunities were given to division management to comment on
early drafts, and the proposals were reviewed in advance with division
financial officers. The Committee believes that the Guidelines will be more
effective because of this process.
Recommendation One: Significant new corporate policies or
significant revisions of existing policies should be reviewed in advance
of publication with representative members of division management.
Where practicable, division management representatives should be

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included in a working group or drafting committee designated to
propose each policy. Division representation in such processes should
include representative financial, operations, marketing or other officers as appropriate to the task in addition to division presidents.
(b) Policies Have Not Always Been Effectively
Communicated Within The Divisions
In general, until the adoption of the Business Conduct Guidelines in
1978, Textron policies were announced by the Corporate Office and
communicated primarily to the division presidents and, in some cases,
division chief financial officers. Similarly, discussions of Textron policy were
normally confined to the separate annual meetings which Textron corporate
officers hold with division presidents and division financial executives. Thus,
Textron has not had procedures which assure that policies were being
effectively communicated to division employees below the most senior
management level. Textron also has not had a uniform procedure for
assuring that newly-hired division employees are briefed as to Textron's
corporate policies. The Committee noted a number of instances in which
middle management and lower level employees apparently were not aware
of important Textron corporate policies.
Recommendation Two: When policies are disseminated, the Corporate Office, with the advice of division management, should determine the appropriate addressees and each addressee should be required to confirm that he has received and read the policy. Normally,
all policies should be disseminated at a minimum to all officers of each
division and to all management level employees of the accounting,
financial, marketing and purchasing departments and to all employees
performing contract negotiation, legal or internal audit functions.
Major policy statements, such as the Business Conduct Guidelines and
the Company's handbook on the Foreign Corrupt Practices Act, should
be circulated to all management level employees.
Recommendation Three: All newly-hired management level employees should be provided with a standard set of policy materials
including the Business Conduct Guidelines and other significant corporate policies and should be required to confirm receipt. (Persons hired
for particular positions where additional materials are appropriate
should also receive and confirm receipt for the materials appropriate

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to their duties. For example, all newly-hired senior managers should
receive the Textron Management Guide and all senior accounting and
financial personnel should receive the Textron Accounting Manual.)
(c) Communication Of Policies To The Divisions Has Relied
Too Heavily On Written Materials
With the exception of the annual meeting with division presidents and
the annual financial executives conference, where excellent presentations on
business conduct standards have been made, the Textron Corporate Office
has relied on written communication of policies to division employees. This
procedure does not always assure full understanding since there is less
opportunity to consider division operating problems and to answer questions
and clarify misunderstandings. Further, some people simply understand
what they hear better than what they read. In the Committee's view,
company-wide seminars would be of particular value to employees engaged
in marketing activities who travel frequently and are less likely than other
employees to have time to read and study written policies. Occasional
seminars at division locations, or at locations convenient to several divisions,
should also be considered.
Recommendation Four: The Textron Corporate Office should
conduct periodic seminar-type programs on corporate policies and
business conduct standards for key division employees. In particular,
the Committee recommends periodic seminars for key marketing
employees of all Textron divisions.
(d) Employees Of Textron For Whom English Is Not A Native
Language Are At A Disadvantage In Understanding Policies And
Related Materials Which Are Presently Available Only In English
As Textron's international operations have grown in importance, the
number of employees who do not have facility in English has increased. The
Committee noted instances where non-English speaking employees did not
fully understand corporate policies. The Audit Committee has also been
aware of this problem and has recently made a recommendation for
translation of the Business Conduct Guidelines into other languages.
Recommendation Five: The Committee endorses the recommendation made by the Audit Committee of Textron's Board of Directors to

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the effect that the Textron Business Conduct Guidelines and other
important policies be translated into those languages other than
English which are used by a significant number of Textron employees.
2. Oversight Of The Corporate Compliance Program
The Committee has concluded that, because of the decentralized way in
which Textron's business is conducted, it would be of great value to the
Company to establish central responsibility for oversight of implementation
and monitoring of the Company's program of compliance with corporate
policies. The Committee believes that this responsibility should be placed
with a single senior-level executive for corporate standards who will have a
direct reporting relationship to the Company's Chief Executive Officer and,
when appropriate, to the Board of Directors.
This senior executive would review and monitor procedures for preparation and dissemination of corporate policies and would be responsible for
coordinating the efforts of all departments of the Corporate Office in
preparing policies, determining their distribution and conducting seminars
and other educational programs. He would assure adequate participation by
division management in the policy-making process and would monitor
compliance. In this latter function, the corporate internal audit staff would
report to him as well as to the head of Textron's Financial Departments. He
would also receive responses to the annual compliance questionnaire and
coordinate follow-up with the internal audit staff and the Legal and
Financial Departments. Equally important, he should have the responsibility of making periodic field visits to division offices for discussions with
division management designed to respond to their questions about corporate
policies and to assure himself, the Chief Executive Officer and the Board of
Directors that corporate standards of conduct are being understood and
implemented. Because the designation of a senior executive for corporate
standards is an innovative concept, its effectiveness and continuance of the
position should be reviewed periodically by the Board of Directors.
Recommendation Six: Textron should designate a senior executive
for corporate standards who will have authority and responsibility to
monitor Textron's programs of compliance with corporate standards of
business conduct. This senior executive should report directly to the
Chief Executive Officer and, when appropriate, to the Board of
Directors.

182

3. Control Of International Marketing Activities
(a) Corporate Office Review At Critical Decision Points
The major instances of deviation from corporate policy identified by the
Committee have related to the international marketing activities of two
divisions. For this reason, the Committee believes that it is appropriate for
Textron to establish additional procedures to assure that such activities are
monitored by the Corporate Office on a regular basis.
The Committee believes that the major responsibility for monitoring all
division activities should continue to rest with the Textron Group Vice
Presidents as to matters of operations and business strategy, and the Group
Controllers as to financial and accounting matters. (Group Controllers
should, of course, always keep Group Vice Presidents fully briefed as to
matters reviewed by the Controllers.)
Group officers can effectively monitor international marketing activities
at the following decision points:
(1) When a decision is made to enter a new market (a country or
area of the world) where the division has not previously conducted
marketing activities (such a decision normally involves the appointment
of a sales representative or the establishment of a direct marketing
program);
( 2 ) When a decision is made to replace a sales representative, or a
new agreement is negotiated, or an old agreement is renewed or
extended with an existing sales representative; or
( 3 ) When a special commission or other compensation arrangement is negotiated for a particular transaction or an agreement with a
sales representative is modified or amended.
The Committee believes that no decision should be made by a division
at any of these decision points without the knowledge and concurrence of
the appropriate Group Vice President.
In recent years Textron has required that all foreign sales representative
agreements be approved as to form by the Legal Department unless a
previously approved form is used. New international marketing agreements
have frequently, but not invariably, been submitted to the office of the Vice

183

54
President-International for comment and consultation. The Textron Management Guide (Section 11.1) has provided since at least 1974:
" . . . all proposed operations outside a Division's home country,
including distributorships, licences or other international business
arrangements not in the ordinary course of day-to-day business, require
a careful prior review by the Textron Corporate Office." (Emphasis
added.)
These procedures are commendable and have in general served Textron
well. However, the Committee has found a number of instances where these
procedures were not followed, in that divisions established foreign distributorships or sales representative arrangements without any Corporate
Office review, or where the review was limited to matters of legal form
without analysis of the substance and possible risks of the proposed
arrangement.
The Committee believes that Corporate Office review procedures can
and should be strengthened in the international marketing area by putting
clear responsibility on the divisions to advise and obtain approval from their
respective Group Vice Presidents at each of the decision points mentioned
above, and by placing responsibility on the Group Vice Presidents to review
carefully each such decision with the division management. Where such
review has occurred in the past, problems have been avoided. (References
to a "sales representative" include any persons who perform substantial
representative functions for Textron which will include some types of
distributors and dealers, such as Bell's.)
Recommendation Seven: No division should be permitted to proceed with any of the following actions except with the specific approval
of the Group Vice President responsible for the division:
( a ) Make a substantial entry, by opening an office, retaining
a sales representative or otherwise addressing a substantial selling
effort, to any country or area outside the United States where the
division does not presently have such operations.
(b) Replace an existing sales representative or renegotiate
significant terms of an agreement with an existing sales representative.

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55
( c ) Pay or agree to pay a special or additional commission or
other compensation, or in any other way deviate from a previously
approved standard commission schedule, or otherwise modify or
amend a sales representative agreement
Prior to approving any such action, the Group Vice President
should be responsible for assuring that the proposal has received
review from the appropriate departments of the Corporate Office.
(b) Centralized Monitoring Of International Marketing Decisions
The Committee believes that, in addition to assuring adequate Corporate Office review at critical decision points, the Corporate Office should
have an up-to-date data base as to all major international marketing
activities of the Company. This base can be an effective resource for the use
of Group Vice Presidents, Group Controllers, the Vice PresidentInternational and other senior managers who have decision-making or
consultation functions.
In one instance, a Textron division retained as a marketing representative a person who had previously performed unsatisfactorily in a similar role
for another division and in that role had proposed a questionable transaction
which was rejected by the other division. The second division had no
knowledge of this relevant history when it hired the representative. A
current, central data base as to international marketing should avoid such
occurrences in the future.
Recommendation Eight: The senior executive for corporate standards (See Recommendation Six above) should supervise the establishment and maintenance of a central data base at the Corporate
Office which will include relevant information as to international
marketing activities of Textron divisions. Such information should
include a current list of all foreign sales representatives employed by
Textron divisions and information as to terminations of and any
problems encountered with such sales representatives.
4.

The Audit Committee And The Internal Financial Controls
Environment

Textron's Audit Committee was formed in 1974 but until 1977 did not
extend its activities beyond a very general review of the work of Textron's

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56
outside auditors and a review of the annual financial report. Beginning in
1977, the Audit Committee has steadily assumed greater responsibility. The
Special Committee is of the view that the Audit Committee is now
functioning effectively and that its members are committed to their important responsibilities.
The Committee met on several occasions, both formally and informally,
with members of the Audit Committee. The two Committees have reviewed
both the functions of the Audit Committee and the procedures that can be
implemented to assure that the Audit Committee can continue to perform its
functions as effectively as possible.
(a) Joint Recommendations Which Have Been Adopted
The Committee and the Audit Committee made the following joint
recommendations for implementation without awaiting the Committee's
report. These recommendations were communicated to the Chairman of the
Board on March 30, 1979 and were adopted by the Board at its next regular
meeting on April 25, 1979. The recommendations adopted are:
Recommendation Nine: The membership of the Audit Committee
has been increased from three to five outside directors.
Recommendation Ten: The Board of Directors has adopted a
Statement of Objectives, Policies and Functions of the Audit Committee which was prepared in consultation with the Committee. A copy
of the Statement as adopted is Appendix G to this Report.
(b) Additional Recommendations: Internal Audit
The Committee and the Audit Committee have met jointly with the
Company's Controller and its Director of Internal Audit and have reviewed
a number of steps taken in the past year, under the Audit Committee's
direction, to strengthen the internal audit function. These steps have
included the following:
( 1 ) The internal audit staff has been increased from six professionals to eleven. The five additions include two senior auditors with
backgrounds in electronic data processing and engineering, one international auditor located in Brussels, and two staff auditors.

186

57
( 2 ) A new Textron Accounting Policy was promulgated in August
1978, setting forth procedures to be followed in replying to internal
audit reports prepared after division audits by the corporate internal
audit staff. The Policy gives the corporate internal audit department
responsibility to monitor all open audit recommendation items until
they are implemented.
( 3 ) Audit coverage has been expanded to international operations, and the Audit Committee is now regularly reviewing the annual
internal audit schedule.
( 4 ) On December 20, 1978, Textron's President, with the approval of the Audit Committee, sent a letter to division Chairmen and
Presidents placing greater emphasis on Textron's audit objectives and
the methodology for achieving these objectives. The letter specified
procedures for increasing the involvement of the Corporate Director of
Internal Audit in division internal audit matters. A copy appears as
Appendix H to this Report.
( 5 ) On December 28, 1978, the Textron Appraisal Manual was
issued to all divisions' chief financial executives for use in ascertaining
the effectiveness of existing internal controls.
All divisions were
required to evaluate their internal controls and report their findings to
the Corporate Director of Internal Audit.
The Committee is particularly pleased to note that these important steps
have been taken at the initiative of the Audit Committee and Textron
management without waiting for the Committee's recommendations. The
Committee endorses each of these steps.
The Committee makes the following additional recommendations
designed to increase the effectiveness of the internal audit function.
Recommendation Eleven: The internal audit staff should be maintained at a size, and so organized, that it can consistently maintain an
audit cycle whereby all divisions, including all substantial operations
abroad, are audited by the corporate internal audit staff at least once
each three years.
Recommendation Twelve: The internal audit plan for each division
audit should include specific procedures for testing foreign sales

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58
representative accounts, expense accounts and other "sensitive" accounts as well as other specific procedures designed to identify
transactions, such as accommodation payments, political contributions
or questionable payments, which are not in accordance with Textron
corporate policy. In particular, substantial commission or discount
payments to sales representatives should be audited for conformity to
contractual provisions and proper authorization.
Recommendation Thirteen: Textron's corporate management, together with the Audit Committee, should promptly evaluate the
adequacy of internal audit coverage at each division.
Recommendation Fourteen: Each division which has its own internal audit staff should prepare and submit to the Corporate Director of
Internal Audit for his approval an annual internal audit plan for the
work of the division staff, which should be coordinated with work of the
corporate internal audit staff, and the division staff should prepare and
submit for similar review a written report on the completion of each
phase of its audit work. (This Recommendation has been implemented
in part by the letter directive from Textron's President to division
Chairmen and Presidents dated December 20, 1978, which is referred
to above.)
Recommendation Fifteen: Corporate financial management and the
Corporate Director of Internal Audit should review the feasibility of
establishing regional internal audit offices (similar to the European
office in Brussels) where staff auditors can be rotated for tours of
several years. This may reduce the burden of travel away from home
for staff auditors and make it possible to have continuing contact
throughout the year with the divisions audited by each office. On the
basis of such a feasibility review, management, in consultation with the
Audit Committee, should determine whether to establish such regional
offices.
Recommendation Sixteen: Corporate financial management should
continue to review, and report regularly to the Audit Committee on, the
compensation, benefits and opportunities for advancement available to
members of the internal audit staff to assure that Textron is recruiting
and retaining the best available internal audit staff.

69-845

0 - 8 1 - 1 3

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59
The additional recommendations set forth above have been reviewed
with the Audit Committee, which concurs in them.
(c) Additional Recommendations: Assessments Of The
Adequacy Of Internal Accounting Controls
Textron financial management has taken important steps to assure that
Textron complies with the accounting controls provisions of the Foreign
Corrupt Practices Act of 1977. These steps are summarized in Part G,
beginning at page 72 of Volume Two of this Report. The Committee
believes that the Company's internal accounting controls today are generally
effective and well administered.
But the Committee does not see the
requirements of effective internal control as static. As standards change and
the complexity of Textron's business grows, Textron's program of internal
controls must also evolve.
The Committee believes it is important that there be a formal,
continuing company-wide program of assessing the adequacy of internal
accounting controls. The Committee commends the requirement that each
division review, and document its review of, its accounting and control
procedures, but the Committee believes that an analysis of controls on a
company-wide basis should also be prepared and updated periodically.
Hence, the following recommendations:
Recommendation Seventeen: The Vice President and Controller
and the Director of Internal Audit should jointly establish, and the
Audit Committee should review and approve, a specific time schedule
and plan for completing a company-wide review and a written summary
of existing accounting and internal control procedures based on the
division reviews now being completed.
The summary should be
reviewed by the Audit Committee which should report the results to
the Board of Directors. Update reviews and reports should be made
annually.
Recommendation Eighteen: The proposed amendment to the Action Plan-Accounting Standards which has been prepared by the Vice
President and Controller, and reviewed by the Audit Committee and
the Committee, which calls for the designation of an Internal Accounting Control Coordinator for each division, should be promptly adopted
and implemented.

189

60
5. Particular Recommendations With Respect To Bell Helicopter
The most serious and pervasive questionable practices disclosed by the
Committee's investigation, as well as by the SEC investigation, occurred at
Bell.
These practices related primarily to export sales of helicopters.
Summaries of the Committee's findings as to Bell's international marketing
activities are contained in Section III.B. beginning at page 18 above; details
appear in Volume Two.
Based on these findings, the Committee has
concluded that the following specific recommendations should be implemented.
(a) Bell Helicopter's International Marketing Department
The Committee has concluded that, prior to the 1978 revelations in
connection with Mr. Miller's confirmation hearings, the Bell International
Marketing Department was not adequately supervised by senior Bell
management.
The Department on a number of occasions disregarded
Textron's corporate policies and on at least one occasion, the situation as to
the Dominican Republic described at page 22 above, a Department
employee obtained a large sum of cash with which to make a questionable
payment. Further, Bell's senior management, including Mr. Atkins and his
predecessor, Mr. Edwin J. Ducayet, failed to provide any guidance or
instruction to the sales staff as to how to deal with or respond to possibly
questionable transactions.
Neither Mr. Sylvester, the Vice PresidentInternational Marketing, nor Mr. Weichsel, the Senior Vice President of Bell
to whom he reported from 1971 until 1977, was adequately sensitive to
indications of questionable practices in the International Marketing Department. In addition, Mr. Sylvester, who viewed his role as that of a salesman,
was not attentive to the administration of his Department.
The Committee has concluded that Bell should appoint a new head of
the International Marketing Department. (This recommendation goes only
to the assignment of management responsibilities and is not a disciplinary
recommendation.) Mr. Weichsel no longer has supervisory responsibilities
for international marketing.
The Committee has further concluded that the reporting relationship
between that Department and Bell's senior management should be changed
to assure that the President of Bell is fully informed as to the operations of
the Department. The Committee has also concluded that for at least the

190

61
next two years and thereafter until such time as, in the judgment of
Textron's management, the Department is operating in conformity with
Textron corporate policies, all Bell export sales transactions should be
subject to a semi-annual retrospective review conducted at Bell by the
Textron Corporate Office.
Recommendation Nineteen: Bell should appoint a new head of its
International Marketing Department.
Recommendation Twenty: The reporting relationships between the
International Marketing Department and Bell's senior management
should be modified and approved by Textron corporate management so
that the President of Bell is able to effectively monitor the operations
of that Department on a continuing basis. Textron management should
report to the Board of Directors on the reporting responsibilities which
are established.
Recommendation Twenty-One: For the next two years and thereafter until Textron management is satisfied that corporate policies are
being adhered to, the Textron Corporate Office should conduct semiannual retrospective reviews of Bell international sales transactions.
Such reviews should be conducted at Bell and should include participation of the President of Bell and the head of Bell's International
Marketing Department, as well as the key international marketing
employees engaged in each transaction.
(b) Legal Services At Bell Helicopter
Bell is engaged in a complex, competitive world-wide business in which
its most important customers are governments. Bell must have readily
available highly competent and broadly experienced legal counsel. Bell has
paid too little attention to this requirement in the past.
The Committee has concluded that Bell's Legal Department did not
play an effective role in monitoring the activities of the International
Marketing Department to assure compliance with the law and with Textron
policies. The Committee has concluded that this failure resulted from two
causes. First, Bell's senior management has not appreciated the importance
of, and insisted upon, legal review that goes beyond simply approving the
form of documents to considering underlying risks and potential legal
problems. Second, Bell's Legal Department has not included lawyers with

191

62
sufficient experience in international legal transactions to give the kind of
counsel required.
Recommendation Twenty-Two: There should be a reorganization of
the Legal Department at Bell. Specifically the Department should
include one or more lawyers experienced in international transactions
who will be given direct responsibility for working closely with the
International Marketing Department on a regular basis and who will
have a direct reporting relationship to Bell senior management.
6.

Textron Legal Department Liaison With The Divisions

The Committee has concluded that, in some instances, there has been
insufficient communication between the lawyers employed by several of the
divisions and the Textron Corporate Office. In other cases, divisions with or
without lawyers of their own have sought and acted upon advice from
outside counsel without informing the Legal Department in Providence.
Division in-house legal counsel have historically reported to division officers
and not to the Legal Department at the Corporate Office. Thus, the Legal
Department has not been fully answerable for all legal advice given at the
division level. The Committee believes that these practices are unsatisfactory and makes the following recommendations:
Recommendation Twenty-Three: The senior lawyer employed by
each Textron division should report to the Textron Vice President and
General Counsel as well as to division management, and hiring,
termination, compensation and advancement of the senior lawyer in
each division should be determined jointly by the Textron Vice
President and General Counsel and the division President.
Recommendation Twenty-Four: The Textron Vice President and
General Counsel should approve any significant engagement of outside
counsel by any division and should be kept fully informed as to any
representation undertaken, or advice given, by outside counsel.
Recommendation Twenty-Five: The Textron Vice President and
General Counsel should conduct, at least annually, a seminar on
Textron corporate policies and current matters of legal interest -which
should be attended by all lawyers employed by the Textron divisions.
7. Disciplinary Recommendations
The Committee will make confidential recommendations as to discipline of certain Textron employees and certain personnel changes directly
to the Textron Board of Directors.

192

APPENDICES

The SEC's Order of Investigation

Letter from Chairman Harold M. Williams of the SEC to the Senate
Banking Committee

Text of the Board Resolution Appointing the Committee

Report of the Committee to Textron's Board of Directors, June 28,
1978

The Committee's Questionnaire

Letter
Presidents
of Textron
Divisions
from G. William Miller Dated
Mayto12,
1977 Regarding
Standards
of Conduct
Statement of Objectives, Policies and Functions of the Audit Committee (April 1979)

G.
H.

Instructions to Division Chairmen and Presidents Regarding Internal
Audit Objectives (December 1978)

Letter to Presidents of Textron Divisions from G. William Miller Dated
August 16, 1976 Regarding Standards of Conduct

Forms of Statement as to Illegal, Improper or Questionable Payments
Used in Connection with 1976 and 1977 Audits

Table of Contents, Textron's Business Conduct Guidelines (November
1, 1978)

193

UNITED STAV^b ^

JCCA

Before the
SECURITIES AND EXCHANGE COMMISSION

In the Matter of
ORDER DIRECTING PRIVATE
INVESTIGATION AND
DESIGNATING OFFICERS
TO TAKE TESTIMONY

TEXTRON INCORPORATED
File No. HO-1055

The Commission's public official files disclose
that:
A. Textron Incorporated ("Textron"), a Delaware
corporation with its principal place of business in
Providence, Rhode Island, has several classes of securities,
including common stock, perferred stock and debentures,
registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934 ("Exchange Act") and has filed with the
Commission since at least 1971, annual, periodic and current
reports and proxy materials pursuant to the Exchange Act.
II
Members of the staff have reported information
to the Commission which tends to show that:
A. The aforementioned annual, periodic and
current reports and proxy materials may contain false and
misleading financial statements and false and misleading
statements of material facts and may omit to state material
facts required to be stated therein and necessary to make
the statements therein not misleading concerning, among
other things, description of business, summary of operations,
financial statements and summarized financial information.

Appendix A

194

B. In connection with the above, Textron and
other persons have made use of the mails and the means
and instrumentalities of interstate commerce.
III
The Commission, having considered the aforesaid,
and deeming such acts and practices, if true, to be in
possible violation of Sections 10(b), 13(a) and 14(a) of the
Exchange Act and Rules 10b-5, 13a-l, 13a-ll, 13a-13 and
14a-9 thereunder, finds it necessary and appropriate and
hereby
IV
ORDERS, pursuant to the provisions of Section
21(a) of the Exchange Act, that a private investigation be
made to determine whether the aforesaid person or any other
person has engaged or is about to engage in any of the
reported acts or practices of similar purport or object,
and
IT IS FURTHER ORDERED, pursuant to the provisions
of Section 21(b) of the Exchange Act, that for the purposes
of such private investigation Richard S. Kraut, Richard J.
Morvillo, Eugene I. Goldman, Joyce L. Kramer, Kathleen G.
Gallagher, and Jonathan Eisenberg and each of them be and
hereby is designated an officer of the Commission and
empowered to subpoena witnesses, compel their attendance,
take evidence and require the production of any books,
papers, correspondence, memoranda, or other records deemed
relevant and material to the investigation, and to perform
all other duties in connection therewith as prescribed by law.

By the Commission

George A. Fitzsimmons
Secretary
/s/ Shirley E. Hollis
By:

Shirley E. Hollis
A s s i s t a n t Secretary

195

SEAL

SECURITIES AND EXCHANGE
W a s h i n g t o n , D. C.

February

COMMISSION
20549

22,

1978

The H o n o r a b l e W i l l i a m P r o x m i r e
U n i t e d States S e n a t e
C o m m i t t e e on B a n k i n g , H o u s i n g
and Urban A f f a i r s
W a s h i n g t o n , D. C . 2 0 5 1 0
Re:

Textron,
File No.

Dear S e n a t o r

Incorporated
H0-1055

Proxmire:

On F e b r u a r y 21, the staff of the Senate B a n k i n g C o m m i t t e e
r e q u e s t e d that we p r o v i d e the C o m m i t t e e , for p u r p o s e s of inclusion in the record of its p e n d i n g p r o c e e d i n g s into the n o m i n a t i o n
of G. W i l l i a m M i l l e r , an i n d i c a t i o n of the scope of the C o m m i a s ^ p n ' s
inquiry into T e x t r o n , I n c o r p o r a t e d .
As I i n d i c a t e d to you in my
letter of F e b r u a r y 21, 1 9 7 8 , the C o m m i s s i o n a u t h o r i z e d an inquiry
into t h i s m a t t e r to d e t e r m i n e , a m o n g o t h e r t h i n g s , w h e t h e r i n f o r m tion that was r e f e r r e d to us by the C o m m i t t e e i m p l i c a t e d T e x t r o n ,
or any of its s u b s i d i a r i e s or o f f i c i a l s in v i o l a t i o n of the
f e d e r a l s e c u r i t i e s laws.
As y o u k n o w , the C o m m i t t e e ' s i n f o r m a t i o n
i n d i c a t e d that B e l l H e l i c o p t e r , a w h o l l y - o w n e d subsidiary in
T e x t r o n ' s A e r o s p a c e D i v i s i o n , p a i d $2.9^5 m i l l i o n over a two y e a r
p e r i o d to A i r T a x i , an Iranian s a l e s a g e n t , in c o n n e c t i o n w i t h the
sale in 1975 of 489 h e l i c o p t e r s to the g o v e r n m e n t of Iran for
$500 m i l l i o n .
With r e s p e c t to the r e m a i n i n g areas of the C o m m i s s i o n ' s inquiry
I should e m p h a s i z e that to p r e s e r v e the i n t e g r i t y of its i n v e s t i g a t i v e
p r o c e s s e s , it is e s s e n t i a l t h a t the p r e m a t u r e or u n w a r r a n t e d p u b l i c
d i s c l o s u r e of the d e t a i l s of its i n v e s t i g a t i o n s be a v o i d e d .
Also,
w h e n such d i s c l o s u r e s o c c u r , i n d i v i d u a l s i n v o l v e d , m a n y of w h o m may
in the final a n a l y s i s be d e t e r m i n e d to have engaged in no illegal
or i m p r o p e r c o n d u c t , may have t h e i r p r i v a c y - and in some cases their
safety - j e o p a r d i z e d and m a r k e t s for s e c u r i t i e s may be u n n e c e s s a r i l y
impaired.
A c c o r d i n g l y , w h i l e we have s u p p l i e d the C o m m i t t e e ' s staff
a C o n f i d e n t i a l M e m o r a n d u m d e t a i l i n g the m a t t e r s we have c u r r e n t l y

Appendix B

196

under i n v e s t i g a t i o n , we are r e l u c t a n t to p r o v i d e m o r e than a g e n e r a l
outline of those m a t t e r s in a letter we u n d e r s t a n d is intended to be
made a p a r t of the C o m m i t t e e ' s public record.
Those m a t t e r s i n c l u d e :
(a)

the r e m i t t a n c e of $300,000 by a Textron
subsidiary to an i n d e p e n d e n t foreign sales
r e p r e s e n t a t i v e in c o n n e c t i o n with a $1.6
m i l l i o n sale of e q u i p m e n t m a n u f a c t u r e d by that
subsidiary to a foreign g o v e r n m e n t e n t i t y ;

(b)

the use of "push m o n e y , " salary c o n t r i b u t i o n s
and other p r o m o t i o n a l p r a c t i c e s by a n o t h e r
Textron subsidiary;

(c)

the d i s c l o s u r e of instances of o v e r b i l l i n g s ,
u n d e r b i l l i n g s and other b i l l i n g p r a c t i c e s
a p p a r e n t l y employed by several d i v i s i o n s of
T e x t r o n , to a c c o m m o d a t e their c u s t o m e r s in the
e s t a b l i shment of q u e s t i o n a b l e funds of cash;
and

(c)

the adequacy of T e x t r o n ' s d i s c l o s u r e s w i t h
respect to i n f o r m a t i o n regarding n u m e r o u s
p r o c e e d i n g s b r o u g h t by federal or state
g o v e r n m e n t a l a u t h o r i t i e s r e g a r d i n g alleged
e m p l o y m e n t d i s c r i m i n a t i o n on the b a s i s of
race, sex, age, r e l i g i o n , etc.

As you can e x p e c t , an investigation as c o m p r e h e n s i v e as the
one I have o u t l i n e d for you involving an entity as complex as T e x t r o n ,
could result in several additional areas of inquiry being u n d e r t a k e n
by the staff b e f o r e the investigation is finally c o n c l u d e d .
That is
not to suggest, h o w e v e r , that the c u l p a b i l i t y of any individual
or entity can be p r o p e r l y resolved p r i o r to a balanced a s s e s s m e n t
of the totality of the evidence obtained and a d e t e r m i n a t i o n w h e t h e r
indications of v i o l a t i v e conduct exist and are sufficiently strong
and reliable to w a r r a n t enforcement action.
As I indicated in my letter to you of February 21, 1978, T e x t r o n
has not conducted an extensive internal i n v e s t i g a t i o n to d e t e r m i n e
w h e t h e r it engaged in any unlawful a c t i v i t i e s in connection w i t h its
o v e r s e a s o p e r a t i o n s or those of its s u b s i d i a r i e s .
Thus, the staff
expects that at least four to six m o n t h s , and p e r h a p s m o r e , w i l l be
required to complete the inquiry and to satisfy itself with respect
to Textron's a c t i v i t i e s in various foreign c o u n t r i e s .

197

If you or your staff has further q u e s t i o n s on this m a t t e r , we
shall be happy to attempt to answer them.

Sincerely,

/ s / Harold M.

Williams

Harold M. Willaims
Chairman

198

R E S O L U T I O N OF T H E BOARD OF D I R E C T O R S
OF T E X T R O N , INC.
A d o p t e d May

31,

1978

RESOLVED:
T h e r e is e s t a b l i s h e d a S p e c i a l
C o m m i t t e e of the Board of D i r e c t o r s , p u r s u a n t to
Section 4.05 of A r t i c l e IV of the B y - l a w s of
Textron Inc. to c o n d u c t and d i r e c t an i n v e s t i g a tion of T e x t r o n Inc. and its d i v i s i o n s and
s u b s i d i a r i e s to d e t e r m i n e the e x t e n t and n a t u r e
of any q u e s t i o n a b l e and i l l e g a l p a y m e n t s and
p r a c t i c e s , and to report its findings to the
Board of D i r e c t o r s of T e x t r o n Inc. and to the
S e c u r i t i e s and E x c h a n g e C o m m i s s i o n ; in this
c o n n e c t i o n , this Board of D i r e c t o r s a u t h o r i z e s
the S p e c i a l C o m m i t t e e and its c o u n s e l to make
a v a i l a b l e to the S e c u r i t i e s and E x c h a n g e C o m m i s s i o n
all d o c u m e n t s obtained in the course of its
i n v e s t i g a t i o n and all o t h e r data p r e p a r e d or
received by the Special C o m m i t t e e or its c o u n s e l
u n d e r l y i n g that i n v e s t i g a t i o n , it being the
intention of this Board t h a t no p r i v i l e g e w h i c h
this c o r p o r a t i o n may have w i l l be a s s e r t e d as to
such d o c u m e n t s and data;
RESOLVED:
Webb C. H a y e s , III, Paul M. Fye
and Richard T. B a k e r are appointed to serve as
m e m b e r s of the S p e c i a l C o m m i t t e e of the Board of
Directors.
M r . H a y e s to serve as C h a i r m a n ;
RESOLVED:
Prior to c o m m e n c i n g the investig a t i o n , the S p e c i a l C o m m i t t e e is r e q u e s t e d to
meet and c o n s i d e r the a p p r o p r i a t e scope of and
p r o c e d u r e s for the i n v e s t i g a t i o n ;
RESOLVED:
The S p e c i a l C o m m i t t e e be p r e p a r e d
at the m e e t i n g of the Board of D i r e c t o r s scheduled
for June 28, 1978, to make a p r e l i m i n a r y report to
the Board of D i r e c t o r s for c o n s i d e r a t i o n and
approval, including the f o l l o w i n g :

Appendix C

199

(i)
(ii)

(iii)

the p r o p o s e d

scope of the

investigation;

a r e c o m m e n d a t i o n w h e t h e r or not the Special
Committee should be authorized to make
findings and r e c o m m e n d a t i o n s with respect to
p o s s i b l e liability to Textron Inc. of p e r s o n s
who may have p a r t i c i p a t e d in questionable
p a y m e n t s and p r a c t i c e s , and remedies which
Textron Inc. should p u r s u e against such
p e r s o n s including p r e s e n t and former o f f i c e r s ,
d i r e c t o r s , e m p l o y e e s or agents; and
w h a t e v e r other actions the Special C o m m i t t e e
b e l i e v e s to be n e c e s s a r y , d e s i r a b l e and in
the best interest of Textron Inc. for the
e f f i c i e n t handling and conclusion of the
investigation;

RESOLVED:
The Special C o m m i t t e e is authorized
to retain such law firms, accounting firms and
others as it may deem necessary in its opinion to
conclude in a p r o m p t and d i l i g e n t manner the
investigation?
RESOLVED:
The officers, d i r e c t o r s and
employees of Textron Inc. and its divisions and
subsidiaries be directed to cooperate fully with
the Special C o m m i t t e e and such other p e r s o n s as
the Special C o m m i t t e e may retain in the investigation ;

200

TEXTRON INC.
June 28, 1978
TO:

Board of Directors

FROM:

Special Committee

RE:

Organization of the Special Committee and Scope of
Its Inquiry; Supplemental Authorization
I.

Appointment and Purpose of the Committee
At its meeting on May 31, 1978, the Board of Directors appointed a Special Committee to conduct an inquiry of the
Company and its divisions and subsidiaries to determine the
extent and nature of questionable and illegal payments and practices and to report on such investigation to the Board.

Ap-

pointed to the Committee were Webb C. Hayes, III, who was designated as Chairman, Dr. Paul M. Fye and Richard Baker, all of
whom are non-management directors of the Company.
The Committee was authorized to retain legal counsel
and accounting advice and such other advisors and consultants
as it deems necessary.
The Board specifically determined that the Company
will not assert any privilege against disclosure to the Securities and Exchange Commission ("SEC") of information furnished
to the Committee and its legal counsfel ahd other advisors in
the course of its inquiry.

Appendix D

201

- 2 -

The Board directed the officers, directors and employees of the
Company to cooperate fully with the Committee and its advisors.
Subsequent to the Board meeting, each of the members
accepted appointment to the Committee.

II.
Retention of Counsel
The Committee has retained the firm of Gibson/ Dunn
& Crutcher as its legal counsel for the investigation.

Francis

M. Wheat, a senior member of that firm and a former Commissioner
of the SEC, will be in charge of the firm's representation of
the Committee.

He will be assisted by John F. Olson, resident

partner in the firm's Washington, D.C. office, and by Richard
M. Russo, Kenneth W. Starr and other associates of the firm.

III.
Meetings With SEC Staff And Other Counsel
The Chairman of the Committee, Mr. Wheat and Mr.
Olson have met with staff members of the SEC's Division of
Enforcement and with the Director of the Division, Stanley Sporkin*
and have informed the staff of the Committee's appointment and
discussed with the staff the scope of the Committee's investigation and its relationship to the SEC's investigation of the Company.

The Chairman has agreed that the Committee will periodi-

cally inform the SEC staff of the progress of the Committee's work.

202

-3-

The Committee's legal counsel has also met with representatives of Arnold & Porter, counsel for the Company in the SEC investigation, and with lawyers representing certain individual officers and
employees of Company divisions, to arrange to obtain f r o m such counsel
such information as they can provide for the Committee consistent with
their obligations to their clients.

IV.
Scope of Investigation
The Committee has met to consider the appropriate scope
of the investigation to be conducted by it and proposes to the Board the
following description of such scope:
1.

The investigation will cover the period January 1,

1971 to and including the most recent practicable date.
2.

The Committee will attempt to identify, describe

and evaluate possible questionable payments or accounting
practices.

By " p o s s i b l e questionable payments or a c -

counting p r a c t i c e s , " the Committee means:

(a) payments by the Company (either of money
or other corporate property) to or for the benefit
of any official or employee of any government, of
any candidate for political officc or political party
or of any official or employee of any entity owned
or controlled by any government;

203

- 7 -

(b)

off-balance sneet funds or accounts or other

entries or items not recorded on the books of the
Company, or recorded in an incomplete, false or
misleading manner?
(c)

payments by the Company (either of money or

other corporate property) to or for the benefit of
any officer, employee, owner or other representative of a non-governmental customer or purchaser
from the Company for the purpose of improperly
influencing any decision with respect to such cusomer's or purchaser's dealing with the Company.
(d)

receipt by any officer, employee or repre-

sentative of the Company, of any payment or
other thing of value from any vendor or supplier
to the Company, or any customer or purchaser from
the Company, for the purpose of improperly influencing the Company as to its dealings with such
vendor, supplier, customer or purchaser;
(e) .over-billing, accommodation payments and other
billing, invoicing and payment practices which have
been or may be subject to abuse.
3.

The Committee will exclude from its investigation:
(a)

Those matters which may be subjects of the

current SEC investigation of the Company but
which do not relate to possible questionable payments or accounting practices.

69-845

0 - 8 1 - 1 4

For example, the

204

-3-

Committee will not review questions related to the
adequacy of the Company's disclosures as to alleged
discriminatory employment practices,
(b) P o s s i b l e or claimed violations of law by the C o m pany which do not directly relate to possible questionable payments or accounting practices as defined above.
4.

The t e r m "the Company" refers to Textron Inc. and

its wholly-owned divisions and subsidiaries.

Partly-

owned enterprises will be included only if they are subject
to direct Textron management control.

V.
Future Recommendations
At the conclusion of its investigation, the Committee will
make a written report of its findings to the Board of Directors.

Th^

Committee expects to s u m m a r i z e its findings as to any possible questionable payments and accounting practices which it identifies and,
where possible, to c l a s s i f y each as unlawful, uncertain or lawful.
The Committee will also make any recommendations as to
changes in corporate and accounting policies, procedures and practices
which it believes are appropriate as a result of its investigation.

205

The Committee is of the view that it should also be
authorized to make recommendations as to the pursuit of remedies
against any present or former officers, directors, employees,
agents or other person having a duty to the Company who may
have breached their duty by participation in questionable payments
or practices.

The Committee will make such recommendations only

if it determines that it is appropriate to do so, considering
both the interests of the Company and the rights of any individuals
involved.
The Committee may make interim reports of its findings
and may make interim recommendations as to policies, procedures
and practices, from time to time prior to the conclusion of its
investigation as it deems necessary or appropriate.
The Committee believes that it should be authorized to
review and approve the Company's proposed Business Conduct Guidelines before they are submitted to the Board of Directors.

VI.
Procedures and Methods

The Committee will develop and carry out procedures
and methods of investigation as it determines to be required
with the assistance of its legal counsel and other advisors.

VII.
Additional Action Requested of the Board of Directors
In addition to the authorizations given to the Com-

206

- 7 -

mittee, and the direction of cooperation given to officers,
directors and employees of the Company, at the May 31, 1978
meeting of the Board of Directors, the Committee requests that
the Board take the following actions:
1.

Approve the scope of the Committee's inquiry

as outlined under III. above.
2.

Authorize the Committee to develop and implement

such procedures and methods of investigation as it
deems appropriate.
3.

Authorize the Committee to give directions to,

and obtain assistance from, the internal audit staffs
of the Company and its divisions and subsidiaries in
connection with the Committee's

inquiry and authorize

the internal audit staff to report directly to the
Committee in such connection.
4.

Authorize the Committee to review and approve the

Company's proposed Business Conduct Guidelines before
they are submitted to the Board and to make such other
recommendations from time to time as to corporate and
accounting policies, practices and procedures as it
deems appropriate.
5.

Authorize the Committee to make any recommendations

it deems appropriate as to pursuit by the Company of
remedies against present or former officers, directors,
employees, agents or other persons who may.have breached

207

their duty to the Company by participation in
questionable payments or practices.

Respectfully submitted,

Webb C. Hayes, III, Chairman
Richard Baker
Paul M. Fye

208

TEXTRON
EMPLOYEE

Dear Textron

INC.

July 14, 1978

QUESTIONNAIRE

Employee:

This q u e s t i o n n a i r e has been p r e p a r e d under the
d i r e c t i o n of the undersigned d i r e c t o r s of Textron Inc., w h o
have been appointed as a Special C o m m i t t e e by the Board of
Directors to conduct a w o r l d - w i d e inquiry into certain a c t i v i ties which may have occurred within T e x t r o n , its d i v i s i o n s and
subsidiaries.
The C o m m i t t e e expects to make the results of
its inquiry available to the United States Securities and
Exchange C o m m i s s i o n .
The q u e s t i o n n a i r e is being sent directly from the
Committee to key employees of the corporate office and all
divisions and s u b s i d i a r i e s .
To enable us to carry on this
inquiry carefully and e f f i c i e n t l y , it is vital that your a n s w e r s
be candid and complete.
Important

Instructions:

Before answering this q u e s t i o n n a i r e , please
these important guidelines:
1.

The period to be covered
date of your response.

The term "government official" includes any ruler or m e m b e r
of the ruling family of any nation, and any elected or
appointed o f f i c i a l , employee or agent of any g o v e r n m e n t
or of any corporation or other entity owned or controlled
in whole or in p a r t by a g o v e r n m e n t , and any family m e m b e r ,
intermediary, n o m i n e e , agent or r e p r e s e n t a t i v e of any such
person.
"Government" includes the government of any n a t i o n ,
including the United States, or of any state, c o u n t y , city
or other p o l i t i c a l subdivision thereof.

The term "questionable p a y m e n t s " includes any gift, b r i b e ,
kickback, r e b a t e , p o l i t i c a l c o n t r i b u t i o n , or similar p a y ment of any k i n d , direct or indirect, whether made in c a s h ,
in property of any kind, or by the use of p r o p e r t y .

"The C o r p o r a t i o n " includes Textron
divisions and subsidiaries.

"Sales r e p r e s e n t a t i v e " includes any d i s t r i b u t o r , m a n u f a c turer's r e p r e s e n t a t i v e , or other sales agent, e m p l o y e d or
otherwise engaged by the Corporation to sell its p r o d u c t s
e i t h e r in the United States or abroad.

is from January

note

Appendix E
(1)

1, 1971, to the

Inc. and all of

its

209

PLEASE:
(a)

Answer each question to the best of your knowledge
and belief.
If you are not sure of any event,
provide the information and indicate you are not
sure of it.

(b)

If you have already given all details called for in
the answer to a prior question, so indicate and
identify the prior question.

(c)

Prepare the answers to this questionnaire
own as your individual response.

(d)

Refer as needed in preparing your answer to files
and records, including your own personal files.
If
your answer is based on any such file or record, o_r
if you know of the existence of any document which
relates to the question or to your answer, please
identify it and give its location.

(e)

Do not destroy or alter any records, including
records in your personal files.

(f)

If you have any question regarding the q u e s t i o n naire, call the Committee's counsel, either John F.
Olson or Kenneth W. Starr [202] 862-5500, or Francis
M. Wheat, [213] 488-7661.

PLEASE NOTE

on your

any

CAREFULLY:

The Company has asked us to advise you that failure of any
employee to give full, prompt and completely candid
answers to the Committee's questions will be regarded as
a serious matter which may call for disciplinary action.

After answering all q u e s t i o n s , please date and sign
the questionnaire in the spaces provided on the last page and
return it to the Committee in the enclosed envelope by
August 4, 1978, at the latest.

Your cooperation

appreciated.

Webb C. Hayes III, Chairman
Richard T. Baker
Paul M. Fye
Special Committee of
Textron Board of Directors

(2)

210

QUESTIONNAIRE

(If the spaces below
your answers, please
as needed.)

(Personal

are not sufficient ..for
attach additional pages

Information)

Name:
Present

position:

Business address

and phone

Home address and phone

number:

List all other positions which you have held with the
from January l f 1971, to the present:
Position
He Id

Approximate Dates
Position Held

Location

(3)

Corporation

Division
Subsidiary

211

(Arrangements with Government

Officials*)

1.
Are you aware of any questionable p a y m e n t * in excess
of U.S. $250 made, directly or indirectly, by the C o r p o r a t i o n *
to or for the b e n e f i t of, or at the direction of, any g o v e r n ment official?*
Please checks

Yes

If "yes", please give below what details you can as
to the approximate amount of each such p a y m e n t , its p u r p o s e ,
the identity of each person making and receiving each such
payment, and the date and place where each such p a y m e n t was
made.

2.
Have you, or to your knowledge has the C o r p o r a t i o n * ,
received any request, inquiry, solicitation, or suggestion
from any government official* that a questionable p a y m e n t *
in excess of U.S. $250 be made to or for the b e n e f i t of any
government official*, whether to obtain a contract, facilitate
the transaction of business, or for any other p u r p o s e ?
Please

check:

Yes

If "yes", please give below what details y o u can
as to the identity of each person making each such r e q u e s t ,
each person to whom the request was made, the approximate
date, the nature of the request, its purpose, and the C o r p o r a tion's* response to the request.

* This is a defined
above.

term.

Please see the definitions on page

(4)

212

3.
Have y o u p a r t i c i p a t e d in or art y o u aware of any
discussions or c o m m u n i c a t i o n s w h i c h relate or may relate to
questionable p a y m e n t s * by the C o r p o r a t i o n * to any government
official*?
Please

checks

Yes

If "yes", p l e a s e describe below as b e s t y o u can each
such discussion or c o m m u n i c a t i o n , identify the p e r s o n s involved,
the approximate date and place, and where any document or m e m o randum referring to any such communication or d i s c u s s i o n is or
may be located.

4.
To your k n o w l e d g e , has the C o r p o r a t i o n * ever employed
any person who was at the time of employment a g o v e r n m e n t
official* in any capacity, including but not limited to e m p l o y ment as a sales r e p r e s e n t a t i v e * ?
Please

check:

Yes

If "yes", p l e a s e give b e l o w w h a t details y o u can as
to the identity of each such p e r s o n , the period of that p e r s o n ' s
employment, and the nature of that p e r s o n ' s duties and a c t i v i t i e s
on behalf of the C o r p o r a t i o n * .

* This is a defined term.
above.

Please see the definitions on page

(5)

213

5.
To your k n o w l e d g e , has the C o r p o r a t i o n * ever e n t e r tained or paid the e n t e r t a i n m e n t or travel expenses of any
government o f f i c i a l * ?
(This question does not require i n f o r m a tion as to an expenditure of less than $100 U.S. as to any
individual person.)
Please check:

Yes

If N y e s H , please give below what details y o u can as
to the nature of each such i n s t a n c e , including the p u r p o s e ,
persons involved, and approximate date of the e n t e r t a i n m e n t
or payment, and the amount paid by the C o r p o r a t i o n * .

6.
Do you suspect or have you heard that p a y m e n t s of any
kind in excess of U.S. $250 made by the C o r p o r a t i o n * to or for
the benefit of any supplier or other person or entity have been
channelled to, have been made at the direction of, or have
otherwise b e n e f i t e d a government official*?
Please

check:

Yes

If "yes", please give below w h a t details y o u can as
to any such p a y m e n t , the location, approximate date, and p u r pose of such payment, and the identity of the p e r s o n s who made
or received such payment.

* This is a defined term.
above.

Please see the definitions on page 1

(6)

214

7.
To your k n o w l e d g e , has the C o r p o r a t i o n * ever been
threatened with a loss of business or other adverse c o n s e quence if the C o r p o r a t i o n * did n o t make p a y m e n t s of any kind
to or for the b e n e f i t of any government o f f i c i a l * ?
Please

check:

Yes

If "yes", please give below what details you can,
including the country, date, and the names of the p e r s o n s
who made and received such threats.

8. To your k n o w l e d g e , has the C o r p o r a t i o n * ever entered
into a contract, sales representation agreement, or other
arrangement with any individual, p a r t n e r s h i p , a s s o c i a t i o n ,
corporation, or other entity in which any government o f f i c i a l *
has or had any known or suspected ownership interest, direct
or indirect?
Please

check:

Yes _________

If "yes", please give below what details y o u can as
to the name of such person or entity, the country in which
each such person or entity does business with the C o r p o r a t i o n * ,
and the nature of all known or suspected ownership interests
held by any government official*.

This is a defined term.
above.

Please see the definitions on page 1

(7)

215

9.
If you had any knowledge of or suspected any q u e s tionable p a y m e n t s * by the C o r p o r a t i o n * , did y o u share that
knowledge or suspicion or discuss the matter with any o f f i c e r s
directors, or employees of the C o r p o r a t i o n * at any time?
Please

check:

Yes

If "yes", please state below the name of each such
person and describe when and w h e r e such discussions took place

10.
Do you know of
or have you heard of any instance in
which the C o r p o r a t i o n * agreed to the s t r u c t u r i n g of a transaction or arrangement to facilitate or allow any q u e s t i o n a b l e
payment* to be made by any person or entity other than the
Corporation* to a government o f f i c i a l * ?
Please

check:

Yes

If "yes", please give b e l o w what details you can as
to the names of the parties to the transaction, when and where
the transaction took place, and the identity of the p e r s o n s
making and receiving any questionable payment*.

This is a defined term.
above.

Please see the d e f i n i t i o n s

(14)

on page

216

11.
To your k n o w l e d g e , has the C o r p o r a t i o n * entered into
any transaction in which questionable p a y m e n t * in excess of
U.S. $250 was to be made, or has been made, by anyone other
than the C o r p o r a t i o n * to any government o f f i c i a l * ?

Please

check:

Yes

If "yes", please give below w h a t details you can as
to the name of the person or entity with which the C o r p o r a t i o n *
was dealing, the name of the country, and the g o v e r n m e n t
official* who received or is suspected of receiving any questionable payment*.

(Arrangements with Sales

Representatives*)

12.
To your knowledge, has the Corporation* engaged any
sales representative* who had known or suspected b u s i n e s s or
family relationships with any government* or any g o v e r n m e n t
official* while the representative was engaged by the Corporation*?
Please

check:

Yes

If "yes", please give below what details you can as
to the name of each such representative, the country (or
countries) in which the representative acted on behalf of the
Corporation* and the name and position of the government
official*.

This is a defined term.
above.

Please

(9)

see the definitions

on page

217

13.
To your knowledge, has any sales r e p r e s e n t a t i v e *
made any questionable p a y m e n t s * to any g o v e r n m e n t o f f i c i a l *
in connection with the representative's* a c t i v i t i e s on
behalf of the Corporation*?
Please check:

Yes

If "yes", for each instance, p l e a s e give below
what details you can as to the name of the r e p r e s e n t a t i v e
and the government official* who received the p a y m e n t ,
the reason for the p a y m e n t , the approximate d a t e , and the
name of each officer or employee of the C o r p o r a t i o n * who
authorized, directed, approved or knew of such p a y m e n t .

14.
To your knowledge, has the C o r p o r a t i o n * paid any
commission or fee to any sales r e p r e s e n t a t i v e * w h o you
know or suspect did not actually render services on b e h a l f
of the Corporation*, or who, if services were rendered,
received payment which was excessive or unusual in relation
to services p e r f o r m e d ?
Please check:

Yes

If "yes", p l e a s e give below what d e t a i l s you can
as to the name of the representative who received any such
commission or fee, the amount of the fee, the approximate
date, and why the fee was paid.

*This is a defined term.
page 1 above.

Please see the d e f i n i t i o n s

( 10)

218

15.
Do you know or suspect that any sales representative* in the course of representing the Corporation* made
any offer of money or any other form of compensation or
payment, whether reimbursed by the Corporation* or not and
whether consummated or not, to any government official*?
Please check:

Yes

If "yes", please give below what details you can
as to the name of the sales representative*, the country
and the circumstances surrounding any such offer.

(Accommodation Payments; Political Contributions; Questionable
Commercial Transactions:
Overbilling and Other Practices)
16.
To your knowledge, has any sales representative*
suggested or directed that commissions or other amounts
owed to the representative by the Corporation* be paid:
a.
To any bank account outside of the particular
country or countries in which the representative
maintained his principal office or engaged in business
on behalf of the Corporation; or
b.
To any person or entity, regardless
what country, other than the representative?
Please check:

Yes

If "yes", please give below what details you can
as to the name of the representative, the person or entity
to whom such payment was made and the account to which such
payment was made.

*This is a defined
page 1
above.

term.

Please

(ID

see the definitions

219

17.
To your knowledge, has any person (including any
customer of the Corporation*) suggested or directed that
amounts owed to the customer or such person by the Corporation* be paid:
a.
To any bank account outside of the
particular country or countries in which the
customer or other person maintained his p r i n c i p a l
office or engaged in business? or
b.
To any person or entity, regardless
of what country, other than the customer or
other person?
Please check:

Yes

If "yes", please give below what details you can
as to the name of the customer or other person, the person
or entity to whom such payment was made and the account to
which such payment was made.

18.
To your knowledge, has the Corporation* engaged
in billing or otherwise charging a customer at the customer's
request an amount in excess of the amount actually owed by
that customer or has any customer overpaid the C o r p o r a t i o n *
and asked that the excess be held and disbursed to others
in accordance with the directions of the customer?
Please check:

*This is a defined term.
page 1 above.

Yes

Please see the definitions

( 12 )

69-845

0 - 8 1 - 1 5

220

If "yes", please identify below to the best of
your ability each instance in which such overbilling or
overpayment o c c u r r e d , including the name of the customer,
the country, approximate date of the o v e r b i l l i n g , the name
of the employees who participated in such overbilling or
overpayment p r a c t i c e s , and describe the method by which
such overbilling or overpayment arrangement was accomplished.

19.
To your knowledge has the Corporation* or any
sales representative* of the Corporation* made or offered
to make questionable payments* to an officer, employee or
agent of any company or organization with which the
Corporation* was doing business, in order to obtain favorable
treatment or special concessions in securing business from
that company, or to pay for favorable treatment already
obtained?
Please check:

Yes

If "yes", please give below what details you can
as to the person making the offer
or payment, the approximate
date, the amount of the offer or p a y m e n t , and the name of the
recipient of any offer or payment

*This is a defined
page 1
above.

term.

Please see the definitions

( 13 )

221

20.
To your k n o w l e d g e , has the Corporation* or any
sales r e p r e s e n t a t i v e * of the Corporation* paid or offered
to pay (whether in cash, p r o p e r t y , or use of p r o p e r t y ) any
gift in excess of U.S. $25, or a bribe in any amount, to
any person or entity for the purpose of obtaining favorable
treatment?
Please

check:

Yes

If "yes", please give below what details y o u can
as to the person making the offer, gift or bribe, the date
and amount of the offer, gift or bribe, and the name of
the recipient of any such offer, gift or bribe.

21,
To your knowledge, has the Corporation* or any
employee of the C o r p o r a t i o n * received, directly or indirectly
any gift in excess of U.S. $25, bribe, kickback, or similar
payment, w h e t h e r in cash, property or the use of p r o p e r t y ,
from any person or entity, whether domestic or foreign, made
for the purpose of obtaining business from, or favorable
treatment in connection with, the business of the Corporation
Please

check:

Yes

If "yes", please give below w h a t details y o u can
as to the name of the person or persons who may have received
any such p a y m e n t , the purpose of the payment, and the date
and amount of each such payment.

This is a defined term.
page 1 above.

Please see the definitions

(14)

222

22.
To the extent of your k n o w l e d g e , list all p o l i t i c a l
contributions or p a y m e n t s made by or on b e h a l f of the
Corporation* to or on behalf of any p o l i t i c a l candidate,
political p a r t y , or committee anywhere in the world.
For
each such contribution, please give below what details you
can as to the date, amount and recipient, and state the
manner in which each such p a y m e n t was m a d e .
DATE

AMOUNT

*This is a defined
page 1 above.

RECIPIENT

term.

MANNER OF

PAYMENT

Please see the definitions

(15 )

223

23.
Did you ever receive any direct or indirect
reimbursement (including by way of b o n u s , salary adjustment or allowance) from the C o r p o r a t i o n * or did you ever
authorize, direct, approve or know of any reimbursement of
any o f f i c e r , director, employee or sales r e p r e s e n t a t i v e *
of the C o r p o r a t i o n * , for any p o l i t i c a l contribution to any
political p a r t y , committee or candidate anywhere in the
world?
Please check:

Yes

If "yes", please give below what details you can
as to the date, amount and r e c i p i e n t , and who authorized
each such reimbursement.

DATE

AMOUNT

RECIPIENT

PERSON A U T H O R I Z I N G
REIMBURSEMENT

24.
Did you ever receive or hear of any solicitation
or request for a p o l i t i c a l contribution or charitable
contribution to be made by the Corporation* in connection
with any contract or business that the C o r p o r a t i o n * was
seeking to obtain or retain?
Please check:

Yes

If "yes", please give below what details you can
as to the person making the request, the person to whom the
request was m a d e , the date of the request, and the Corporation ' s* action or response to the request.

*This is a defined
p. l
above.

term.

Please see the definitions

(16)

224

25.
Do you know or have you heard of any instance
in which the Corporation* was threatened with adverse
business consequences, such as loss of a contract, if a
charitable contribution or political contribution was not
made to any charitable fund, political party, candidate
or committee?
Please check:

Yes

If "yes", please describe below each such
in as much detail as you can.

(Accounting

instance

Practices)

26.
Do you know of or have you heard of any instance
in which any person engaged in the falsification or manipulation of
the Corporation's* accounting or other financial
or legal records?
Please check:

Yes

If "yes", please give below such details as you
can about each instance.

*This is a defined term.
page 1
above.

Please see the definitions

(17)

225

27.
To your knowledge, has any payment by the
Corporation* to a sales representative* or to any government official* been inaccurately identified and recorded
in the C o r p o r a t i o n ' s * books and records?
Please check:

can about

Yes

If "yes", please give below
each such instance.

No
such details as you

28.
To your knowledge, has any political contribution by the Corporation* not been accurately reflected as
such in the Corporation's* books and records?
Please check:

Yes

If "yes", please give below
can about each such instance.

*This is a defined term.
page 1
above.

No
such details

as you

Please see the definitions

(18)

226

29.
To your k n o w l e d g e , has the C o r p o r a t i o n * maintained
any cash account or any other account of any kind, either
domestic or foreign, which account was not accurately
identified and included on the books of the Corporation*?
Please check:

Yes

If "yes", please identify

No
each instance

in detail

below.

30.
To your knowledge, have any funds or cash a c c o u n t s ,
including off-balance sheet accounts, been maintained by the
Corporation* or on its behalf for the p u r p o s e , in whole or
in part, of making contributions to political p a r t i e s ,
committees or candidates, or questionable payments* to obtain
or retain business in the United States or in any foreign
country?
Please check:

Yes

If "yes", please give such details as you can
below about each such instance.

*This is a defined
page 1
above.

term.

Please see the definitions

(19)

227

31.
To your knowledge, has any employee or agent of
the Corporation* misused, m i s s t a t e d , erroneously entered
charges in, or otherwise manipulated any account of the
Corporation* for the purpose of concealing the true nature
of any disbursement being made by the Corporation*?
(Examples would include legal fees, consulting fees,
commissions, contributions, p r o m o t i o n fees, advertising
expenses or public relations fees, expense accounts,
accounts receivable, loans or receipts, insurance p r e m i u m s ,
accounts p a y a b l e , salaries and contract costs.)
Please check:

detail

If "yes", please
below.

Yes
identify

No
each

such instance

32.
Do you know or have you heard of any instance in
which any dpcuments pertaining either to a sales representative* or to questionable payments* were altered or d e s t r o y e d ?
Please check:

detail

Yes

If "yes", please describe
below.

*This is a defined term.
page 1
above.

No
each such instance

Please see the definitions

(20)

228

33.
Have you identified and given the location of
all documents, including personal files, which relate to
your answers to the preceding questions?
Please check:

Yes

If not, please identify below the location
nature of all such documents.

(Signature of person

responding)

(Please print name of person

DATED

*This is a defined
page 1
above.

term.

and

responding)

, 1978

Please

(21)

see the definitions on

229

imznn
G. William Miller
Chairman

Textron Inc.

M a y 12,

1977

40 Westminster Street
Providence, R.I. 02903
401/421-2800

Standards of Conduct

To Division Presidents, Corporate O f f i c e r s
and Corporate Department Heads:
L a s t D e c e m b e r I asked each key executive to sign a statement
as a means of confirming that there were no illegal, improper or questionable payments anywhere within the Textron f a m i l y . This was part of the
effort to fulfill our responsibility to shareholders and employees to conduct T e x t r o n ' s business in accordance with the highest standards of conduct. A review of the statements submitted has verified that there has
been no deviation f r o m Textron's standards - - and we can take pride in
this fact. The signing of such a statement will now become a normal part
of Textron's annual audit.
During the course of this procedure we did receive inquiries
concerning Textron's policies in matters of " o v e r b i l l i n g s " and " a c c o m m o dation p a y m e n t s " . I would like to make it perfectly clear that neither is
acceptable.
Overbilling o c c u r s , f o r example, when a foreign distributor
requests a U. S. company to overbill it for products with an understanding
that the amount overbilled will be applied to or for the account of the distributor. While it m a y only lead to the establishment of a credit balance
which can later be applied against subsequently purchased products, o v e r billing has the potential for abuse as a method to evade exchange control
restrictions or t a x e s . Textron's policy is that all invoices must accurately
reflect the true sales price and t e r m s of s a l e .
S o - c a l l e d "accommodation payments" to o v e r s e a s d e a l e r s , d i s tributors or representatives is another area to be avoided. This practice
- - where all or part of a c o m m i s s i o n or discount actually earned is paid,
at the request of the customer, in a country other than the country in which

Appendix F

230

Page Two
May 12, 1977

the customer is located, or to a designated third party, or is retained on
the books and later paid to an individual o f f i c e r , director or shareholder
of the customer - - i s contrary to Textron's policy. Such accommodation
payments can be used as a method of avoiding taxes or exchange control
restrictions and Textron will not be a party to this. A l l c o m m i s s i o n payments or other such payments to a customer must be paid directly and
regularly to such customer in the country in which it is located or must
be periodically used to reduce existing accounts receivable f r o m such
customer, unless good business practice (e. g . , doubtful credit standing
of customer) dictates that the customer always maintain an agreed upon
credit balance. C o m m i s s i o n s or discounts earned by a corporate entity
must not be paid to the individual accounts of its o f f i c e r s , directors or
shareholders. In those instances where the customer has multiple places
of business or multiple operations, the payment should be made to the entity ordering the product in the country f r o m which the order originated.
I greatly appreciate the attention each of you and your a s s o ciates have given in the past to maintaining high standards. I will continue
to count on your support in the future to be vigilant in meeting our responsibility to insure that the accounts and records of Textron and all its a f f i l iates are complete and accurate and that no illegal, improper or questionable payments of any kind are made or condoned.
Sincerely,

GWM:ryn
cc:

Directors
Chikara Hi rut a

231

Confidential
TEXTRON
Objectives, Policies and Functions
of the Textron Audit Committee
April 25, 1979

The Audit Committee has reviewed the enabling resolutions authorizing its establishment in 1974.
See Attachment A.
On the
basis of its experience to date, the Audit Committee recommends for
approval by the entire Board of Directors of Textron more detailed
objectives, policies and functions of the Audit Committee as set
forth below:
Objectives
The objectives of the Audit Committee are:
To assist Textron's Board of Directors in fulfilling its
fiduciary responsibilities relating to financial reporting standards and practices,
To determine the adequacy of and promote the continued
emphasis on internal financial controls
throughout
Textron; and
To provide assistance arid advice to the Board of
Directors in fulfilling its responsibilities relating to
auditing and related matters and to facilitate communications among the Board of Directors, the Corporation's internal auditing staff and the Corporation's independent
public accountants.
Policies
The following are the primary operating policies of the Audit
Committee:
The Audit Committee shall consist of three or more outside members of the Board of Directors. Members of the
Audit Committee and its Chairman shall be appointed and
serve at the pleasure of the whole Board of Directors.
The Audit Committee shall hold such meetings as it deems
necessary but shall meet a minimum of three times per

Appendix G

232

fiscal year.
recorded.

Minutes of all Committee meetings shall be

Upon the request of the independent public accountants or
the Corporation's Director
of Internal Audit, the
Chairman of the Audit Committee shall convene a meeting
to consider any matters that, in the opinion of either,
should be brought to the attention of the Committee,
Directors or shareholders.
Functions
The principal functions of the Audit Committee are:
To review management's recommendation of an independent
public accounting firm to audit the books and accounts of
the Corporation; to review the engagement of that firm,
including fees, scope and timing of audit services and
the effect on the independence of such firm of any other
services rendered to the Corporation; and to make recommendations as to the retention of that firm for the ensuing year;
To meet with the Corporation's independent public accountants and Corporate management prior to release of the
Annual Report to Shareholders to review (a) the conduct
of the annual audit (including the Corporation's participation) ; (b) all significant proposed adjustments to the
Corporation's financial statements;
(c) their report on
the Corporation's financial statements; and
(d) choices
of acceptable accounting principles to be applied and
their impact on the Corporation's financial statements;
To meet privately and separately with the independent
public accountants, to make inquiry and to discuss any
facts, circumstances or perceptions relating to that
firm's relationship with the Corporation;
To meet privately and separately with the internal
auditors to make inquiry and to discuss any facts, circumstances and perceptions relating to their responsibilities within the Corporation.
To inquire of and to review the Corporation's policies
and procedures with respect to its:

a.
b.
c.
d.
e.

Financial reporting
Business Conduct Guidelines
Financial and accounting controls including
the adequacy thereof and deviations therefrom
Resolution of recommendations of independent
public accountants
Compliance with the Foreign Corrupt Practices
Act.

233

Other matters that may come to the attention of
the Audit Committee;

To review the Corporation's policies and procedures with
respect to internal auditing, including (a) the adequacy
of its plans and programs, (b) the adequacy of the internal auditing staff, (c) reports issued during the year by
the internal auditing staff, and (d) resolution of its
recommendations.
To direct, when such Committee deems it necessary or appropriate, the independent public accountants, internal
auditors or legal counsel to investigate areas of special
concern, including compliance with the Corporation's
Business Conduct Guidelines, conflicts of interest and
compliance with applicable governmental laws and regulations;
To consider such other matters as may be properly brought
before the Committee;
To report periodically to the whole Board of Directors
regarding its activities and findings and to make recommendations as shall be necessary and appropriate.
The Committee may delegate functions to its Chairman or other committee members.

Jean Head Sisco
Chairman, Audit Committee

234

Attachment A

Enabling resolutions authorizing
Audit Committee passed April 24, 1974.

the

establishment

the

RESOLVED: An Audit Committee is hereby established
by the Board of Directors in accordance with Section 4.05
of the By-Laws of the Corporation, the membership of
which shall be comprised of not less that three nonemployee Directors as may from time to time be appointed
by the Board.
RESOLVED.
The Audit Cozimittee shall (i) recommend
annually the independent certified public accounting
firm to conduct the annual aucit of the Corporation's accounts, (ii) review with such firm the scope of audit,,
(iii) review the results of the annual audit, (iv) review
and make recommendations' to the Board with respect to accounting policies, procedures and controls, and (v) conduct such other reviews and examinations, including-consultations with such firm and with management, as the
Committee deems appropriate.
RESOLVED:
The Audit Committee shall fix its own
rules of procedure, and shall meet at such times and
places as may be determined by the Committee.

235

Il^jJiiiLL!
Robert P. Straetz
President

40 Westminster Street
Providence, R.I. 02903
401 /421-2800

Textron Inc.

December 20, 1978

To Textron Division Chairmen and Presidents:
A s the year, 1978, comes to a close, it is a good time for us
to reexamine the internal audit function at Textron.
In 1975, the Corporate Internal Audit function was established
by Textron to examine and evaluate its financial activities as a service to the organization. Today, the internal audit function is three
and one-half years old and has m a d e considerable progress in its development.
Placing greater emphasis on Textron's audit objectives and
methodology for achieving these objectives is vital to the continued
development of the Corporate Internal Audit function. The "Foreign
Corrupt Practices Act of 197?" and the "Standards for the Professional Practice of Internal Auditing" are areas which are indicative
of the increasing importance of the internal auditor's responsibilities
and demonstrate the need for this greater emphasis.
Accordingly, in 1979 w e are directing that the Corporate Internal
Audit Department become m o r e regularly involved with Divisions; and
to achieve this goal, the following procedures should be followed:
1. The Corporate Director of Internal Audit will annually review with Divisional Management the
scope, results and independence of local internal
audit functions;
2. Each Division shall furnish to the Corporate Director of Internal Audit a copy of each formal
Divisional Internal Audit Department report
promptly after issuance; and
3. Each Division shall request approval of the Corporate Director of Internal Audit for all changes
to Divisional internal audit staffs.

Appendix

69-845

0 - 8 1 - 1 6

236

To Textron Division Chairmen and Presidents
December 20, 1978
Page Two
The Corporate Director of Internal Audit will use the Divisions
Chief Financial Officer as his contact at the JDivision.
I appreciate your assistance to see that your Division complies with the guidelines of this letter.
Sincerely,

RPSjdmz
ccs Chief Financial Executives
Textron Group Officers
J. Ledbetter
IU A . Van Brocfclyn /

237

TEXTRON
G. William Miller
Chairman

Textron Inc.

August 16,

1976

40 Westminster Street
Providence. R.I. 02903
401/421-2800

Standards of Conduct: Policy as to
Representatives, Agents,
Consultants, Dealers or Distributors

To Presidents of Textron Companies:
It is long-standing Textron policy to do business - - whether
as a s e l l e r or as a buyer of goods or services - - only on the basis of
m e r i t . It is completely unacceptable to seek or obtain business through
the use of bribes, kickbacks, lavish entertainment or any other i m proper payments or favors.
While we know of no unlawful or improper payments within
Textron, the number of reported instances of such practices in o t h e r - ^
companies is ample reminder that we need to be diligent in assuring
compliance with our established standards.
The responsibility runs not only to the behavior of Textron
employees, but also to the conduct of representatives, agents, consultants or others who act or appear to act on behalf of Textron. In the light
of events, we need to reinforce the standards expected of such persons
or f i r m s by setting forth express t e r m s in our agreements with them.
Accordingly, with every new agreement and each renewal of an existing
agreement with a domestic or international agent or representative, by
whatever name, each Textron Division, subsidiary or other unit is to
require the inclusion of a provision substantially as follows:
"
represents that it has not and agrees that it
will not in connection with the transactions contemplated by this
Agreement, or in connection with any other business transactions
involving [the Textron unit], make any payment or transfer anything of value, directly or indirectly, (a) to any governmental o f ficial or employee, (b) to any officer, directojr, employee or representative of any actual or potential customer of [the Textron

Appendix I

238

Page Two
August 16,

1976

unit], (c) to any officer, director or employee of Textron or any of
its affiliates, or (d) to any other person or entity if such payments
or transfer would violate the laws of the country in which made or
the laws of the United States. It is the intent of the parties that no
payments or transfers of value shall be made which have the purpose or effect of public or commercial bribery, acceptance or acquiescence of extortion, kickbacks or other unlawful or improper
means of obtaining business. This section shall not, however,
prohibit normal and customary business entertainment or the giving of business mementos of nominal value. "
The importance of high standards of conduct in business dealings is as important in the United States as in any other country. It would
be a mistake to focus concern in this matter only in dealings outside the
U. S. , so it is expected that the above provision will apply throughout the
world.
The concern is of equal importance in the case of a dealer or
distributor who may appear to act on behalf of Textron even though actually buying for its own account and reselling at its own risk. The above
provision must be included in " d e a l e r " or "distributor" agreements where
the other party is actually in the role of a commission agent or sales representative.
But the provisions may be omitted if the dealer or distributor (i) is completely independent, (ii) buys and sells strictly for its own
account, (iii) is not on a commission or contingent fee basis, and (iv)
you know that the relationship is a straight-forward business arrangement.
If the role of the dealer or distributor is unclear, it is recommended that
the Textron Legal Department be consulted.
It is a great credit to each of you, and to all your associates,
that Textron's rapid growth has been accomplished without losing control over our standards. Your cooperation in this effort to improve our
procedures will be greatly appreciated. The Textron Legal Department
will provide any assistance in interpreting the policy or adapting it to
your specific situation.

GWM:ryn
c c : Corporate Officers
Directors

239

TEXTRON
Statement as to Illegal, Improper
or Questionable Payments

This statement is furnished in connection with the preparation of the
audit of the accounts of Textron Inc. for 19*76.
For the Textron fiscal year ended January 1, 1977 and for the period
from January 1, 1977 to date, I am not aware in my Division or unit of, or
elsewhere in, Textron of (i) any illegal bribes, kickbacks or other improper
or questionable payments having been made to or for the benefit of any person, corporation or government for the purpose of obtaining special concessions or for obtaining other favorable treatment in securing business for the
company; (ii) any company funds or property having been made available, directly or indirectly, as political contributions'in the United States or elsewhere, or that officers or employees were paid or reimbursed, directly or
indirectly, for performing services or incurring expenses in political activities in the United States or elsewhere; and (iii) any company funds, property
or transactions which were not reflected or accounted for on the books, records or financial statements of the compajiy.

(Date)

(Employee signature)

(Employee name and title please print)

(Division, subsidiary or unit of
Textron)
Appendix J-l

240

TEXTRON
Statement as to Illegal. Improper
or Questionable Payments
This statement is furnished in connection with the preparation of the
audit of the consolidated accounts of Textron Inc. for 1977.
For the Textron fiscal year ended December 31, 1977,(or November 30,
1977, in the case of certain consolidated international operations) and for the
period from the end of the fiscal year to the current date, I am not aware in
my Division or unit of, or elsewhere in, Textron of (i) any illegal bribes, kickbacks or other improper or questionable payments having been made to or for
the benefit of any person, corporation or government for the purpose of obtaining special concessions or for obtaining other favorable treatment in securing business for the company; (ii) any company'funds or property having
been made available, directly or indirectly, as political contributions in the
United States or elsewhere, or that officers or employees were paid or reimbursed, directly or indirectly, for performing services or incurring expenses
in political activities in the United States or elsewhere; and (iii) any company
funds, property, or transactions which were not reflected or accounted for on
the books, records or financial statements of the company.

Date

(Employee signature)

(Employee name and title please print)

(Division, subsidiary or unit
of Textron)
Appendix J-2

241

TEXTRON

BUSINESS CONDUCT GUIDELINES
INTRODUCTION

Textron has always sought to conduct its
business with honesty and integrity and in accordance with high moral, ethical and legal standards.
These Business Conduct Guidelines are issued to
communicate this Textron philosophy to all levels
of management and other involved employees and to
assist them in understanding their responsibilities.
The Management Guide continues in effect and its
directions should be followed in all applicable
situations.
While a conscientious effort has been
made to insure that these Guidelines are clear and
complete, there will undoubtedly be some points
which may be subject to question or are not specifically covered. Any such questions should be
referred to internal Division counsel, if any, or
directly to the Textron Legal Department before
any action is taken.
Every employee whose assigned duties are
likely to lead to involvement in or exposure to
any of the areas covered by these Guidelines
should become completely familiar with the Guidelines and should observe them carefully. It is
also the duty of every such employee to communicate
the applicable Guidelines to any person or organiza-*
tion within Textron reporting to him.

Joseph B. Collinson
Chairman

November 1, 1978

i
Appendix K

242

TEXTRON

BUSINESS CONDUCT GUIDELINES
Explanatory Note

These Guidelines have been prepared as working
guides and not as technical legal documents. Thus
emphasis has been placed on brevity and readability
rather than trying to make them precisely accurate
or all-inclusive.
For example, masculine pronouns have been
used but the Guidelines are applicable to all
employees. Similarly, the term "employee" is used
in its broadest sense and refers to every officer
and any full or part time employee of Textron.
"Textron" refers to Textron Inc., any Division of
Textron Inc. and any subsidiary corporation in
which Textron Inc. owns, directly or indirectly,
more than 50% of the outstanding stock and exercises control over operations. The term "director"
refers to directors of Textron Inc. and its subsidiaries who are not also employees. The term
"representative" refers to sales agents and others
representing Textron who are not employees.
In observance of these Guidelines, as in
other business conduct, there can be no substitute
for common sense. When applied by competent
people with good intent, common sense goes a long
way toward handling any situation. In undertaking
to read and apply these Guidelines, every employee
should apply his common sense with the attitude of
seeking full compliance not only with the letter
but also with the spirit of the rules presented.
From time to time it will be necessary to
make changes in these Guidelines to give recognition to new laws and regulations, new interpretations of existing ones and to take advantage of
lessons learned through experience. When revised
Guidelines are issued, it will be the duty of each
employee who holds a copy of these Guidelines to
substitute revised pages as they are sent to him.

November 1, 1978

243

TEXTRON

BUSINESS CONDUCT GUIDELINES
TABLE OF CONTENTS
Guideline
No.

Subject
Introduction

Page
i

Explanatory Note

Table of Contents

iii

STATEMENT OF BASIC POLICY

SECTION A - FUNDAMENTALS OF
INDIVIDUAL CONDUCT
A-1

Compliance with Laws
Textron directors, employees and representatives shall
comply with all applicable laws in performing their
work for Textron.

A-2

Ethical Standards
Textron directors, employees and representatives shall
conduct their activities on behalf of the Company
with honesty and integrity.

A-3

Conflicts of Interest
Every director and employee must be free from any
business or other relationship that might conflict with
the best interests of Textron.

A-4

Citizenship
Textron employees are encouraged to be good
citizens and to take an active role in civic and
political life, but an employee should make it clear
that he is not acting for Textron when he is speaking as a private citizen.

November 1, 1978

iii

244

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No.
B-1

SECTION B - RELATIONS WITH GOVERNMENT
Payments to Government Officials and Employees
No funds or assets of Textron nor anything else of velua
shall be paid, loaned, given or otherwise transferred, directly or indirectly, to any federal, state, local or foreign
government official or employee or to any entity in which
such an official or employee is known to have an interest for
the purpose of (1) obtaining, retaining or directing business or (2) affecting the conditions for doing business.

B-2

Political Contributions'
No funds or assets of Textron shall be contributed or loened,
directly or indirectly, to any political party or to the campaign of any person seeking political office, or expended in
support of or in opposition to such a party or person anywhere in the world whether or not such action would be legal
in the state or country in which it is made.
No facilities of Textron shall be used in the operation of any
political campaiqn.

B-3

Governmental Reporting Requirements
Textron shall comply with all applicable governmental reporting requirements on an accurate and timely basis and
copies of all such filings shall be retained in Textron's
files until destroyed In accordance with the applicable
established records retention program.

SECTION C - RELATIONS WITH CUSTOMERS
AND SUPPLIERS
C-l

Payments to Officers or Employees of Customers
or Suppliers
No funds nor anything else of value shall be paid, loaned,
given or otherwise transferred, directly or indirectly to any
owner, officer, employee or agent of a customer or supplier
either to secure or retain business or to receive any other
favored treatment from the customer or supplier.

November 1,1978

245

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No,
C-2

Gifts and Entertainment

No gifts or entertainment of significant value may be givan
or received by a Textron employee or any member of his
immediate family to or from customers, suppliers, government organizations or anyone in a business relationship. No
gift may be offered to influence the business relationship,
or be of such value or offered under such circumstances
that it may reasonably be perceived to have been made for
that purpose. The circumstances and amount of a gift or
entertainment otherwise permitted under this Guideline must
be customary and lawful in the country where such gifts or
entertainment are given.

SECTION D - RELATIONS WITH AGENTS, REPRESENTATIVES, DEALERS AND DISTRIBUTORS
D-1

Relation! with Agents and Representatives

Agents and representatives of Textron shall be chosen
carefully and shall be (1) required to sign a prescribed
statement confirming their agreement to avoid improper
payments, (2) compensated fairly and commensurate
with the services rendered, and (3) reviewed not less
than annually for continued compliance with Textron
policy.

D-2

Relations with Dealers and Distributors

Dealers and distributors of Textron shall be chosen
carefully to the extent that Textron has the legal
right to be selective.

SECTION E - COMPLIANCE WITH LAWS
E-l

Antitrust and Trade Regulation

Textron shall comply fully with all applicable antitrust
and trade regulation laws.

November 1, 1978

246

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No.
E-2

Boycotts and Restrictive Trade Practices

Textron will not take any action, directly or indirectly,
which will have the effect of furthering or supporting
restrictive trade practices (including boycotts imposed
by foreign countries against countries friendly to the
United States) and, to the extent required by law, will
report any request that it do so.

E-3

Equal Employment

Textron endorses the principle that every individual must
have a fair and equal opportunity to achieve that individual's own full potential. Each Textron Division shall take
affirmative action to insure that equal employment and advancement opportunity are being provided for all personnel
for whom the Division is responsible.

E-4

Foreign Corrupt Practices Act

Each Textron employee shall be responsible for making
certain that:
(1) None of the actions taken by him or any person
or entities for which he has responsibility violate any of
the provisions of the Foreign Corrupt Practices Act, and,
(2) The internal control and recordkeeping requirements
of that Act are met by every Textron unit for which he
has responsibility.

E-5

Safety and Health

Management at each Textron location shall provide safe
and healthful working conditions for all employees at
that location and shall establish practices and procedures
to assure that work is conducted in such manner as to
continue such conditions.

E-6

Environmental Protection
Protection of the environment, both inside and surrounding each Textron facility, shall be the direct responsibility
of the Textron manager in charge of such facility. Due
compliance with applicable national and local regulation
of matters relating to the protection of the environment
is required.

November 1, 1978

247

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No.
E-7

Securities Transactions and Confidential
Information

No Textron Director or employee (nor member of his
immediate family) shall derive any personal gains or assist
any third party to derive gain from the possession of
material information which is not public.

SECTION F - INTERNAL OPERATIONS OF
TEXTRON
F-1

Accommodation Payments

All commissions or other payments due an agent or a
customer shall be (1) paid directly to the agent or customer in the country where he earned the payment or
in the principal country where he normally conducts
business or (2) used to reduce existing accounts receivable from such customer.

F-2

Invoicing and Overpayments

All invoices must accurately reflect the true sales price
and terms of sale. Payments of amounts in excess of
amounts due shall not be accepted.

F-3

Cash and Bank Accounts

All bank accounts established and maintained by Textron
shall be clearly identified on Textron's books and records
and shall be in the name of Textron or one of its subsidiaries.
All receipts by Textron shall be promptly recorded on the
books and deposited in Textron bank accounts.
No funds shall be maintained by Textron in the form of
cash or other negotiable instruments except to the extent
reasonably required for normal business operations.
All cash and bank account transactions shall be handled in
such a manner as to avoid any grounds for questions or
suspicion.

November 1,

1978

vii

248

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No.
F-4

Expense Accounts

All expenses incurred by employees that are to be
reimbursed by Textron should be reasonable, accurately accounted for on the Company's books
and relate directly to Textron's business needs.

F-5

Employee Compensation Practices

No salary payments or other compensation or benefits
shall be paid to any Textron employee in a manner
that violates the laws of the United States or the country
in which the employee resides or works.
All compensation paid, in whatever form, shall be reported
properly on the Company's books and records

F-6

Books and Records

Textron's books and records shall accurately reflect the
assets, liabilities, revenues and expenses of the Compeny.
All books and records shall be retained in accordance with
established records retention programs.

SECTION G - COMPLIANCE PROCEDURES AND
PENALTIES
G-1

Annual Compliance Report

Every Textron employee whose assigned duties are likely
to involve him in or expose him to any of the areas covered
by these Guidelines shall be required to sign and file with
the Textron Controller a report:
(1) certifying that he has read the Guidelines;
(2) agreeing to comply with them; and
(3) indicating whether or not he is aware of
any violations since the date of his last
statement (or the preceding twelve months
if no statement was previously filed).

November 1, 1978

viii

249

TEXTRON

BUSINESS CONDUCT GUIDELINES
Guideline
No.
G-2

Reports of Violations
A Textron employee having knowledge of any
actual or contemplated violation of any of these
Business Conduct Guidelines shall promptly report
the matter to his supervisor or his Division President and simultaneously to the Textron General
Counsel or the Textron Controller.

G-3

Audita
All audits performed for Textron shall note any
violations of these Guidelines discovered in the
course of the audit.
Special audits for compliance with these Guidelines
shall be performed from time to time.

G-4

Penalties
Failure of any Textron employee to comply with
these Guidelines shall result in disciplinary action.

November 1, 1978

250

REPORT
OF
THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS OF
TEXTRON INC.

Richard T. Baker
Paul M. Fye
Webb C. Hayes, III, Chairman

GIBSON, D U N N & CRUTCHER,

Counsel

July 24, 1979

VOLUME TWO

251

TABLE OF CONTENTS
VOLUME T W O
Table of Contents
A.

Further Information as to Bell Helicopter's International
Marketing Activities

1. Introduction
2. Ghana

1
-

3. Dominican Republic

4. Country " A "

5. Country " B " . .

6. Country "C".......

7. Country"D"..

8. Country " E "

9. Country "F".....

10. Country " G "

12. Country " I "

13. Country " J "

14. Country " K "

15. Other Countries

16. Iran

Further Information as to Foreign Sales of Divisions
1. Introduction

42
42

2. Fafnir

3. Shuron

4. Bell Aerospace

Specific Findings as to Accommodation Payments and
Overbillings as to Foreign Sales

69-845

11. Country " H "

Other than Bell Helicopter

1. Introduction

2. Accommodation Payments

3. Overbillings

0 - 8 1 - 1 7

252

ii
D.

Additional Information With Respect to Domestic Operations.

1. Marketing to the United States Government: Hospitality Expenses

2. Findings as to Domestic Commercial Marketing Practices Generally
3. "Push Money" Payments
E.

Additional Information as to Political Contributions

Additional Information as to Miscellaneous Matters Examined
by the Committee

59
61
61

1. The Sixty Trust: Sale of Property in Country X

2. A Charitable Contribution to a Medical Foundation

3. Bell
Helicopter'sof 1978
Inquiry into the 1971 Sale to the
Government
Ghana

A Short History of the Development of Textron Business

Conduct Policies

1. The Period 1971-1975

2. The Period 1976-1978

3. Programs to Assure Compliance with the Foreign
Corrupt Practices Act

4. Development of the Business Conduct Guidelines

5. Additional Steps in Conjunction with Outside Auditors .

253

l
VOLUME T W O
This volume of the Report sets forth in greater detail the Committee's
factual findings, which are summarized in Volume One. Volume Two
consists of seven parts. Part A sets forth additional information with respect
to the international marketing activities of Bell; Part B provides further
information as to the foreign sales of Textron divisions other than Bell; Part
C sets forth the Committee's specific findings as to accommodation payments and overbillings; Part D contains additional information with respect
to Textron divisions' domestic operations; Part E sets forth further information as to political contributions; Part F discusses the three additional
matters examined by the Committee which are summarized in Part III.H. of
Volume One; and Part G describes the historical development of Textron's
business conduct policies.
A. FURTHER I N F O R M A T I O N A S T O BELL HELICOPTER'S INTERN A T I O N A L MARKETING ACTIVITIES
1.

Introduction

This Part sets forth more detailed information, including specific
findings, as to Bell's international marketing activities. The information is
organized by country in the same manner as the summaries in Part III.B. of
Volume One.
2.

Ghana

In 1971 Bell sold two Model 212 helicopters to the Government of
Ghana. The transaction was structured in a manner that facilitated a
payment of almost $300,000 to a senior military official of the Government
of Ghana.
The transaction began in June 1971 when a Bell salesman attached to
the Brussels office met the Ghanaian military official at the Paris Air Show.
The official informed the Bell representative of Ghana's interest in purchasing two Model 212 helicopters. Bell International Marketing personnel in
Fort Worth were informed of this potential sale, and arrangements were
made for Bell's newly-appointed dealer in West Africa, Tropical Aircraft
Sales Company ("Tropical"), to make follow-up sales calls in Ghana.
In early July 1971a Bell employee traveled to Ghana to participate in
the sales negotiations. Upon his arrival, the employee was informed by a

254

2
Tropical employee that several Bell competitors were likewise seeking to
make the sale and that, in order to secure the order, a large payment would
have to be made to the Ghanaian official. The next day, the Bell employee
and the Tropical employee prepared, on a standard Bell form, a Standard
Export Purchase Agreement ( " S E P A " ) for a sale by Bell to the Ghana
government at a price of approximately $1.9 million. This amount exceeded
the normal sales price by about $300,000 in order to provide additional
funds for the payment to the government official. The overpricing was
accomplished on the SEPA by charging separately for various standard
items or accessories ordinarily included in Bell's list price.
On the same day, the Bell employee telexed a message in code to BellFort Worth to the effect that there was competition for the sale from Bell's
licensee, Agusta, but that Bell could likely secure the order if the additional
payment was made. For security reasons the Bell employee dispatched a
Bell technical adviser to Nairobi to telephone the International Marketing
Department from that city and provide a full briefing on the sales situation
in Accra. The phone call was summarized by a Bell manager in Fort Worth
in a memorandum which expressly stated that the perception in Accra was
that a payment to a government official was needed to make the sale.* The
Bell manager in Fort Worth responded by telex, stating that the proposal
relayed by the technical adviser was unacceptable and that either Agusta or
Bell's dealer, Tropical, but not Bell, should proceed with the sale.
Soon thereafter, the Bell employee returned to Fort Worth from Accra,
hand-carrying with him the overpriced SEPA. The SEPA was submitted to
Mr. Atkins, then Bell's Executive Vice President, who rejected the proposal
because it did not conform to the company's standard list price. The reason
for the separate pricing of standard items and accessories was not communicated to Mr. Atkins. The Committee found no evidence that Mr. Atkins
inquired into this matter.
In discussions which followed between Bell International Marketing
Department employees and Tropical personnel, it was decided that Bell
would sell the two helicopters at list price to Tropical, which would then
resell the aircraft to Ghana at approximately $300,000 above Bell's list price.
Tropical would receive a standard commission and disburse the excess
* This memorandum was subsequently destroyed by Bell's International Sales
Manager during the course of Bell's internal inquiry into the Ghana sale.

255

3
$300,000 to the Ghanaian government official. A revised SEPA setting forth
the standard list price and providing for a sale by Bell to Tropical was
drafted and subsequently signed by Bell's Treasurer, Mr. Theodore R. Treff.
The structuring of the Ghana transaction was made known both to an
American commercial bank which financed the sale and the United States
Export-Import Bank, which issued a guaranty with respect to the Ghana
government's obligations. Bell personnel have told the Committee that
employees with whom they dealt at both the commercial bank and the
Export-Import Bank were aware that a payment would be made to a
government official in connection with the transaction. The individuals from
the commercial bank and the Export-Import Bank have denied any such
knowledge.
A sales contract was then executed in August 1971 by Tropical and the
Ghana government at the agreed-upon excess price. For reasons that are
not entirely clear, the Ghana government remitted directly to Bell, rather
than to Tropical, two cash payments, including the $300,000 amount to be
remitted back to the government official, and executed a series of promissory
notes payable to Bell. The cash payments and promissory notes totaled the
inflated figure of approximately $1.9 million.
Due to a technical defect in the promissory notes executed by Ghana, a
Bell Regional Manager traveled to Accra, handcarrying a new set of
promissory notes with wording acceptable to the Export-Import Bank. In
connection with this trip, the Regional Manager carried a letter of authorization, which was signed by Mr. Frank M. Sylvester, Bell's Vice PresidentInternational Marketing, and approved by an attorney in Bell's Legal
Department.
Upon arriving in Accra, the Regional Manager received a letter from
the government official containing instructions for Tropical with respect to
the manner in which the questionable payment was to be made. The official
requested a cash payment of $25,000 with the remainder (approximately
$270,000) to be deposited in a designated Swiss bank account. The
Regional Manager destroyed the letter, and subsequently relayed the
instructions by phone to Tropical personnel. He secured new promissory
notes from the Ghana government before returning to Fort Worth.

256

4
The cash overpayment from Ghana was disbursed by Bell's Accounting
Department by means of a bank wire transfer to a bank account in Florida.
In late September 1971 an officer of Tropical's parent company withdrew all
funds from the bank account, including $25,000 in cash and a check in the
amount of approximately $270,000.
The officer of Tropical's parent
company handcarried these proceeds to Switzerland, where he deposited the
check in the Ghanaian government official's bank account. The same officer
then transported the cash to Ghana and delivered the $25,000 to the
government official himself, who provided a signed receipt acknowledging
the payment. A copy of the receipt was retained in the files of Tropical's
parent company and was made available by that company to the Committee.
Based on the statements of various Bell employees, the Committee has
concluded that the fact that a payment to a Ghanaian government official
would be made was known by Bell's Treasurer, Mr. Theodore R. Treff, and
various sales and contract administration personnel in the International
Marketing Department. The Committee has been unable to determine with
certainty whether Mr. Sylvester knew that a questionable payment was
made; however, several employees have testified that, in their judgment, Mr.
Sylvester knew that such a payment was involved. Documentary evidence
found by the Committee indicates that Mr. Sylvester was at least aware that
the transaction involved a sale by Bell and a resale at a higher price.
A former Tropical employee has informed the Committee that in
August 1971 he met briefly with Mr. James F. Atkins, Bell's then Executive
Vice President, in Fort Worth, along with two Bell employees. He stated
that his definite impression at the time was that Mr. Atkins was aware of the
proposed questionable payment, although there was no specific discussion or
mention of such a payment or a mention of any names. He further stated
that Mr. Atkins told him that a decision would be made as to whether or not
the sale would go through and that on the following day he was informed by
a Bell employee that Mr. Atkins had approved the sale. Neither Mr. Atkins
nor either of the two Bell employees recalls any such meeting, and one
employee has stated that he believes it is unlikely that any such meeting
occurred. The former Tropical employee had no apparent motive not to be
truthful and the Committee carefully sought corroboration of his recollections. No written evidence, and no recollection of any other witness of the
many interviewed by the Committee as to the Ghana transaction, supported

257

5
the former Tropical employee's account or indicated any knowledge of the
structuring of the 1971 Ghana transaction on Mr. Atkins' part. There is
evidence that Mr. Atkins received written reports to the effect that a sale to
Ghana was pending, and the Committee believes it is entirely possible that
he had at least a perfunctory courtesy meeting with the former Tropical
employee, but the Committee found no evidence, other than the former
Tropical employee's impression, that Mr. Atkins had knowledge of the fact
that the transaction involved a resale at a higher price or was otherwise
suspicious.
The Committee did not find evidence that any other officer of Bell was
aware of the payment, and is fully satisfied that no officer of Textron had
any knowledge of the payment.
After 1971, Bell made no further sales to Ghana.
Although an
additional sale was contemplated in 1977, the sale did not materialize. In
the proposed sale, a Bell Area Manager was contacted by an Italian
national, Mr. N, who claimed to have close connections with Ghana
government officials. In discussions between the Area Manager and Mr. N,
Mr. N stated that payments to two high-ranking government officials would
have to be made. The Area Manager informed Mr. N that any such
payments would have to be made out of Mr. N's own money and that Bell
would deal only through a dealer. Mr. N agreed and proposed that a
dealership agreement be entered into with a company designated by him.
An agreement was drafted, signed by Mr. N, and submitted to Bell. The
agreement was never signed by Bell.
The Area Manager thereafter
terminated discussions with Mr. N in late 1977 or early 1978. No sales to
Ghana were made as a result of Mr. N's efforts or otherwise.
3.

Dominican Republic

The 1976 transaction in the Dominican Republic began with a telephone call from an American businessman to a Bell Regional Manager and
his assistant.
The businessman asked for Bell's price information on
helicopters, which he stated were to be sold to the Dominican Republic Air
Force. The businessman expressly informed the Regional Manager that a
payment to government officials would be required. These discussions were
short-lived, however, and no agreement with the businessman was reached.
Shortly thereafter, Bell received a letter prepared by the Dominican
Republic Air Force announcing the appointment of a designated corpo-

258

6
ration to represent the Air Force in the purchase of certain helicopters. The
Regional Manager then traveled to the Dominican Republic where he met
with several government officials to discuss the sale. In the course of those
discussions, one government official, Colonel Julian Munoz, told the Regional Manager that the commission on the sale would have to be paid to
General Rene Beauchamp, a high ranking official in the Dominican
Republic government. The Regional Manager was further informed that
payment in cash was preferable but that payment by check to a designated
company in the Dominican Republic would also be acceptable.
While in the Dominican Republic, the Bell Regional Manager telephoned Bell's dealer in a nearby territory. He informed the dealer that a
sale would be made in the Dominican Republic with the bulk of the
commission to be paid to the company which had secured the sale. The
dealer was further informed that, since Bell policy required that commissions
be paid only to an authorized Bell dealer, the dealer's assistance was needed
and that a small commission would be paid to compensate him for his
participation. The dealer was not asked to carry on any sales activities.
According to the dealer, the Regional Manager instructed him not to
communicate with anyone, including Bell personnel, about the sale. The
dealer agreed.
The Regional Manager then returned to Fort Worth, where he prepared a trip report which falsely stated that the dealer had set up his
appointments in the Dominican Republic. The purpose of the trip report
was to provide documentary justification for paying the dealer a commission
on the sale. The Regional Manager states that he specifically informed
Bell's International Sales Manager that a payment to officials of the
Dominican Republic would be required and that the Sales Manager
approved going forward with the sale. The International Sales Manager has
confirmed to the Committee that he was under the impression that a
questionable payment would be made, but that he did not know any specific
details.
An amendment to the dealer's agreement with Bell was then prepared
granting the dealer one-time authority to make the sale in the Dominican
Republic. The amendment was subsequently signed by Mr. Sylvester;
however, Mr. Sylvester, through his counsel, has informed the Committee
that he was not aware that a questionable payment would be made.

259

7
Shortly after the first of the two helicopters was delivered to the
Dominican Republic, the Regional Manager directed the dealer to send
written instructions to Bell requesting the issuance of two checks, one in the
amount of $2,500 payable to the dealer for his commission and the other, for
approximately $26,000, to be payable to the company designated by
Colonel Munoz. The dealer drafted a letter in accordance with these
instructions. However, according to the dealer, the Regional Manager
telephoned him and instructed him not to send the letter as drafted, but
instead to request Bell to make both checks payable to the dealer himself.
Subsequently, the Regional Manager handcarried two checks to the
dealer's territory, including a cashier's check in the amount of approximately
$26,000 payable to the dealer. With the dealer's assistance, the Bell
Regional Manager attempted to cash the larger check at the dealer's bank
but the bank refused to do so. The Regional Manager then obtained a
cashier's check, payable to the designated company in the Dominican
Republic, and returned to Fort Worth. At a stopover in the United States en
route to Fort Worth, he mailed the check to an address in the Dominican
Republic.
After delivery of the second helicopter, the Regional Manager telephoned the dealer and asked him to come to Fort Worth to expedite the
obtaining of cash, since the prior attempt to secure cash in the dealer's
territory had been unsuccessful. The dealer traveled to Fort Worth and
accompanied the Regional Manager to a local bank, where they cashed a
Bell check made payable to a bank in Fort Worth in the amount of
approximately $34,000. By his account, the Regional Manager placed the
money in a briefcase, paid the dealer $3,000 in cash to cover the latter's
commission on the sale and expenses in traveling to Fort Worth, drove the
dealer to the airport, and then went to another bank and deposited the cash
in a safety deposit box.
Several weeks later, according to the Regional Manager's account, he
handcarried the cash in a briefcase to the Dominican Republic. There, he
was met at the airport, as previously arranged, by a government employee
who took the briefcase from the Regional Manager and shepherded it
through customs.
The next day, the Regional Manager was escorted to the office of
Colonel Munoz who had initially informed him that a questionable payment
would have to be made. The Regional Manager turned the money over to

260

8
Colonel Munoz, who, the Regional Manager testified, he understood was
acting on behalf of General Beauchamp. Following discussions about
possible additional sales, the Regional Manager returned to Fort Worth. No
further sales were in fact made to the Dominican Republic.
In addition to the Regional Manager, Bell's International Sales Manager and the Manager of Contract Administration were aware that payments
to one or more government officials would be made. The Regional Manager
has stated that Mr. Sylvester was, in his opinion, aware that such payments
were contemplated. In response to written questions, Mr. Sylvester, through
his counsel, has denied any such knowledge or awareness.
The Regional Manager has stated that no one at Bell authorized or
knew of his mailing the cashier's check to the Dominican Republic or of his
handcarrying cash outside the United States. The Committee found no
evidence that any other officer of Bell or any officer of Textron was aware of
any actual or contemplated payments to government officials or of any
suspicious circumstances in connection with the transaction.
4.

Country " A "

In 1971 Country A's Defense Attache in Washington, D.C. approached
an employee in Bell's Washington, D.C. office and indicated that Bell might
be able to make a sale of helicopters to the government of Country A. The
Defense Attache further indicated that he could assist in assuring the
consummation of such a sale and that he expected remuneration for his
assistance.
The Bell Washington employee has stated that, following this contact
with the Attache, he promptly sent a memorandum to Mr. Weichsel, Bell's
Senior Vice President, Mr. Sylvester, and another Bell International Marketing Department employee, informing them of the details of his discussions.
Although the memorandum has not been found, the International Marketing Department employee recalls receiving it.
The Washington manager further recalls that the International Marketing Department employee advised him that Mr. Weichsel had determined
that Bell could not pay the Defense Attache as an agent or representative,
but that Bell would accept the Defense Attache's recommendation of a
viable company in Country A as a Bell representative. Mr. Weichsel has
stated that he recalls very little about the transaction and that he does not
recall being informed of any questionable aspect of the sale.

261

9
Shortly thereafter, the Bell Washington employee contacted the Defense Attache, who recommended Company One, a firm based outside
Country A, as an agent. However, the Washington employee was then
informed by Bell personnel in Fort Worth that Company One was unacceptable because the firm was not based in Country A. As a result, the Defense
Attache recommended Company Two.
At all times, the Washington
employee and the International Marketing Department employee assumed
that Company One or Company Two would pay the Defense Attache a
portion of any commissions received from Bell.
Bell personnel in Fort Worth then requested an employee from Bell's
Brussels office to meet with the President of Company Two to evaluate that
company as a Bell representative. The Brussels employee did so and
reported in writing directly to Mr. Sylvester that Company Two had
shareholders who were high government officials of Country A, namely, the
Minister of National Defense, the Chief of the Air Force, the Defense
Attache, the head of the Police, and others. The Brussels employee further
indicated that commissions to Company Two would have to be large enough
to satisfy all of the' government officials involved. By this time, Bell
personnel felt that the sale would involve ten to twelve Model 205
helicopters in a government-to-government Foreign Military Sales ( " F M S " )
transaction.
At the time, DOD had a practice of limiting FMS sales to military
rather than commercial equipment. The 205 helicopter was a commercial
not a military model. Bell desired to sell the 205 rather than a military
model to Country A for several reasons: ( 1 ) Bell could provide earlier
delivery on the commercial model; ( 2 ) Bell would make a greater profit;
and ( 3 ) there would be a higher commission for Bell's representative.
Accordingly, Bell urged the Defense Attache and Company Two to convince
the government of Country A to request the commercial model. The then
Chairman of Bell, Mr. Edwin J. Ducayet, and the Bell Washington employee
met with DOD officials in Washington to convince them that an FMS sale of
commercial helicopters should be approved. The Washington employee has
recently stated that in conjunction with this meeting he informed Mr.
Ducayet of the Defense Attache's possible personal involvement in and
remuneration from the potential sale. Mr. Ducayet has told the Committee
that he does not recall being so informed. A memorandum transmitting a
draft of a representative agreement with Company Two was initialed by Mr.
Ducayet.

262

10
In addition to the arrangement with Company Two, Bell's International
Marketing Department was also approached by representatives of another
company in Country A, Company Three, concerning the potential sale. The
representatives of Company Three indicated that their company wanted to
represent Bell in the sale and that Company Three had greater influence
than Company Two. They also indicated that they would handle any
necessary payments to government officials. Bell refused to deal with
Company Three.
Later, the Brussels employee recommended that Bell enter into an
agreement with yet another company, Company Four, which was associated
with Company Two, because for "military/political/ shareholding reasons"
Company Four would be the preferable representative. Bell therefore
entered into a formal dealer's agreement with Company Four, executed on
behalf of Bell by Mr. Sylvester, in March 1972. By this time, the government
of Country A was also interested in purchasing two Model 212 helicopters,
another commercial model. Bell personnel understood that arrangements
for commission sharing with the Defense Attache and high government
officials remained in effect.
Following political unrest in Country A, a number of government
officials were replaced or shifted positions in the latter half of 1972. At least
partly as a result of this change, Country A's government decided not to
purchase the Model 205s and eventually agreed to buy only the two 212s.
In September 1973 Bell delivered the two helicopters for a total price of
$1,368,358. The commission to Company Four in the amount of $102,296
was paid to a bank account of a principal of Company Four in Switzerland.
Bell International Marketing Department personnel assume, although they
do not know, that at least a portion of the commission was to be paid to high
government officials of Country A.
The evidence reviewed by the Committee indicates that Mr. Weichsel
and Mr. Sylvester received communications indicating the questionable
nature of the transaction. There is no evidence that any officer of Textron
was aware of the proposed payments to government officials of Country A.

263

li
5.

Country " B "

During the period 1971-1977, Bell made three major sales to agencies
of the government of Country B. Bell also made several sales to a
commercial helicopter operator in Country B. The Committee has no
evidence to suggest that any questionable payments were involved in the
commercial sales.
A.

The 1971 Sale.

In 1971 Bell sold a Model 212 helicopter to the government of Country
B for the use of its President. The presidential pilot, an Air Force officer,
had considerable influence over the selection process and, in addition,
served as an "advisor" to Bell's dealer. The Bell International Marketing
Department employee in charge of sales to Country B did not know and did
not ask whether the Air Force officer (of whose function he was aware) was
paid by Bell's dealer for his assistance. The Bell employee has stated,
however, that he assumed that the advisor was being compensated by the
dealer. The Committee has no evidence that anyone, other than this Bell
employee, had knowledge of either the dual role played by the officer or of
any payments to the advisor.
B. The 1972 Sale
In 1972 the dealer informed Bell personnel of a potential sale of ten
helicopters to the Air Force of Country B. After nearly eight months of
negotiations, Bell concluded a $2.9 million sale of six model 205A-1
helicopters to Country B. Commissions of approximately $225,000 were
paid to Bell's dealer.
In its correspondence, the dealer described the 1972 sale by a code
name and indicated the dealer's heavy reliance on two "advisors." The
advisors have been identified by the Bell employee as an Air Force materials
officer and the Air Force officer mentioned in Section 5.A. above. Again, the
Bell employee was never specifically told that these advisors would be
compensated, but he assumed that they would be.
After the purchase had been approved by Country B's government, the
contract was sent to its Military Attache in Washington, who had been
designated to sign the contract. The Military Attache, however, delayed
signing the contract. The Bell employee thereafter received a phone call

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from a person who identified himself as the Attache's "friend." The "friend"
stated that he could "cause the contract to continue its normal process" and
demanded a commission. The Bell employee informed the caller that Bell
would pay commissions only to its dealer and suggested that the "friend"
contact the dealer.
The "friend's" attorney met with Bell's dealer in Country B and
proposed that the dealer pay the Attache's "friend" two percent of the sales
price. Negotiations continued, and Bell's dealer requested that International
Marketing personnel communicate with the attorney to settle the amount of
the payment. Upon the specific authorization and approval of Bell's dealer,
the Bell employee concluded the negotiations on the basis that one percent
of the sales price would be paid to the "friend," provided that a fixed date
for signing the contract was established. In November 1973, Bell paid
$29,150 to the "friend's" United States-based company and debited that
amount to the dealer's account. The balance of the commission was
remitted to the dealer.
The Bell employee has stated that Mr. Sylvester was aware of the
payment to the "friend". Through his counsel, Mr. Sylvester has stated that
he has no recollection of any such awareness. The Committee has no
evidence that any other officers at Bell or any Textron officers were aware of
the payment.
The Bell employee has further stated that Mr. Sylvester was aware of
the use of advisors by Bell's dealer, but the Committee has found no
evidence that Mr. Sylvester was aware of their identity or military status.
No evidence suggests that any other Bell officers or any Textron officers were
aware of the use of advisors or of their identities.
C. Additional Sales To Country B
In February 1974, Bell's dealer outlined the possibility of a sale of
helicopters to Country B's Army. By this time, one of the officers referred to
in Section B. above was no longer serving as an advisor to the dealer;
however, it was the understanding of the Bell employee that the other Air
Force officer was still so serving.
Sales negotiations continued throughout 1975 and 1976. The sale was
delayed for internal reasons in Country B but in 1976 Country B finally

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approved the purchase of seven 205A-1 helicopters for approximately $6.4
million. Bell's dealer received commissions of approximately $250,000 on
the sale.
The Committee found no evidence that any questionable payments,
other than the possible payment of compensation to the dealer's remaining
advisor, were made in connection with this sale. However, in June 1975 Mr.
Dee E. Mitchell, Bell's International Sales Manager, apparently became
concerned by references to "advisors" in correspondence from Bell's dealer.
Testimony is in conflict with respect to what then occurred. The Bell
employee with responsibility for sales to Country B has stated that, due to
revelations regarding questionable foreign payments at other companies,
Mr. Mitchell believed the references might be sensitive and he therefore
requested that new letters be obtained which eliminated the words "advisors" or "consultants." Mr. Mitchell disputes this testimony, stating that he
directed the Bell employee to have the dealer omit such references in any
future communications, not to alter any documents. In June and July 1975,
the documents were in fact altered to remove such references by a Bell
clerical employee, acting at the direction of the Bell employee with sales
responsibility for Country B, and new letters were secured from the dealer.
The Committee has no evidence that anyone other than Mr. Mitchell
and several of his subordinates in the International Marketing Department
were aware of this alteration and substitution of documents. The Committee
believes that it has been able to locate and review the great majority of the
original correspondence which made numerous references to "advisors" and
"consultants."
6.

Country " C "

In 1973 a defense official of Country C contacted a Bell sales employee
in Brussels concerning the purchase of helicopters for the Country C Air
Force. In 1974 Bell presented a proposal to Country C for five model
205A-1 helicopters at a total price of approximately $3.6 million. The sale
was negotiated by Bell's dealer for the region, and a contract was signed.
The dealer's territory was then expanded to include Country C. The
dealer appointed a subdealer, Company Five, which was a subsidiary of an
enterprise owned by the Foreign Minister of Country C and members of his
family. The dealer appointed Company Five without first consulting Bell.
However, the United States Commercial Attache in Country C had previously recommended Company Five to Bell as a potential dealer, and Bell

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personnel were aware that the subdealer was owned by a foreign government official. The Committee was informed that the subdealer received
commissions of approximately $200,000 out of the $320,000 paid by Bell to
the dealer.
In mid-1974, the Brussels-based Bell employee traveled to Country C
and learned that there was a potential for an additipnal sale of several
Model 214s to Country C's Department of Defense. A contract was
prepared for five Model 214s for which the dealer would receive commissions of approximately $475,000.
Shortly thereafter, Bell personnel in Brussels learned that there was a
possibility that the Air Force of Country C wished to cancel its order for
Model 205s, but that the order for the Model 214s should go through.
Within a month, a Bell employee in Fort Worth received a telephone
call from an American who identified himself as a friend of the personal
assistant to the ruler of Country C ("personal assistant"), and stated that the
personal assistant had an interest in the cancellation of the 205 order.
Several days later, the same person called again, stating that the government
of Country C was considering continuing the Model 205 order due to the
influence of the personal assistant, and that the personal assistant was also
processing the Model 214 order. In his second call, the caller stated that the
personal assistant wanted a commission on the transaction. The Bell
employee thereupon told the caller that Bell would pay commissions only to
its dealer; the caller suggested that arrangements could be worked out with
the dealer. At this point, no Bell employees knew what influence the
personal assistant had over purchase decisions, but within a month several
Bell employees learned that he was a relative of the ruler, the ruler's
personal assistant for diplomatic affairs and a former high government
official. They also became aware that his power over purchase decisions was
enormous.
Thereafter, the manager of Bell's Brussels office informed Bell's dealer
that the personal assistant appeared to be highly important in obtaining the
sale and encouraged the dealer to meet with the personal assistant to
negotiate and make any necessary arrangements with him. However, Bell
employees refused to increase the helicopter price in order to allow an extra
commission.

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Both the Model 205 and Model 214 sales were ultimately consummated. The Committee was informed that Bell's dealer and subdealer
assigned commissions of approximately $275,000 to the personal assistant.
Several International Marketing Department employees were aware
that Bell's dealer and the subdealer had to assign commissions to the
personal assistant. Mr. Sylvester received communications both before and
after the sale indicating that commissions would be shared by the dealer or
subdealer with a person who had influence over the sale. In addition, Mr.
Weichsel, Bell's Senior Vice President, was informed several months later by
a Bell employee that Bell's dealer had had to give away most of its
commissions, but there is no evidence that he was aware of the identity of
the recipient. He made no further inquiry into the matter. There is no
evidence that any other Bell officers or any Textron officers were aware of
the commission assignment arrangements.
7.

Country " D "

In 1971 a helicopter pilot ("Pilot") in Country D contacted Bell's
Brussels office regarding the purchase of two helicopters for the defense
forces of Country D. Bell employees in Brussels were aware, or soon
became aware, that Pilot would shortly become the pilot for the son of the
ruler of Country D, and that he was to be appointed the head pilot in the
defense forces of Country D.
Pilot proposed that he become Bell's dealer in Country D. Employees
in Bell's International Marketing Department recommended his appointment to Mr. Sylvester. Mr. Sylvester approved Pilot's appointment, but
instructed that any agreement with him would be terminated if he became
employed by the government of Country D, unless the government accepted
in writing that he could act as Bell's representative at the same time. This
instruction was not followed, and no written permission was ever obtained
by Bell. However, the son of the ruler, who was also Commander of
Country D's defense forces, apparently authorized Pilot's representation of
Bell while at the same time serving as head pilot for the defense forces.
Pilot formed Company Six, which became Bell's dealer in Country D.
The son of the ruler, whose permission was deemed necessary, authorized its
formation and designated a prominent local family as its owners. The
names of two brothers from this family appeared on the written author-

69-845 0 - 8 1 - 1 8

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16
ization, but a third brother became Chairman of Company Six (an office he
held until June 1978) and apparently shared in the profits of Company Six.
This third brother also served as private secretary to the ruler's son who had,
by 1972, also become a high defense official in an organization of states of
which Country D is a member ("Federation"). Pilot apparently had no
ownership interest in Company Six but served as its Managing Director and
received a percentage share of the profits. In addition, another officer of
Country D's air defense services served as a director of Company Six until
1974, and may have received a share of the profits.
Company Six served as Bell's dealer in Country D and neighboring
territories during the entire 1971-1977 period. During this period, Bell sold
five helicopters to government agencies in Country D, at an approximate
price of $1,643,320, not including follow-up sales of spare parts. In
addition, it sold four helicopters at an approximate price of $2,713,456 to the
defense forces of the Federation. Company Six received commissions of
approximately $132,800 on sales to Country D and $255,000 on sales to the
Federation.
In 1976, the Chairman of Company Six became a high official of the
Federation's defense agency, serving as a deputy minister to the son of the
ruler of Country D whom he had previously served as private secretary. (As
previously indicated, he resigned as Chairman of Company Six in mid1978.) Subsequent to 1976, Bell sold no helicopters to the Federation,
although it made a proposal to do so. Based on the available evidence, the
Committee does not believe that the Chairman of Company Six had
decision-making power over the purchase of helicopters by the Federation,
but he was clearly in a position to have some influence over purchase
decisions.
Nearly all Bell International Marketing personnel involved in sales
Country D, including Mr. Sylvester, were aware that Pilot served
Managing Director of Bell's dealer while also serving as head pilot
Country D's defense forces and that the Chairman of Bell's dealer served
a high official of the Federation after 1976.

to
as
of
as

There is no evidence that any other Bell officers were aware of the dual
roles played by Pilot and the Chairman; however, in late 1976, Mr. Weichsel
received a letter from Company Six which made reference to the Chairman

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by name without identifying his government position. Also in 1975 and
1976, two Textron Vice Presidents, Mr. Willard R. Gallagher and Mr.
Andrew J. Beck, received a number of pieces of correspondence which
indicated that the same person served simultaneously as Chairman of Bell's
dealer and as a high defense official of the Federation. The Committee has
concluded that Mr. Gallagher and Mr. Beck should have been aware of the
general nature of the relationship between Bell's dealer and the government
of the Federation from such correspondence. However, Mr. Gallagher and
Mr. Beck have stated to the Committee that they did not focus on the
possibility of there being a questionable ownership relationship until early
1978. At that time, additional information as to a possible connection
between the dealer and government officials came to the attention of Mr.
Beck from a Textron employee traveling in Country D, and the matter was
referred to the Textron Legal Department. No further sales have been
made through Company Six since 1978. The company apparently terminated operations in 1979.
The Committee has been unable to determine with certainty whether a
violation of the laws of either Country D or of the Federation occurred. The
Committee has been advised by counsel in Country D that, during the
relevant period, there was no legal prohibition against government officials
having an ownership or other financial interest in, or receiving a commission
from, an enterprise doing business with the government of Country D or the
Federation. However, receipt of a payment or benefit by a government
official for the purpose of influencing official action, or the acceptance by a
civil servant of compensation for work outside his official duties is unlawful.
The latter prohibition may, however, be waived with ministerial approval.
In interviews with the Committee's counsel, the most recent managing
director of the dealer has stated that the relationships of Pilot and the
dealer's former Chairman to the dealer were well known to and approved
by the governmental authorities of Country D and the Federation and that
there was no violation of local law. Because of the close relationship of Pilot
and the former Chairman to the governing authorities of Country D and the
Federation, it seems likely that ministerial approval was given to the receipt
of compensation from the dealer by Pilot and the former Chairman.
8.

Country " E "

Bell made few helicopter sales between 1971 and 1977 in Country E.
The limited sales which were made were accomplished through the efforts of

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Company Seven which served as Bell's dealer from 1966 until May 1977.
The key employee of Company Seven was Mr. L. In May 1977 the territory
of Company Eight, already a large Bell dealer in the region, was expanded
to include Country E, and Company Seven was terminated as Bell's dealer.
Bell's largest transaction in Country E during the period under review
involved the sale in 1972 of four helicopters to the United States government
for resale to Country E. Mr. L made a significant effort to promote this sale,
which was ultimately effected under the United States government's Grantin-Aid program. The dealer agreement between Bell and Company Seven
had been amended in 1970 to provide expressly that no commissions would
be paid on sales of this type. Bell made a written representation to the
United States government that no dealer's commissions were being paid on
the sale.
Following the sale, however, Bell International Marketing Department
personnel attempted to secure compensation for Mr. L under the guise of
paying him for a purported in-depth study of Country E's helicopter
requirements. The proposed compensation for the study was approximately
$39,000, which was $8,000 lower than the commission which would
otherwise have been payable. No report was in fact prepared by Mr. L, and
Bell's Finance Department did not make any payment to him.
Bell personnel thereafter secured the approval of Mr. Weichsel, as
Senior Vice President, to enter into a consultancy agreement with Mr. L as a
method of compensating him. The agreement provided for total compensation of $39,000 in exchange for Mr. L's providing certain enumerated
future services. In fact, however, the consulting agreement was perceived by
International Marketing Department personnel as a method for compensating Mr. L for services already rendered. A Bell Area Manager has
stated that Mr. Weichsel was advised that this was the purpose of the
consulting agreement.
In connection with the 1972 sale, Mr. L's written communications to
International Marketing personnel clearly implied that the dealer had
financial arrangements with one or more government officials of Country E

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including the Commander of the Air Force. In a handwritten note sent "in
strict confidence" by Mr. L to International Marketing from the Air Force
Commander's office, Mr. L stated:
" I have made a promise to [the Air Force Commander] which I
must keep to the letter. Until I write again to give definite instructions
on this please request [Bell's head of Accounts Payable] on my behalf
to withhold the credit documentation . . . . And, in any case, please ask
him to address all Credit Memos on this deal personally to me and not
merely marked for my attention." (Emphasis in original).
Several months later, Mr. L informed International Marketing personnel that he had to act "most discreetly" with respect to commissions, as he
had "to take care of the personal interests of the government top officials to
sustain their continuous interest in Bell Helicopter Company's interests . . . "
In another letter, Mr. L stated that the United States Military Attache in
Country E was leaving the country and that the Attache expected Mr. L to
keep his "promise" before that time. The Attache had apparently been of
considerable assistance to the dealer in the course of the helicopter sale.
In interviews with the Committee, International Marketing personnel
stated that they had no reason to believe that any questionable payments
were made in Country E despite Mr. L's communications. They further
stated that references to promises to or other arrangements with the Air
Force Commander likely referred to commitments made by Mr. L to
provide funds for training Country E pilots.
Mr. L has informed the Committee that he provided airline tickets to
the Air Force Commander and arranged for the payment of his travel
expenses, but made no other payments to him. According to Mr. L, these
amounts aggregated about $5000 over the years, and were not paid for any
improper or unlawful purpose.
Mr. L also stated to the Committee that he gave a gift of modest value
to the wife of the United States Military Attache as a memento of her
husband's stay in Country E. In addition, Mr. L hosted a farewell party for
the Attache at the conclusion of the latter's tour of duty in Country E. But
Mr. L has stated that he made no payment of any kind to the Attache.

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Finally, Bell made a series of accommodation payments at Mr. L's
request. In addition to payments to a named individual in Europe, who Mr.
L says is a private citizen, Bell made payments (aggregating $1,891.14) to
two named individuals outside Country E to defray costs which Mr. L
characterized as travel expenses for Country E officers and technicians. As a
result of the analysis of disbursements from dealers' commission accounts
conducted by Arthur Young for the Committee, the Committee has concluded that, in addition to sums payable under the consultancy agreement,
Bell disbursed a total of $20,313.92 in accommodation payments at Mr. L's
request.
Within Bell, Mr. Weichsel approved and executed the consultancy
agreement with Mr. L. Mr. Weichsel has told the Committee that he does
not recall the specifics of the transaction. There is no evidence, however,
that Mr. Weichsel or any other Bell personnel outside Bell's International
Marketing Department were aware of Mr. L's paying for the travel expenses
of officials of Country E or of the gift to the Attache's wife. Nor is there any
evidence that any non-International Marketing Department officers or
employees were aware of accommodation payments made by Bell at the
dealer's request. There is no evidence that any Textron officers were aware
of any of these transactions.
9.

Country " F "

During the period 1971 through 1977, Bell made many sales to
customers in Country F, both governmental and private. Bell's dealer in
Country F throughout this period was Company Nine.
A. The 1972-1973

Sale to Country F

In 1972, Bell made a proposal to the Country F Air Force for the sale of
17 helicopters. Bell International Marketing Department employees and
Bell's dealer participated in negotiations for this sale for a number of
months. Although agreement appeared to have been reached, there was
considerable delay in getting the contract signed. According to testimony of
the Bell employee responsible for sales to Country F, Bell's dealer discussed
with him the possibility that the high government official with authority to
effect the purchase was delaying signing the contract in order to secure a
payment.

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Shortly thereafter, according to the Bell employee, the dealer was
approached by an Air Force officer of Country F, who was the assistant to
the high government official. He demanded a payment of $300,000. The
dealer objected to the size of the demand and ultimately arranged to split
the commission, amounting to approximately $240,000, with the high
official. The dealer then informed the Bell employee of the arrangement,
which he states was approved by the International Sales Manager.
The government of Country F ultimately contracted to purchase five
Model 205 helicopters and five Model 206s, which were delivered in 1973.
In May 1973 Bell's dealer informed the Bell employee that he and the Air
Force officer would be coming to Ft. Worth to pick up commission checks.
Upon arrival in Fort Worth, the dealer authorized Bell to debit his
commission account and to pay $109,750 to the officer. A check in that
amount was made payable directly to the officer and delivered to him in
Fort Worth. A similar procedure was followed later in 1973, when Bell
issued a check in the amount of $47,800.50 to the same officer.
Although the principal of Bell's dealer readily admits that the payments
were made, he has told the Committee that the monies were not to be used
by the high official, but rather were to be utilized by the Air Force itself.
The Committee has been unable to resolve this conflict in the explanations
but has concluded that the payments must be treated as questionable.
The payments were authorized by the Bell dealer, a Bell employee
responsible for credit matters and by a now retired employee in Bell's
Accounting Department. The International Sales Manager was aware that
the payments were made. The Committee has discovered no evidence
indicating that any Bell officers or any Textron officers were aware or
approved of the payments.
B. The 1974 Sale to Country F
In September or October 1974, Bell contracted to sell five Model 212
helicopters to the Air Force of Country F. Under the contract the purchaser
paid $16,717.35 for living and travel expenses to be incurred by Air Force
personnel in connection with their training in Fort Worth. In October 1975
the same Air Force officer who had received the earlier payments requested
that a check in the above amount be issued to him and charged to the Air
Force's account. The International Sales Manager authorized a check

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payable to a representative of the Air Force as a refund of amounts received
by Bell under the contract but not expended because the Air Force personnel
had paid their own expenses. Bell issued a check payable to the Secretary of
Defense of Country F and delivered it to the Air Force officer in Fort Worth.
The check was ultimately cashed in Country F, endorsed by the officer. The
Committee has no clear evidence that the payment itself was not a legitimate
refund, but the fact that the check was delivered to an individual who had
previously been the recipient of a questionable payment indicates the
possibility that this amount was diverted for questionable purposes. Bell's
dealer was not involved in this payment.
C. Other Possible Questionable Payments
Although there is no documentary evidence to support the assertion, the
Bell employee responsible for sales to Country F has also stated that the
dealer told him, after the fact, that the same high government official
received half of the commission of approximately $160,000 on a 1975 sale.
In addition, the Bell employee has said that he was informed by the dealer,
after the fact, that the dealer had paid $5,000 to the chief pilot of a local
police force in Country F in connection with a 1977 sale. The Bell employee
further states that he was informed by the dealer, after the fact, that a
gratuity had been given to the chief pilot for the governor of a political
subdivision of Country F following a 1976 or 1977 sale.
The principals of Bell's dealer in Country F have been interviewed by
the Committee's counsel They deny that the payments mentioned above to
the Air Force officer were improper and state that they believe that the
officer received the money for and accounted for it to the Air Force. In
addition, a copy of one of the cancelled checks bears an endorsement which
suggests that the check may have been deposited in an account of the Air
Force in Country F. The principals of Bell's dealer also deny making any of
the payments referred to in the preceding paragraph. Despite these denials,
the Committee, relying on the Bell employee's testimony, has treated the
payments as questionable.
With the exception of the 1973 payments, there is no evidence that any
Bell personnel were aware of any questionable payments by Bell's dealer in
Country F prior to the time that they were made. In addition, there is no
evidence to suggest that any Bell officer or any Textron officer was aware of
any questionable payments in Country F.

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10.

Country " G "

Until 1976 Bell made few helicopter sales in Country G where markets,
although receptive to helicopter use, were traditionally dominated by Bell's
domestic and foreign competitors. However, Bell's efforts to penetrate one
important segment of the market culminated in 1972 with the sale of one
Model 212 to a government-owned company in Country G.
The possibility of this sale was first brought to the attention of the
manager of Bell's Brussels office by an individual who was serving at the
time as an aviation advisor to the government-owned company.
The
advisor, who had no previous relationship with Bell, informed the Brussels
manager that a sale could be made if Bell would pay the advisor a
commission. In ensuing discussions in Fort Worth between the aviation
advisor, Bell personnel and a representative of Bell's established dealer for
Country G, an arrangement was reached whereby Bell's dealer agreed to
pay the aviation advisor $50,000. That amount, according to Bell's dealer,
was to be generated by pricing accessories in a manner that produced
additional revenue and was known to Mr. Sylvester.
In subsequent communications from Bell's dealer, Bell personnel were
informed that part or all of the amounts to be received by the aviation
advisor would probably be shared with one or more officials of the
government-owned company.
Contrary to Bell's operating procedures,
International Marketing Department personnel, in compliance with the
dealer's instructions, arranged for an advance payment of commissions to
the aviation advisor prior to delivery and payment for the ship. The dealer's
communication stated in pertinent part: "[Government officials] in
Washington current time and advance of commission requested. Please
remit urgent $50,000 to [aviation advisor's] account [in New York]. He
will collect and disburse prior to Ft. Worth visit." This payment was effected
by wire transfer to a United States bank, pursuant to a telex from a Bell
Regional Manager to the dealer stating: " T o keep principals happy and
insure smooth consummation this sale and enhance others [Bell] has
deviated from policy and advanced amount requested."
Bell's arrangement with the aviation advisor appears to have been a
one-time only transaction. Although further helicopter sales were subse-

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quently made by Bell in Country G, no evidence was found indicating that
any other questionable payment was made, directly or indirectly, by Bell or
its dealer in connection with such sales.
Responsibility within Bell for the arrangement rested exclusively with
Bell International Marketing Department personnel, as at that time Bell's
Accounting Department followed the instructions of International Marketing
Department personnel without further authorization. Mr. Sylvester has
through his counsel stated that he has no recollection of dealing with the
advisor. No evidence was found indicating that the arrangement had been
authorized by, or was known to, any other Bell employee or any Textron
officer.
11.

Country " H "

In the early 1970's, Bell International Marketing Department personnel
were actively engaged in marketing several helicopter models to the
government of Country H. Following the purchase in 1972 of a Model 212
by an agency of the government for use by the country's head of state, Bell's
International Marketing Department personnel attempted to sell additional
Model 212s to other administrative agencies for such use.
In 1973 a Bell employee met in Texas with a high-ranking official of
Country H to discuss additional Model 212 purchases. Shortly thereafter,
Bell personnel issued a check in the amount of $1,000 payable to the official
and pursuant to Bell's dealer's instructions debited the amount from the
dealer's account. The check was sent to a hotel in the United States where
the official was staying.
The proposed sale of additional Model 212s for use by the head of state
did not take place. There is no evidence to suggest that any payments, other
than the single $1,000 payment, were made by Bell to government officials
of Country H.
Concurrently with pursuing possible sales of Model 212s, a Bell Area
Manager was contacted by an American businessman, who had no previous
association with Bell, and who advised the Area Manager about potential
sales of approximately ten Model 206B Jet Ranger helicopters to the Air
Force of Country H. Pursuant to arrangements made by the United States
businessman, the Area Manager traveled to Country H to meet and discuss
the sale of Jet Rangers with a high-ranking government official who had
responsibilities for defense procurement and a private citizen, who appeared

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to have close ties to the country's highest leadership circles.
These
discussions culminated in an agreement whereby commissions accruing on
the sale would be remitted by Bell to a United States company designated
by these two individuals ("Company Ten").
Bell's established dealer in Country H agreed to assign any commissions
which it might earn on any sales of Jet Rangers in Country H to Company
Ten. Company Ten was suspected by Bell sales personnel of acting as a
conduit for payments to one or more high-ranking government officials in
Country H. It is not known, however, whether any funds that might be paid
to Company Ten were in fact intended to be used for private purposes. A
Bell employee has told the Committee that a government official of Country
H suggested to him that such funds might be used for governmental
purposes.
Despite this commission arrangement, the sales effort to the Country H
Air Force collapsed for reasons unknown to Bell. No payments of any kind
appear to have been made by Bell, either directly or indirectly, to any
government official through Company Ten.
The dealer's assignment of commissions to Company Ten was arranged
by Bell's Area Manager for the Far East. The arrangement was, according to
International Marketing Department employees, approved by the International Sales Manager and known to Mr. Sylvester. In response to written
questions, Mr. Sylvester has indicated, however, that he does not recall
being aware of the assignment of commissions by the dealer. There is no
evidence indicating that any other officer of Bell or any Textron officer knew
of or approved the arrangement.
12.

Country"!"

From modest levels in prior years, Bell's sales in Country I increased
substantially in the 1970's through the efforts of its long-established dealer in
that country. The dealer's sales efforts culminated in the mid-1970's in the
sale of 27 UH-lHs and eight AH-1J helicopters to the government of
Country I in transactions which generated large commission payments to the
dealer.
The dealer stated to the Committee's counsel that, consistent with what
he says is the custom in Country I, he furnished gratuities, including
payments of small amounts of cash, to government officials. At the dealer's

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request, Bell disbursed from the dealer's commission account amounts
aggregating several hundred dollars to several military officials of Country I,
including an official attached to the Embassy in Washington and officials
making business trips to the United States. Although the Committee was
unable to find reliable evidence as to the amounts involved, the Committee
estimates that these amounts did not exceed $25,000.
In addition to cash gifts and other gratuities, the dealer on various
occasions requested Bell to furnish airline tickets to government officials of
Country I, and to pay for their motel bills during visits to the United States,
charging the amounts to the dealer's commission account. Bell typically
complied with such requests, which the dealer on at least one occasion
referred to as "sensitive" in nature.
There is no explicit evidence that the dealer shared his commissions on
Bell sales with government officials, aside from the gifts and other gratuities
described above. In 1973, however, a Bell Area Manager advised the dealer
of a statement by an applicant seeking the Bell dealership in Country I that a
key government official was unhappy with the dealer because he had not
given the official a "big enough piece of the cake." The Area Manager
informed the Committee that this reference meant small gratuities and
favors which the dealer had furnished to the official, including payment of
greens fees on golf outings and frequent entertaining of the official for
dinner. The dealer likewise informed the Committee that no questionable
payments were made to any government officials, and that the gratuities
which were furnished, such as dinners and golf outings, were in keeping with
local traditions and custom. However, the Committee received advice from
legal counsel in Country I that such gratuities may have violated the laws of
Country I.
In connection with commission payments, Bell complied with the
dealer's recurring requests for accommodation payments to third parties.
Bell personnel also assisted the dealer in maintaining large sums of
commissions outside Country I. For example, Bell's Manager of Contract
Administration assisted the dealer in opening a local bank account in the
Fort Worth area, where the dealer deposited a large commission check. The
dealer also instructed Bell personnel not to mention or refer to commissions
in the presence of either the dealer's employees or government officials of
Country I. These practices were generally known by personnel within the

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International Marketing Department; however, Mr. Sylvester has informed
the Committee, through his counsel, that he was unaware of any gifts or
gratuities having been furnished to Country I officials by the dealer.
13.

Country " J "

In 1973 personnel in Bell's International Marketing Department, including the manager of Bell's Brussels office, became aware that the Air
Force of Country J might have a requirement for two Bell helicopters. Bell
had an established dealer in Country J, but information concerning the sale
came from a "consultant," who identified himself as a friend of the wife of a
high official with power to effect the purchase. The Brussels manager was
aware that, in order to conclude an agreement with the proposed "consultant," the dealer would have to assign its commissions to him. The
Brussels manager and a Bell Regional Manager were also aware that the
dealer's personnel believed the "consultant" to be a conduit for payments to
the high official.
In addition, these employees were aware that the
"consultant" would expect payments to be made at the time the contract was
signed, contrary to Bell's normal policy of paying dealers' commissions only
after full payment had been received.
The Brussels manager attempted to persuade the dealer to assign its
commissions to the proposed "consultant," but the dealer proceeded to
make its own proposal to the Air Force. At the same time, the Brussels
manager recommended to Mr. Weichsel that Bell employ a "consultant" for
this sale, as it was unlikely that the Air Force would be willing to buy from
Bell's dealer. Mr. Weichsel determined that Bell would pay no commissions
except to its established dealer, adding in a handwritten notation that "what
a dealer does with his commission is his business."
As a result, Bell did not enter into an agreement with the "consultant."
However, the Brussels manager continued to attempt to persuade Bell's
dealer to meet with the "consultant" and to give up most of its commission
to the "consultant." In addition, the Brussels manager tried to get the
"consultant" to visit Fort Worth to meet with Mr. Weichsel.
Neither
meeting took place, however. The Air Force of Country J refused to do
business with Bell's dealer, and the sale fell through.
In addition to the Brussels manager and the Bell Regional Manager,
Mr. Sylvester appears to have had knowledge of certain questionable aspects
of the proposed arrangement, as he received telexes referring to the

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proposed use of a "consultant" and referring to the "consultant" as a
"bagman." He has informed the Committee, however, through his counsel,
that he does not recall any such information. A Bell employee has stated
that he informed Mr. Weichsel that the consultant had been referred to as a
probable "bagman" for a high government official. Mr. Weichsel has told
the Committee that he received insufficient information from International
Marketing Department personnel to understand the true nature of the
consultancy being proposed.
14.

Country " K "

As a result of previously limited sales in Country K, Bell replaced its
dealer in 1971 and appointed a family-owned company, which had no
significant aircraft experience, as its representative. One member of the
family controlling the company was related by marriage to a prominent
member of the military authority which had responsiblity for military
procurement in Country K. Under the arrangement, the company was
appointed as a subdealer to a Bell dealer in another country which had
considerably greater aviation experience.
The arrangement did not prove productive, however, as few sales were
thereafter made through the subdealer to Country K's military. Accordingly, Bell's dealer expressed its dissatisfaction with the subdealer's marketing efforts to International Marketing Department personnel in Fort Worth.
In a telex to Fort Worth, a representative of Bell's dealer reported to a Bell
Area Manager that a major sale proposal had been unsuccessful because the
subdealer had not provided in its offer for sufficient payments to government
officials.
Pursuant to the dealer's recommendation, Bell shortly thereafter terminated its arrangement with the subdealer and appointed in its place a
company affiliated with the dealer. Substantial sales were subsequently
made in Country K.
In view of the dealer's statement about the lost sale in Country K, the
Committee examined all available documents pertaining to business involving Country K, questioned numerous Bell employees who were or might
have been involved in such transactions, and questioned the person who has
headed Bell's dealership for many years. Despite the clearly contrary

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statement in its communication to Bell, the dealer denied that it had ever
made, or was aware that its subdealer had ever offered or made, any
payment to government officials in Country K, other than offers of entertainment and offers of reimbursement for travel expenses to air shows.
Although the communication casts suspicion on the nature of the dealer's
and the subdealer's activities, no evidence was located which indicates that
questionable payments were made either directly or indirectly to government officials.
There is no indication that any officer of Bell was aware of the dealer's
communications with respect to the possibility of payments to government
officials. Bell officers were made aware of the proposed termination of the
family-owned subdealer but there is no evidence that the reference to the
possibility of payments to government officials was brought to any officer's
attention.
15.

Other Countries

(a)

Country "L "

From 1966 until 1972, Company Eleven served as Bell's exclusive
representative in Country L for commercial sales of certain helicopter
models. The dealer's original agreement provided that commissions were
"to be negotiated." The 1970 dealer's agreement effected a change, similar
to those being made at the time in other contracts between Bell and its
foreign representatives, to provide that no commissions would be payable on
sales under the Military Assistance or Grant-in-Aid programs of the United
States government.
While Company Eleven was Bell's dealer, approximately 125 helicopters were ordered by the United States government for delivery to the
government of Country L under the Grant-in-Aid program. However, Bell's
position was that commissions were not payable on these helicopter sales
because United States government policy precluded the inclusion of any
element for recovery of international sales expenses (including commissions) in the contract price.
The total purchase price was over $10 million.
The sales were
profitable, and it is clear that the dealer was of assistance in connection with
the sales.

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In 1972 the dealer sued Bell in the United States, claiming commissions
at the rate of five percent on helicopter sales of $28 million, an amount
which appears to be substantially in excess of the value of sales actually
made. The litigation was settled in 1975 by Bell's payment of $90,000 to the
dealer.
In recommending settlement of the litigation in 1975, Bell's outside
counsel for the lawsuit expressed concern to Textron that a high government
official may have been "on the payroll" of the dealer during the relevant
period and that this fact might surface at trial. Independently of the
litigation, a Bell regional manager advised counsel to the Committee that he
became suspicious, after Bell refused the dealer's demand for payment and
following conversations in 1971 with a high military officer of Country L,
that the officer may have had a personal interest in the unpaid commissions.
The Committee considered it important to determine if there was any
factual basis for these concerns. After a thorough inquiry which included an
interview of the outside counsel and review of pertinent files, the Committee
found no evidence of possible payments by the dealer to any government
official.
(b)

Country "M"

Bell's long-standing dealer in Country M is a well-established firm
founded by a prominent private businessman. No significant sales, however,
have been made in Country M. For the most part, Bell's limited sales have
been non-military transactions involving an agency responsible for administering an agricultural spraying program.
In connection with sales for these agricultural programs, the dealer
requested a Bell Area Manager to arrange for the transfer of $1000 from the
dealer's account to the wife of an important agricultural agency official. Bell
personnel complied with this request.
In addition to the payment to the government official's wife, the dealer
in Country M frequently requested Bell to make accommodation payments
from the dealer's account. These requests typically took the form of a
request that Bell purchase airline tickets and then charge the amounts to the
dealer's commission account. On occasion, the dealer also requested letters
from Bell that were to set forth false information, which the dealer would
then use to obtain permission to leave the country for a particular purpose,
such as attendance at an international air show.

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In an unrelated incident, Bell's International Marketing Department in
Fort Worth received an unsolicited inquiry in 1971 from a European firm for
price information concerning Bell's UH-1 helicopters. This marketing lead
was communicated to the manager of Bell's Brussels office, who determined
that the transaction involved a potential helicopter sale to the government of
Country M and that the European firm would require a five percent
commission. According to correspondence from the European company, the
five percent commission included amounts which would be remitted to
Country M government officials.
The Brussels manager thereupon referred the inquiry to Bell's then
International Sales Manager in Fort Worth who informed the European
firm that Bell already had a dealer, but that Bell's policy " . . . does not
preclude a dealer from sharing a commission with a third party when he
deems it appropriate and advisable."
Despite active pursuit of this transaction, no sale was made to the
government of Country M. No payments to government officials appear to
have been made in connection with this potential sale.
There is no evidence that any Bell or Textron officer knew or approved
of the foregoing transactions.
(c)

Country "N"

A former dealer in Country N brought two lawsuits against Bell in
which certain allegations were made that Bell's new dealer in Country N
had shared his commissions with military officers of that country. In view of
the serious nature of the allegations, the Committee conducted a review of
Bell's transactions in Country N. The Committee's counsel was able to
arrange for a modification of protective orders that had been entered in
discovery proceedings in both of the federal district court lawsuits brought
by the former dealer. Pursuant to the modification, the Committee's counsel
was permitted to "read, inspect and review pleadings, depositions, and
documents on file" in the actions and to interview the new dealer. Although
the dealer did not answer all questions about his personal financial affairs,

69-845 0 - 8 1 - 1 9

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the Committee's counsel found no evidence of any bribery of government
officials of Country N, whether by Bell, the new dealer or anybody under the
new dealer's control.
(d) Country "O"
In September 1973 Bell delivered two 206B helicopters to the government of Country O. These helicopters were sold to Bell's dealer at a price of
$125,000 each. Prior to delivery, however, Bell's price increased to $137,500
per helicopter. Bell agreed that it would ijivoice the government of Country
O at the new price, and pay the difference ($25,000) to the dealer to help
offset expenses incurred by the dealer in establishing a new office. The
dealer also earned a 7.5 percent commission on the sale.
The payment was approved by the International Sales Manager upon
the request of the Regional Manager covering Country O.
To the
Committee's knowledge, no other International Marketing Department
employee was aware of the arrangement. The only other Bell employees
involved were in the Accounting Department; these employees complied
with a payment request from Bell's Manager of Contract Administration.
The Committee has concluded that the expenses incurred by the dealer
were legitimate business expenses, and that no questionable payment was
made.
16. Iran
Beginning on January 24, 1978, at the hearings before the SBC on Mr.
Miller's nomination, and continuing through February 1978, the SBC and its
staff examined a large number of witnesses, documents, submissions and
affidavits in an attempt to determine (1) whether the then Commanding
General of the Iranian Air Force, General Mohammed Khatemi*, had a
secret ownership interest in Bell's Iranian representative, Air Taxi Company,
(2) whether officers or key employees of Bell knew of the existence of such
an interest (particularly in June 1973 when Bell agreed to pay Air Taxi a
settlement of $2.95 million in lieu of commission claims), and (3) whether
Mr. Miller had any knowledge or information concerning any interest of
General Khatemi in Air Taxi.
* General Khatemi died in a glider accident in 1975.

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In light of the intense interest focused upon these questions during and
after the SBC hearings, the Committee analyzed the evidence gathered by
the SBC in addition to the other evidence available to the Committee.*
A. Historical Perspective
Air Taxi appears to have been formed in 1958 as a Teheran-based
fixed-wing air charter company. At the time of its formation, according to
Iranian credit reports, Mohammed Khatemi (described as "Commanding
Officer of Iranian Airways") was Chairman and one of three shareholders.
Subsequent Iranian credit reports and published official notices which were
examined by the Committee do not identify Mohammed Khatemi as either a
director or shareholder, although one report prepared in the 1962-63 period
refers to him as "possibly having an indirect interest" in the firm.
In 1959 Bell engaged Air Taxi as its representative in Iran. Apparently
because of negligible sales, Bell terminated this contract in 1963. In 1964
Bell replaced Air Taxi with International Helicopter Consultants ( " I H C " ) .
IHC was, in turn, terminated as Bell's representative in late 1967 for the
stated reason that its owner, William French, had been barred from entry
into Iran two years earlier. Mr. French had previously advised Bell that
General Khatemi was responsible for his exclusion from Iran, which Mr.
French said had occurred because of his unwillingness to give General
Khatemi a substantial share of his profits on sales in Iran.
Following IHC's termination, Air Taxi was again engaged by Bell in
early 1968.
In the meantime, Mohammed Khatemi had become
Commander-in-Chief of the Iranian Air Force. General Khatemi was the
husband of the Shah's sister and was widely regarded as a powerfulfigurein
Iran.
During the 1960's the Imperial Government of Iran ( " G O I " ) had
purchased helicopters from Agusta, which held an exclusive license from
Bell for the sale of certain helicopter models in Iran. According to reports
prepared by Bell's employees in the early 1970's, Agusta failed to supply
after-sales support deemed satisfactory by the GOI for the Bell-model
helicopters already in service in Iran. This apparent failure, coupled with
favorable views of Bell aircraft on the part of the United States military
•For a number of reasons, including unsettled local conditions, the Committee
did not send a representative to Iran to pursue its inquiry there. Mr. Amir
Zanganeh, Air Taxi's Managing Director during the relevant period, refused
requests to be interviewed. Mr. Zanganeh now lives in Europe.

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advisers in Iran, contributed significantly to a favorable market environment
for sales by Bell to the GOI.
In 1971 Bell began vigorously to pursue the possibility of a large sale of
helicopters to the Iranian Army. In addition to International Marketing
Department employees, several senior Bell officials, including Mr. Sylvester
and Mr. Atkins (then Executive Vice President) participated in the negotiations. Bell's efforts culminated in late 1972 in a contract for 489 helicopters
at a total price of approximately $500 million. The percentage commission
claimed by Air Taxi was fixed at 2.5 percent of the helicopter sales price in
August 1972, reduced to 1 percent in October 1972 and ultimately settled in
late June 1973 by agreement on a $2.95 million lump sum settlement which
amounted to less than 0.6 percent of the estimated price. The final amount
was payable in three approximately equal annual installments. This last
agreement canceled Air Taxi's right to any subsequent commissions except
as to commercial sales. Thereafter, Bell negotiated contracts with the
Iranian government for logistical support, training, and co-production of
helicopters aggregating over $800 million without the use of any Iranian
representative or payment of any commission.
B. General KhatemVs Alleged Interest in Air Taxi
A number of reports dated in the 1960-1972 period, submitted to the
SBC by United States government intelligence agencies (to which reports
Bell officers did not have access) indicate that General Khatemi was reputed
to be an owner of Air Taxi. In addition, several United States government
officials stationed in Iran during the relevant period informed the SBC that
they had heard rumors in the 1960's and 1970's of the General's financial
interest in Air Taxi. A report by the Economic Counselor of the U.S.
Embassy in Teheran states that he was told General Khatemi may have sold
his interest in the early 1970's.
Mr. French and his attorney testified to the SBC, and the attorney
confirmed to the Committee, that they had been informed and believed that
General Khatemi had an ownership interest in Air Taxi, at least during the
1960's.
The testimony indicates that in 1966-67 arrangements were made by
which ownership of 51 percent of an Iranian corporation, which would
thereafter handle Mr. French's business in Iran and receive the commissions
thereon, was transferred to an Iranian nominee. Mr. French's attorney
testified that he met with General Khatemi, informed him about the
proposed formation of the corporation, and indicated his understanding that
the Iranian nominee would hold 51 percent of the shares as a nominee for

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certain members of the High Council of Civil Aviation. The attorney said
that General Khatemi personally confirmed to him during the meeting that
the nominee was speaking for Khatemi.
This testimony, which was
corroborated by contemporaneous documents, would appear to indicate that
General Khatemi had no reluctance about maintaining a hidden economic
interest in an aircraft dealer doing business in Iran.
Finally, bank records obtained and made public by the SBC show that
Amir Zanganeh, Managing Director of Air Taxi ("Zanganeh"), controlled
bank accounts in his own name and in the name of Air Taxi at the First
National Bank and Trust Company of Oklahoma City, Oklahoma. He drew
checks against these accounts in 1972 and 1973 for substantial sums payable
to the original shareholders and directors of Air Taxi, namely, General
Khatemi, A. Chafik and N. Jahanbani. Thus, on July 19, 1972 (a month
after receiving and depositing into his personal account a commission check
for $244,450 from the Lycoming Division of Avco Corporation) Zanganeh
wrote a check against that account for $66,700 payable to General Khatemi.
Checks were also written against the Air Taxi account for $260,000 payable
to General Khatemi, $150,000 payable to Chafik and $150,000 payable to
Jahanbani. Between the date of the above checks and January 1973, the
balance in Zanganeh's personal account grew to $562,000. On January 27,
1973, he wrote checks on that account in the amounts of $290,000 payable
to General Khatemi, $131,000 payable to Jahanbani and $131,000 payable
to Chafik. It also appears from the SBC hearing records that Zanganeh and
Air Taxi had bank accounts in France and Switzerland to which funds from
the Oklahoma bank accounts were transferred. The Committee was unable
to obtain records of these accounts. However, the Committee's review of
subpoena enforcement records filed by the SEC indicates that the total of all
payments by Zanganeh to General Khatemi, by checks drawn against the
foregoing bank accounts, approximated over $1 million. There is no
evidence that any Bell officer or employee had any information about these
transactions at any time prior to the SBC's investigation.
Several months following his January 1973 payments to the three
original owners, Zanganeh and Bell concluded their negotiations and agreed
upon the $2.95 million settlement amount. Zanganeh insisted on having
Bell's checks made payable to his order and submitted a document
authorizing him to receive such monies on behalf of Air Taxi executed by
himself, A. Chafik and F. Eshoo, who certified that they were the holders of
100 percent of the shares of the firm. Bell acceded to this request. The three

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checks Zanganeh received from Bell (on or about June 30, 1973, 1974 and
1975) were deposited in the same account on which Zanganeh had
previously drawn checks in January 1973 payable to General Khatemi,
Chafik and Jahanbani.
The Committee concludes on the basis of the foregoing data that, in all
likelihood, General Khatemi had a secret ownership or other substantial
financial interest in Air Taxi, or in the commissions obtained by Air Taxi,
while Air Taxi served as Bell's representative.
C. Knowledge of Bell Officers As to A Financial Interest of General
Khatemi in Air Taxi
Even assuming General Khatemi had afinancialinterest in or arrangement with Air Taxi, the question of greater importance to the Committee is
what, if anything, Bell employees and officers knew about it.
In order to evaluate the available evidence on this question, it is useful
to separate Bell's relations with Air Taxi into two periods: the period prior to
1969 ("first period") and the period 1971-1973 ("second period").
With reference to the first period, it is clear that in late 1966 and in
1967, Mr. Dwayne Jose, Bell's Vice President for Commercial Marketing
(who at that time also had charge of international sales) was told by Mr.
French on several occasions that Mr. French believed General Khatemi had
an ownership interest in Air Taxi. Mr. Jose shared this information with his
international marketing staff. One former member of that staff has testified
that it was his general understanding that General Khatemi had an interest
in Air Taxi. Information from the files of the United States Commerce
Department indicates that in late 1967, Bell asked for a report on Air Taxi
and such a report was forwarded. The report states that General Khatemi
"reportedly has financial interests" in Air Taxi.
Further, Mr. French's attorney remembers a meeting in November
1966 with Mr. Jose and Bell's then President, Mr. Ducayet, in which he
related the foregoing information as a prelude to discussing a new Iranian
corporation being organized to conduct business in Iran on behalf of
International Helicopter Consultants, 51 percent of the stock of which he
said was to be owned by Iranians, including General Khatemi. Although
neither of the two Bell officers recalls this meeting, they do not deny that it
took place. In view of a contemporaneous document referring to this
meeting, the Committee believes that it did in fact occur. It is clear that on
other occasions, Mr. Jose was informed about the proposed new Iranian
corporation and who would own it.

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Some months thereafter, Mr. Jose sent three employees who knew the
substance of Mr. French's allegations to Iran to look for a new representative to replace Mr. French's firm. These individuals went to Iran with Air
Taxi in mind as a likely replacement. They returned with a recommendation
to appoint Air Taxi. Shortly thereafter, Mr. French was advised that his
contract was terminated primarily on the ground that his inability to obtain
Iranian government sanction for his return to that country had impaired his
effectiveness. Sales in Iran obtained by Mr. French's company were
negligible. In February 1968 Air Taxi was appointed as Bell's dealer.
Mr. Jose's testimony on the foregoing matters, both to the SBC and to
the Committee, was confusing at best. He stated that he never really
believed Mr. French's story about General Khatemi's interest in Air Taxi.
He asserted that he had informed his subordinates that he wanted nothing to
do with the proposed arrangements under which a new Iranian corporation,
in which General Khatemi was to have an interest, would conduct Mr.
French's business in Iran. Nevertheless, his subordinates (who, he said,
apparently "never got the message") advised Mr. French's attorney in
writing in January 1967 that such arrangements were temporarily authorized
until such time as Bell could assess the situation by a visit to Iran. Mr. Jose
further testified that one of the matters he asked the three employees who
went to Iran in November 1967 to look into was the question whether
General Khatemi had an ownership interest in Air Taxi; that they reported
back to him that the General had no involvement with Air Taxi; and that he
was satisfied with this report. However, there is no evidence that the three
employees made any serious effort to inquire into the matter. In fact, one
employee told the SBC staff that they were looking for a representative
"who had dealings with the royal family."
Mr. Jose's responsibilities for foreign marketing were terminated in
1969 when Frank M. Sylvester was hired to head a new International
Marketing Department which he staffed with new people. Prior to that time,
foreign marketing had not been regarded as significant to Bell's business.
Mr. Jose advised the Committee that he did not pass on any information
about possible involvement of General Khatemi in Air Taxi to Mr. Sylvester
or to anyone else. A Bell employee has stated that he discussed General
Khatemi's financial interest in Iranian aviation matters generally within
Bell's International Marketing Department, including perhaps with Mr.
Sylvester. The Committee found no evidence (i) that Mr. Atkins, then

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Executive Vice President of Bell, had any information about the ownership
of or interests in Air Taxi during this first period, or (ii) that Mr. Ducayet
gave any information on that subject to Mr. Atkins at any time.
*
*
*
Very early in the second period (1971-1973) an employee in Bell's
newly-opened Brussels office traveled to Iran to review sales possibilities in
that country, which had not previously been considered very significant. In
mid-March of 1971 he prepared a lengthy trip report in which he
enthusiastically described the potential Iranian market. The report describes
the business facilities and personnel of Air Taxi and states that "the real
influence behind the company is General Khatemi... he is not allowed to
hold offices outside his military capacity but in reality anything that flies he
has an 'interest' in." The organization chart of the Iranian military establishment appended to the trip report shows General Khatemi connected with
Air Taxi and a second private firm, Iranian Helicopters, by dotted lines.
This document was addressed to Mr. Sylvester but was apparently distributed to several other senior officers. Neither Mr. Ducayet nor Mr.
Atkins, then Executive Vice President, recalls the report; however, a former
Bell employee who edited the report told the Committee that the report was
discussed at a meeting at which both Messrs. Ducayet and Atkins were
present, and that both had received copies of the report. The former
employee, however, recalls no mention at that meeting of the statement in
the report regarding General Khatemi. The ex-employee who authored the
report recalls that Mr. Ducayet complimented him for having prepared "an
excellent report."
The statements in the report were largely derived, according to the exemployee who authored it, from the following information and observations:
(a) his observation that Zanganeh frequently visited General Khatemi,
leading him to believe that the "real influence" behind Air Taxi was the
General, ( b ) the fact that it was rumored in Teheran that in all likelihood
the General had a financial interest in a variety of aviation companies,
including Air Taxi (although the Bell employee never had any information
about the nature or extent of such interest), and (c) the fact that General
Khatemi was the Shah's pilot in 1953 when the latter was forced to flee the
country and a principal reason why the General had an "interest" in
"everything that flies" was the Shah's concern for security and his desire to
have someone he completely trusted responsible for all aviation in Iran.

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No other document from this period obtained from Bell's files, including correspondence and telex traffic between Bell and Air Taxi (which
took on very large dimensions beginning in 1971) suggests that General
Khatemi had a financial interest in Air Taxi. The Bell officers principally
responsible for negotiation of the 1972 sale to the GOI have told the
Committee that they did not know or believe General Khatemi possessed a
financial interest in Air Taxi.
Bell was informed in writing as to shareholder interests in Air Taxi on
two occasions: by a Dun & Bradstreet report in 1970 which stated that
Messrs. Zanganeh, Chafik and Eshoo owned 100 percent of the shares; and
by a document executed in May 1973 by Zanganeh, Chafik and Eshoo, who
attested that they owned 100 percent of the shares. In neither of these
documents was General Khatemi's name mentioned. Mr. Atkins told the
Committee and testified before the SBC that prior to May 1973 he
personally asked Zanganeh who the owners of Air Taxi were and was
advised consistently with the foregoing documents.
Moreover, Air Taxi was in no sense a "shell" which one might suspect
had been organized to serve as an indirect conduit for payoffs. It was a wellknown air charter firm which owned and operated a substantial number of
fixed-wing aircraft and several helicopters, operated extensive hangar and
repair facilities and was known to represent several substantial American
aircraft companies in Iran. It performed useful services for Bell as its
representative.
Bell's officers were clearly under the impression (which is corroborated
by the documentary evidence) that although General Khatemi, as Commander of the Air Force, was concerned with all aircraft matters in Iran, the
person basically in charge of the procurement decision sought by Bell was
General Hassan Toufanian, Vice Minister of War and head of the Military
Industrial Organization. Moreover, Bell's sale was made to the Imperial
Iranian Army, not the Air Force. Bell's officers sought frequent and direct
contact with General Toufanian, his staff and leading army officers. In
contrast, their contacts with General Khatemi were infrequent and did not
relate specifically to quantities of helicopters to be procured or other details
of the procurement. Although it was known that Zanganeh had frequent
contact with General Khatemi and kept him informed as to the progress of
the helicopter procurement, no evidence was found that anyone at Bell

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sought, directly or indirectly, to cause General Khatemi to exert influence or
pressure to obtain the sale or sought to have anyone else solicit General
Khatemi for the purpose of influencing any official act or decision of the
General.
Moreover, and significantly in the Committee's view, under the first
amendment to Air Taxi's contract, negotiated shortly before the GOI
indicated to Bell the number of helicopters it proposed to purchase, Air Taxi
would have received a commission of over $9.7 million based upon the final
number of helicopters. This amount was reduced to approximately $4.3
million in late 1972 and finally, over the resistance of Air Taxi's Managing
Director and in the face of his litigation threats to Bell, to $2.95 million in
1973. The two Bell officers, Mr. Atkins and Mr. Charles Rudning, who were
then principally involved in conducting the final negotiations, told the
Committee that Air Taxi's Managing Director at no time prior to or during
the negotiations indicated that General Khatemi might have an interest in
any payment to Air Taxi, and that there was never any implication that the
manner in which the dispute was settled would have a bearing on Bell's
future sales in Iran. If such officers had known or believed that General
Khatemi had a personal financial interest in the payments to be received by
Air Taxi, it seems unlikely to the Committee that they would have attempted
through protracted negotiations to settle Air Taxi's claim at substantially less
than the figure originally agreed upon and at an amount equivalent to only a
fraction of one percent of the total sales price.
Both United States Defense Department officials and General Toufanian were informed that Bell would pay a commission to Air Taxi in
connection with the 489 helicopter sale. The Committee found no evidence
that the DOD officials or the General made any comment to Bell officers
referring to any interest of General Khatemi in Air Taxi. General Toufanian
did advise Bell officers that Bell needed no Iranian agent for dealings with
his department and ultimately advised Bell that the settlement payments
could not be charged to the contract.
The Committee has noted that Bell made subsequent sales to the GOI
in excess of $800 million without employing any representative or paying
any commission in Iran.
Finally, the Committee interviewed knowledgeable persons both within
and outside Bell and reviewed other information in order to appraise the
reasons for Bell's success in concluding the largest single sale of helicopters

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in its history. Based on the evidence before it, the Committee is convinced
that the sale was made on the basis of the demonstrated superiority of the
Bell product for the use required by the GOI and not on the basis of any
improper influence. Among others, the Committee interviewed the former
United States Ambassador to Iran who was in Teheran at the time the sale
was negotiated. It was the Ambassador's opinion that the sale was made
strictly on the merits of the product. Moreover, the Ambassador informed
the SBC that he knew of no connection between General Khatemi (whom
he knew well) and Air Taxi. The evidence shows that in the spring of 1972,
Bell had "on the shelf in Fort Worth a helicopter characterized by
substantially greater power than any competing design. This new model
suited the requirements of the Iranian plateau where substantial elevations
are often combined with extremely high ground temperatures. Under these
conditions, conventionally powered helicopters are unable to carry more
than a fraction of the loads for which they are designed. Bell's new model,
physically demonstrated in Iran in August 1972, overcame these problems.
Based on a weighing of all of the evidence before it, the Committee has
concluded, on balance, that the senior officers of Bell who negotiated the
settlement payment of $2.95 million to Air Taxi neither intended nor
anticipated that part of such payment would go to General Khatemi, directly
or indirectly. Moreover, no evidence was found which indicated that any
officer of Textron had information at any time which indicated a possible
interest of General Khatemi in Air Taxi.
C. Other Iranian Transactions
Subsequent to Bell's entering into its contracts in Iran, a high-ranking
Iranian official in Washington requested Mr. Atkins, Bell's President, to
furnish helicopter service to the Shah's wife during her 1977 visit with
President Ford in Colorado. Mr. Atkins agreed. Bell leased a helicopter
from a purchaser, outfitted it and furnished it to the Shah's wife for about
one week. The cost to Bell amounted to approximately $16,000.
In an unrelated incident, in 1974 personnel of Bell Helicopter International ( " B H I " ) , a subsidiary of Textron responsible for pilot and support
training programs in Iran, furnished a roundtrip airline ticket from Washington to Iran to an employee of the Iranian Embassy in Washington who was
in charge of approving visas for BHI employees. The employee demanded
the ticket in the course of what BHI personnel perceived as a deliberate

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slowdown by the Embassy in the processing of visa applications. The total
cost of the ticket was $1,480. The purchase was approved by a former
officer of BHI; no officer of Bell or Textron knew of it. N o other gratuities or
payments appear to have been furnished to the Embassy employee.
B. FURTHER I N F O R M A T I O N AS T O FOREIGN SALES OF DIVIS I O N S O T H E R T H A N BELL HELICOPTER
1.

Introduction

This Part of Volume Two provides further detail as to the findings
which are summarized in Volume One, Part III.C. with respect to international marketing activities of Textron divisions other than Bell.
2.

Fafnir

During the period 1972-1977, the Fafnir Division sold approximately
$3,160,000 of ball bearings to a government-controlled enterprise in Country P (the "Enterprise"). All of these sales were arranged by a businessman
in Country P (the " A g e n t " ) who arranged sales for Fafnir's domestic
headquarters as well as for the Fafnir divisions operating in the United
Kingdom and France. The Agent received approximately $465,000 in
commissions on sales to the Enterprise between 1972 and 1977.
Fafnir's business relationship with the Agent and the Agent's behavior
during that relationship were highly irregular. The special nature of the
business relationship is exemplified by the following factors:
1. The Agent's commission rates were unusually high, reaching a peak
of almost 18 percent on one sale, in contrast to Fafnir's standard commission
rate of 10 percent.
2. The Agent was the only Fafnir foreign sales representative allowed
to negotiate his commission rate on a case-by-case basis.
3. The size of certain orders secured by the Agent was unusually large.
(The size of one order was increased by the Agent by a factor of ten
following discussion of the commissions he might earn, and was later
trebled, resulting in an increase of the original order by a factor of thirty.)
4. The Agent required his commission payments to be deposited in a
bank account in Luxembourg and explicitly instructed Fafnir never to
contact him in Country P.

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5. The prices at which Fafnir's products were sold to the Enterprise in
transactions in which the Agent participated were above prevailing market
prices for competitive products.
6. When the Agent visited Fafnir's headquarters in the United States in
1976, he behaved in an unusual manner, refusing to sign the division's guest
book or have his picture taken. This experience gave rise to a handwritten
memorandum in June 1976 prepared by Mr. Hans W. Deutsch, Fafnir's
Vice President-International Operations, which stated that Fafnir would
accept no further orders from the Agent. Fafnir nevertheless continued for
more than six months to hold discussions with him regarding possible future
business relationships, and continued to process orders previously obtained
by the Agent and to pay him commissions for at least a year. European
employees of Fafnir have stated to the Committee's counsel that they never
received an instruction to stop accepting orders from the Agent.
The evidence is that the Agent was able to secure large orders at prices
above prevailing competitive prices because he was paying a portion of each
commission he earned on sales to the Enterprise to an official of the
government of Country P. A 1973 memorandum written by an employee of
Fafnir's facility in the United Kingdom stated that the Agent "freely admits
that his 'influence' is based upon payment to a high-ranking government
official of an amount equal to 4% of the value of orders over which [the
Agent] exercises control." The former Export Manager of Fafnir's United
States headquarters is shown as having received a copy of this memorandum. If there was in fact such an arrangement between the Agent and
the government official and the four percent rate applied to all orders, the
government official would have received approximately $126,400 in payments from the Agent's commissions from Fafnir.
Although it is clear from their statements to the Committee's counsel, as
well as from documents reviewed by the Committee, that several senior
employees of Fafnir's operations in Europe were aware of the manner in
which the orders of the Enterprise were secured, the Committee has not been
able to determine whether any executive officer at Fafnir's domestic
headquarters knew prior to 1976 that the Agent was almost certainly making
questionable payments to a government official.

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Employees of Fafnir's European operations stated that they regularly
discussed sales to Country P with Fafnir executives in the United States, who
acted as though they were aware of the questionable nature of the Agent's
activities. One of the European employees was in the United States at the
time of the Agent's visit in 1976 and indicates that at that time he discussed
the general nature of the Agent's activities and the possibility of questionable activities by the Agent, without specific knowledge or discussion of how
the Agent obtained orders, in meetings with executive officers of Fafnir,
including the President, Mr. Thomas E. Sherer, and Mr. Deutsch. However,
Mr. Sherer states that he has no recollection of meeting with the Agent in
1976 and was not otherwise aware of any questionable activity. Mr.
Deutsch and other Fafnir executive officers in the United States have stated
to the Committee that they had no suspicions about the arrangements with
the Agent prior to his 1976 visit to the United States, that even then they had
only suspicions, and that they first became aware of the 1973 memorandum
and other documents indicating the probability of questionable payments in
August 1978. By that time, Fafnir had ceased doing business with the
Agent, who had apparently lost his influence with the Enterprise. The last
commission payment to the Agent was made in November 1977.
The Committee has considered the many unusual aspects of Fafnir's
relationship with the Agent in conjunction with ( 1 ) the 1973 memorandum
which apparently was forwarded to Fafnir's domestic headquarters; ( 2 ) the
strange behavior of the Agent when he visited the United States in 1976, and
the memorandum in response thereto by the Vice President-International
Operations; and ( 3 ) the discussion which occurred in 1976 at the time of the
Agent's visit. On the basis of this evidence, the Committee has concluded
that Fafnir's executive officers were or should have been aware, by mid1976, of the questionable nature of the Agent's activities on behalf of Fafnir,
and should have brought the matter to the attention of the Textron
Corporate Office.
There is no evidence that any officer of Textron was aware of any aspect
of the arrangement with the Agent prior to commencement of the 1978
government investigations of Textron.

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3.

Shuron

The Shuron Division engaged in a number of overbilling transactions.
While this alone was not unusual prior to the Textron directive of May 12,
1977 prohibiting such transactions, in one instance a third party was used as
a subterfuge to avoid responsibility for overbillings.
From 1974 through 1976, Shuron overbilled two customers in Country
Q for eyeglass lenses. Shuron employees have stated to the Committee that
they believe that overbillings were requested to enable the customers to
comply with minimum pricing requirements imposed by their government
and, in all probability, to enable them to accumulate dollars outside Country
Q. Shuron accrued the excess billings in a credit account for the benefit of
the customers and remitted the overbilled amounts to recipients in the
United States and Switzerland at the direction of the customers. In August
1976 Mr. Miller issued a memorandum to all Textron divisions regarding
standards of conduct. A copy of this memorandum is Appendix I to this
Report. In September 1976 Shuron issued its own "Policy on Standards of
Conduct." Shuron's newly hired Manager-International Operations was
concerned that the overbilling practice might violate that Policy. He was
instructed by Shuron management to consult Shuron's outside legal counsel.
Counsel's oral advice was that the overbillings might cause an overstatement
of sales on Shuron's books, which would in turn be reflected in Shuron's
report to Textron, even though the overage would later be off-set by a
charge for the disbursement to the customers of the overbilled amount.
Senior management accordingly ordered the overbillings stopped for future
orders but allowed current orders to be filled under the overbilling
arrangement.
Shuron management personnel, in conjunction with the new ManagerInternational Operations, then attempted to devise a technique which would
avoid Shuron's involvement in overbilling but would enable it to continue to
accommodate its Country Q customers. The technique which they developed involved the sale of lenses at Shuron's standard list price to a United
States-based export firm which would then resell to the customers, overbilling the customers by agreed amounts. This technique was discussed with
Shuron's outside counsel who understood that Shuron's role in the transaction would cease after sale to the exporter at standard prices. Counsel gave
written advice to Shuron that this arrangement would not violate United

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States law and would not be " 'questionable' conduct (on the part of
Shuron) which might require Textron to disclose the arrangement to the
Securities and Exchange Commission." The new technique was discussed
with and approved by the then senior management of Shuron but was not
disclosed in any formal communication to the Textron Corporate Office.
The Corporate Office Legal Department was not informed of the advice of
Shuron's counsel. There is a conflict in testimony as to whether the Textron
Corporate Office was informally advised of use of the technique prior to
1978 when it was disclosed in the course of responding to government
investigations. The Manager-International Operations (who is no longer
employed by Shuron) states that in the spring of 1977 in conversation with
Mr. Egil G. Ruud, Textron's Group Vice President responsible for Shuron,
Mr. Ruud denies any such
he informed the latter of the technique.
conversation.
In 1977 the Manager-International Operations arranged for Shuron to
sell lenses to a small private export company for resale to Shuron customers
in Country Q. The president of the export company was also an officer of a
freight forwarder which the international manager hoped to use for Shuron
international sales. The Shuron manager employed afictitiousname for the
export company president because he believed that Shuron's top management might disapprove the use of the freight forwarding company if they
were aware of the connection between the two companies.
At the direction of the Manager-International Operations, the Manager's assistant prepared pro forma invoices on stationery bearing the
letterhead of the export company. These pro forma invoices were to be used
by the customers to obtain import licenses. The assistant has told the
Committee that the Manager instructed her to sign the pro forma invoices
with the fictitious name of the president of the export company. The
Manager has stated that Shuron prepared the pro forma invoices for the
export company because Shuron had greater familiarity with its products
and prices than the export company. Under instructions from the Manager,
the assistant also prepared a letter from the Manager to a bank in Country Q
which incorrectly stated that Shuron had discontinued the issuance of export
price lists and that prices in the future would be as indicated on pro forma
invoices. This letter was requested of Shuron by a customer in Country Q.

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Although several pro forma invoices were sent by Shuron, and perhaps
by the export company, to Country Q customers from March through early
May 1977, the documents examined by the Committee indicate that only
one order for Shuron products received in late 1976 was handled through
the export company. This order was split into several shipments and the
export company was invoiced by Shuron in May 1977 at correct prices.
Shuron shipped the order directly to the customer in Country Q according to
shipping instructions received from the export company.
Documents
examined by the Committee indicate that the customer paid the export
company the overbilled prices as stated on the pro forma invoices and that
the export company refunded to the customer the difference between the
standard Shuron price and the price paid by the customer, less a commission
of four percent of such difference retained by the export company.
When Shuron's senior executives received Textron's May 12, 1977
directive which prohibited overbilling practices, they considered Shuron to
be in compliance with its mandate since all Shuron invoices stated correct
prices. No additional sales were in fact made to the Country Q customers,
or to any other customer, through the export company.
The Manager-International Operations left Shuron's employ in June
1977. Senior executives who were employed in 1977 have since left Shuron's
employ except Mr. John V. Quealy, the Vice President-Marketing, who has
told the Committee that he had no knowledge of the preparation of pro
forma invoices for the export company.
The former senior Shuron
executives have also indicated that, although they were aware of the
procedure of using an export company to make sales where overbillings
were requested, they were not aware of the Manager's preparation of any
pro forma invoices for the export company.
4.

Bell Aerospace

Over a period of more than a year and a half, Bell Aerospace continued
negotiations with one of its agents for a proposed sale in Country J under
circumstances where there were indications that a questionable payment was
contemplated. N o sale was made, and no questionable payment was made.
Prior to 1975 Bell Aerospace did not have a representative for sales of
its hovercraft in Country J. During the previous year, "Representative,"
which during 1975 began to act as the Bell Aerospace representative for

69-845 0 - 8 1

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48
several countries in a part of the world distant from Country J, sought to
persuade Bell Aerospace officials of the potential for hovercraft sales in
Country J.
On April 30, 1975 Representative's agreement with Bell
Aerospace was amended to include Country J. *No sales were made in
Country J, and in February 1977 the agreement was terminated.
In late 1976 Representative's Country J subagent, Mr. AB, stated to a
Bell Aerospace employee that the president of Representative had attempted to bribe an official of Country J in connection with a proposal on
behalf of Bell Aerospace. In view of this assertion and other aspects of the
relationship between Bell Aerospace and Representative, the Committee
inquired carefully into the matter. Its findings are outlined below:
(a) During the period when Representative was attempting to persuade Bell Aerospace to include Country J in its territory, its president made
several references in letters to Bell Aerospace personnel to the need to make
payments to others in order to consummate sales in that country. He never
identified the proposed recipients of such payments and was never asked
about them by Bell Aerospace officials. Immediately prior to the amendment of the contract with Representative in April 1975, the president of
Representative advised that "we might have to. add on to total list price to
cover others" and, in a separate letter, that "undoubtedly there will be an
add-on for [Country J] group." Shortly after the amendment, the president
stated that he would need " a 15% add-on for various people responsible,"
that Representative would "transfer to wherever they instruct to so you
people won't be involved in {transferring directly for them" and that "this
must be kept confidential."
Immediately following this last communication, Bell Aerospace agreed
to raise the commission rate to be paid on the sale of the first two hovercraft
in Country J from 6 percent to 10 percent and that on spare parts from 10
percent to 15 percent and offered Representative an unusual commission of
15 percent on amounts expended for "operations, maintenance and training" ( " O M & T " ) . After a period of approximately five months (with no
sales) the commission rate on spare parts and OM&T was reduced from 15
percent to 10 percent. In December 1975 a new agreement was executed
with Representative, eliminating the commissions on OM&T and fixing the
commission rate on the first five hovercraft at 10 percent and on the next five
hovercraft at 8 percent. In addition, signed statements were obtained from

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the president of Representative and Mr. AB to the effect that no commissions would "be paid by Representative or any party acting on its behalf to
any government official or employee of the Government of [Country J]."
( b ) Mr. Robert S. Ames, the Group Vice President of Textron with
responsibility for Bell Aerospace, and Textron's' Legal Department were
consulted prior to each change in the commission structure. Mr. Miller and
other Textron officers participated in a discussion which took place prior to
the December 1975 change, and that meeting led to the requirement that the
statements described above be obtained. In connection with these discussions, Textron's officers have stated that Bell Aerospace personnel did not
bring to their attention any of the communications (referred to in (a)
above) from the president of Representative about payments to unidentified
other persons. The briefing memorandum prepared for the December 1975
meeting does not reflect any such statements or any other implication of
impropriety.
(c) When the first direct allegation of an attempted questionable
payment by the president of Representative was made by Mr. AB in late
1976, Bell Aerospace personnel stated that they did not believe it. Mr. AB
was at the time attempting to displace Representative as the Country J
representative for Bell Aerospace and had been engaged in a continuous
effort to discredit Representative's president. Mr. AB never offered any
substantiation for his allegation, and efforts by a Bell Aerospace official to
obtain information on the subject from the American Embassy in Country J
were unproductive. Shortly after Mr. AB made his allegation, Representative was nevertheless terminated. Mr. AB was not engaged to replace
Representative, and no sales of hovercraft in Country J were made.
The Committee has concluded that ( 1 ) the continued dealings by Bell
Aerospace with Representative in the face of its president's written statements about potential payments to third parties without any inquiry to
determine if questionable payments were intended beyond obtaining the
statements referred to above, and ( 2 ) the raising of Representative's
commission rate immediately following its expressed need for substantial
"add-ons", were exercises of poor judgment on the part of the responsible
officers of Bell Aerospace. It was likewise an exercise of poor judgment, in
the Committee's view, for Bell Aerospace officials to fail to bring the nature

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of the communications of Representative's president squarely to the attention of Textron officers during the several occasions when Representative's
commissions were discussed with them.
C. SPECIFIC FINDINGS AS T O A C C O M M O D A T I O N
A N D OVERBILLINGS A S T O FOREIGN SALES
I.

PAYMENTS

Introduction

Accommodation payments and overbilling practices were apparently
not unusual in American business during the period under review. However,
because they were prohibited by Textron directive in May 1977 and are thus
against Textron policy irrespective of their legality, and because the
Committee had evidence at the outset of its investigation that they had in
some cases continued after the 1977 prohibition, the Committee made a
detailed inquiry into accommodation payment and overbilling practices
during the period under review. Particular emphasis was placed on practices
after the May 1977 directive.
As used in this Report, the term "accommodation payment" refers to
payment of amounts owed by a Textron division to any foreign representative or dealer where payment is made ( 1 ) to any person in cash, or ( 2 ) by
check or other method of financial transfer payable to a person or entity
other than the company name of the representative, or ( 3 ) by check payable
to the company name of the representative but sent to a location other than
the representative's office address, or that of the representative's bank, in the
representative's home office country or the country where services which
generated a commission from a Textron division were performed.
The concept of "accommodation payment" can also include any
payment that is not made to the representative (or to his bank) in the
foreign country where he performed services for a Textron division. Thus,
delivery of a check payable to the company name of the representative to
the representative's principal at the United States office of a Textron division
would involve the making of an accommodation payment.
Such an
expansive definition of "accommodation payment" seems to have been
intended by Mr.
Miller's directive of May 12, 1977 proscribing such
payments.
The Committee, however, determined not to include such
payments in its definition since to do so would have greatly complicated, if

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not made impossible, a reasonably accurate analysis of the dollar amounts
of accommodation payments at the Textron divisions during the period
under review.
The term "overbilling" as used in this Report refers to the practice
whereby a company invoices a purchaser of its products in an amount
exceeding the true amount owed by the purchaser, with the understanding
that the amount overbilled will be applied to or for the account of the
purchaser.
Overbilling and related practices as to domestic sales of Textron
divisions are discussed in Part C.3. below.
It appears that Textron officers first became aware of significant
accommodation payment and overbilling practices as to export sales as a
result of the 1976 audit by Arthur Young. Prior to this audit, knowledge of
such practices by Textron officers was limited to isolated instances in which it
was discovered that a newly acquired division of Textron had been making
accommodation payments and/or engaging in overbillings prior to acquisition. In those cases, such practices appear to have been ended shortly after
their discovery.
The 1976 audit disclosed that Sheaffer Eaton and Talon S.A., the Swiss
branch of the Talon Division, had made accommodation payments and
overbilled a number of foreign customers. The matter was brought to the
attention of Textron's Audit Committee at its February 1977 meeting. An
investigation by Textron personnel into both divisions' dealings with foreign
customers was ordered by Mr. Ronald Van Brocklyn, Textron's Vice
President and Controller, and Mr. Thomas D. Soutter, Textron's Vice
President and General Counsel. The inquiry covered the five-year period
ending January 1,1977 and, in some cases, extended to years prior to 1972.
The report of this investigation led Mr. Miller to issue the Textron
policy directive dated May 12, 1977 to all division presidents (Appendix F)
which stated flatly that accommodation payments and overbillings are

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unacceptable. The issuance of this policy directive succeeded in ending
most, but certainly not all, accommodation payment and overbilling practices.
2.

Accommodation Payments

N o evidence was found indicating that accommodation payments were
made at nine Textron divisions. Fourteen divisions, however, did make
accommodation payments during the period 1971 through 1978 in an
approximate aggregate amount of $17,405,000*. Approximate amounts for
each of the fourteen divisions are given below:
Division

Bell Aerospace
Bell
Bostitch
Bridgeport Machines
(Adcock Shipley
Division)
Fafnir
Homelite
Hydraulic Research
Sheaffer Eaton

Amount

77,000
13,012,000
53,000
320,000

1,321,000
61,000
64,000
679,000

Shuron

182,000

Spencer Kellogg

237,000

* Portions of the accommodation payments reflected in thisfigurewere made
in foreign currencies such as Belgian Francs and Deutsche Marks. Conversions into
United States Dollars were made using the foreign exchange rates prevailing at
noon on January 31,1977. Data obtained from Textron employees may have been
based on several other conversion dates.
Dollar amounts could not be ascertained in all accommodation payment
situations due to incomplete records and the departure from Textron of employees
who were knowledgeable with respect to individual accommodation payment
situations. The Committee does not consider these unascertained amounts to be
significant.

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Division

Amount

Sprague Meter
73,000
Talon
456,000*
Waterbury Farrel
619,000
WECO
251,000
All accommodation payments made by the divisions appear to have
been made at the request of their foreign representatives, dealers or
customers. The greatest number of such requests appeared to have come
from representatives located in Brazil, Iran, Chile, Iraq, Lebanon, Libya and
Italy.
The Committee's study showed that recipients of accommodation
payments fell into several categories. Many accommodation payments were
made to bank accounts held under the company name of a foreign
representative or under the name of the principal or owner of the representative. Such accounts were frequently located in the United States although
payments were also made to bank accounts in Switzerland as well as other
countries. In some cases, a check would be made payable directly to the
principal or owner of a foreign representative. Individuals who were
recipients of accommodation payments were found, in some instances, to be
relatives of the owners of foreign representatives. Payments were also made
to third party individuals whose identity and/or relationship to the foreign
representatives could not be ascertained.
Accommodation payments were also made to freight forwarders employed by foreign representatives, to creditors of foreign representatives and
to foreign representatives' affiliated companies or branch offices located in
countries distant from the representatives' principal offices.
A careful examination was made to determine, to the extent feasible,
the approximate dollar amounts and approximate dates of accommodation
payments made after the issuance of the Textron directive on May 12,1977.
The approximate total appears to be $2,566,000**. Approximate totals by
division are set forth below together with the approximate date on which
such payments ceased to be made:
* This figure was derived in part from overbilled amounts which supplied the
credit balances from which accommodation payments were made. Swiss secrecy
laws prevented a determination of whether all overbilled amounts were used to
make accommodation payments at Talon S.A. (Mendrisio, Switzerland). Accordingly, this amount may be overstated.
** Dollar amounts could not be ascertained in all identified instances of such
payments after May 12,1977. The Committee does not consider these unascertained
amounts to be significant.

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Division

Bell Aerospace
Bell
Bridgeport Machines
Hydraulic Research..
Sheaffer Eaton
Shuron
Spencer Kellogg
Sprague Meter
Talon
Waterbury Farrel
WECO

Amount

10,000

2,287,000
4,000
27,000
45,000
31,000
25,000
30,000
3,000
95,000
9,000

Payments
Ceased

June 1977
September 1978
October 1977
December 1978
March 1978
December 1977
August 1977
November 1977
November 1977
May 1978
January 1978

Why did payments continue following a reasonable period for dissemination of the directive? In most instances, the reason appears to be that
the division presidents who received the directive, or members of senior
management to whom copies were sent (and who may have been unaware
that accommodation payments were a regular practice in their divisions),
restricted its circulation to a few senior people. In such cases, the statement
of policy did not reach lower-level employees involved in international
marketing, accounts payable, record keeping and check writing who actually
effected such payments. Senior management in these divisions can be
faulted for failing to make adequate inquiries within their divisions to
ascertain the facts. In a few instances, management did make inquiries into
accommodation payments from commissions payable accounts but failed to
extend the inquiry into other areas such as requests for accommodation
payments by suppliers of goods to the division.
Further, until government investigators focused attention on the problem in early 1978, the Textron Corporate Office made no systematic effort to
determine whether the policy against accommodation payments was being
observed by the divisions. The Corporate Office too readily assumed that if
the policy was issued it would be implemented.

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Textron employees advised the Committee of a number of reasons for
accommodation payments that had been expressed by Textron's customers.
Where the request was for payment to the United States bank account of the
representative, the stated reason was often to establish funds in the United
States which could be used to defray expenses of future visits to the United
States by the principal, owner or employees of the representative. Foreign
currency restrictions, it was stated, frequently prevented such persons from
taking sufficient funds out of their respective countries to pay for trips to the
United States. Accommodation payments were also made at the request of
representatives who were concerned about political instability in their home
countries, as for example during certain periods in Lebanon and Chile. On
such occasions, and on others, it was asserted that mail deliveries in the
home country were unreliable and the checks were frequently lost. Accommodation payments to the representatives' creditors in the United States or
in foreign countries were often requested as a matter of convenience to the
representative, who might spend substantial time away from his home
country.
On occasion, it was known to Textron employees that the
representative intended to use the monies paid to him in the United States to
make investments here or in other stable countries.
The Committee has concluded tiiat the practice of accommodation
payments has now ended at all Textron divisions.
3.

Overbillings

The Committee found no evidence of overbilling practices at most
Textron divisions; however, overbillings totalling approximately $1,358,000
appear to have been effected at seven Textron divisions during the period
1971 through 1978.* By division, the approximate amounts were:
* Portions of the overbillings reflected in this figure were made in foreign
currencies such as Belgian Francs and Deutsche Marks. Conversions into United
States Dollars were made using the foreign exchange rates prevailing at noon on
January 31,1977. Data obtained from Textron employees may have been based on
several other conversion dates.
Dollar amounts could not be ascertained in all overbilling situations due to
incomplete records and the departure from Textron of employees who were
knowledgeable with respect to individual overbilling situations. In addition, the
structures of some transactions made the ascertainment of overbillings extremely
difficult.

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Division

Fafnir

Amount

$276,000

Gorham.

10,000

Homelite

100,000

Sheaffer Eaton

255,000

Shuron

151,000

Talon..

543,000

WECO

23,000

It appears that all overbillings were made at the request of foreign
customers or representatives.
The May 12, 1977 directive succeeded in ending most overbilling
practices at Textron divisions. Only approximately $10,000 was overbilled
after distribution of the directive.
Textron employees indicated that they had been given the following
reasons for overbilling requests by foreign representatives: In most instances,
the reason was stated to be a desire on the part of representatives to
establish credit balances in the United States which could be used to defray
expenses of visits to the United States by the owner or employees of the
foreign representative. In some instances, foreign representatives indicated
that their desire for a credit balance on the books of a Textron division was
prompted by political instability in their own countries. Frequently, foreign
representatives requested that accommodation payments be made from the
credit balances established as a result of overbillings.
In isolated instances, foreign representatives requested overbillings
because of special import restrictions in their native countries. For example,
a foreign representative located in Japan requested that it be charged for
items that were provided by the Textron division at no charge. This request
was made because, according to the representative, Japanese law required
that all shipments into Japan be accompanied by an invoice reflecting the
value of the shipment. In another situation, two South American distributors requested overbillings to avoid paying a 100 percent import duty
which was imposed as a penalty on all goods whose prices fell below a legal
minimum price for imports.

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D. A D D I T I O N A L I N F O R M A T I O N W I T H RESPECT T O D O M E S T I C
OPERATIONS
1.

Marketing To The United States Government: Hospitality
Expenses

During the period under review, Armed Services Procurement Regulations prohibited government contractors from charging hospitality expenses against government contracts. For this reason, special accounts for
the expenses which were not to be charged to contracts were created in the
1960's at Bell (Account 7122) and Bell Aerospace (Account 429) against
which D O D hospitality expenses were charged. These special accounts were
also occasionally used for expense reimbursement for entertainment of
foreign customers, including representatives of foreign governments. The
establishment of special accounts to assure segregation of expenses not
chargeable to contracts was perfectly appropriate. However, in order to
avoid possible embarrassment to recipients of such hospitality, no documentation or substantiation of expenses charged against these special accounts
was retained, contrary to the procedures established for other expense
accounts maintained by Bell and Bell Aerospace. This is a matter of concern
for the Board of Directors.
At Bell, after a supervisor approved an expense report with receipts and
documentation of the names of the people entertained and the nature of the
entertainment, the receipts and documentation were discarded prior to
forwarding the expense report to the accounting department.
At Bell
Aerospace, the receipts and documentation were returned for retention to
the employee submitting the expense report.
Officers and employees at Bell and Bell Aerospace indicated awareness
of directives issued by the D O D to its personnel prohibiting the acceptance
of "gratuities" and "entertainment" from government contractors. However, these officers and employees explained that ( 1 ) such directives were
universally ignored by American companies engaged in government contracts, ( 2 ) the directives were ambiguous with respect to whether they
precluded such hospitality items as ordinary lunches and dinners, ( 3 ) the
directives were addressed to D O D personnel and not to government
contractors, and ( 4 ) D O D personnel frequently acted as though they
expected not to have to pick up the tab for lunch or dinner.
In his testimony before the Congressional Joint Committee on Defense
Production in 1976, former Deputy Secretary of Defense William Clements

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conceded that DOD regulations had not been adequately circulated to DOD
employees and that the regulations were ambiguous. In an effort to more
effectively enforce these regulations, Mr. Clements wrote to government
contractors, including Textron, asking their cooperation in complying with
the spirit of the DOD directives. However, the directives continued to be
ambiguous with respect to the propriety of providing business lunches and
dinners. Accordingly, such hospitality continued to be provided by Bell and
Bell Aerospace. The Committee cannot refrain from noting the difficulties
this ambiguity presented for those American defense contractors who sought
to honor the DOD regulations.
The Committee found that unsubstantiated expenses charged against
the special account at Bell Aerospace from 1971 through 1977 ranged from
approximately $39,000 to approximately $60,000 per year. At Bell these
amounts ranged from approximately $33,000 to approximately $61,000 per
year, from 1971 through 1975. The amounts decreased dramatically at Bell to
approximately $8,000 and $2,000 in 1976 and 1977, respectively, partly as
the result of an instruction by Mr. Atkins to curtail such expenditures
following Mr. Clements' statements. In 1978 Textron instructed Bell and
Bell Aerospace to cease providing business meals and any other hospitality
not clearly permitted by DOD regulations to DOD personnel, and the
special accounts at Bell and Bell Aerospace were closed.
Counsel for the Committee reviewed at random a number of monthly
reimbursements from these special accounts and did not discover any
unreasonably large amounts which might indicate questionable payments.
Based upon the degree of hospitality that was provided to DOD personnel,
the Committee has determined that it was not of a magnitude that would
evince an intent to influence DOD personnel to give favorable treatment to
Bell or Bell Aerospace.
Inasmuch as the tax treatment of the amounts charged to the special
accounts at Bell and Bell Aerospace is covered in the currently pending IRS
investigation of Textron's 1973 tax returns, the Committee has not treated
that subject here. The Committee has noted, however, that between 1968
and 1974, Textron's Tax Department prepared annual memoranda discussing tax audit adjustments and the reasons therefor. These memoranda
were distributed to certain Textron officers, including Messrs. Miller and
Collinson in most instances, and to Textron's outside tax counsel and Arthur
Young. These memoranda indicated that certain expenses associated with

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hospitality for government employees had been disallowed as tax deductions
due to lack of substantiation.
Mr. Miller and Mr. Collinson have told the Committee that they were
generally aware of the practice of not retaining full substantiation for such
hospitality expenses, but that they did not have specific discussions on the
subject. Both noted that the amounts involved were relatively small.
2.

Findings As To Domestic Commercial Marketing Practices
Generally

The Committee found relatively few marketing practices as to domestic
commercial customers that violated Textron policy or were otherwise
questionable.
(a)

Transactions Inconsistent With Textron Policy Or Otherwise
Questionable

Since approximately 1965 the Talon Division, at the request of one of its
customers, has regularly overbilled franchisees and branch stores of that
customer in small amounts for supplies ordered directly by such franchisees
and branch stores. Under this arrangement, the franchisees and branch
stores paid the customer directly, and the division billed and received
payment from the customer at the correct prices. It is estimated that the
overbillings did not exceed $250,000 in any one year.
On occasion, a buyer for a customer of a manufacturing firm lacks the
authority to purchase items exceeding a given spending limit. In such cases,
it is not unusual for the buyer to request that, in lieu of a single invoice for
the price of an item (which would exceed his spending limit), the
manufacturer prepare several invoices aggregating the full purchase price,
each of which is within the buyer's spending limit. The Shuron and Camcar
Divisions engaged in this practice, each with respect to a single customer. In
one of these instances, a single order for a facility of the United States Navy
was involved.
Several divisions provided important customers with entertainment
which exceeded Textron guidelines for "normal business meals" and with
occasional gifts which exceeded the $25 gift limit set by Textron guidelines.
Prior to the end of 1974, four divisions, Burkart Randall, C W C Castings,
Fafnir and Sprague Meter, financed occasional vacation trips or outings
within the United States and to Bermuda for division customers. Three
divisions, C W C Castings, Fafnir and Talon, sponsored outings for custom-

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ers* employees after 1974. CWC Castings also maintained a lodge in
Northern Michigan where customers were entertained. The lodge was
closed in 1974. The evidence is that the aggregate cost of such activities did
not exceed $20,000 per year per division and that the foregoing practices
were terminated by mid-1978.
(b) Other Sales Practices Noted By The Committee
The Committee is advised that a common practice exists among
domestic retail chain stores whereby the chain's regional or home office
requests a supplier to overbill the chain's local stores and remit the
overbilled amount to the regional or home office for advertising or related
purposes. One effect, and perhaps one purpose, of the practice appears to be
to conceal from the local store the true cost of merchandise ordered, thereby
inhibiting price reductions by the local store.*
The Talon Division overbilled Sears, Roebuck & Co. in this manner
until the end of 1978 and continues to overbill another customer in this
manner. The overbilled amount is recorded as a receivable each month (or
quarter); during the following month (or quarter), a refund is given to the
home office of the customer, and this refund is credited to accounts
receivable. Thus, the net sales for the division are correct except for small
timing variations which result from the fact that a month or quarter elapses
before the receivables are credited with current overbilled amounts.
Three other divisions, Spencer Kellogg, Sheaffer Eaton and Gorham,
engaged in the following variations of this practice at the request of domestic
chain store customers:
(1) One division overcharged the customer at a stipulated rate, placed
the overbilled amount in a reserve account, and periodically refunded the
overcharges to the customer. An accounting entry was initially made to
accounts receivable at the overbilled price. The overbilled amount was then
entered as "promotional expenses," and accounts receivable were credited
with this liability. Thus, the division's net sales records reflected the correct
sales price.
( 2 ) One division gave a so-called "warehouse allowance" to the local
store to induce the local store to make its purchases in bulk. At the request
of the local store's home office, the division withheld one percent of this
allowance (which would otherwise have been credited to the local store)
and paid it to the home office.
* Reference is made to an article describing this practice with respect to Sears,
Roebuck & Co. which appeared in The Wall Street Journal for December 27, 1978.

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( 3 ) One division sent the customer, at the request of its buyer, invoices
which showed an inflated per item price together with a "discount" for
advertising equal to the inflated amount. The net invoice charge did not
involve any overbilling. This practice enabled the buyer to accumulate an
advertising "budget" within his department.
The foregoing procedures do not involve the potential for evasion by
Textron's customers of applicable tax or currency control laws.
3.

"Push Money" Payments

"Push money" refers to several types of incentive payments commonly
offered by a manufacturer or distributor to a retailer or his employees to
encourage sales of the manufacturer's or distributor's products.
Seven divisions of Textron had so-called "push money" payment
programs from 1971 through 1978. In late 1977 the SEC's initial inquiry into
Textron's activities evidenced interest in this practice; accordingly, the
Committee requested Textron's Legal Department to look into it carefully.
The Legal Department has determined that none of these programs
constituted unfair trade practices under Federal Trade Commission regulations or was otherwise unlawful, and the Committee and its counsel, after
review by counsel of materials prepared for the Committee by Textron's
Legal Department, are satisfied that this conclusion is correct.

E. ADDITIONAL I N F O R M A T I O N AS T O POLITICAL
CONTRIBUTIONS
The following discussion sets forth detailed information as to the small
amount ($1,175) of political contributions found by the Committee to have
been made during the period under review in violation of Textron policy.
Information is also included as to two contributions, one by the C W C
Castings Division and one by the Valentine Holdings Division, which were
not political contributions of the type prohibited by Textron policy and
regulated by law.
From 1975 through 1977, the Gorham Division reimbursed several
officers and employees who had made a total of four political contributions
aggregating $500 to state and local officials of a northeastern state and of

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$100 to one recipient who could not be identified by the Committee, but
who the available evidence indicates was probably also a local or state
official. The requisitions for reimbursement were signed by a Vice President
of Gorham and approved by another Vice President. The contributions
were made by the purchase of tickets for political dinners or cocktail parties
at a price of $100 to $200 per ticket. Each contribution was charged on
Gorham's books as a "confidential welfare distribution." All of the contributions to state and local officials were contrary to local law, because the
recipients were not informed as to the true contributor. These contributions
did not violate federal law.
In 1974 an officer of the Fafnir Division made a $100 political
contribution to the reelection campaign of a United States Senator. This
officer was reimbursed by Fafnir through the "miscellaneous" category of a
travel expense form. The contribution was made at the request of the then
President of Fafnir. The contribution was unlawful under applicable federal
law, but did not violate state law.
The National Motor Castings Operations of the CWC Castings Division
made a $100 contribution in 1976 to the Industrial Michigan Political Action
Committee, a trade association group which includes a political action
committee. Although the President of the division has no recollection of this
contribution, the manager of the National Motor Castings Operations stated
that he received the division President's approval of the contribution. This
contribution was in fact used by the recipient for trade association purposes
and was not deposited in the political action committee account of the
recipient. Therefore, the contribution was not a political contribution and
was not illegal under applicable state or federal laws.
Bell Aerospace and Bell each had a political action committee during
1971 and for approximately 10 months in 1972. These political action
committees were funded by voluntary payroll deductions from certain
executives of the divisions. The Federal Election Campaign Act of 1971
became effective in April 1972 and set forth reporting and other requirements for political action committees.
On March 28, 1972, Textron issued guidelines concerning political
activities by Textron and its employees.
These guidelines stated that
"payroll deduction plans should not be used for political fundraising." Thus,

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apparently because of the new law and the Textron guidelines, both
divisions dissolved their political action committees in late 1972.
Shortly thereafter, several employees of Bell Aerospace formed their
own political action committee with membership open to all division
employees and to non-employees. Contributions were made directly by
division employees and others, and the division did not make any payroll
deductions for such contributions. This political action committee was
dissolved in March 1975.
Although the Committee did not conduct an exhaustive examination of
these political action committees, the Committee did question employees at
Bell and Bell Aerospace as to their operation and made a general review of
available records. The Committee found no evidence that Textron violated
any federal laws in connection with the operation of the political action
committees.
From 1971 through 1973, a Vice President of Bell made three contributions totalling $175 to a local political citizens association in a southwestern
state. At the time the contributions were made, the officer was told that the
recipient was a charitable, not a political organization. Later the officer
learned that the recipient made political contributions with its funds. In 1972
the officer also made a $100 contribution to the political campaign of a
gubernatorial candidate in the southwestern state. These contributions were
made in the officer's name, and he was thereafter reimbursed by Bell.
Another Bell employee authorized the reimbursement of these contributions.
The contributions were to local and state candidates and thus did not violate
federal law. The $100 contribution did violate applicable state laws, and the
other contributions may have done so.
In 1974 the Talon Division of Textron Canada made $100 contributions
to each of two Canadian political parties. These contributions were legal
under Canadian law and were approved by an officer of the division prior to
his receipt of the 1974 Textron Management Guide containing the directive
against corporate political contributions.
The Valentine Holdings Division made a $400 contribution in 1976 for a
dinner given by the mayor of an Australian city to honor a visiting
government official. This contribution was authorized by a senior officer of
the division. The division's Group Director of Finance has informed the

69-845

0-81 -

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Committee that the contribution was for a civic rather than a political affair.
The division and the Committee have been advised by local counsel that,
even if the contribution were for a political function, the contribution would
have been lawful under Australian law.
The Committee saw no evidence of any pattern or practice with respect
to the political contributions it found, nor did the Committee find any
evidence of any fund or off-book account having been maintained to
facilitate the making of such contributions. To the contrary, the political
contributions that were made appear to have been relatively isolated
instances.
The Committee learned that, unlike many United States corporations,
Textron refused to make a political contribution to the 1972 presidential
election campaign even though Textron's then Chairman was personally and
insistently solicited for such a contribution by a high-ranking campaign
official.
F. ADDITIONAL I N F O R M A T I O N AS T O M I S C E L L A N E O U S M A T TERS E X A M I N E D BY T H E C O M M I T T E E
1.

The Sixty Trust: Sale Of Property In Country X

As a result of information which came to the Committee's attention
from questionnaire responses and preliminary interviews, the Committee
conducted a detailed inquiry into the circumstances of employment by the
Textron employee pension trust, the Sixty Trust (the "Trust"), of a law firm
in Country X to assist in negotiations for the sale of the Trust's property
located in Country X to the government of that country.
In the course of its inquiry into this sale transaction, the Committee and
its counsel (1) reviewed all correspondence between Textron employees
acting on behalf of the Trust, the law firm in Country X and an American
lawyer who was retained to assist with the matter (and who recommended
the law firm); ( 2 ) interviewed all Textron employees who were significantly
involved with the negotiations for sale of the property or the Trust's
relationship with the law firm; ( 3 ) interviewed the American lawyer referred
to above; and ( 4 ) interviewed Country X's Ambassador to the United
States.

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In the 1950's, the Trust purchased a major piece of improved property
in the downtown area of the capital city of Country X (the "Property").
The Property was held by a corporation incorporated in Country X
("Property Company"), all of the stock of which was owned by the Trust.
By 1970 the Property was being operated by the Trust at a substantial loss.
During the period 1950-1970, the Trust was represented in Country X by a
well-established local law firm which had a good working relationship with
the colonial government.
By 1970 Country X received a measure of
independence, and a parliamentary government had assumed power. In
1973 Country X became an independent nation.
In March 1971, after terminating business operations at the Property, the
Textron officers responsible for management of the Trust considered various
options including sale of the Property in its improved condition and
demolition of the improvements and sale of the underlying land. A sale of
the property for $3 million was negotiated; however, the prospective buyer
canceled the transaction prior to closing.
Senior management officials at Textron knew of an American lawyer
who had close personal contacts with members of the new government of
Country X. The Trust retained him for consultation. The lawyer advised
that any plans for the Property should be discussed with the government
because of the Property's prime location and its status as something of a
historical landmark. He also advised that representation by the Trust's
existing law firm, with its close ties to the former colonial government, might
be impolitic.
After visits to Country X by a senior Textron executive, it was
determined to proceed with demolition of the improvements on the Property
and construction of a shopping area. However, by late 1971 it was clear that
the government of Country X was reluctant to give the necessary approvals
for demolition. The American lawyer was again consulted. On his advice, a
new firm of lawyers was retained in Country X. The founding partner of this
firm, listed as "inactive" at the time of the firm's retention and throughout its
representation of the Trust, was and is a high government official of Country
X. He became Minister of Finance shortly after the sale of the Property was
agreed to but before the transfer of title occurred. The active partner of the
firm was a respected lawyer in Country X. The inactive partner's spouse,
although not then admitted to the Bar, was active as a senior clerk in the
administration of the firm's affairs.

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The newly retained law firm represented the Trust in negotiations with
the government of Country X, which resulted in the execution in December
1972 of an agreement by the government to purchase the Property for $2
million. Negotiations were carried out primarily with the Ministry of
Finance and the Attorney General. At the time, the Finance Minister was
responsible to the government of Country X but the Attorney General was
still an appointee of the colonial government.
Although there were negotiations as to the amount of the down
payment, there was no dispute as to the $2 million price initially offered by
Textron. Under the final agreement, the government delivered to the Trust's
subsidiary, Property Company, a down payment of $375,000 and a 10-year
mortgage note secured by the Property for the balance of the purchase price.
In January 1973 the law firm in Country X submitted a bill of $65,000
for its services in connection with the sale negotiations. The Textron
employee directly responsible for those negotiations thought the bill was
excessive and proposed, as an alternative, that the law firm be paid
approximately $28,000 at once with a $52,000 balance to be paid in monthly
installments over the next ten years and five months. Evidence obtained by
the Committee as to normal legal fees in Country X for such a transaction
indicates that the fee was not excessive. There is evidence, however, from
correspondence and memoranda, that the Textron employee was of the view
that a deferred fee arrangement would help assure prompt payment by the
government of the mortgage installments.
After initially rejecting the proposal, and specifically objecting to any
assumption that it should be a guarantor of the government payments, the
law firm agreed to accept immediate payment of $60,000 in legal fees plus a
retainer of $4,000 per year for assistance in maintaining corporate records
and filing required returns for Property Company and for any needed
assistance with respect to the note payments. The Committee found no
evidence that there was ever any default, or threat of default, with respect to
the note payments. The Committee found no evidence that approvals or
similar governmental actions, other than routine exchange control licenses,
were required in order to repatriate the note payments to the Trust.
It is clear, however, from correspondence between Textron employees
and the American lawyer that both perceived that the close relationship
between the law firm and the high government official of Country X was

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helpful at least in a general, nonspecific way and further perceived that no
action should be taken that would antagonize the law firm. The inactive
partner in the firm was specifically referred to in one letter as having the
ability to " c o n t r o l . . . disbursements" in his capacity as Minister of Finance.
In July 1974 the American lawyer negotiated an agreement with the law
firm for discontinuance of the annual retainer payments from the Trust. No
further annual payments were made, and the law firm has continued to
handle the corporate record-keeping and reporting requirements for Property Company on a basis of being reimbursed for its out-of-pocket expenses
only.
Payments on the mortgage note from the government of Country X are
current.
The Property is currently being utilized for park and government office
uses, although the main building on the Property remains vacant. The
Committee is advised by Country X's Ambassador to the United States that
the government of Country X has made purchases of other, similar
properties.
2.

A Charitable Contribution To A Medical Foundation

In April 1974 at the request of Bell, the Textron Charitable Trust
Foundation pledged $100,000 to a well-established, tax exempt medical
foundation in the United States ("Medical Foundation"). In January 1974
the son ( " S o n " ) of a high military official of a foreign government, which
was an important customer of Bell, was accepted as a medical resident at the
teaching hospital ("Hospital") associated with a medical school supported
by the Medical Foundation.
In light of these facts, the Committee conducted an exhaustive inquiry
into the circumstances surrounding Textron's gift to the Medical Foundation
to determine whether there was anything improper about that gift. The facts
are briefly summarized as follows:
In July 1973 Son began a "rotating" general internship at another
hospital in the United States. Bell had no connection with this internship.
Early in his general internship, Son decided to specialize in obstetrics
and gynecology and applied to the hospital where he was an intern and to

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the Hospital for a residency in that specialty. Son's applications were
unsuccessful because at both hospitals such residencies were reserved for
interns already specializing in that field.
In October or November 1973 Son called Mr. Atkins, the President of
Bell, whom he knew from previous social acquaintance, and asked for his
help in seeking admission to the specialized residency program. Mr. Atkins
met with the president of the Medical Foundation later that month.
At that meeting Mr. Atkins told the president of the Medical Foundation that he knew Son's father through various Bell business transactions and
could vouch for Son's integrity and character. Mr. Atkins further stated that
he would appreciate the president's assistance in support of Son's application. The Medical Foundation president informed Mr. Atkins that,
although he had nothing to do with admissions decisions, he would call the
head of the medical school. The Medical Foundation president also stated
that such a call would have little, if any, effect on the admissions process.
Thereafter, various telephone calls ensued between the Medical Foundation
president and the president of the medical school, and between the latter
and the chairman of the OB-GYN Department of the Hospital.
At a second meeting between Mr. Atkins and the Medical Foundation
president in December 1973, the president informed Mr. Atkins that Son
would be a strong candidate if any opening developed at the Hospital. The
president also stated that he was engaged in raising funds for the Medical
Foundation, pointed out that the work of the Medical Foundation was
beneficial to Bell employees and expressed his hope that Bell would consider
making a contribution to the Foundation. He added, however, that there
was no link between a contribution by Bell and the assistance he had
rendered with respect to Son's residency application.
In December 1973 an opening developed in the residency program at
the Hospital. Son, as the only qualified applicant who had not made other
arrangements by that time, was selected for the residency.
In March 1974 Mr. Atkins asked the Trust to approve the contribution
of $100,000 over three years to the Medical Foundation. Mr. Atkins'
application was processed by Textron's Contributions and Administrative
Committees with little discussion. Members of the Administrative Committee were advised by Mr. Ames, the Senior Vice President of Textron

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responsible for Bell, that Son held a position at a hospital with which the
Medical Foundation was affiliated. The Administrative Committee minutes,
which recorded approval of the gift, were reviewed and approved by the
Executive Committee of Textron's Board of Directors and by the full Board
at their next meetings but made no reference to Son or to the Hospital's
relationship to the Medical Foundation.
The gift was paid in three installments as scheduled.
In 1974 the Medical Foundation received total contributions from all
donors in excess of $1.5 million; in 1975, in excess of $2 million; and in 1976,
in excess of $1.9 million. Bell has not requested approval of any further
contributions to the Medical Foundation. The $100,000 pledge was the
largest pledge made by Textron to a single charitable organization during
the period under review, although annual contributions equal to or exceeding the annual payments on that pledge have been made to other
charities.
Son satisfactorily completed his residency at the Hospital.
The
testimony of all persons interviewed is that, although Son's father was aware
that Mr. Atkins had assisted Son with a recommendation in connection with
obtaining his residency, neither Son nor his father was ever made aware of
Textron's contribution to the Medical Foundation.
Mr. Atkins has informed the Committee that he advised Mr. Miller
sometime in late 1973 that he had spoken to the Medical Foundation in an
effort to help Son secure a residency. He also stated that in a conversation in
mid-December 1973, he advised Mr. Miller and Mr. Ames both that Son's
application was pending and that Textron might want to consider making a
contribution to the Medical Foundation. According to Mr. Atkins, Mr.
Miller replied that the possible contribution should be handled on its own
merits and kept separate from the subject of Son's residency. Mr. Miller
recalls Mr. Atkins mentioning that he spoke for Son on the residency
application but does not recall the mid-December conversation nor any
other conversation concerning both the residency application and the
contribution.
3.

Bell Helicopter's 1978 Inquiry Into The 1971 Sale To The
Government Of Ghana

The possibility of a questionable transaction in connection with the 1971
sale of two helicopters to Ghana was raised by Senator Proxmire at the

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Miller confirmation hearings on January 24, 1978. Both Textron and Bell
officers promptly contacted Bell personnel in Fort Worth and directed that
an inquiry be made into the transaction.
This inquiry resulted in a short report on the Ghana sale, which was
drafted by Mr. Dee E. Mitchell, the International Sales Manager of Bell, on
January 25, 1978, and reviewed by Mr. Frank M. Sylvester, the Vice
President-International Marketing. The report was incomplete and, in
certain aspects, incorrect. The report failed to address specifically the issue
whether an improper payment had been made and failed to identify a key
document which Mr. Mitchell has since stated he destroyed during the
course of reviewing pertinent files. Upon its completion, the report was
furnished to Bell's Vice President-Administration, Mr. Gainor J. Lindsey,
and its Chief Legal Counsel, Mr. George Galerstein. No requests for
clarification or follow-up were made.
Independent of the preparation of Mr. Mitchell's report, Mr. Atkins,
upon being advised of the Ghana allegations, directed the Internal Audit
Department on January 27, 1978, to investigate the transaction. After
briefly questioning several Bell employees about the sale, on the same day
he also requested Bell's outside counsel in Fort Worth to conduct an inquiry
into the transaction.
Mr. Galerstein, as Chief Legal Counsel, was to
coordinate those inquiries.
The head of Bell's Internal Audit Department completed his investigation early the following week and prepared a handwritten draft
report. A shortened, typed version of the handwritten report, which omitted
significant details, was then prepared at the suggestion of Mr. Theodore R.
Treff, the Treasurer of Bell.
Although the recollections of involved
employees differ substantially, the evidence is clear that Mr. Galerstein was
provided with one and perhaps both versions of the Internal Audit
Department's report no later than February 2,1978. The report summarized
documents contained in the Ghana files, but like the International Marketing
Department's report, did not address Senator Proxmire's allegation specifically.
Despite Mr. Atkins' request, Bell's outside counsel did not conduct a
complete inquiry into the Ghana sale. On January 30, 1978 two attorneys
from the firm engaged in preliminary document review at the Bell plant and,
as a prelude to conducting interviews of involved employees, requested Mr.

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Galerstein in writing to furnish them with copies of various documents. Mr.
Galerstein, who at the time he received the request was preoccupied with the
SBC staffs inquiry into the Iranian sale, failed to comply with this request.
In addition, he failed to give outside counsel copies of either the Internal
Audit Department report or Mr. Mitchell's report.
No interviews or
additional document review were conducted, and no report was ever
prepared by outside counsel. In March 1978, with the commencement of the
several government investigations of Textron and the retention by Textron
of outside counsel to advise as to such investigations, Mr. Galerstein and
Bell's outside counsel decided there was no point in pursuing the inquiry.
In mid-February 1978, in preparation for the second round of SBC
confirmation hearings on the Miller nomination, Mr. Soutter, Textron's Vice
President and General Counsel, requested Mr. Galerstein to furnish him a
report on the 1971 sale to Ghana. In response to this request, Mr. Galerstein
submitted to Mr. Soutter a copy of the Internal Audit Department's report.
Mr. Galerstein thereafter drafted, along with Mr. Soutter, a letter to the SBC
which addressed, among other things, the Ghana transaction. The letter
tracked in large measure the Internal Audit report, and in addition stated
that no Bell officer was aware of or participated in the transaction. This was
erroneous. In explanation of the error, Mr. Galerstein told the Committee
that the two officers he had questioned, Mr. Atkins and Mr. Sylvester, had
denied any knowledge of any questionable payment in the 1971 transaction
and that the signature of Mr. Treff, Bell's Treasurer, on the SEPA which
would have indicated that he may have had relevant information was
impossible to recognize.
The SBC staff did not make any further inquiry into the Ghana
transaction.
In late February 1978, on the last day of his testimony before the SBC,
Mr. Miller characterized the Ghana sale as a strange transaction which he
would not have approved. He criticized the way in which the sale was
handled and stated that the transaction should have been brought to his
attention. The principal basis for Mr. Miller's testimony was the typed
version of the Internal Audit report, which Mr. Soutter had furnished to him
a few days previously.

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After careful review, the Committee has concluded that Bell International Marketing Department personnel withheld critical facts about the
Ghana sale from the Vice President-Administration, Mr. Lindsey, and from
Mr. Galerstein. The Committee has further concluded that Mr. Galerstein's
performance was unsatisfactory in that he did not recognize the seriousness
of his failure to interview or question knowledgeable personnel at Bell and
of his failure to respond promptly to the request for documents by Bell's
outside counsel in Fort Worth. Bell's outside counsel were thereby not able
to proceed with their analysis, despite the obvious questions as to the 1971
transaction which were left unanswered by the incomplete report that Mr.
Galerstein passed on to Textron. However, the Committee found no basis
for imputing to Mr. Galerstein any knowledge of, or conscious design to
cover up, the payment to a government official which was made in
connection with the 1971 Ghana transaction or to otherwise deceive or
mislead anyone.
While Bell's President failed to follow up to ensure that the inquiries he
initiated were thoroughly conducted, the Committee has concluded that Mr.
Atkins did not engage in an attempt to keep the critical facts about the sale
from coming to light. The Committee is further satisfied that neither Mr.
Miller nor any other officer of Textron had any knowledge, or reasonably
could be expected to have had any knowledge, of the 1971 Ghana
transaction, other than the information set forth in the Internal Audit
Department report on the basis of which Mr. Miller testified at his
confirmation hearings. That report, although leaving obvious unanswered
questions, came to the attention of the Textron Corporate Office only a short
time before the final Miller confirmation hearings when the focus of the SBC
inquiry was on other matters.
Mr. Miller recognized the unanswered
questions in his testimony before the SBC.
G. A S H O R T H I S T O R Y OF T H E DEVELOPMENT OF T E X T R O N
BUSINESS C O N D U C T POLICIES
1.

The Period 1971-1975

In 1971 the primary source of guidance with respect to standards of
conduct and ethics was the Textron Management Guide ( " T M G " ) , which
was issued in 1969 as a replacement for the Textron Administrative Practices
Manual.

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The 1969 TMG provided employees with guidance on a wide range of
questions arising in day-to-day operations. In the area of standards of
conduct, it addressed certain conflicts of interest which might be faced by
employees, stating that Textron expected "the individual loyalty of its
employees at all levels to be of the highest standards of law and ethics." The
1969 TMG also ( 1 ) warned employees against acceptance of gifts and
gratuities from any party doing or seeking to do business with Textron; (2)
stated that Textron did not make contributions to political parties or
candidates; and ( 3 ) urged compliance with all applicable laws. The TMG
did not specifically address other important ethical questions which arise in
domestic and international business transactions. The 1974 version of the
TMG which, with supplements, is currently in use addresses the problems
covered in the original TMG in a more concise and authoritative manner,
but similarly fails to provide specific guidance with respect to such topics as
illegal, improper or questionable payments.
These defects have been
remedied in the Business Conduct Guidelines adopted in late 1978.
During the 1971-1975 period, Mr. Miller circulated memoranda to and
made speeches before Textron division presidents and key employees which
emphasized and supplemented the guidance provided in the TMG. For
example, in a letter which was sent each year to division presidents on the
subject of "gifts and gratuities," Mr. Miller reiterated the TMG's restrictions
on the receipt of gifts and added that it was "as important that we refrain
from making gifts that may be misinterpreted as it is that all Textron
personnel forego receiving any items of value." Similarly, in his speech at
Textron's April 1972 management meeting, Mr. Miller urged the demonstration of Textron's ability to meet challenges "by not sinking to the lowest
common denominator, but to meet them by standing firm and sticking to
principles that we can defend against any question and any challenge."
The first Textron internal inquiry that specifically addressed questionable payments occurred in 1975, and was informal and limited as to both
scope and purpose. In connection with normal due diligence work preceding
Textron's public sale of debt securities, Mr. Soutter, Textron's General
Counsel, inquired into the possibility of questionable payments to foreign
representatives. He first determined, through conversations with Messrs.
Miller, Collinson and Ames, that these officers knew of no questionable
payments or political contributions with corporate funds. He next reviewed
the offshore operations of the Textron divisions and concluded that agents'

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fees and commissions were not a significant factor in the business of any
division except Bell. He determined that "the only significant commission
paid by Bell" was the $2.95 million settlement paid to Air Taxi (described in
more detail in Section A. 16 of this Volume of the Report). He questioned
Mr. Miller as to his knowledge of the payment, and then he and Mr. Ames
met with three senior Bell officers to discuss the payment and obtained
further details from several other Bell employees.
Mr. Soutter then made oral reports to Mr. Miller and to counsel for the
underwriters of the Textron offering. He prepared a draft report (never put
in final form) which outlined Bell's relationship with Air Taxi and the
negotiation of Air Taxi's commission. The report concluded that Mr. Soutter
found no suggestion in the course of his inquiry that the commission was
paid for any unlawful or questionable purpose. His report also states that he
was informed that none of the principals of Air Taxi were known or believed
by the Bell officers whom he interviewed to be Iranian government officials.
He concluded that the commission payment was not unreasonable or
improper.
Following this inquiry, Mr. Miller, in consultation with Mr. Soutter,
determined that no further investigation was required. This decision was
made even though other leading American companies had made disclosures
of questionable payments and Senator Proxmire and others had suggested
that all major U.S. defense contractors should disclose any questionable
payments or practices in foreign sales. Neither the underwriters of the 1975
Textron debt offering nor their counsel indicated a desire for further inquiry
as part of their own due diligence.
Other initiatives were taken at the division level. For example, at Bell,
Mr. Atkins has stated that he attempted to monitor the activities of the
employees reporting to him and to make certain that they conformed to
broad Textron policy. In addition to forwarding Mr. Miller's communications to many of his key employees, Mr. Atkins issued directives of his
own in an attempt to standardize dealings with foreign representatives and
to make certain that no unacceptable entertainment of DOD personnel took
place. After October 1, 1973, Mr. Atkins required that his personal approval
be obtained before Bell engaged a foreign representative or consultant. He
permitted the use of consultants in lieu of or in addition to established
representatives or dealers only in rare instances and only with substantial

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75
justification. In 1976 Bell had substantially curtailed expenditures related to
provision of mealtime hospitality to D O D personnel.
2.

The Period 1976-1978

Beginning in 1976, Textron's Corporate Office not only began to
address specific concerns in the domestic and international marketing area,
but required certain specific actions to be taken, which were aimed at
controlling the activities of representatives and dealers and monitoring the
activities of employees. In the first six months of 1976, Corporate Office
personnel wrote to division presidents regarding D O D restrictions on the
entertainment of its personnel and federal prohibitions which restrict
compliance with the Arab boycott of Israel. Speeches made at Textron's
February 1976 management meeting specifically addressed foreign bribery
and stated that, even in developing countries, Textron should only do
business on its own terms. Mr. Miller's speech at that meeting contained the
following comments regarding agents and consultants:
"Textron will pay fair compensation to independent auditors,
attorneys, professional consultants, sales representatives, and sales
agents. It will not, however, permit any scheme to channel or cover up
improper payments. Textron will not permit any fees, commissions or
other payments which go beyond fair compensation. W e should not
and will not bury our heads in the sand and ignore the obvious
implications that payments over and above fair compensation are for
some questionable purposes. We shall in substance, as well as in form,
keep Textron above any criticism."
During the latter half of 1976, Textron began a specific questionable
payments compliance program. In August 1976 Mr. Miller wrote to division
presidents informing them that prescribed language must be included in all
new or renewal agreements with foreign representatives, dealers and
consultants. (See Appendix I.) The suggested provision required a representative to state that he had not made and would not make certain types of
questionable payments.
In December 1976, in conjunction with Textron's annual audit, approximately 1,100 key employees were asked to sign individually a "Statement as
to Illegal, Improper or Questionable Payments" indicating that the employee was unaware of any questionable practices in the areas of bribes,

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kickbacks, other improper payments, prohibited political contributions or
off-book accounts. (See Appendix J-l.) This was the first company-wide
attempt by Textron to uncover the existence of such practices, although Mr.
Collinson had specifically requested that procedures to identify questionable
practices be included in the audit work for the previous year (1975) and
emphatically expressed his disappointment that Arthur Young had not
included such procedures.
The form of statement used in 1976 grew out of further discussions with
Arthur Young and requested information only as to the single year 1976.
This procedure was apparently used because the statements were solicited in
conjunction with the annual audit and were therefore cast in the format of
"representation letters" obtained by independent auditors from employees
of companies being audited on an annual basis. In addition, employees
were simply asked to sign statements asserting that they were unaware of
improper practices; they were not requested to provide information regarding any knowledge they might have had of the existence of such practices.
Although employees who were in fact aware of the questionable payments
described in Volume One, Part III of this Report could have contradicted the
statement's negative assertion and indicated such awareness, none did.
During the course of their 1976 audit, Textron's independent auditors
discovered certain unusual billing and payment practices involving several
foreign customers of two divisions, Sheaffer Eaton and Talon. Textron
personnel conducted an investigation into dealings with these customers
covering the five-year period ending January 1, 1977. The findings were
memorialized in a report dated July 19, 1977, which was prepared by
Textron's Legal Department for the Audit Committee of Textron's Board of
Directors. The investigation determined that during this period approximately $400,000 in overbillings and accommodation payments had been
made by the two divisions to at least eight customers. It also determined
that all such transfers of funds had been properly recorded in the financial
records of the two divisions and that the overbilling and accommodation
payment practices had been terminated at the two divisions prior to the
conclusion of the investigation. Other divisions were not reviewed. The
report prepared for the Audit Committee concluded that no officer or
director of Textron knew of or condoned such practices.
As a result of this discovery of overbilling and accommodation payment
practices and of several inquiries received by the Corporate Office from

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77
divisions in conjunction with the completion of the 1976 year-end statements, Mr. Miller wrote a letter on May 12, 1977 to all division presidents,
corporate officers and corporate department heads instructing them that
overbilling and accommodation payment practices were unacceptable. (See
Appendix F.) Until the Committee's investigation, however, no systematic
attempt was made to verify that such practices had in fact been terminated
within a reasonable time following Mr. Miller's letter, and such practices
were not eliminated in all divisions until December 1978.
Textron officers continued to emphasize the policy against questionable
payments in speeches to key employees of Textron divisions. For example,
in his speech to Textron's financial executives conference in June 1977, Mr.
Soutter stated in part:
" [ W ] e cannot permit an agent to bribe anyone, with Textron's
money or his own, in connection with any business involving Textron.
We must be suspicious, especially when the amount of the commission
is large. We must demand the same high standards from our agents —
we deal with crooks at our peril — and if we have reason to suspect that
bribes are being paid, we have a duty to try and find out and/or
terminate our relationship.
"And under no circumstances will the argument that 'that's the
way business is done in country X ' be a justification. . . . [E]ven if it
were true, we don't do business that way. We'll give up the business."
In November 1977 approximately 1,700 employees were again asked to
execute statements substantially identical in form to those circulated in
December 1976, and limited to the year being audited. (See Appendix J-2.)
Although the form of the statement was still phrased negatively, approximately forty employees altered the form to indicate that they were aware of
accommodation payment and overbilling practices. However, the employees and officers of Bell who were directly involved in or knowledgeable
concerning the questionable payments described in Volume One, Part III of
this Report again returned signed statements indicating that they were
unaware of any questionable practices, thus indicating that the annual
statement procedure alone was not adequate to detect violations of corporate policy.

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78
3.

Programs To Assure Compliance With The Foreign Corrupt
Practices Act

Since adoption of the Foreign Corrupt Practices Act ( " F C P A " ) in
December 1977, Textron has made extensive efforts to assure compliance
with the FCPA's financial accounting controls and corrupt practices provisions. These efforts can be separated into two parts: ( 1 ) educating division
personnel regarding the requirements of the FCPA and the importance
which Textron places on compliance with those requirements, and ( 2 )
mandating that certain procedures be adopted, reports be prepared and
compliance statements be executed.
The educational efforts consisted of speeches made before, and memoranda circulated to, division executives by members of the Corporate Office
staff. The Textron Legal Department and Controller's Office are presently
engaged in the preparation of a guide to compliance with the FCPA in
booklet form for wide distribution to key Textron employees.
The Corporate Office also circulated material prepared by Textron's
independent auditors regarding compliance with the FCPA, increased the
involvement of the internal audit staff in divisional audits and prepared a
manual designed to assist divisions in evaluating the effectiveness of their
internal controls. In addition, Textron altered its lines of financial reportability to establish a more direct line of communication between division
and Corporate Office personnel and informed division executives that it is
their responsibility to report deviations from accounting policies directly and
immediately to the Corporate Office.
Textron also implemented a compliance program under the accounting
controls provisions of Section 102 of the FCPA. Under this program, an
annual compliance certificate must be completed by the chief financial
executive of each division. In this certificate, the financial executive is
required to certify that certain specified actions have been taken and that the
internal accounting controls of his division provide reasonable assurance
that the objectives of the internal accounting controls provisions of the
FCPA are met. In addition, pursuant to the Corporate Office's direction,
division presidents filed reports with the Corporate Office in June 1978
indicating the steps they had taken to assure compliance with the accounting
controls provisions of the FCPA.

331

79
As an additional safeguard, a written explanation of the FCPA has
been forwarded to all foreign representatives and dealers whose services are
utilized by Textron divisions. Each has been asked to agree to make no
payments in violation of the FCPA and has been requested to provide
information as to whether any government official has an ownership interest
in the representative or dealership. Textron also now requires the inclusion
in its representative and dealership agreements of a clause stating that the
representative or dealer is familiar with the FCPA and will not violate its
provisions, and requires execution of an annual statement by such persons
regarding the absence of violations of the FCPA.
4.

Development Of The Business Conduct Guidelines

Upon its formation, the Committee recommended to Textron officers
that a comprehensive guide to corporate conduct be developed and adopted.
A considerable amount of work in this direction had already been done by
Mr. William J. Ledbetter, now Textron's Executive Vice President-Finance
and Administration, the Audit Committee of the Board of Directors, and
Mr. Soutter and his staff. The first draft of a set of Business Conduct
Guidelines was submitted to the Committee for its comments in July 1978.
The Committee and its counsel made extensive comments on the draft.
Following the revision of the draft and the implementation procedures
incorporated in it to the satisfaction of the Committee, and pursuant to the
Committee's recommendation, the Guidelines were adopted by Textron's
Board of Directors in October 1978. The table of contents of the Business
Conduct Guidelines, which summarizes each of its provisions, is attached to
this Report as Appendix K.
The Guidelines consolidate and amplify previous policy statements
regarding acceptable methods of transacting domestic and international
business and combine this material with a thorough treatment of relevant
questions previously addressed in the Textron Management Guide. All of
the significant problem areas identified in this Report (including payments
to government officials, political contributions, entertainment expenditures,
accommodation payments and overbillings) are addressed in the Guidelines. In addition, many other topics, such as boycotts and restrictive trade
practices, compliance with antitrust laws, compliance with the FCPA,
avoidance of conflicts of interest and the unacceptability of cash or off-book

69-845 0 - 81 - 22

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80
accounts, are the subject of guideline requirements. Included within the
Guidelines are important provisions requiring the monitoring of compliance
and the imposition of penalties for failure to comply. The Guidelines
provide for annual circulation to all key employees of compliance forms
which call for specific representations as to compliance with the Guidelines
and give an opportunity to note exceptions. These compliance forms were
first circulated to Textron's employees in December 1978, and the responses
have been reviewed by the Textron Controller's Office and Legal Department, Textron's outside auditors and by the Committee.
5.

Additional Steps In Conjunction With Outside Auditors

Textron's Controller's Office and Arthur Young have recently taken
several steps to assure that the work of Textron's outside auditors is
appropriately focused on possible questionable payments. Arthur Young's
Textron audit plan for 1978 specifically discussed the FCPA and instructed
field audit teams to be alert to possible violations and to review the
procedures followed by the divisions in circulating annual compliance
reports in the new form required by the Business Conduct Guidelines. In
addition, supplemental field memoranda as to division internal controls
were required of Arthur Young field audit personnel and reviewed by the
Controller's Office prior to completion of the audit. Further, the Textron
Controller instituted field audit closing conference calls for each division
audited by Arthur Young. Division financial officers, local Arthur Young
representatives and senior Arthur Young audit personnel participated in
these conference calls and specifically addressed questions relating to
questionable payments and FCPA compliance to local audit staffs. The
Committee is advised that these procedures will be continued in future
audits.

333

*
* WUOJAM PffOXMIKZ, wu, CHAIRMAN
HAAItlSON A. WILUAMI, JK-, H_>. JAK* OAK*. ITTAM
ALAN CRANSTON, CkUF.
JOHN TOWDt. TZX.
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JOHN HE1MZ, FA.
RCWXT MO*OAN. NX.
WILLIAM L. ARMSTRONG, CCKJD.
DONAU> W. RJEOLJt, JR., M1CM. NANCY UAH DON KASSEBAUM, (CANS.
FAUl. 6. SAMSANCS, MO.
R1CHAAO G. LUfiM. MO.
DONALJD W. STTWART, ALA.
PAW. C. TWWtU, MASS.
•CENNCTM A. MC LEAN. STAFF tMMCTOft
M. OANMT WALL, MINORITY STAFF DIRECTOR
MAKY FHAMCKS DC LA FAVA, CHIEF CUEMC

QlCmicb

J&eru*ie

C O M M I T T E E ON B A N K I N G . HOUSING, A N D
URBAN AFFAIRS
WASHINGTON, D . C .

20510

October 30, 1979

The Honorable Benjamin Civiletti
Attorney General
Department of Justice
Washington, D. C. 20530
Dear Mr. Attorney General:
Last year, I wrote the Justice Department twice asking for an
investigation into whether Textron-Bell or any of its employees
had violated Federal criminal statutes. I made those requests after
the Committee on Banking, Housing and Urban Affairs learned that
evidence had been destroyed and that documents were discovered that
had not been turned over pursuant to a subpoena and that appeared
to contradict sworn testimony given the Committee. -I am enclosing
copies of those letters.
Last week, the Wall Street Journal published an article that
discussed the strategy Textron-Bell followed last year to deny the
Committee important information that it knew the Committee was
interested in or had subpoenaed. This is the first time that the
Committee has learned that the company was engaging in what appears
to be a deliberate coverup policy. The withholding and destruction
of documents can no longer be explained away as isolated instances
or the result of actions undertaken by overzealous employees. I am
enclosing a copy of the Wall Street Journal article.
- The newspaper's disclosures come as no surprise. The Securities
and Exchange Commission, in a report to the Committee last July, laid
out in great detail actions by the company and its officials to withhold information from the Committee at the time that it was conducting
its investigation in January and February of 1978. In one case, the
SEC report said that certain Textron-Bell documents belatedly discovered by the coup any contradicted testimony given to the Committee
by certain executives. One memorandum, written in 1971, disclosed
that the Chief of the Iranian Air Force was the "real influence"

334

behind an Iranian sales agent retained by Textron-Bell. It also had
been seen by top Textron-Bell officials. The company did not turn
it over to the Committee until long after the Committee's investigation had been concluded. That failure denied the Committee a key
piece of evidence that would have opened up important new areas of
investigation and would have greatly affected the testimony certain
Textron-Bell witnesses would have given to the Committee. According
to the Commission's report, Frank Sylvester, one of the officials
who received that memo, "testified before the Committee staff in
February 1978 and denied any knowledge of any link between Khatami
(the Iranian Air Force Chief) and Air Taxi (the Iranian sales agent).
After the discovery of the memo, Sylvester refused to testify before
the SEC staff by invoking the fifth amendment privilege'.'.
The SEC report also recounts in great detail Textron-Bell's
efforts to mislead the Committee about a payoff that the coup any
made in connection with the sale of helicopters to Ghana. The
report examines contradictions between the testimony of several
Textron-Bell officials and raises the possibility that high-level
company executives may have been involved in the attempted coverup . For the Committee, the upshot was that another crucial line
of investigation had been blocked by the company's actions.
I am enclosing a copy of the SEC report on the 1971 memo and
the Ghana payment.
In view of the serious additional evidence contained in the
SEC report and the Wall Street Journal article, I would like to renew
my earlier requests that the Justice Department investigate whether
company officials violated any criminal statutes in responding to
the Committee's inquiries. I would expect to receive a substantive
report from your Department within 90 days.

Chairman

335
[From The Wall Street Journal, Oct. 24, 1979]
CONTINUING P R O B E — N E W EVIDENCE APPEARS IN S E C INVESTIGATION OF PAYOFFS BY
TEXTRON
COMPANY FILES WERE ALTERED TO HIDE PAYMENTS; LIST OF RECIPIENTS LENGTHENS

A Big Check for Col. Gomez
(By Jerry Landauer, Staff Reporter of The Wall Street Journal)
Fort Worth, Texas—Margaret Hernandez, a secretary for the Bell Helicopter
division of Textron Inc., was unusually busy in early 1976. At the command of her
superiors in Bell's international-marketing department, Miss Hernandez was removing and revising confidential correspondence indicating payoffs by Bell to sell
helicopters in Latin America. These files were identified by the code name "White
Rose.
Specifically, the White Rose files mentioned officers in the air force of Colombia
who were acting as "advisers" or "consultants" to Bell's dealer in Bogota. One officer
who got paid for providing inside information about his government's militaryprocurement plans worked at the Colombian Embassy in Washington.
First, Miss Hernandez removed a dozen or so letters and telegrams from the Bell
dealer, whom she identifies as Antonio Angel. She also removed copies of English
translations that had been circulated to headquarters executives here. Then she
replaced the discarded Spanish documents with a fresh, backdated set provided by Mr.
Angel. These didn't mention "advisers" or "consultants." And to make the White Rose
files appear complete again, she retranslated the phony Spanish documents into
English.
WARDING OFF INVESTIGATIONS

One reason for these secretive maneuvers was to protect the company against the
probability of a U.S. government investigation—several other aerospace concerns
already were under scrutiny for making questionable foreign payments. Textron
subsequently did become the target of several federal investigations, especially after
President Carter chose company Chairman G. William Miller to head the Federal
Reserve Board early last year. During Mr. Miller's confirmation hearings, allegations
were leveled that Bell had made payoffs in Iran and Ghana. Mr. Miller testified that
he knew nothing about foreign bribery, and he was overwhelmingly confirmed by the
Senate. Last July, he was named Secretary of the Treasury.
Now, evidence is surfacing that the doctoring of the White Rose files (which never
came up during any of Mr. Miller's confirmation hearings) was but one of several
efforts within Bell over a period of years to hide traces of payoffs abroad. Other
countries were involved besides Iran and Ghana, and the cover-up continued even
after Mr. Miller took over as head of the Fed. Company officials say they have testified
about many of these matters to the Securities and Exchange Commission, which has
been investigating Textron for the past 20 months. SEC officials refuse to discuss the
case. But some at Textron expect the agency to issue a complaint soon. The company
itself is withholding comment until the SEC investigation is concluded.
CLAIMS OF INNOCENCE

There isn't any indication that Mr. Miller, working far away at Textron headquarters in Providence, R.I., knew about the questionable goings-on at Bell. But while they
were occurring, he was repeatedly asserting Textron's innocence of payoffs.
For example, just a few weeks after Miss Hernandez doctored the White Rose flies,
Mr. Miller addressed shareholders at Textron's annual meeting. " W e will live by the
highest standards," he assured, "and I can tell you that so far as we know, there have
been no payments that are illegal, or any payments that are improper, anywhere
throughout the company."
In 1977, Mr. Miller went further, although Textron at that time hadn't conducted
an in-house investigation, as scores of other companies had, to discover and stamp out
questionable practices. " W e know of no case in Textron where there have been any
improper payments, illegal payments," he told the annual meeting that year. "We've
made a survey of the company. . . . I think we should all feel proud of shareholders
and directors and officers."
Mr. Miller didn't explain that the company survey covered just one year, 1976. Nor
did he mention, as Textron has subsequently reported, that "employes were simply
asked to sign statements asserting that they were unaware of improper practices; they
were not requested to provide information regarding any knowledge they might have
had of the existence of such practices."

336
SOME UNEXPLAINED INCIDENTS

Here at Bell Helicopter, largest of Textron's 26 divisions, no one who participated in
or suspected bribery abroad gave any information for the survey. The details of most
payments remain locked in files such as the White Rose correspondence or in the
recollections of those who participated.
For example:
— A n officer in the Mexican air force, Col. Enrique Gomez, once traveled to Fort
Worth to pick up a check for $150,000. A Bell employe who watched the transaction
says his superiors knew that Col. Gomez worked for Gen. Solitro Beltran, chief of the
Mexican air force. Gen. Beltran approved an order for 10 Bell helicopters.
—In Jamaica, Bell sacked its sales agent, David Nunes. On the recommendation of a
senior officer in the Jamaican defense forces, the company hired a reserve officer,
Andrew Bogle, who at times performed special duties for the minister of national
security. Mr. Bogle sold helicopters to the defense forces from his home and, like Col.
Gomez from Mexico, he came to Fort Worth for his commissions; Bell complied with
his instructions never to send checks to Jamaica.
—In pushing a $10 million sale to the armed forces of a North African country,
believed to be Morocco, Bell's Washington office allowed an officer attached to the
country's embassy to pick the overseas dealer in Morocco who would get and
"redistribute" sales commissions. Correspondence describes the dealer as a "front
man" for a high defense official.
—Bell's dealer in Ceylon once rushed a letter to Fort Worth saying he needed
commissions in advance, to pay government officials, including Air Force Commander
Patrick Mendis. But the helicopters that Bell intended to sell were being financed by
the U.S. Defense Department, requiring Bell to certify that it wasn't paying commissions. To slip around this certification, the company hurriedly signed a consulting
agreement with Brown & Co., the dealer in Ceylon. It then routed payoffs disguised as
consulting fees through banks in Europe. Whether Mr. Mendis got any money isn't
known.
—In 1976, Bell transferred about $500,000 to a Swiss account so that a company
dealer in the Persian Gulf could, as he put it "honor my long-standing commitments."
In one sheikdom, Bell's dealer was owned at least in part by officials in the ministry of
defense.
—In the Philippines, Bell contemplated payoffs through its dealer to a high official.
"Arrived just in time to sign commissions and to eliminate Brand X , " a Bell salesman
cabled from Manila. The salesman was alluding to a competitor.
THE COMPANY'S ANALYSIS

Some or perhaps most of the bribes paid by Bell, or paid by Bell dealers with the
knowledge of the company, were extorted rather than volunteered. And more often
than not, the company resisted payoff demands. Moreover, in comparison to the tens
of millions of dollars ladled into foreign purses by other aerospace concerns such as
Lockheed Corp., the payments by Bell appear relatively small.
"It would be misleading to conclude that questionable payments were the rule in
Bell's foreign-marketing practices," says a report issued last July by a special
committee of the Textron board. "The committee found evidence of questionable
payments as to relatively few of Bell's international sales."
But the company report doesn't identify places where payments were made, except
the Iranian and Ghanaian episodes previously disclosed. Last July, Textron also
pleaded guilty to violating currency laws in bribing a government official in the
Dominican Republic.
" I know my company didn't bribe anybody!" Mr. Miller had declared at the Senate
hearings in 1978. He evidently was unaware of the cover-up at Bell Helicopter to make
such statements appear accurate.
FEAR OF SEN. PROXMIRE

In anticipation of the Senate hearings, sales managers in the internationalmarketing department now say they were told to look through correspondence files
with dealers overseas. The stated purpose was to make sure that nothing in the files
could be "misinterpreted" by Mr. Miller's critics, chiefly Banking Committee Chairman William Proxmire of Wisconsin. To some managers, these instructions meant
that the files should be cleaned out.
One sales manager, George Gonzalez, actually searched the White Rose files,
ostensibly to detect signs of improper activity that should be reported to superiors.
Naturally he found nothing suspicious; Miss Hernandez, his secretary, had done her
job well.

337
Then a subpoena arrived from the Senate committee demanding all information in
the files about Bell's relationship with Gen. Mohammed Khatemi, former chief of the
Iranian Air Force. The committee was investigating reports that Gen. Khatemi was a
secret owner of a Tehran sales agency to which Bell paid $2.9 million as commissions
on a $500 million helicopter sale to Iran in the years 1973 to 1975.
HANS WEICHSEL'S FILES

Bell supplied reams of material, and at the hearing Bell and Textron officials said
they didn't have any knowledge that the Iranian commander owned part of the sales
agency. But Bell didn't produce a U.S. Commerce Department trade report stating
that Gen. Khatemi "reportedly has financial interests" in the Tehran agency.
According to the Commerce Department, the report was sent to Fort Worth, on
request, two or three months before Bell hired the sales agency. The document can be
read as putting the company on notice that commissions paid to the sales agency
might flow in part to the influential general.
The people at Bell who were responsible for providing subpoenaed information also
were slow to search the files of Senior Vice President Hans Weichsel, who often
handled foreign-marketing matters. Mr. Weichsel's files contained an "eyes-only" trip
report identifying Gen. Khatemi as the "real influence" behind the sales agency. The
document wasn't supplied to the Senate panel until after Mr. Miller had been
confirmed. And when Textron disclosed its existence, certain executives in Fort Worth
scurried for cover.
One, Frank Sylvester, vice president for international marketing, had told the
Senate committee under oath that he didn't know about or even suspect Gen.
Khatemi's ownership interest. But after discovery of the confidential trip report, he
decided against reiterating his denial. Instead, associates confide, Mr. Sylvester
invoked Fifth Amendment privileges against self-incrimination in testimony to the
SEC's enforcement staff.
John Carberg, a Textron spokesman, says the company can't answer questions
about foreign payments until the SEC's investigation is over.
DESTROYING SOME EVIDENCE

Another foreign payment that wasn't confirmed until after the Senate vote on Mr.
Miller's nomination involved a $300,000 kickback to a general in Ghana in connection
with a helicopter sale. During the confirmation hearings, George Galerstein, Bell's
chief legal officer, prepared a statement for the Senate Banking Committee—"No
officer of Bell was involved with or aware of the transaction"—that several other
executives knew to be plainly false.
Sen. Proxmire mentioned the possibility of a kickback in Ghana at the start of the
hearings. He asked Mr. Miller to look into the transaction and to report back "as fully
as you can." Mr. Miller didn't inquire personally, but Textron requested information
from Bell. The following May, Textron reported that a Bell executive had destroyed a
memorandum dealing with the Ghana payment.
Here's what happened, according to company officials:
Dee Mitchell, a 25-year-veteran at Bell, knew that a payoff had been made. He
spotted a revealing memo in the correspondence files on the day after Sen. Proxmire
questioned Mr. Miller. Mr. Mitchell destroyed the memo; as he later confided to
associates, the document was embarrassing. Three managers who reported to Mr.
Mitchell also read the memo, and at least one knew it had been torn up. All three men
kept silent. Textron says it didn't discover the existence or destruction of the memo
until May, seven months after Mr. Miller had been sworn into office.
TEXTRON PROFIT EASED ON SLIGHT SALES RISE DURING THIRD QUARTER

(By a Wall Street Journal Staff Reporter)
Providence, R.I.—Textron Inc. third quarter net income slipped 1% on a 1% sales
increase. Nine-month earnings rose 3 % on an 8 % sales gain.
Third quarter net income fell to $41.1 million, or $1.09 a share, from $41.7 million,
or $1.11 a share. Sales increased to $801.3 million from $794.6 million.
Nine-month earnings rose to $126.1 million, or $3.35 a share, from $122.8 million, or
$3.27 a share. Sales increased to $2.51 billion from $2.32 billion.
Foreign currency translations resulted in a gain of $100,000 in the third quarter and
a loss of $700,000 in the nine months, compared with a loss of $900,000 and a gain of
$3.9 million, respectively, in the year-earlier periods.

338
In addition, Textron said it reached an agreement in principle with 13 banks for a
$150 million two-year line of credit that can be extended. Interest will be at the prime
rate or limited to %ths of 1 percentage point above the London interbank borrowing
rate, as the company chooses, it said.
Textron attributed the third quarter drop in net income to declines at several
divisions serving consumer and automotive markets, a strike at Connecticut plants
settled late in the quarter and changing increasing costs generated by inflation
against current income. Strong demand for machine tools and an improved product
mix in the aerospace group helped earnings, however, the company said.
Textron said full-year net will "compare favorably" with year-earlier figures, but
declined to say whether it would top the $168.1 million, or $4.47 a share, a year ago.
Sales will be up from 1979's $3.23 billion, the company said.

339

ZHmteb <g>tate£ department of justice
ASSISTANT ATTORNEY GENERAL
CRIMINAL DIVISION
WASHINGTON, D.C. 20530

Honorable William Proxmire
Chairman, Committee on Banking,
Housing and Urban Affairs
United States Senate
Washington, D. C.
Dear Mr. Chairman:
We have received your letter to the Attorney General
dated October 30, 1979, in which you renew your earlier
requests that the Justice Department investigate whether
officials of the Textron Corporation may have violated
criminal statutes in connection with hearings held last
year before the Committee on Banking, Housing and Urban
Affairs.
Since receiving your initial requests dated
May 10, 19 78 and June 26, 1978, we have been conducting
an investigation into the matter. As Deputy Assistant
Attorney General John C. Keeney indicated in his telephone
conversation with you on October 30, 1979, an investigation
of this type is particularly difficult and time consuming
in that it involves obtaining evidence from witnesses
outside the United States who are not subject to grand
jury subpoena.
We are examining the testimony of all the witnesses
before the Committee in order to determine whether or not
we can develop a prosecutable case of perjury or obstruction
of justice against any individual.
As Mr. Keeney has
already indicated, by January 15, 1980, even if the investigation is not then complete, we will inform you of the
status of the case.
If I can be of any further assistance in this matter,
please do not hesitate to contact me.

Philip B. Hermann
Assistant Attorney
Criminal Division

(J
General

340

Honorable William Proxmire
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
This letter is in response to your request in October,
1979 for a status report on the Textron-Bell Helicopter
investigation. The investigation concerns possible obstruction of justice and perjury violations which may have occurred
during the -Banking Committee's hearings on the nomination of
G. William Miller to be a member of the Board of Governors
of the Federal Reserve.
The investigation is continuing. With respect to any
possible obstruction of justice during the Committee's inquiry
into a Bell Helicopter sale in Ghana in 1971, we are approaching
the final stages of our investigation. With respect to the
Committee's inquiry in Iran and possible perjury which may have
occurred during this inquiry, certain international investigative steps have been taken and another remains pending approval
of the foreign country involved. As you may know, such international investigative steps often take several months to
complete with no guarantees of success. Consequently, it may
be several more months before the investigation will be concluded.
As soon as these remaining investigative steps have been
completed, the Department of Justice will be in a position to
evaluate the merits of the case. The Department will keep
your office advised as to any final decisions in this matter.

Sincerely,

John C s Keeney
Deputy Assistant Attorney
General
Criminal Division

Full text of Further Matters Relating to the Nomination of G. William Miller : Hearing Before the Committee on Banking, Housing, and Urban Affairs, United States Senate, Ninety-Sixth Congress, Second Session, February 8, 1980 : Part I: Testimony Before the Committee

FRASER