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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 CONGKESS
SECOND SESSION
ON
THE NOMINATION OF
G. WILLIAM MILLER TO BE CHAIRMAN OF THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART II
APPENDIX—CONSISTING OF STAFF REPORT OF SECURITIES
AND EXCHANGE COMMISSION AND COMPLAINT IN RE
TEXTRON INC.
FEBRUARY 8, 1980
Printed for the use of the
Committee on Banking, Housing, and Urban Affairs
U.S. G O V E R N M E N T P R I N T I N G
57-608 O
W A S H I N G T O N : 1980
OFFICE
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
W I L L I A M P R O X M I R E , Wisconsin, Chairman
H A R R I S O N A. W I L L I A M S , JR., N e w Jersey J A K E G A R N , Utah
A L A N C R A N S T O N , California
J O H N T O W E R , Texas
ADLAI E. S T E V E N S O N , Illinois
J O H N H E I N Z , Pennsylvania
R O B E R T M O R G A N , North Carolina
W I L L I A M L. A R M S T R O N G , Colorado
D O N A L D W . R I E G L E , JR., Michigan
N A N C Y L A N D O N K A S S E B A U M , Kansas
P A U L S. S A R B A N E S , Maryland
R I C H A R D G. L U G A R , Indiana
D O N A L D W . S T E W A R T , Alabama
P A U L E. T S O N G A S , Massachusetts
K E N N E T H 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, Special
Counsel
BRUCE F . FREED, Professional
(II)
Staff
Member
UNITED STATES DISTRICT CQ^ET
FOR THE
DISTRICT OF COLUMBIA
SECURITIES AND EXCHANGE OOPMISSION,
Civil Action No.
—
Plaintiff,
v.
ODMTLAINT FOR INJUNCTION
AND OTHER EQUITABLE RELIEF
TEXTRCN INC.,
Defendant.
The plaintiff SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") alleges
that:
1.
It appears to the COMMISSION that the defendant TEXTRON INC.
("TEXTRON") has engaged and unless restrained and enjoined may in the
future engage, in acts, practices and courses of business which constitute
and will constitute violations of Sections 10(b), 13(a) and 14(a) of the
Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78j(b), 78m(a)
arri 78n(a)] and Rules 10b-5, 12b-20, 13a-l, 13a-ll and 14a-9 [17 CFR 240.10b-5,
240.12b-20, 240.133-1, 240.13a-ll and 240.14a-9] thereunder.
2.
The COMMISSION, pursuant to the authority granted to it by Sections
10(b), 13(a), 14(a) and 23(a) of the Exchange Act [15 U.S.C. 78j(b), 78m(a),
78n(a) and 78w(a)] has promulgated Rules 10b-5, 12b-20, 13a-l, 13a-ll, and
14a-9 [17 CFR 240.10b-5, 240.12b-20, 240.13a-l, 240.13a-ll, and 240.14a-9],
which rules were in effect at all times relevant herein and are still in
effect.
JURISDICTION AND VENUE
3.
The COMMISSION brings this action pursuant to Sections 21(d) and (e)
of the Exchange Act [15 U.S.C. 78u(d) and (e)j . to restrain and enjoin the
defendant "TEXTRON from engaging in such acts, practices and courses of business.
4.
This Court has jurisdiction of this action pursuant to Sections 21(e)
and 27 of the Exchange Act [15 U.S.C. 78u(e) and 78aa].
(1)
2
5.
Certain of the acts, practices and courses of business constituting
violations of the Exchange Act have occurred within the District of Columbia.
THE DEFENDANT
6.
TEXTRCN, a Delaware corporation with its principal place of
business in Providence, Rhode Island, at all relevant times was engaged,
and is engaged, through the operations of over twenty divisions, in the
manufacturing of diversified products.
Since 1970, approximately 20-30
percent of TEXTRCN's sales have been generated by TEXTRCN*s largest
division, the Bell Helicopter Company ("TEXTRON/BELL").
At all relevant
times, the presidents of TEXTRCN divisions, including TEXTRCN/BELL, reported
directly to senior management of TEXTRON.
7.
TEXTRCN's securities are registered with the COMMISSION and the New
York Stock Exchange pursuant to Section 12(b) of the Exchange Act [15 U.S.C.
781(b)] and are traded on the New York Stock Exchange.
As a result of such
registration with the Canmission and the New York Stock Exchange, TEXTRCN
is subject to the reporting [Section 13(a), 15 U.S.C. 78m(a), and Rules 12b20, 13a-l and 13a-ll thereunder, 17 CFR 240.12b-20, 240.13a-l and 240.13a-llJ
and proxy [Section 14(a), 15 U.S.C. 78n(a), and Rule 14a-9 thereunder, 17 CFR
240.14a-9] provisions of the Exchange Act.
COUNT I
[Section 10(b) of the Exchange Act, 15 U.S.C. 78j(b)
and Rule 10b-5 thereunder, 17 CFR 240.10b-5]
8.
Paragraphs 1 through 7 are hereby realleged and incorporated herein
by reference.
9.
During the period from at least 1971 to 1978, TEXTRON, directly
and indirectly, in connection with the purchase and sale of securities,
and by use of the means and instrumentalities of interstate ccrxierce and
the mails, has employed devices, schemes and artifices to defraud, has made
untrue statements of material facts, anc has coittec to state material facts
necessary to make the statements made, in li^ht of the circumstances under
3
which they were made, not misleading, and has engaged in acts, practices
and courses of business which have operated as a fraud and deceit upon
purchasers and sellers of securities and other persons, all in violation
of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that:
a)
TEXTRON has engaged in a course of business pursuant to
which TEXTRON, directly and indirectly, has made payments
which totalled at least $5,400,000 to TEXTRON sales agents
knowing or having reason to know that payments to such sales
agents would be shared in whole or in part with foreign government
officials or employees, directly to senior foreign government
officials and anployees, to members of ruling families, to
associates of senior foreign government officials and employees,
to persons it believed to be foreign government officials
or employees, and to entities in which senior foreign government
officials or employees had an ownership or financial interest,
in connection with the use of their influence or position
to secure business for TEXTRCN;
b)
TEXTRCN arranged or structured many of its payments described
in subparagraph "a" above through its sales agents and facilitated such payments by transmitting "commissions" of sales
agents to bank accounts and third parties outside the sales
territory of the sales agents; and
c)
TEXTRON failed to disclose this course of business and risks
to its earnings and revenues occasioned by such practices.
4
The following paragraphs of this Count I describe scrae of the abovedescribed transactions.
FOREIGN PAYMENTS
10.
Fran 1973 through 1975, TEXTRCN/BELL paid approximately $2,950,000
to Air Taxi Company, TEXTRCN/BELL1 s sales agent in Iran, in connection with
a i^ontract, secured in or around June 1973, pursuant to which the Iranian
Army agreed to purchase 489 Bell helicopters for approximately $500,000,000.
During this period, General Mohammed Khatami, Coriander-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.
TEXTRCN/BELL knew or had
reason to know of Khatami's interest in Air Taxi, through cne 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.
11.
In 1973, TEXTRCN/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 ten helicopters and related spare
parts for $3,500,000.
12.
In or around February 1975, TEXTRON/BELL paid approximately $200,000
to its dealer for the United Arab Emirates ("UAE") 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
("ODQD"), agreed to purchase five Model 205 helicopters and related spare
parts for approximately $3,500,000.
15.
In 1976," TEXTRON/BELL paid approximately $275,000 to its dealer for
the UAE knowing or having 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 ODOD agreed to purchase five Model 214 helicopters and
related spare parts for approximately $8,700,000.
5
14.
In 1973 and 1974, TEXTRON/BELL paid approximately $40,000 to its
sales agent for Ceylcn, knowing or having reason to knew that all or part
of this sum would be transferred an official of the Government of Ceylon,
in connection with a contract, secured in or around February 1972, pursuant
to which Ceylon would receive, under the Grant-in-A id Program of the United
States government, four helicopters and related spare parts totalling
approximately $460,000.
15.
In 1974, TEXTRCN/BELL paid approximately $100,000 to its sales
agent for Morocco knowing or having reason to knew that all or part of
this sum would be transferred to Moroccan military officials.
The payment
was made in connection with a $1,700,000 contract between TEXTRCN/BELL and
the United States government which was promoted by senior TEXTRON/BELL officials who knew or had reason to know, as early as 1971, that payments to the
sales agent would be shared with Moroccan military officials, and resulted
in the Government of Morocco receiving two helicopters and related parts.
16.
From 1971 to 1975, TEXTRON/BELL paid approximately $400,000 to its
dealer for the UAE:
(a) in connection with contracts pursuant to which the Dubai Police
Air Wing ("DPAW") or the UAE Defense Force agreed to
purchase helicopters for approximately $4,660,000, and
(b) knowing or having reason to know that senior officials
of the DP£W and the private secretary to the UAE Minister of
Defense had financial and management interests in TEXTRCN/BELL' s
UAE dealer.
As -early as 1975-1976, TEXTRON officials, in addition to TEXTRCN/BELL
personnel, were aware that a foreign military official was an owner of
the TEXTRON/ BELL dealer.
TEXTRCN/BELL continued to prcraote the further
sale of helicopters to the UAE through this dealer curing 1977 and 1978.
6
17.
In 1972, TEXTRCN/BELL paid $50/000 to an aviation advisor to
Pertamina, an agency of the Government of Indonesia, knowing or having
reason to know that the aviation adviser would transfer part of the sum
•to other Pertamina officials, in connection with the dealer's resale of
a helicopter to Pertamina at an inflated price.
This payment was made,
contrary to TEXTRCN/BELL's longstanding operating procedures, as an advance
against the dealer's comnission account.
18.
In or around August 1973, TEXTRON/BELL paid approximately $196,000
to its dealer for the Government of Colombia knowing or having reason to krow
that all or part of this sum would be transferred to Colombian military officials,
and paid approximately $30,000 to an intermediary knowing or having reason to
know that all or part of this sum would be transferred to a Colombian military
offical in Washington, D.C., in connection with a contract pursuant to which
the Government of Colombia agreed to purchase six Model 205A-1 helicopters
for approximately $2,900,000.
19.
In or around December 1976, TEXTRCN/BELL paid its Colombian dealer
approximately $250,000 knowing or having reason to know that all or part of
this sum would be transferred to a Colombian military official, in connection
with a contract pursuant to which the Government of Colombia agreed to purchase
seven 205A-1 helicopters for approximately $6,400,000.
20.
In 1977, TEXTRCN/BELL paid approximately $60,000 to or for the bene-
fit of one or more military officials of the Dominican Republic Arroed Forces
in connection with a contract, secured in or around September 1976, pursuant
to which the Dominican Republic agreed to purchase two helicopters and related
spare parts for approximately $1,400,000.
21.
In 1971, TE5CIR0N/BELL remitted to Tropical Aircraft Sales ("Tropical"),
its Ghanian sales agent, approximately $300,000 from the proceeds of the sale
of two helicopters to the Ghana Air Force, in addition to a ccniriissicn of
approximately $60,000, knowing or having reason to know that the $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.
7
22.
Between 1973 and 1977, the Fafnir Division of TEXTRCN ("TEXTRON/
FfiFNIR") which manufactures ball and roller bearings, paid approximately
$€65,000 to its Iraqi sales agent in "commissions" knowing or having 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
Company, an agency of the Iraqi government, totalling $3,079,109.
In one
instance TEXTRCN/FAFWIR knew or had reason to know that its agent had inflated
an order frcra $20,000 to $600,000 in order to receive excess conitiissions.
TEXTRCN/FAFNIR was informed prior to paying the agent a significant amount
of "commissions" that it was illegal under Iraqi law for the agent to receive
such money.
23.
TEXTRCN, in connection with at least four of the above described
foreign payments, directed payments to banks outside the home countries of
the recipients, as follows:
a)
In 1974, at the request of its sales agent, TEXTRCN/BELL transmitted
approximately $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 (as described in paragraph 15 above);
b)
In 1975, at the request of its dealer, TEXTRCN/BELL transferred
approximately $200,000 to a Swiss bank account of a principal
of its UAE 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 (as described in paragraph
12 above);
c). In 1976, at the ^request of its dealer, TEXTRCN/BELL transferred
approximately $275,000 to a Swiss bank account of a principal
of its UAE dealer knowing or having reason to know that this
sum would be transferred to an official of the Sultanate of
Oman (as described in paragraph 13 above}; and
8
d)
From 1971 through 1975, at the request of its dealer, TEXTRCN/
BELL transferred a substantial portion of the "conmissions"
ostensibly paid to TEXTRON/BELL's 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 (as
described in paragraph 16 above), and
e)
From 1971 through 1977, at the request of its sales agent,
TEXTRCN/FAFNIR transferred a substantial portion of the "commissions" ostensibly paid to TEXTRCN/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 (as described in paragraph 22 above).
ATTEMPTED FOREIGN PAYMENTS
24.
In connection with and in furtherance of the course of business
described in paragraphs 8 through 23 above, TEXTRCN/BELL attempted to pay,
directly or indirectly, officials of at least two foreign governments in
connection with prospective contracts.
These contracts were not secured,
and the payments were not made.
FAILURE TO DISCLOSE FOREIGN PAYMENTS
25.
In furtherance of this course of business described in paragraphs
8 through 24 above, which oourse of business occasioned risks to TEXTRON's
earnings and revenues, TEXTRCN, in connection with the purchase or sale
or securities, and by use of the means and instrumentality of interstate
commerce and the mails, has failed to disclose this course of business whereby
TEXTRON has employed devices, schemes and artifices to defraud, and has made
untrue statements of material fact and has emitted to state material facts
necessary to make the statements made, in light of the circumstances under
which they were made, not misleading.
9
26.
TEXTRON filed with the Commission a current report on Form 8-K for
the month of May 1978 ("May 8-K").
The May 8-K purports to supplement the
lapresen tat ions TEXTRON had made in early 1978 with respect to TEXTRCN/BELL1 s
Ghanian transaction (described in paragraph 21 above) to the Senate Committee
on Banking, Housing and Urban Affairs ("Senate Caimittee"), in connection
with the nomination of G. William Miller ("Miller"), then Chairman of TEXTRCN,
to the Board of Governors of the Federal Reserve System, which representations
were false and misleading.
The disclosure in the May 8-K is deficient in
that it:
a) fails to state that two senior officers of TEXTRCN/BELL knew,
as early as 1971, that the transaction would be structured to
facilitate a payment to an official of the Government of Ghana;
b)
fails to state that TEXTRCN/BELL1 s then Executive Vice-President
(its present President) had reason to know prior to the consummation
of the sale that the transaction had been restructured indirectly
through Tropical; and
c)
attributes TEXTRCN1s inadequate representations to the Senate
Committee in part:
i.
to the destruction, by a TEXTRCN employee, after
the Senate Committee had requested an explanation
of the Ghanian transaction, of a document which
described the necessity for making a payment to
secure the Ghanian sale; and
10
ii.
to the purported fact that certain other information
was not known by TEXTRCN/BETL's chief legal counsel,who
provided information in response to the Senate Committee
inquiry which -was substantially repeated by Miller in
public testimony before the Committee and provided to the
COMMISSION.
In fact, during the Senate Committee inquiry, relevant and
material information about TEXTRCN/BELL1s Ghanian transaction
was known to and not revealed by certain TEXTRCN/BELL officers
and employees aware of the Senate Ccmittee inquiry. Such
information was not disclosed to the Senate Ccrnmittee,
the COMMISSION or the public.
27.
1EXTR0N, through its then chairman, at the 1976 annual meeting
of TEXTRCN shareholders, informed TEXTRON shareholders that "there have
been no payments that are illegal or any payments that are improper, anywhere
throughout the ccmpany."
This statement, made by the chairman without his
having a reasonable basis, in light of the course of business described
in paragraph 8 through 23 above, was erroneous and misleading.
28.
TEXTRCN, through its then chairman, at the 1977 annual meeting of
TEXTRON shareholders, informed TEXTRON shareholders that "we know of no
case in Textron where there has been any improper payment, illegal payments."
This statement, made by the chairman without his having a reasonable basis,
in light of the oourse of business described in paragraphs 8 through 23
above, was erroneous and misleading.
11
29.
In furtherance of the course of business described in paragraphs 8
through 23 above, and the failure to disclose such course of business, TEXTRCN,
in connection with at least three contracts, made false and misleading representations to the United States government, as follows:
a)
TEXTRCN/BELL falsely represented to the United States
government that no commissions were being paid in
connection with the Ceylon transaction (described
in paragraph 14 above);
b)
TEXTRCN/BELL falsely represented to the United States
Department of Defense the nature of its agreement
with and the date of engagement of its Moroccan
sales agent, in connection with the Moroccan transaction
(described in paragraph 15 above); and
c)
TEXTRCN/BELL falsely represented to the United States Export arri
Import Bank that there was no "discount, allowance, rebate,
corrmission, fee or other payment" in connection with the
Ghanian transaction (described in paragraph 21 above).
30.
In furtherance of the course of business described in paragraphs 8
through 23 above, and the failure to disclose such course of business:
a)
TEXTRCN/BELL's employees altered documents in
TEXTRON/BELL1s Colombia files in an attempt to conceal
and falsely document the improper nature of the Colombian
payments (described in paragraph 18 above);
b)
TEXTRCN/BELL falsely recorded and falsely documented
the Dominican Republic payments as commissions to a
sales agent who had no involvement in the underlying
sale (described in paragraph 20 above);
c)
TEXTRCN either falsely recorded or cid not make and keep
books, records and accounts which accurately reflected
the true nature and disposition cf rest or all of the
12
"commissions" paid by TEXTRCN (described above in paragraphs 8 through 23 above); and
d)
TEXTRCN/BELL falsely recorded the payments to its sales
agent for Ceylon jas paid pursuant -to a "consultant agreement" under which no services were performed (described in
paragraph 14 above).
31.
The activities described in paragraphs 8 through 30 above demonstrate
that TEXTRCN, directly and indirectly, has engaged in a course of business
whereby TEXTRCN, directly and indirectly, pays and agrees to pay officials
or entities of foreign governments in connection with the use, by these
officials or entities, of their influence or position to secure business
for TEXTRCN.
In connection with and in furtherance of this course of business,
TEXTRCN failed to make timely and adequate disclosures to TEXTRCN shareholders;
and, such disclosures as have been made were made after the COMMISSION initiated
and substantially oompleted its investigation into this matter.
As a result
of the above-described acts, practices and course of business, TEXTRCN has
violated and unless restrained and enjoined may in the future violate, Section
10(b) of the Exchange Act [15 U.S.C. 78j(b)} and Rule 10b-5 [17 CFR 240.10b-5]
thereunder.
OOUNT II
[Section 13(a) of the Exchange Act (15 U.S.C. 78m(a))
and Rules 12b-20, 13a-l and 13a-ll (17 CFR 240.12t>-20,
240.13a-l and 240.13a-ll) thereunder].
32.
Paragraphs 1 through 31 are hereby realleged and incorporated herein
by reference.
33.
From 1971 to the date hereof, TEXTRCN directly and indirectly filed
with the COMMISSION certain annual and periodic reports as required by Section
13Ca) of the Exchange Act [15 U.S.C. 78m(a)] .and Rules 12b~20, 13a-l and 13a-ll
[17 CFR 240.12b-20, 240.13a-l and 240.13a-ll] thereunder.
34.
Although the reports filed by TEXTRCN purported to accurately describe
"TEXTRQj's and its subsidiaries' operations and financial condition, the reports
were false and misleading and emitted to state ratenal facts necessary to
13
make the statements made therein not misleading regarding TEXTRON's business
activities (described in paragraphs 8 through 31 above).
35.
Although the reports filed by TEXTRON purported to describe the
operations and financial condition of TEXTRCN and its subsidiaries, the
reports were false and misleading and failed to state material facts necessary
to make the statements made therein not misleading regarding approximately
$610,000 of expenses incurred during the period 1971-July 1978 as part of
the marketing efforts of two TEXTRCN divisions in entertaining employees
of the United States Department of Defense ("USDGD"), generally through the
provision of meals.
Senior TEXTRCN officials and its chairmen during the
period 1971 through July 1978 knew of this practice and that, contrary to
TEXTRCN's procedures, no substantiation for these expenses was retained.
Officers of the two TEXTRCN divisions were aware of directives issued by
the USDOD to its personnel prohibiting the acceptance of gratuities and
entertainment frcm government contractors such as TEXTRCN.
TEXTRCN's enter-
tainment expenses were recorded on its bocks in a manner designed to conceal
that TEXTRCN was entertaining United States government personnel.
36.
Although the reports filed by TEXTRCN purported to accurately
describe the operations and financial condition of TEXTRON and its subsidiaries, the reports were false and misleading and emitted to state material
facts necessary to make the statements made therein not misleading regarding
tthe practices of at least six TEXTRON divisions of "overbilling
foreign
purchasers of their products, whereby TEXTRON issued inflated invoices
and remitted the amount overpaid to the purchaser or applied the amount
overpaid against the purchaser's account with the division.
More than
$1,335,000 in overbillings were engaged in by TEXTRON during the period
1371 to 1977. TEXTRCN's overbilling practices, in certain instances:
(a)
caused false export declarations to be filed with
the United States Department of Commerce by freight
forwarders who relied upon TEXTRON to determine
the value of the gcods; and
14
(b)
facilitated purchasers or their principals, officials,
or employees in evading the currency, customs or tax
laws of the purchaser's country.
37.
By reason »of the foregoing, TEXTRON directly and indirectly, has
violated and unless restrained and enjoined may in the future violate, Section
13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20, 13a-l and
i3a-.ll [17 CFR 240.12b-20, 240.13a-l and 240.13a-ll] thereunder.
COUNT III
[Section 14(a) of the Exchange Act (15 U.S.C. 78n(a))
and Rule 14a-9 (17 CFR 240.14a-9) thereunder.]
38.
Paragraphs 1 through 37 are hereby realleged and incorporated herein
by reference.
39.
Since at least 1971 and continuing to March 1979, TEXTRCN, directly
and indirectly, by use of the mails and means and instrumentalities of
interstate ooirmerce, filed with the Commission definitive copies of proxy
statements, including proxy statements for annual meetings for the years
1971 to date, and solicited proxies frcm shareholders of TEXTRON by means
of such proxy statements, in violation of Section 14(a) of the Exchange Act
[15 U;S.C. 78n(a)] and Rule 14a-9 [17 CFR 240.14a-9] thereunder, in that
such proxy statements, were materially false and misleading and omitted
to state material facts necessary in order to make the statements made therein
not misleading in that, among other things, said proxy statements failed to
disclose the matters referred to in paragraphs 8 through 31, 35 and 36 above.
40.
By reason of the foregoing, TEXTRCN, directly and indirectly, has
violated and unless restrained and enjoined may in the future violate, Section
14(a) of the Exchange Act [15 U.S.C. 78n(a)3 and Rule 14a-9 [CFR 240.14a-9]
thereunder.
15
WHEREFORE, Plaintiff Comnission respectfully prays and demands:
1. A permanent injunction restraining and ^smjoining Defendant Textron,
jJtes officers, agents, servants, employees, and attorneys, and each of them, and
± h m e persons ±n active concert or participation -with them, from violating,
i±nasctly or indirectly, Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)]
and Rule 10b-5 [17 C.F.R. 240.10b-5] promulgated thereunder, by, directly or
indirectly, in connection with the purchase or sale of the securities of
Textron or any other issuer, using the mails or means and instrumentalities
of interstate commerce, to employ devices, schemes and artifices to defraud;
make untrue statements of material facts and emit to state material facts
necessary, in order to make the statements made, in light of the circumstances
under which they were made not misleading; or engage in acts, practices and
courses of business which have operated or will operate as a fraud or deceit
upon any person concerning:
(a) Any agreement, commitment or understanding by Textron or any of
its affiliates or subsidiaries to make, or the making of, any payment of
corporate funds or other value directly or indirectly to, or for the benefit
of, any official or onployee of any foreign government or any official or
employee of any entity owned and/or controlled by any foreign government,
in connection with obtaining or retaining business;
(b) Any agreement, commitment or understanding by Textron or any of
its affiliates or subsidiaries to make, or the making of, any payment of
corporate funds or other value, directly or indirectly, to any of its sales
representatives or agents when it knows or has reason to know that such
payments will be jgiven, in whole or in part, directly or indirectly, to any
official or employee of any foreign government or any official or employee
of any entity owned and/or controlled by any foreign government, in connection
w±th obtaining or retaining business;
(c) Any agreement, commitment or understanding by Textron or any of
rfcs affiliates or subsidiaries to hire, retain or use a sales representative
or agent where Textron or any of its affiliates or subsidiaries knows or
has reason to know that a foreign government official or employee, directly
57-6 08 0 - 8 0 - 2
16
or indirectly, has an ownership or financial interest, in connection with
obtaining or retaining business with a foreign government or any entity
owned and/or controlled by any foreign government;
(d) The nature and extent of any false or fictitious entries on the
books and records of Textron or any of its affiliates or subsidiaries with
reject to the matters referred to in subparagraphs (a) through (c) above;
(e) The extent to which any officer, employee or director of Textrcn,
or any of its affiliates or subsidiaries, has facilitated, participated in
or aided and abetted the activities required to be disclosed pursuant to
subparagraphs (a) through (d) above.
2.
A permanent injunction restraining and enjoining Defendant Textron,
its officers, agents, servants, employees and attorneys, and each of them,
and those persons in active concert or participation with them, frcm violating
Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20, 13a-l
and 13a-ll [17 C.F.R. 240.12b-20, 240.13a-l and 240.13a-ll] promulgated
thereunder, by, directly or indirectly, failing to file required reports
or by filing or aiding and abetting the filing with the Canmission of annual,
current or other reports on behalf of Textron or any of its affiliates or
subsidiaries or any other entity that are materially false and misleading
or fail to disclose material information required to be disclosed, concerning
the matters described above in subparagraphs (a) through (e) of paragraph I
of this Prayer for Relief.
3.
A permanent injunction restraining and enjoining Defendant Textron,
its officers, agents, servants, employees and attorneys, and each of them,
and those persons in active concert or participation with them, from violating
Section 14(a) of the Exchange Act [15 U.S.C. 78n(a)] and Rule 14a-9 [17 C.F.R.
240.14a-9]-thereunder, by, directly or indirectly, using the rails or means and
instrumentalities of interstate commerce to file or aid and abet the filing with
the Commission of definitive copies of proxy statements, or to solicit proxies
17
fron shareholders of Textrcn, any of its affiliates or subsidiaries, or any
other entity, when such proxy statements are materially false and misleading,
concerning the matters described in subparagraphs (a) through (e) of paragraph I
of :this Prayer for Relief.
4.
A mandatory injunction requiring Defendant Textron to describe
in »a filing with the Commission policies and procedures Defendant Textron
has adopted and intends to adopt to prevent recurrence of matters of the
nature alleged in this Canplaint.
AND, for such further relief as this Court deems appropriate under the
circumstances.
Respectfully submitted,
Paul A. Fischer
DATED:
January 31, 198b
Washington, p.C.
Attorneys for Plaintiff
Securities and Exchange Commission
500 North Capitol Street
Washington, D.C. 20549
Telephone: (202) 272-2344
18
U N I T E D STATES D I S T R I C T COURT
FOR THE
D I S T R I C T OF C O L U M B I A
SiXIJiUTIES A N D E X C H A N G E
COMMISSION,
Civil Action
No. EC--
Plaintiff,
v.
TEXTRON
F I N A L J U D G M E N T OF
PERMANENT INJUNCTION
A G A I N S T T E X T R O N INC.
INC.,
Defendant.
Plaintiff
having
Securities
duly c o m m e n c e d
Permanent
Injunction
of
or c o n c l u s i o n s
Inc. having
this Court over
of t h i s action,
having
of
waived
law,
before
without
trial or a d j u d i c a t i o n
without
admitting
having
consented
or denying
annexed
("Commission")
its C o m p l a i n t
Relief* (the
appeared
for
"Complaint"),
and admitted
it and over
to
the subject
the
matter
the making
of any findings of
the taking
of any
of any
Inc.
testimony
issue of fact or law
the a l l e g a t i o n s
to the entcy of
Injunction Against Textron
in the C o n s e n t
Commission
by filing
and Other E q u i t a b l e
and D e f e n d a n t T e x t r o n
jurisdiction
and E x c h a n g e
this action
of
this Final J u d g m e n t of
incorporated
and
herein,
the C o m p l a i n t ,
("Final J u d g m e n t " ) as
hereto and
fact
and
Permanent
contained
herein,
therefore:
I
IT IS HEREBY O R D E R E D , A D J U D G E D A N D D E C R E E D that
Textron
Inc.
(including
its d i v i s i o n s ,
as "Textron"),, its officers,, agents,
attorneys,
anc each of
or p a r t i c i p a t i o n
with
them,
them,
and enjoined -from v i o l a t i n g ,
of
the S e c u r i t i e s
783(b)]
by,
or
directly
of
[17 C . F . R .
indirectly,
those p e r s o n s
are hereby
Exchange Act
and Rule lDb-5
directly
and
hereinafter
servants,
1934
referred
employees,
in active
permanently
or
Defendant
Sc-ction
(''Exchange A c t " )
240.10b-5]
concert
restrained
indirectly,
promulgated
in c o n n e c t i o n with
to
and
10{b)
[15 U.S.C.
thereunder
the p u r c h a s e
or sal-.
19
or means and
instrumentalities of interstate commerce, to employ
devices, schemes and artificer
to defraud; make untrue
statements
of material facts and omit to state material facts necessary,
jorcter ±so make thae statements made, in .light of the
in
circumstances
uruier which they were made not misleading; or engage in acts,
practices and courses of business which have operated
•operate as a fr,aud or deceit upon any person
(a)
or will
concerning:
Any agreement, commitment or understanding
by Textron
or any of its affiliates or subsidiaries to make, or the making
of, any payment of corporate funds or other value directly
indirectly
to, or for the benefit of, any official or employee of
any foreign government or any official or employee of any
owned and/or controlled by any foreign government,
with obtaining or retaining
(b)
or
entity
in connection
business;
Any agreement, commitment or understanding by Textron
or any of its affiliates or subsidiaries
make, or the making
of, any payment of corporate funds or other value, directly
indirectly,
or
to any of its sales representatives or agents when
it knows or has reason to know that such payments will be
given,
in whole or in part, directly or indirectly,
to any
official or employee of any foreign government or any
or employee of any entity owned and/or controlled
official
by any
foreign government/ .in connection with obtaining or
retaining
business;
(c)
Any .agreement, commitment or understanding
by Textron
or any of its affiliates or subsidiaries to hire, retain or use
•a sales representative or agent where Textron or any of
its
affiliates or subsidiaries knows or has reason to know that a
foreign government official cr employee, directly or
has an ownership or financial
obtaining or retaining
interest,
in connection
indirectly,
with
business with a foreign government or any
20
(d)
The nature and extent of any false or fictitious
on the books and records of Textron or any of
subsidiaries with respect
-graphs
(a) through
(e)
to the matters
entries
its affiliates
referred
or
to in subpara-
(c) above;
The extent
to which any officer, employee or
of Textron, or any of
tated, participated
director
its affiliates or subs idiaries, has
in or aided
to be disclosed pursuant
and abetted
to subparagraphs
facili-
the activities
(a) through
required
(d) above.
II
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
Textron,
its officers, agents, servants, employees and
and each of them, and
with
those persons
them, are hereby permanently
and Rules 12b-20,
restrained
13a-l and 13a-ll
240.13a-ll] promulgated
failing
to file required
the filing with
and enjoined
[15 U.S.C.
from
78m(a)J
[17 C.F.R. 240.12b-20,
thereunder,
by, directly or
240.13a-l
indirectly,
abetting
the Commission of annual, current or other reports on
its affiliates or subsidiaries or any
that are materially
-disclose material
information
the matters described
paragraph
participation
reports or by filing or aiding and
behalf of Textron or any of
other entity
attorneys,
in active concert or
•violating Section 13(a) of the Exchange Act
and
Defendant
above
I of this Final
false and misleading
required
or fail to
to be disclosed,
in subparagraphs
concerning
(a) through
(e) of
Judgment.
Ill
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that
'Ttextron, its officers, agents, servants, employees and
Defendant
attorneys,
and each of them, and those persons in active concert or
with
them, are hereby permanently
restrained
and enjoined
violating Section 14(a) of the Exchange :,ct [15 U.S.C.
and Rule 14a-9
indirectly,
[17 C.L-.ii. 24 C 1 c a c r o u n d e r ,
using
participation
from
7Sn(a)]
by, directly
the nails or means ana instrumentsiities
of
or
21
interstate commerce to file or aid and abet the filing with
the Commission of definitive
to solicit proxies
copies of proxy statements,
from shareholders of Textron, any of
or
its
affiliates or subsidiaries, or any other entity, when
such
proxy statements are materially
concerning
falsfe and misleading,
the matters described in subparagraphs
(a) through
(e) of
paragraph I of this Final Judgment.
IV
IT IS FURTHER ORDERED, ADJUDGED AMD DECREED that
Textron, contemporaneously with
Defendant
the entry of the Final
Judgment,
shall file with the Commission a current report* on Form 8-K
which shall:
incorporate by reference the report of the Special
Committee of the Board of Directors of Textron Inc.
("Special
Committee") dated July 24, 1979; describe the procedures
Textron has adopted
and
intends tc -adc-t• pvrsuant
Defendant
to recommendations
made by the Special Committee to prevent recurrence of matters
of the nature alleged
in the Complaint; and include a copy
of the Complaint, the Final Judgment and Consent of
Defendant
Textron.
V
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that the
Consent of Textron be, and the same hereby
with
annexed
is, incorporated
the same force and effect as is fully set forth
herein
herein.
VI
IT IS FURTHER ORDERED, ADJUDGED A!;D DECREED that this Court
retain jurisdiction of this matter for all purposes
D.-Y
/
22
DISTRICT OF COLUMBIA
SECURITIES A M D EXCHANGE COMMISSION,
Civil Action
No. EC--
Plaintitt,
v.
TEXTRON
CONSENT OF
TEXTRON INC.
INC.
Defendant.
1.
Defendant Textron Inc.
("Textron") admits the juris-
diction of this Court over it and over the subject matter ot
action and further admits to the service upon it ot
1
Securities and Exchange Corliss ion s
this
Plaintiff-
("Commission") Complaint
Permanent Injunction and Other Equitable Relief
tor
("Complaint").,
and waives the tiling ot an Answer.
2.
Textron, without admitting or denying any ot the
tions in the Complaint, except to jurisdiction,
to w h i c h
allegait admits,
hereby consents to the entry ot the Final Judgment ot
Permanent
Injunction against Textron Inc.
the form
annexed
hereto,-enjoining
("Final J u d g m e n t " ) m
it from violating
Sections 10(b),
and 14(a) ot the Securities Exchange Act ot 1934
7 8m(a) and 78n(a)J
14a-9 thereunder
240.13a-ll
3.
and
and Rules
[15 U.S.C.
10b-5, 12b-20, 13a-i, 13a-ll
[17 C.F.R. 240.10b-5, 240.12b-20,
13(a)
78j(b),
and
240.13a-l,
240.14a-9J.
This Consent of Textron
the Final J u d g m e n t
m
Inc.
("Consent") is executed,
the form annexed hereto
is entered
and
without
trial, argument or adjudication ot any issue of fact or law.
Textron hereby waives the entry ot findings of fact and
conclusions
oi law.
4.
Textron waives any right it may have to appeal frcm
Final Judgment
m
the form annexed
hereto.
the
23
5.
Textron enters
promise
or
threat
into this C o n s e n t
ot any .-:inc w h a t s o e v e r
C o m m i s s i o n o r a n y m e m b e r s or the statt
into
this
6.
has been m a d e
Textron agrees
ture and e n t r y
that
without
the F i n a l J u d g m e n t
by the C o m m i s s i o n
further
the C o m m i s s i o n p u r s u a n t
to paragraph
B o a r d ot D i r e c t o r s
undertaking
describing any changes
the S p e c i a l
24, 1979
i m p l e m e n t a t i o n ot
that
this C o n s e n t shall
in this
action.
TEXTRON
<_ j-
N.K.
Counsel
to D e f e n d a n t T e x t r o n
DATED:
WJanuary
a s h i n g 23,
t o n ,1980
D.C.
will
recommen-
and
31,
to p r o c e d u r e s
be
in, a'nd m a d e p a r t o f , the F i n a l J u d g m e n t
1229 - 1 9 t h S t r e e t ,
W a s h i n g t o n , D.C.
with
it
the
the
the
1982
it
10-K,
has
recommen-
Committee.
Textron agrees
against T e x t r o n
annexed
signa-
C o m m i t t e e ot
that u n t i l at least D e c e m b e r
t h a t m a t e r i a l l y w e a k e n the
i v_/ L
the
the C o m m i s s i o n r e p o r t s or. Form 8-K o r F o r m
as a p p r o p r i a t e ,
d a t i o n s ot
to implement
ot T e x t r o n I n c . d a t e c July
ot T e x t r o n
tile w i t n
a
enter
IV of the F i n a l J u d g m e n t
in the R e p o r t ot the S p e c i a _
contained
tor
the F o r m 8-K to be t i l e d
dations
reference
the
to
in the f o r m
to the C o u r t
i n t e n t i o n of T e x t r o n
8.
no
notice.
T e x t r o n r e p r e s e n t s that
adopted
by
to i n d u c e T e x t r o n
s t a t e the p r e s e n t
will
and
Consent.
hereto may be presented
7.
voluntarily/
Inc.
I:;C.
incorporated
to be
entered
by
24
SECURITIES
COM::I3S:C::,
Civil Action
N o . EC--
Plaintiff,
FI::AL
JUDGES:::: oriujuiizizqu
.'GAZ:.5T TEXTRO:: i::c.
VTEXTRON
IWC.,
Defendant.
Plaintiff
having
duly
Permanent
Securities
commenced
this action
jurisdiction
of
Inc. having
this C o u r t
action,
o r conclusions
over
having
(the
"Complaint")
and a d m i t t e d
over
to
the s u b j e c t
of any
findings
of law,
before
the
of
testimony
of
Textron
annexed
any
of
Inc.
hereto
any
issue of
the a l l e g a t i o n s
to the entry
against
taking
of
fact o r l a w
fact
and
herein,
of the Complaint,-
this F i n a l J u d g m e n t o f
("Final Judgment")
and
the
matter
the m a k i n g
consented
i n the C o n s e n t
Relief
appeared
it and
its C o m p l a i n t , f o r
waived
admitting c r denying
Injunction
by f i l i n g
("Conunission")
having
withouir t r i a l o r a d j u d i c a t i o n
without
Commission
I n j u n c t i o n and O t h e r E q u i t a b l e
and D e f e n d a n t Textron
of this
and E x c h a n g e
incorporated
as
and
Permanent
contained
herein,
therefore:
I
I T IS HEREBY ORDERED,
Textron
Inc.
(including
.as " T e x t r o n " ) ,
attorneys,
of
and e a c h of
by,
of
with
and Rule
directly
the
or
agents,
and
are
if
those persons
of
1524
cr
in a c t i v e
("Exchange
in c o n n e c t i o n
or :-.-.v :tier
referred
and
concert
Section
Act")
[15
promulgated
\:itn
using
lC(b)
U.S.C.
thereunder
the purchase
usuer,
to
restrained
indirectly,
240.lOb-5]
Defendant
employees,
h e r e s y -permanently
[17 C . F . R .
indirectly,
that
hereinafter
servants,
directly
E-xchar.ee Act
lCc-5
securities
them,
them,
from v i o l a t i n g ,
the S e c u r i t i e s
73j(b)J
its d i v i s i o n s ,
its o f f i c e r s ,
or participation
and e n j o i n e d
ADJUDGED AND DECREED
th-j
or
nie
25
cr c c a n s and
inscru^cni-iitiT~
i'.-'/ice:;, s c h o m ^ o
of
material
order
under which
practices
operate
(a)
Any
foreign
owned
any p e r s o n
Any
by
any
agreement,
its a f f i l i a t e s
to m a k e ,
it knows
given,
to any
o r has
in w h o l e o r
official
foreign
of
any
any
government,
in
connection
the
foreign government,
any
of
of
or subsidiaries
entity
or
or e m p l o y e e
by
in p a r t ,
making
directly
commitment or understanding
to k n o w
o r e m p l o y e e of
or employee
Textron
the
entity
business;
o f its s a l e s
reason
by
or
to m a k e ,
or
a n y p a y m e n t of corporate funds or other value,
indirectly,
will
any o f f i c i a l o r e m p l o y e e
o r any o f f i c i a l
or retaining
or
concerning:
f u n d s or o t h e r v a l u e
of,
in
t.- n ce 3
ir. a c t s ,
c o m m i t m e n t or understanding
for the b e n e f i t
anc/or controlled
any of
of,
upon
corporate
government
obtaining
(b)
or
rr.ozeria 1 fact"; n e c e s s a r y ,
cf -bus iness whicr. h a v e o p e r a t e d
agreement,
to, or
up. i rue
n;-t m 131 e a c 1 r.g; o r e n g a g e
or deceit
of
;
W
in l i r h t r.; t::e c i r c u m
its a f f i l i a t e s o r s u b s i d i a r i e s
indirectly
with
to s t ^ t e
made,
courses
any payment
any
and c m -
the
as a fraud
"rn-ir^-D
d-_ c i ;
the/ wer- - =
ana
o r any of
of,
an i
facts
to c a k e
l^z^czz^L-l
of
representatives
foreign
owned
or
or agents
in c o n n e c t i o n
indirectly,
controlled
with
or
when
be
to
g o v e r n m e n t o r any
anc/or
making
directly
that such payments w i l l
directly
Textron
any
official
by any-
obtaining or
retaining
business;
(c)
or
a
Any
a n y of
sales
has
its affiliates
representative
affiliates
foreign
agreement,
commitment
or subsidiaries
or a g e n t
or subsidiaries
government
an o w n e r s h i p
or
or understanding
official
where
knows
cr
financial
to h i r e ,
employee,
interest,
reason
cf
to k n o w
directly
Textrcn
retain
Tex.tr on or any
or h a s
by
or
in c o n n e c t i o n
or
use
its
that
a
indirectly,
with
26
(d)
T h e n-r-.u:'.- and extent of r.ny
:r f:ctlt:cu*i
cr. the books and records cf Tex trcn or ~:v/ of
subsidiaries
graphs
with
respect
(a) through
(e)
The
us
to the m a t t e r s rcferr-ri
affil.ites
to in
or
subpara-
(c) above;
extent to which ar.y officer,
of T e x t r o n , o r any of
tated, p a r t i c i p a t e d
e m p l o y e e or
director
its a f f i l i a t e s c r subsidiaries, h a s
in o r a d d e d and a b e t t e d
to b e disclosed p u r s u a n t
to subparagraphs
facili-
the a c t i v i t i e 3
(a) through
(d)
required
above.
II
I T IS FURTHER ORDERED, A D J U D G E D A2TD DECREED that
Textron,
its officers, agents,
servants, e m p l o y e e s and
and e a c h o f them, and those p e r s o n s
v i o l a t i n g Section 13(a) of the E x c h a n g e A c t
I 3 a - 1 and 1 3 a - l l
a n d 2 4 0 . 1 3 a - l l ] promulgated
railing
attorneys,
in active c o n c e r t o r p a r t i c i p a t i o n
w i t h them, are hereby p e r m a n e n t l y restrained
a n d R u l e s 12b-20,
Defendant
and e n j o i n e d
from
[15 U . S . C . 7Sim(a)3
[17 C . F . R . 240.12b-20,
thereunder, by, directly o r
240.13a-l
indirectly,
to f i l e r e q u i r e d r e p o r t s c r by filing or a i d i n g e n d
the f i l i n g w i t h t h e C o m m i s s i o n of annual,
abetting
current o r other- r e p o r t s
behalf of T e x t r o n o r any o f - i t s a f f i l i a t e s or s u b s i d i a r i e s o r
any
other entity
to
that are m a t e r i a l l y
disclose material
information
the m a t t e r s described
paragraph
above
false
required
and misleading
cr f a i l
to be d i s c l o s e d ,
concerning
(a) through
in s u b p a r a g r a p h s
on
( e ) of
I o f this F i n a l J u d g m e n t III
I T I S FURTHER ORDERED, A D J U D G E D £2:D DECREED that
Textron,
its officers,
and e a c h
of
with
them, and
agents,
servant's, e m p l o y e e s
those persons ir. attive
them, are hereby permanently
violating
Section
14(a) cf
restrained
th-:- Ixcha-.-e Act
and
Defendant
attorneys,
concert or
and e n j o i n e d
[15 'J.S.C.
particir:^tier
frcm
7Sn(a}]
27
i n t e r s t a t e oor5L-.--.-i:-jo t-i i c r
=
a.-.-
i"-.- Ciiing
the C o m m i s s i o n of doi ir.it iv- c o p i e s ci proxy szilamentsr
to s o l i c i t p r o x i e s
affiliates
from. sharshc icsrs •:: Text:cr.f
cr subsidiaries,
or any e t h e r entity, w h e n
p r o x y s t a t e m e n t s are materially
the m a t t e r s described
paragraph
false
(a) through
cr
Its
such
and misleading,
in subparagraphs
I of t h i s F i n a l
any of
concerning
(e) of
Judgment.
IV
IT" I S FURTHER" O R D E R E D , A D J U D G E D AITD DECREED that
Textron, contemporaneously with
s h a l l f i l e with
w h i c h shall:
t h e C o m m i s s i o n a c u r r e n t r e p o r t on
incorporate by reference
the report of the
C o m m i t t e e " } dated J u l y 24, 1979; d e s c r i b e
and
intends
the p r o c e d u r e s
to a d o p t pursuant
o f the C o m p l a i n t ,
in the C o m p l a i n t ?
and
to
Defendant
recommendations
include a
the Finely J u d g m e n t a n d C o n s e n t o f
Special
("Special
m a d e b y t h e S p e c i a l C o m m i t t e e to p r e v e n t recurrence of
o f the nature alleged
Judgment,
Form
C o m m i t t e e of the B o a r d o f D i r e c t o r s of T e x t r o n Inc.
T e x t r o n h a s adopted
Defendant
the entry of the F i n a l
matters
copy
Defendant
Textron.
V
I T IS F U R T H E R ORDERED, A D J U D G E D AICD DECREED that the
annexed
C o n s e n t o f T e x t r o n be, anc the same hereby
is, incorporated
with
set forth
the same
force and effect as -is fully
herein
herein.
VI
IT IS FURTHER 0RDE7.ED, A D J U D G E D iltD. DECREED that
retain
jurisdiction
of this m a t i e r fcr
all
purposes
this
Court
28
CERTIFICATE
I, ARNOLD M. FRIEDMAN, duly elected Assistant General Counsel
and Assistant Secretary of Textron Inc., a Delaware corporation, do
hereby certify that the following is a true and correct copy of a
resolution duly adopted at a telephone meeting of the Board of
Directors of the Corporation held on December 27, 1979, and that
said resolution has not been modified, amended or rescinded, but
remains in full force and effect as of the date hereof:
RESOLVED:
That the Corporation, expecting to be
named as a defendant in a civil action brought by the
Securities and Exchange Commission, hereby agrees to
settle such proposed action substantially in the manner
and on the terms described to this meeting by counsel,
and the proper officers of the Corporation, "including the
Vice President and General Counsel, are hereby authorized
to execute and deliver on behalf of the Corporation, in
substantially the form described to this meeting, the
Consent of the Corporation to the entry of a Final
Judgment of Permanent Injunction and a current report of
the settlement on Form 8-K, together with any and all
other documents deemed necessary or desirable by such
General Counsel to effect the aforementioned settlement.
IN WITNESS WHEREOF, I have hereunto^set my hand and
the Corporate Seal to be affixed this 2 2 — day of January,
caused
1980.
Assistant General Counsel
and Assistant Secretary
29
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON.
D.C.
2C549
STAFF R E P O R T OF- I N V E S T I G A T I O N
T R A N S M I T T E D ON J U L Y 26, 1979
TEXTRON, INCORPORATED
FILE N O . H O - 1 Q 5 5
D i v i s i o n of E n f o r c e m e n t
U.S. S e c u r i t i e s and
Exchange Commission
30
TABLE OF CONTENTS
Page
I.
II.
III.
INTRODUCTION
1-3
BACKGROUND
3-6
BELL HELICOPTER COMPANY
A.
Iran
6-16
Termination of Air Taxi's Predecessor
Bell Officials Informed
Hiring of Air Taxi
March 1971 Memorandum
Payments to Air Taxi
7-8
8-10
10-11
12-15
15-16
United Arab Emirates
16-26
Knowledge of Textron Officers
20-26
Morocco
26-35
Military Attache's Request for Payment
Bell's President Informed
Hiring of the Agent
Submission of Back-Dated Contracts to DOD
26-28
28-32
32-34
34-35
D.
Dominican Republic
35-41
E.
Mexico
41-42
F.
Colombia
42-46
B.
C.
Questionable
Payments
43-45
Removal and Alteration of Textron Documents....
45-46
G.
Oman
46-50
H.
Ceylon
I.
Ghana
52-74
J.
Restructured Sale Through Bell Dealer
Role of Bell Officials
1978 Disclosures of the Ghana Transaction
1.
Senate Hearings
2.
Form 8-K Disclosure
Indonesia
54-58
58-59
59-74
59-73
73-74
74-76
(Sri Lanka)
50-52
31
Page
K.
Attempted
L.
Weichsel
M.
D i s p o s i t i o n of D e a l e r ' s
Policy
IV.
V.
VI.
VII.
VIII.
XI.
Payments
77-79
- Hunt D i s c u s s i o n s .
79-80
Commissions:
and P r a c t i c e
.
80-83
F A F N I R D I V I S I O N OF T E X T R O N
83-86
UNSUBSTANTIATED ENTERTAINMENT EXPENSES
8 6-89
CONTRIBUTION TO SOUTHWESTERN MEDICAL FOUNDATION
90-97
Background
.. ..
A p p l i c a t i o n of G e n e r a l T o u f a n i a n ' s Son
T e x t r o n Informed
Contribution Approved..
90-91
91-92
93-95
95-97
OVERBILLINGS
98
STATEMENTS TO SHAREHOLDERS
I
BY D T
SO
PR
ES
C I AOF
L T
CE
OX
MTMRIOTNT,E E I N C . . . .
TN
OVE
TS
HT
E I GBAOTAIRODN OF
IH
RE
ECT
ii
57-608 0 - 80 - 3
99-100
101
32
I.
INTRODUCTION
On February 10, 1978, the Commission issued a formal order
of investigation into the matter of Textron, Inc., directing the
staff to inquire into whether any federal securities laws violations had occurred in connection with Textron's making undisclosed
improper or questionable payments.
Part of the basis for this
order was information obtained by the staff that Textron may have
made undisclosed payments to foreign officials in connection with
Facts in that regard had been elicited
sales in Iran and Ghana.
during the Senate Committee on Banking, Housing and Urban Affairs'
("Committee") consideration of the nomination of G. William Miller
("Miller"), Chairman of Textron, to the Board of Governors of the
Federal Reserve System.
The investigation has primarily concentrated upon the activities and transactions of Textron's largest division, the Bell
Prior
Helicopter Company ("Bell"), during the period 1971 to 1978.
to May 1978, Textron considered but decided not to conduct its
own investigation of questionable corporate payments. 1/
Therefore, the staff, particularly in the initial stage of the investigation, made an ab initio review of extensive international marketing
files and accounting records to identify questionable payments.
During its investigation, the staff reviewed hundreds of
thousands of documents and compiled thousands of pages of investigative testimony.
Those who testified before the staff included
Miller, seven Textron officers, a Textron director, six Bell officers, twenty former and present Bell employees, five Bell commission agents 2/ and several non-affiliated individuals.
Eleven
individuals, including Jack Reardon, T e x t r o n 1 s Assistant Treasurer,
Frank Sylvester, Vice President of Bell's International Marketing
Department, four other present Bell employees, and one past Bell
employee, refused to testify on matters important to the investigation by invoking their fifth amendment privilege. 3/
Investigation by the staff has revealed
that:
1/
Prior to 1978, over five hundred companies made disclosures
concerning questionaDle foreign payments after they conducted
internal investigations.
2/
Two of the five agents testified voluntarily before the staff
in Europe.
3/
The principals of three Bell agents that represent Bell in
Korea, Indonesia and Jamaica were subpoenaed to testify but
refused to do so by invoking their fifth amendment privilege
against self-incrimination.
33
(1) From 1971 through 1977, Textron, in connection with sales
of 9530 million, made payments of more than $5.2 million to foreign
officials, entities in which a foreign official had a beneficial
interest and commission agents knowing or having reason to know
that such commission agents would give all or part of their commissions to foreign officials;
(2) From 1971 through 1978, Textron "overbilled" customers
and agents, at their request, by issuing inflated invoices which
overcharged approximately $1,275,000.
This practice was recognized by the company as having the potential for being used by
such customers and agents to evade taxes and currency regulations,
and sometimes resulted in the filing of misleading export declaration certificates with the U.S. Department of Commerce by freight
forwarders who relied on the Textron invoices?
(3) From 1971 through 1978, Textron disbursed at least $13
million in commissions to bank accounts of commission agents and
to third parties located in countries other than agents' home
countries, which some Bell employees believed could facilitate,
in at least certain instances, evasion of taxes and currency regulations ;
(4) Between 1971 and 1978, Textron expended approximately
$600,000 of unsubstantiated entertainment expenses, a substantial
part of which was used in connection with entertaining employees
of the United States government; and
(5) In 1974, a $100,000 charitable contribution was pledged
by Textron Charitaole Trust Foundation to a medical foundation
whigh provided financial support to a medical school which administered a residency program into which the son of the then Iranian
Minister of War had been accepted.
The staff has also found that after Chairman Proxmire requested
"Miller on February 24, 1978 to provide information on a questionable sale of Bell helicopters to Ghana, Textron failed to disclose
relevant: information about the transaction that was available to
Bell's Chief Legal Counsel - the individual responding to the
request - and known to Bell personnel.
With the exception of a payment to a Ghanian military official,
Textron has not disclosed its questionable payments and practices. 1/
1/
As a result of information brought to the attention of Textron
counsel during the staff's investigation of Ghana, the company
publicly disclosed in May 1978 that Bell employees facilitated the payment of $300,000 to a Ghanian military official
and that a key document pertaining to the payment was destroyed
by a Bell employee one day after Chairman Proxmire inquired
about the transaction.
The public disclosure omitted information as described below.
-
2
-
34
Following the initiation of the Commission's investigation and the
disclosure of the Ghana payment, Textron established a Special
Committee of the Board of Directors to investigate the company's
payment practices and recommend corrective measures if necessary.
The Special Committee recently completed its investigation.
The
Committee has been helpful to the staff's investigation and, where
appropriate, has received cooperation from the Commission staff.
II.
BACKGROUND
Textron is a diversified company which conducts its operations
As described in Textron's 10-K, each
through twenty-six divisions.
Textron division carries on its own business under its own name
with its own organization.
Each division's management has direct
responsibility for its products or services, including manufacturing
and marketing, research and development and for'achieving performance
criteria in accordance with standards provided by Textron management.
It has been Textron's philosophy to promote the independence of its
divisions by delegating substantial operating authority to the division officers.
Until 1974, Textron was headed by a president.
In 1974, the
post of chairman was created and filled by Miller, who had been
president of Textron since 1960.
Reporting directly to the president is the executive vice president as well as four vice presidents, controller and treasurer.
Five group officers, who supervise several divisions each, report directly to the president.
Testimony taken by the staff indicates that the frequency of
contact between group officers and various divisions ranged from
daily communications to weekly consultations.
Such communications
as did occur typically were between the group officers and the
division president.
From mid-1974 onward, Textron management formally has been kept abreast of significant business events, such
as consummation of large contracts, through bi-weekly reports.
Until that time, formal reporting nad been less frequent.
Until August 1976, Textron's written policies and procedures
were silent on foreign bribes and other improper payments, Textron
division agents sharing commissions with foreign officials, Textron
division agents being owned in whole or part by foreign officials,
overbillings and accommodation payments.- According to Textron's
General Counsel, Textron has always operated under a philosophy
that condemns the payment of bribes and questionable payments
and that formal Textron policy in this regard was enunciated
through two principal means: (1) a Textron Management Guide, dissemination of which to individuals at the level below division
executives was at the option of the division president, 1/ and (2)
annual Textron management meetings, attended by selected division
1/
The relevant portions of the Management Guide solely contained
general references to Textron personnel obeying all laws and
acting in an ethical manner.
- 3 -
35
presidents and and Textron officers. 1/ In August 1976, Miller
promulgated a memorandum entitled "Standards of Conduct: Policy
as to Representatives, Agents, Consultants or Distributors."
The memorandum stated that "it is completely unacceptable to
seek or obtain business through the use of bribes, kickbacks,
entertainment or any other improper payments or favor," and alluded
to the "number of reported instances of such practices in other
companies."
The evidence gathered by the staff shows that several
Bell salesmen who travelled overseas and were aware of questionable
activities were unaware of any such policy statement and that
there was no formal mechanism for distributing the memorandum
to Textron employees at all levels.
Bell Helicopter Company
("Bell")
%
Textron acquired Bell in 1960.
Through the end of 1971, the
president of Bell reported directly to Miller.
About that time,
Robert Ames was appointed aerospace group vice president 2/; Edwin
Ducayet, who had been president of Bell since 1960, was promoted
to the interim post of chairman of Bell, and James Atkins became
Bell president. 3/ From 1971 until January 1977, that aspect of
Bell operations directly pertaining to marketing was the prime
responsibility of Hans Weichsel, Bell's Senior Vice President.
Bell has accounted
since 1970.
for at least 20 percent of Textron
sales
1/
Of the last ten Textron management meetings, only the agenda
for the 1974 meeting indicates discussion about ethics.
That
discussion appears to have focused upon conflicts of interest
and other pressures brought to bear upon Textron employees.
At the 1976 management meeting, Miller told Textron division
presidents that Textron "will not permit any schemes to channel
or cover up improper payments."
2/
Ames became group officer of Bell Aerospace in 1971; he did
not officially become responsible for Bell Helicopter until
mid or late 1972.
Miller was a de facto group officer for
Bell during most of 1972.
2/
' Ducayet served as chairman of Bell from 1972 to 1973.
Ducayet
was elected to Textron's Board of Directors in April 1973 and
continues to serve as a director.
Atkins continues to serve
as Bell's president.
Prior to becoming president of Bell in
1972, Atkins served as Bell's executive vice president.
- 4 -
36
Bell International Marketing
Department
The staff's investigation has focused primarily on the international marketing activities of Bell. 1/ Starting in 1951, Bell
sold helicopters overseas, through licensees Agusta, an Italian
corporation, and Mitsui, a Japanese corporation, as well as through
certain dealers.
During this initial twenty year period, Bell
international sales were generated out of a six person subdivision
of the Commercial Marketing Department, known as the Export Sales
Department.
Some time around 1969, however, Bell embarked on a
program for the expansion of international sales. 2/ As a consequence, an International Marketing Department was spun off in 1969
as a separate entity to be headed by a Vice President for International Marketing, Frank Sylvester. 3/ Reporting directly to
Sylvester was a Manager of International Marketing.
He, in turn,
1/
The following is a table of Bell's international sales during
the period 1971-1977:
1971
1972
1973
1974
1975
1976
1977
-
$ 37,258,000
$ 47,865,000
$ 83,866,000
$ 97,192,000
$167,297,000
$167,442,000
$139,464,000
Bell net sales to Iran, which are accounted for separately
from international sales, have been the following:
1974 - $ 82,875,000
, 1975 - $259,143,000"
1976 - $336,803,000
1977 - $371,655,000
2/
Bell commissioned a study in the late 1960's to consider alternative sales strategies facing it in the fact of dwindling
military sales to the United States government related to
the Vietnamese war effort.
3/
Sylvester still maintains this position through which he has
been responsible for all aspects of Bell's international
marketing.
- 5 -
37
was assisted by a Sales Manager 1/ and an Administration Manager. 2/
In late 1971, International Marketing also established an office in
Brussels, Belgium, to spearhead sales efforts in Europe, the Middle
The Brussels office, which closed in late 1975,
East and Africa.
was headed by Vernon H. Hunt ("Hunt"), who reported directly to
Sylvester.
International Marketing also has had since 1970 an
office in Washington, D.C., whose director has reported directly
to Sylvester.
Bell has sold internationally through a network of dealers
or sales representatives responsible for over 40 countries.
Sales
representatives are contractually obligated to sell Bell products,
whereas dealers, who were paid a higher percentage of commissions,
were obligated to provide after-sales support and stock spare
parts.
Most successful sales efforts are a result of the dealer/
sales representative working hand in hand with Bell employees in
promoting Bell's product and service.
When questioned about the
making of payments to government officials in connection with
Bell sales, Weichsel and several lower level employees testified
that Bell would not make payments to government officials directly
but that what a dealer did with his own money (i.e., accrued Bell
commissions) or to whom a dealer instructed Bell to disburse commissions and where were his own business.
Certain Bell employees
stated that it was their understanding that Bell would allow a
sale of a helicopter to proceed even if it were aware that the
dealer intended to make a payment to a government official in
connection with the sale.
HI*
BELL HELICOPTER
COMPANY
Details with respect to the most significant illegal, improper
or questionable payments are set forth below on a country-by-country
basis.
A.
IRAN
1.
Summary
On January 24, 1978, the Senate .Committee on Banking, Housing
and Urban Affairs ("Committee") held hearings on t h e nomination of
1/
The Sales Manager was responsible for direction of a sales
force, consisting of five regional managers and their assistants.
Their primary responsibility was promotion of Bell
products, leading up to the generation of what is known as a
Standard Export Purchase Agreement (SEPA), on which a customer
would indicate the number of helicopters to be purchased and
their configuration.
2/
Administration figured primarily in the internal review of
SEPA's, coordination of production schedule and procurement
of accessory parts from other manufacturers or from United
States military stocks.
-
6
-
38
G. William Miller, Chairman of Textron, to the Board of Governors
of the Federal Reserve System.
Prior to the hearings, Chairman
Proxmire received a verbal report from an agency of the U.S.
Government that the late General Mohammed Khatami ("Khatami"),
Commander-in-Chief of the Imperial Iranian Air Force and husband
of the Shah's sister, was an owner of Air Taxi Company ("Air Taxi"),
Bell's Iranian dealer.
Bell made payments of $2.95 million to Air
Taxi in connection with a 1973 contract awarded to Bell to sell 489
helicopters for about $500 million to the Government of Iran.
During the hearings, the Committee staff was authorized to investigate the payments and whether Miller had any knowledge of any beneficial interest Khatami may have had in A i r Taxi.
On February 21,
1978, the Committee staff concluded its investigation.
The staff's
inquiry, including its review of the Committee staff's February
21st report and underlying depositions and documents, has revealed
that. Khatami had a beneficial interest in Air Taxi, that Khatami
played an influential role in the sale of Bell helicopters to Iran
and that Bell employees and officials knew or had reason to know
of Khatami's beneficial interest in Air Taxi.
2.
Termination of Air Taxi's
Predecessor
Prior to the development of a significant helicopter requirement of the Iranian government in 1968, Bell was represented in
Iran during the period 1964 - 1967 by William French ("French"),
through his company, International Helicopter Consultants.
In
1966, according to French and his attorney, C. Robert Bell ("C.
Bell"), Khatami had French barred from reentering Iran for failing
to comply with Khatami's demand that French turn over an interest
in his Bell franchise to a company owned by Khatami, Air Taxi.
At or about April 1966, an associate of French had Iranian public
records searched to determine the ownership of Air Taxi.
Records
of registered companies in Iran showed that Air Taxi was first
registered in 1958 and that from 1958 until June of 1965 Khatami
was listed afe a shareholder of Air Taxi with Nader Jahambani
("Jahambani") and Ahmad Shafik, a/k/a Chafik, ("Shafik").
The
search further revealed that in 1965 a second registration by Air
Taxi listed Amir Zanganeh ("Zanganeh"), Ahmad Shafik and Frederick
Eshoo as shareholders.
French's testimony with respect to his
associate's findings is corroborated by the State Department which
informed the Committee that Khatami was listed on public records
in Iran as Chairman of Air Taxi between 1958 and 1965.
In the summer of 1966, French retained C. Bell to assist
French in regaining entry to Iran and securing French's business
interests in Iran.
In September 1966, Bell and French met with
representatives of the State Department in Washington, D.C.
C. Bell told the representatives that French's problems in Iran
were attributable to French's refusal to give a substantial portion
of his business to General Khatami.
C. Bell requested State Department guidance on the matter.
One of the representatives suggested
that C. Bell travel to Iran and negotiate on French's behalf
directly with Khatami.
At or about September 22 and 28, 1966, the
State Department informed C. Bell that Khatami would be willing to
- 7 -
39
meet with C. Bell and that Khatami suggested that C. Bell meet
with Hassan Safavi ("Safavi"), the legal advisor to Iran's High
Council of Civil Aviation ("Council"). 1/
In October 1966, C. Bell traveled to Iran and met with Safavi.
Safavi advised C. Bell that his government's charges against French
were directed toward him personally and would not prohibit French's
companies from doing business in Iran.
Safavi, after informing
C. Bell that he was speaking for Khatami, proposed that an Iranian
corporation, Sherkart Sahami Tayar Pars ("STP") be formed in which
he would be the holder of 51 percent of the shares as the nominee
of Khatami and other members of the Council.
French would hold
the other 49 percent through International Helicopter Consultants,
Safavi
which held the Bell francnise, and another French company.
also told C. Bell that Khatami controlled Air Taxi.
After conferring with his client in Beirut, C. Bell returned
to Iran and met with Khatami in October 1966.
It was C. Bell's
intent to obtain verification from Khatami that Safavi was speaking
for Khatami with respect to the STP arrangement.
C. Bell told
Khatami that Safavi had suggested that French's company could do
business in Iran if STP were formed with Safavi holding a majority
interest on behalf of members of the Council.
Khatami told C.
3ell that Safavi was speaking for him with respect to the STP
arrangement.
Khatami advised C. Bell that although French's company
could operate in Iran, French could not himself return to Iran.
C. Bell told Khatami that French would accept the STP proposal and
then authorized Safavi to establish STP.
3.
Bell Officials
Informed
At or about November 2, 1966, C. Bell travelled to Bell's
headquarters in Fort Worth to brief Bell officials of the STP
arrangement.
Bell had previously expressed to French its concern
that Bell could not be adequately represented in Iran without
French's presence.
At Bell, C. Bell met with James Feliton, area
sales manager ("Feliton"), and Duayne Jose ("Jose"), director of
commercial marketing 2/ C. Bell told Jose and Feliton that French
had been attempting to operate in the face of a great many hardships, some of which were imposed because Khatami held a virtual
monopoly on all aircraft sales in the country, partly through
his ownership of Air Taxi.
C. Bell stated that he negotiated on
French's behalf with Khatami and his representatives and that the
construction and proposed method of operation of STP would be the
solution to French's problem.
Feliton responded that it would
take Bell several months to decide whether to use STP, and in the
meantime Safavi should write to French assuring that STP will
1/
The Council was an official organization regulating
commercial aviation activities.
2/
Jose, now a Bell Vice President, reported directly to James
Atkins, Executive Vice President.
-
8
-
Iran's
40
have the blessings of the Council and Khatami. 1/ At the end of
tne meeting Jose told C. Bell that he wanted C. Bell to report
his story to Bell's president.
Jose and C. Bell then met-with Edwin J. Ducayet, Bell's president and a member of the Textron Board since 1973, for approximately
45 minutes in Ducayet's office.
C. Bell testified that in providing
Ducayet substantial detail about his client's situation in Iran,
he told Ducayet that Khatami held substantial amounts of stock in
Air Taxi? French had been informed that the only way he could do
business in Iran would be through Khatami's companies, including
Air Taxi; French had been refused re-entry to Iran shortly after
French refused to do business with Khatami; he had held discussions
with Safavi and Khatami to resolve French's difficulty; he then
authorized Safavi to form STP with the understanding that Safavi
would hold 51 percent interest as the nominee of Khatami and other
members of the Council; and that although French would not be permitted to return to Iran, his company working under the STP
arrangement would be highly beneficial to Bell.
Ducayet's only
comment came at the conclusion of the meeting when Ducayet
thanked C. Bell for a most interesting story. 2/
After C. Bell's visit to Fort Worth, Bell began receiving
additional communications from French and C. Bell indicating that
Khatami had a beneficial interest in Air Taxi and STP.
For
example, on or about January 5, 1967, C. Bell wrote to Feliton
advising him that, according to Safavi, STP was authorized to sell
all types of light aircraft in Iran and that "it is the only company authorized to do so apart from General Khatami's two corporations which apparently intend to . . . leave the selling X o our
company."
3/ On or about January 17, 1967, J. H. Orpen, Bell's
1/
C. Bell's handwritten notes of his meeting reflect
request.
2/
Ducayet reported directly to Miller.
Ducayet has no recollection of meeting with C. Bell but does not deny meeting with
him.
Jose recalls a meeting with C. Bell when C. Bell alleged
that Khatami had an ownership interest in Air Taxi, but he
has no recollection of a meeting where Ducayet was present.
The staff has obtained a copy of a letter C. Bell wrote to
French one day after his meeting in which he makes reference
to meeting with the president of Bell.
3/
C. Bell was referring
operating (as opposed
corporations.
Feliton's
to Air Taxi and Heli Taxi, a helicopter
to selling) company as Khatami's two
- 9 -
41
Export Sales Manager, 1/ responded to C. Bell's letter and earlier
request that- Bell approve the STP arrangement.
Orpen wrote it was
Bell's belief that the arrangements for handling sales through
STP were not satisfactory to Bell as long as French was unable
to personally follow through with Iranian contacts.
However, notwithstanding Bell being informed that STP would be owned in large
part by government officials, Orpen issued a temporary authorization
to use STP until such time as Bell had an opportunity to personally
assess the situation by a visit to Iran.
After the temporary
authorization was given, Bell received a letter at or about
January 18, 1967, from French that STP "should open many doors now
that we have General Khatami as partner silently along with Dr.
Safavi . . ." 2/
French's letter also requested information he
needed to promote sales to two Iranian agencies.
George Kling
("Kling"), who replaced Feliton as area sales manager, specifically
responded to French's letter on or about January 30, 1967, by forwarding the requested information and expressing Bell's hope that
"your new association will permit you to resume residence and
business in Tehran . . ." 3/ On or about July 10, 1967, Jose and
Orpen received a letter from C. Bell advising that Khatami "had
decided to handle transactions with STP in much the fashion he had
set up for Air Taxi . . . "
4.
Hiring of Air Taxi
At no time did anyone at Bell express any concerns to C. Bell
or French with respect to Khatami's interest in STP.
Rather, Bell's
chief concern with French's representation was his inability to personally supervise his company's activities in Iran.
In November
1967, Orpen, Kling and Richard Peirrot, Bell's international marketing consultant, traveled to Iran for the purpose of finding a
new representative. AJ
Shortly after the Bell employees returned
to Fort Worth, they recommended that Air Taxi be appointed as Bell's
1/
Orpen reported directly to Jose.
Feliton and his
George Kling, reported directly to Orpen.
successor,
2/
Orpen, Jose and others at Bell received a copy of
letter.
French's
1/
Kling testified
4/
No sales were made to Iran under the STP arrangement.
C. Bell
testified that after the formation of STP, French received
pressure from representatives of Khatami to permit them to hold
the Bell franchise directly.
French refused to allow anyone
else to hold the franchise.
Further, French has produced
a copy of a letter he wrote to C. Bell on July 21, 1967,
reflecting that he had learned that Amir Hossein Zanganeh,
Air Taxi's Managing Director, had attended the Paris Air
Show where he stated that Khatami wanted Air Taxi to hold
the Bell franchise.
that the "new association" referred to STP.
-
10
-
42
agent in Iran.
Bell immediately requested Air Taxi to consider
serving as Bell's representative. In or about March 1968, Air Taxi
began serving as Bell's representative.
Kling testified that he recommended Bell's hiring of Air Taxi
with the understanding that Khatami had an ownership interest in
Air Taxi.
Kling believes it would not have been good business
practice for Bell to refrain from retaining Air Taxi because of
Khatami's interest in light of Air Taxi's experience with helicopters and its adequate hangar facilities.
Jose acknowledges
that he was told on three occasions by French or C. Bell that
Khatami had an ownership interest in Air Taxi, but he says he did
not believe what they said.
Jose testified he made the allegations of Khatami's ownership of Air Taxi known to Orpen, Kling
and Peirrot prior to their trip to Iran.
Jose maintains that
he instructed the three employees to investigate whether there
were any conflicts of interest.
Jose recalls that when the three
returned from Iran they did not suggest there was any conflict of
interest with respect to Air Taxi.
Orpen has no recollection of
investigating or receiving instructions to investigate whether
any government officials owned Air Taxi.
Kling believes he
received no such instructions and, in fact, understood that
Khatami had an ownership. 1/
Shortly after the three employees returned from Iran in or
about the first week of December 1967, Bell requested the U.S.
Department of Commerce for a World Trade Data Report ("WTDR") on
Air Taxi. 2/ Commerce Department records reflect that Bell was
sent the report on December 14, 1967 in response to Bell's request
received by Commerce on December 11, 1967.
The report, prepared
in January 1965 by the U.S. Embassy in Tehran, identified Zanganeh,
Shafik and Eshoo as partners of Air Taxi and stated:
The Iranian Air Force Commander General
Mohammed - Amir Khatami, the husband of
Princess Fatemeh, the sister of the Shah,
reportedly has financial interests in the
firm. 3/
1/
Peirrot is deceased.
2/
WTDRs provide a general description of a foreign commercial
entity including the entity's financial references, size,
capital and principals.
3/
Although the WTDR was not produced by Textron pursuant to
Commission or Committee subpoenae, there is no evidence that
the document has been deliberately suppressed.
-
11
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43
5. March 1971 Memorandum
Between February 20 and March 12, 1971, a former Bell International Marketing employee was in Iran to ascertain its need for
helicopters.
He met with Iranian officials, U.S. military
advisors and embassy personnel, employees of U.S. companies and
Amir Zanganeh ("Zanganeh"), Air Taxi's Managing Director.
In his
discussions with embassy personnel and Iran-based employees of U.S.
companies, he often heard that Khatami had a financial interest in
Air Taxi.
This employee was unaware of any Textron policy against
Textron representatives being owned by government officials and
therefore had no concerns when he heard that Khatami had a financial
interest in Air Taxi.
He also heard that officials of the Iranian
government were not allowed to publicly hold themselves out as
owners of private enterprises, but it was a known practice that
military personnel did have "moonlight activities" in private
enterprises. 1/
On or about March 17, 1971, this employee returned to Bell's
European office in Brussels and prepared two separate memos entitled
"Trip Report Iran Feb. 20 - March 12."
One of the memos was
addressed to Sylvester with seven other Bell employees designated
to receive a copy.
This memo discussed the general background
of the Iranian military establishment, Air Taxi and the potential
for a very large helicopter procurement.
The other memo, addressed
solely to Sylvester, pertained to the failures of Bell's Italian
licensee to properly serve Iran's helicopter requirements.
The
Marketing employee thought his information was very important
to Bell and hand-carried his memoranda to Fort Worth on or about
March 20, 1971. At Fort Worth, he and Hunt condensed the two
memos into one interoffice memo addressed to Sylvester and marked
"Bell Confidential Bell Eyes Only." 2/ Page two of the thirteen
page condensed memo, under the section "Bell Representative Air Taxi Company" contains the following statement:
1/
The Marketing employee's testimony is supported by information
obtained by the staff that in o r about 1965 the Shah ordered
government officials not to. hold ownership interests in private
companies.
Khatami's name appeared in public records as an
owner until 1965, but as described below and in support of
his testimony regarding moonlighting, the staff has traced
over $1 million paid to Khatami by 2anganeh between 1968
and January 1973 from commissions paid t o Air Taxi by U.S.
aerospace companies.
2/
At one point, the marketing employee testified that he can
recall discussing his memos with Hunt and Sylvester and they
suggested a condensed report be prepared.
Later, he testified
that he was not sure but in all likelihood he would have
seen Sylvester about his memos before they were condensed.
-
12
-
44
Air Taxi Company is situated on the main airport/
base perimeter in Tehran, and employs nearly
200 persons (inc. 25 pilots), operating 14
Aero Commanders, 5 Turbo Commanders, 5 DC3's,
7 Pipers, 2 Cessnas, and 1 Turbo Beaver.
Activities include non-scheduled passenger
and cargo charters (esp. Civ. Gov't.), photographic and agricultural operations, with
light aircraft maintenance carried out at
the main facility.
Issued capital is 50
million rials ($3/4 m), and the chairman
and managing director is Mr. A.H. Zanganeh.
The one named director is A. Chafik (Prince
Shakriar Chafik's father), but the real
influence behind the company is General
Khatami, the Air Force Commander-in-Chief.
As a serving officer, he officially is not
allowed to hold offices outside his military
capacity, but in reality, anything that flies
he has an 'interest' in.
As for instance in
Iranian Helicopters - the Bristow Company's
operating 47's; 206A's, W.W.Ill's and
Alouette Ill's.
Further, the memo contains a diagram of Iran's military establishment.
Khatami is listed directly below the Shah and is linked
by dotted lines on the diagram to Air Taxi and two other commercial
aviation companies.
Copies of the memo were taken to the office of Ducayet where
a meeting was held to discuss the memo.
Present at the meeting
were Hunt, Ducayet, Sylvester and James F. Atkins, then Bell's
Executive Vice President.
In or about the week of the meeting
(week of March 20, 1971), Ducayet complimented the author on a
well written and documented report.
The March 1971 memo was not produced to the Committee until
June 21, 1978, after the confirmation of Mr. Miller.
On June 26,
1978, Chairman Proxmire requested the Justice Department to conduct
a thorough investigation to determine whether, in light of the late
submission, any Federal criminal statutes were violated.
Chairman
Proxmire commented that one document (the March 1971 Memorandum)
indicates that Textron-Bell officials were aware that Khatami was
the "real influence" behind Ai? Taxi, whereas Textron-Bell officials
had testified that they had n o : s u c h information. 1/
Textron has
explained to the Committee and SEC staff that during its search
1/
Sylvester, the addressee of the March 1971 memo, testified before
the Committee staff in February 1978 and denied any knowledge
of any link between Khatami and Air Taxi.
After the
discovery of the memo, Sylvester refused to testify before the
SEC staff by invoking his fifth amendment privilege.
- 13 -
45
for documents pursuant to Committee subpoena, it failed to review
the files of Hans Weichsel, Bell's Senior Vice President.
The
March 1971 memorandum, according to Textron, was found in Weichsel's
files in June 1978 during Textron's search for documents pursuant
to Commission subpoena. 1/ The two earlier memos were not produced
by Textron, but by the former Bell International Marketing employee
in London on a voluntary basis.
One of the two earlier memos contains very similar language to the paragraph quoted above.
This
m e m o was addressed to Sylvester with copies shown as having been
distributed to several people at Bell.
The Marketing employee maintains that notwithstanding hi-s
hearing that Khatami had a financial interest in Air Taxi, the
message he intended to convey in the paragraph quoted above was
that Khatami's "interest" in Air Taxi was his concern for Iran's
internal security.
The Shah was greatly concerned with security
matters and, according to him, Khatami's "real influence" behind
Air Taxi and other commercial aviation companies was his control
of anything that flies in Iran. 2/ William J. Yates, who reported
to Sylvester as Manager of International Marketing, received a
copy of the earlier version of the Marcfc 1971 memo containing
similar language to that quoted above. -Yates testified that
the language confirmed an understanding he had prior to 1971 that
Khatami had a fiscal interest in all Iranian commercial aviation
companies, including Air Taxi.
The March 1971 memorandum prompted a Bell team, led by Sylvester,
to visit Iran in April 1971 to formally propose the Bell helicopter
for the Iranian military.
Between April 1971 and April 1972, Bell
displayed an intensified sales effort, which included several
meetings between Bell officials and Khatami and General Toufanian,
Deputy Minister of War and the head of the Iranian military procurement agency ("Toufanian").
Bell was competing with, among other
helicopter manufacturers, its own Italian licensee, Agusta.
In
April 1972, Bell received a letter of intent from Toufanian of the
Iranian government's plan to purchase Bell Cobras and Model 214
transport helicopters, contingent on a demonstration of the helicopters. After the demonstration and further sales efforts, a
Foreign Military Sale was concluded on June 28, 1973 under which
Bell would sell 489 helicopters to Iran through the United States
Defense Department.
The contract was valued at approximately
$500 million.
1/
Weichsel read the March 1971 memorandum in or about 1971.
Weichsel's handwriting appears on the front and in the body
of the memorandum.
2/
Ducayet was previously told by C. Bell that Khatami was an
owner of Air Taxi.
There is no evidence that the explanation
of the Bell Marketing employee concerning the paragraph
quoted above was given to Ducayet or any other reader of the
memorandum.
- 14 -
46
From the documents the staff has received and the testimony
it has heard,
it appears that Khatami favored the purchase of Bell
helicopters and had important input in Iran's decision to purchase
489 helicopters from Bell.
While there is considerable evidence
that Toufanian was the prime recipient of Bell's successful sales
effort and the official link between the Shah and Bell, Bell officials acknowledge that Khatami played a significant, although according to them, not the major, role in the helicopter sale.
Through his
military office, his marriage to the Shah's sister and as the Iranian
government's expert advisor on helicopters, Khatami had the opportunity to influence matters in favor of Bell and did so. 1/
6
•
Payments to Air Taxi
On June 29, 1973, one day after the conclusion of the contract,
Bell and Air Taxi signed an agreement in which Bell would pay Air
Taxi $2,950,000 in three installments ending in 1975 for its representation of Bell, including its efforts on behalf of the big sale.
At no time prior to the agreement did Bell ask Zanganeh whether
Khatami or any other government official had an interest in Air
Taxi or whether Air Taxi's commissions were shared or were to
be shared with government officials.
Bell's chief concern with
respect to the signing of the agreement was whether Zanganeh was
authorized to negotiate and consummate a commission arrangement on
behalf of Air Taxi.
At or about May 21, 1973, Zanganeh furnished
Bell with a notarized resolution of Air Taxi's Board of Directors
authorizing Zanganeh to negotiate on its behalf.
The resolution
identified Zanganeh, Shafik and Eshoo as the holders of 100 percent
of the stock in Air Taxi.
The identity of the owners was not
requested by Bell and was simply a by-product of Bell's request
that Air Taxi document Zanganeh's authority. 2/
The staff has subpoenaed the bank accounts of Air Taxi and
Zanganeh at the First National Bank and Trust Company of Oklahoma
City.
Copies of cancelled checks drawn on the Oklahoma bank by
Zanganeh reveal that Zanganeh issued checks to General Khatami
totalling approximately $1.1 million during the period December 31,
1967 through January 27, 1973.
Many of the checks written to
Khatami were written on the same day Zanganeh wrote.checks to
1/
For example, Air Taxi's sales manager stated in a memorandum
to files dated August 28, 1972 that Khatami strongly recommended the purchase of Bell helicopters to the Shah.
John
Gallagher, a Bell salesman, indicated to the Committee staff
that Khatami would have to give his "note of approval" before
the sale was consummated.
Gallagher also indicated to the
Committee staff that he discussed Khatami's role with Atkins
and Sylvester, and that they agreed that Khatami's approval
was crucial to the success of Bell's sales efforts.
2/
Textron has also produced from its files a 1970 Dun & Bradstreet report on Air Taxi which also identifies Zanganeh,
Shafik and Eshoo as the owners of Air Taxi.
- 15 -
47
S h a f i k and N . J a h a m b a n i , a C o l o n e l in the I r a n i a n A i r F o r c e and
an o w n e r of record of Air T a x i from 1958 to 1965. 1/
It a p p e a r s
from the O k l a h o m a bank a c c o u n t that Z a n g a n e h , in care of A i r Taxi,
received c o m m i s s i o n p a y m e n t s from v a r i o u s United States a e r o s p a c e
c o m p a n i e s w h i c h w e r e d e p o s i t e d in the a c c o u n t from w h i c h the checks
made p a y a b l e to Khatami were d r a w n .
Bell issued three c h e c k s to Z a n g a n e h .
The first c h e c k was
issued on June 29, 1973 for $1 m i l l i o n .
Zanganeh d e p o s i t e d this
first i n s t a l l m e n t in the P a r i s b r a n c h of C i t i b a n k .
T h e second and
third c h e c k s were issued on July 1 , 1974 and June 19, 1975, r e s p e c t i v e l y , for $1 m i l l i o n and $950 t h o u s a n d , r e s p e c t i v e l y .
The
second and third checks w e r e d e p o s i t e d in the O k l a h o m a bank.
The
staff h a s not found any c h e c k s d r a w n on the O k l a h o m a B a n k by
Zanganeh and m a d e p a y a b l e to K h a t a m i a f t e r the first p a y m e n t by
B e l l . 2/ H o w e v e r , the staff h a s b e e n u n a b l e to o b t a i n any of
Z a n g a n e h ' s French bank r e c o r d s . 3/ F u r t h e r , the staff n o t e s that
on May 27, 1974, Zanganeh t r a n s f e r r e d $300,000 f r o m h i s O k l a h o m a
account to A i r T a x i ' s Swiss bank a c c o u n t , r e c o r d s of w h i c h account
we have a l s o b e e n unable to o b t a i n . 4/
B.
UNITED ARAB
1.
EMIRATES
Summary
B e t w e e n 1971 and 1975, Bell paid its d e a l e r in the United A r a b
E m i r a t e s ("UAE") a p p r o x i m a t e l y $ 4 0 0 , 0 0 0 in c o m m i s s i o n s in c o n n e c t i o n
with a p p r o x i m a t e l y $ 4 , 6 6 0 , 0 0 0 in s a l e s m a d e to the D u b a i P o l i c e A i r
W i n g ( " D P A W " ) and the U A E D e f e n s e F o r c e .
O f f i c i a l s of the D P A W and
the p r i v a t e s e c r e t a r y to the U A E M i n i s t e r of D e f e n s e had a f i n a n cial interest in the d e a l e r .
A s l a t e as 1 9 7 7 - e a r l y 1 9 7 8 , B e l l p r o moted s a l e s to the UAE D e f e n s e Force through the s a m e d e a l in which
the U A E Deputy M i n i s t e r of D e f e n s e (the f o r m e r p r i v a t e s e c r e t a r y )
had a f i n a n c i a l interest.
1/
A s noted e a r l i e r , the n a m e s of J a h a m b a n i , K h a t a m i and Shafik
w e r e on the p u b l i c record u n t i l 1965 as o w n e r s of A i r T a x i .
In 1 9 6 5 , Eshoo replaced J a h a m b a n i and Z a n g a n e h r e p l a c e d
K h a t a m i as o w n e r s of record w i t h S h a f i k .
2/
K h a t a m i died
3/
C i t i b a n k has not complied w i t h a F e b r u a r y 1978 C o m m i s s i o n subp o e n a for Z a n g a n e h ' s r e c o r d s , citing French c r i m i n a l law.
The staff is still seeking t h e s e d o c u m e n t s .
4/
The C o m m i t t e e h a s s u p p l i e d the staff w i t h a d d i t i o n a l i n d e p e n dent e v i d e n c e that K h a t a m i owned Air T a x i , including a f f i d a v i t s
from U . S . M i l i t a r y and E m b a s s y o f f i c i a l s .
For e x a m p l e , the
sworn a f f i d a v i t of Harold C. P r i c e , G e n e r a l , USAF (Ret.),
s t a t e s that in late 1969 o r e a r l y 1 9 7 0 G e n e r a l K h a t a m i told
him he had an o w n e r s h i p interest in A i r T a x i .
in late
1975.
-
57-608
0 - 8 0 - 4
16
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48
2.
Discussion
In or about October 1971, Bell received a purchase order
from Sheikh Mohammed ("Mohammed"), son of Dubai's Ruler, Sheikh
Rashid, and then Dubai's Chief of Police and Public Safety, for
two 206B helicopters and related accessories at a total price
of approximately $340,000.
The helicopters were to be used by
DPAW.
The possibility of such a sale was first introduced to Bell
by Gerhard Trosch ("Trosch") who informed Bell that he was soon
to become commander of DPAW and would like to serve as Bell's
dealer in UAE.
On or about October 15, 1971, Sylvester was
informed by Bell employees that Mor.jimmed will agree to Trosch
representing Bell while serving as commander of DPAW and that Bell
promised Trosch commissions on the 206B sale if Trosch secured the
sale. • On October 15, Sylvester agreed to pay commissions to Trosch
and use him as a dealer for future sales if Trosch secured the 206B
sale.
On or about April 14, 1972, after the delivery of the
206B's, Bell paid Trosch's company, Dubai Helicopter Services
Prior to the commission
("DHS"), about $25,000 in commissions.
payment, Trosch had become DPAW's chief pilot and aviation advisor
to Mohammed, and Tony Tooth ("Tooth") had become DPAW commander.
Tooth was a director of DHS and, with Trosch, directed Bell how
DHS commissions on the 206B sale were to be paid.
Bell appointed DHS as its dealer in UAE in or about January
1972.
By December 1974, Bell paid DHS $120,000 in commissions in
connection with sales to DPAW totalling $1,605,000. 1/ During the
January 1972 through December 1974 period, Trosch served as managing
director of DHS and as chief pilot and then commander of DPAW. 2/
Bell employees were aware of his positions in the Dubai government. 3_/
1/
$80,000 of the $120,000 was transferred by Bell to Trosch's
Swiss bank account.
2/
Trosch became DPAW Commander in 1974 and still holds that
position.
Trosch was a director of the dealer until July
1977.
Minimal commissions were paid to the dealer by Bell
on minimal sales to DPAW from 1975 to July 1977.
3/
Sylvester authorized the appointment of Trosch's company, DHS,
after being informed that Trosch would be serving as DPAW commander.
Trosch did in fact serve in the DPAW, first as the
chief pilot and then as the commander.
At or about July 21, 1976, Weichsel read a letter of Bell's
U.A.E. dealer which, in part, stated: "Gerhard Trosch, as one
shareholder [of the dealer], and as aviation advisor to the
Minister of Defense, UAE . . .." Weichsel testified that he
did not know that Trosch, as "aviation advisor," held an official paid position in the UAE government and did nothing to
ascertain whether Trosch held such or any other position.
Sylvester received a copy of the July 21 letter.
- 17 -
49
Late in 1971, Trosch told a Bell International Marketing
Employee ("Employee") that the Naboodah family had been appointed
the owners of DHS by Mohammed.
Trosch also told Employee that
the ownership by the Naboodah family was held through its three
principal brothers, including Khalifa Naboodah ("Naboodah"),
son-in-law of Dubai's ruler, Sheikh Rashid.
Naboodah served as
private secretary to Mohammed who, by November 1971, had become
Minister of Defense of the recently formed UAE. As Mohammed's
private secretary, Naboodah participated in the decision making
process with respect to potential sales of helicopters to the UAE
and was invited by Bell to attend Bell-sponsored functions at air
shows.
At or about February 21, 1974, Employee authored a report of
a visit to Dubai in which he reported that the UAE Defense Force
was considering the purchase of four Bell 205A-1 helicopters.
Employee reported that UAE ministers held official discussions
about allocating in 1974 sufficient funds to secure the four Bell
helicopters.
The trip report, received by at least six Bell
employees, advised that the UAE's requirement for four Bell helicopters was firm despite heavy competition and that a "special case"
was presented to the Council of Ministers to immediately release
the necessary funds from the UAE budget to purchase the helicopters.
Employee stated:
"This special case was prepared by Khalifa Naboodah,
private secretary to Sheikh Mohammed, and major partner in D.H.S."
Employee advised that the Council of Ministers did not accept the
case for early release of the funds as the amount of 1974 oil
revenues was uncertain and the UAE Defense Force's budget would
be 10 percent of this revenue.
Employee predicted that the budget
would be finalized by April 1974.
At or about August 27, 1974,
Mohammed, on behalf of the UAE, signed a contract with Bell to purchase the four helicopters and related spare parts for $3,201,240.
In 1975, Bell paid DHS about $255,000 in commissions on the
sale. 1/ Prior to the payment of commissions, Employee left Bell
and was hired by Naboodah as the dealer's sales director.
He
assumed Khalifa Naboodah would be receiving part of the commissions
as one of the principal brothers of the Naboodah family. 2/ Further,
Dee Mitchell, Bell's number two person in International Marketing,
understood that Naboodah was a shareholder of the dealer prior to
and after Bell's commission payment.
By the summer of 1976, Naboodah became Deputy Minister of
Defense ("DMOD") of the UAE.
At or about August 31, 1976, Sylvester
received an activities report from Bell's dealer, Aerogulf Sales
1/
Bell transferred about half of DHS' commissions to Trosch's
Swiss bank account.
2/
Employee was aware that the dealer's profits were distributed to
the Naboodah family by a check made payable to "The Naboodahs,"
as opposed to the names of the two Naboodah brothers who were
the registered owners.
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18
-
50
Co. ("Aerogulf") (formerly named DHS), which identified Naboodah
as the DMOD and as a .participant in planning meetings concerning
the inclusion of Bell 214 helicopters in the 1977 UAE budget.
Prior to Sylvester's receipt of the above report, he received
other documents which identified Naboodah as Chairman of Aerogulf.
As described below, one such document was forwarded to
Sylvester by a Textron assistant vice president.
This document,
a letter of Employee dated August 21, 1976, referred to Naboodah
as Aerogulf's chairman and expressed Naboodah's displeasure with
a Bell decision not to pay commissions to Aerogulf on a sale
of two helicopters to Abu Dhabi.
This letter, as well as another
letter received by Ormand K. Moore ("OKM"), Bell's Area Manager
for Europe, Africa and Middle East, linked Naboodah's displeasure
with future business between the UAE and Textron. 1/ Bell later
reversed its position and paid commission on later sales of helicopters to Abu Dhabi.
In March 1977, John Moore ("Moore"), a Bell salesman for the
Middle East, traveled to Dubai to advance a demonstration of the
2143 helicopter.
While in Dubai, Moore learned that the UAE Air
Force's budget retained funds for four Bell 214s. At or about
March 30, 1977, Moore prepared a trip report of his activities in
Dubai.
The trip report, which was sent to Sylvester, Sylvester's
superior 2/ and six other Bell employees stated that final approval
of the Air Force budgeting the four helicopters:
1/
The letter to OKM, which he received at or about August 27,
1976, advised that Aerogulf had secured four 214B's in the
1977 UAE budget and "the final decision will lie with the
Minister and Deputy Minister of Defense ... . Khalifa Naboodah
is not enamored at the moment considering the Abu Dhabi 206
episode . . . "
Moore knew that Naboodah was D M O D and Chairman of Aerogulf.
On August 8, 1978, OKM refused to answer
all questions pertaining to the UAE by invoking his fifth
amendment privilege, although he did testify that he was
unaware of any Textron policy against Textron dealers sharing
commissions with foreign officials until be became aware in
January 1978 of the Foreign Corrupt Practices Act.
OKM
reported to Sylvester.
2/
Sylvester's superior in 1977, Jack Hoerner, Bell's Senior Vice
President or Marketing and Programs, has reported directly to
Atkins, Bell's President.
- 19 -
51
will be through Sheikh Mohammed, MOD
[Minister of Defense] Dubai.
Although
[Employee] feels his Arab partner,
the Assistant MOD, can insure no change
in the budgeted 214 requirements, Colonel
Sinatso is pressing for four helicopters
without specifying a manufacturer. 1/
From November 1977 through the enactment of the Foreign
Corrupt Practices Act, Bell continued to promote the sale of 214
and other model helicopters to the UAE Air Force while realizing
that Naboodah, as DMOD, was a participant in the UAE decision
making process and was associated with Aerogulf. 2/ In November
1977, Grant Mackie ("Mackie"), Bell's Regional Manager for the
Mideast, personally submitted a Bell proposal to Naboodah to
sell eight 214 helicopters.
At the time Mackie presented the
proposal to Naboodah, he believed that Naboodah was chairman or
director of Aerogulf.
Mackie had heard that the "Naboodah brothers"
had an ownership interest "and may have believed" that that term
included Khalifa, but he did not question whether in fact Khalifa
was included. The sale of the 214's never materialized for reasons
unknown to the staff.
As a result of matters brought to the attention of Textron
counsel through the staff's investigation, in June 1978, Textron
temporarily suspended Aerogulf as its dealer and has frozen
commissions owed to Aerogulf partly on sales made after the
enactment of the Foreign Corrupt Practices Act. 3/
3.
Knowledge of Textron
a.
Officers
Willard R. Gallagher
Willard R. Gallagher ("Gallagher"), Vice President - International, reported directly to Textron's Executive Vice President
and frequently discussed business matters with Miller, Textron's
President.
Gallagher had become acquainted with Employee prior
to 1975 while Gallagher was Vice President of Textron Atlantic
stationed in Brussels.
In 1974, Employee left the employ of Bell
to pursue graduate studies.
In 1975, he wrote Gallagher from his
1/
Moore testified that the "Assistant MOD" was Naboodah.
Moore also testified tnat he believed Sinatso, the Commander
of Operations of the UAE Central Air Force Base, was favorable
to Bell's competitor, Agusta, while Naboodah preferred the
Bell 214 because of its technical suitability.
2/
Dee Mitchell testified that he understood that through the
time period 1974 through June 1978, Naboodah was a shareholder of Bell's dealer.
3/
Employee estimates that Textron owes Aerogulf
$200,000.
20 -
approximately
52
new base of operations - Dubai.
Gallagher then wrote to Sylvester
and circulated to other Textron executives, a typed letter dated
April 11, 1975, with blind carbon copies to Robert Ames ("Ames")
and Andrew Beck ("Beck"). 1/ The letter noted that:
Employee is once again a Bell Helicopter salesman as he is running the local Bell dealership — owned by Dubai's Secretary of
Defense.
At his first appearance before the staff, Gallagher did not
recall learning prior to January 1978 of the possible ownership
interest in Bell's dealer in Dubai by a government official or
officials.
After the staff recalled Gallagher and showed him
the document, he acknowledged having authored it, but maintained
that he just repeated the information contained in Employee's
letter to him without necessarily believing or disbelieving its
contents.
Gallagher made no inquiry to ascertain the accuracy of
Employee's information and was unaware of any written or unwritten
Textron policy against Textron dealers being owned by government
officials.
According to Employee, he probably told Gallagher,
when Gallagher visited Dubai briefly in 1975-1976, that the Naboodah
family were the owners of the dealership. Thereafter, in May 1976,
Gallagher received trip reports authored by Beck concerning Beck's
recent visit to Dubai on behalf of Textron in which Khalifa Naboodah
was identified as Vice Minister of Defense, UAE. 3/ Furthermore, a
reading of Beck's diary entries memorializing Beck's discussion
with Employee at Farnsborough, England in late September .1976, indicates that Gallagher may have been present when Employee informed
Beck that his (Employee's) "Arab partner" was satisfied that Aerogulf's dispute with Bell over commissions owed on sales to Abu
Dhabi could be resolved so that Employee would be able to consider
expansion of Aerogulf's line of business into representation of
other Textron products.
1/
A m e s was Textron's Senior Vice President and Group Officer
for Textron's aerospace divisions and reported directly to
Miller.
Beck was Assistant Vice President for International
Trade Development and reported directly to Gallagher and is
now vice president of Textron's Waterbury Farrel Division.
2/
Gallagher's receipt of Employee's information was prior to
Bell paying its UAE dealer approximately 5255,000 in commissions on a sale of four helicopters to the UAE Defense
Force.
3/
Gallagher testified that while he had no recollection of
seeing such documents, he would have normally read such
reports.
-
21
-
53
b.
Andrew Beck
By the fall of 1976, Beck became aware that Naboodah, DMOD
of the UAE, was a partner in Aerogulf.
The primary source of
this information was Employee, the managing director of
Aerogulf, who was stationed in Dubai.
Beck paid his first visit to Dubai in May 1976, as part
of a business trip through the Middle East to promote the sale
of products manufactured by Textron divisions other than Bell,
including Bell Aerospace air cushion vehicles, Shuron eyewear
and Fafnir bearings.
Prior to his departure, Beck learnec • from
Gallagher that Employee was connected with Aerogulf which sold
Bell helicopters and that Employee had a local (Dubai) Arab partner.
Gallagher suggested to Beck that he speak with Employee in Dubai.
During the course of Beck's visit, Beck met with Employee and
was told by him that Aerogulf was a Bell dealer and that in conjunction with local influential people, he was planning to expand
the Aerogulf product line.
Employee informed Beck that Naboodah
was the son-in-law of Dubai's Ruler, Sheikh Rashid, and a senior
military official.
Through Employee's efforts, Beck and Employee
met with Naboodah to discuss possible sale of air cushion vehicles
and Shuron products to UAE. According to Employee, he most likely
told Beck that Naboodah was a member of the Naboodah family who
were the owners of Aerogulf.
Beck has no recollection being so
told but does not deny it.
In late August 1976, Beck received a letter from Employee on
Aerogulf letterhead which advised that Naboodah "our chairman"
did not want to proceed at this time with any Shuron or Bell
Aerospace business because of a dispute with Bell Helicopter over
the sale of two helicopters to Abu Dhabi in which Bell had refused
to pay commissions. 1/ Beck telephoned Frank Sylvester, discussed
the matter to some extent, and transmitted the Employee letter to
him on August 30, 1976. 2/ By the time Beck received Employee's
letter, Beck was fully aware that Naboodah was a senior military
official of the UAE.
On September 25, 1976, Beck met informally with Employee at
a Textron management meeting in England.
Beck's diary entry
states that "[Employee] has now made peace with Bell and thinks
that his local Arab partner will also go along.
On that basis he
will again consider doing business with us. . . Shuron and
Bell Aero are both on.
Shuron appears to be the better case."
1/
On August 16, 1976, Miller issued a memorandum which Beck read
by late August announcing the eventual inclusion in dealership
agreements of a provision designed to prohibit improper payments
on tne part of Textron dealers.
Beck "did not interpret the
Miller directive as describing the Aerogulf situation."
2/
The Employee letter is discussed on page 19 above.
-
22
-
54
Thus, as of October 1976, Beck understood that Khalifa
Naboodah was a partner of Aerogulf Sales.
Beck was aware at
this time that Aerogulf was Bell's dealer and assumed that Aerogulf would be receiving commissions from Bell on the sale of
helicopters. 1/
c.
Other Textron
Officials
In or about December 1977, Ames looked into the question of
whether any dealership arrangement might be a possible violation
of the Foreign Corrupt Practices Act ("FCPA").
A m e s acknowledges
that Bell's Dubai dealer caused him concern over a possible violation because (1) in 1976, Employee sought to purchase a priceless
antique set of silver and an expensive brass eagle from Textron's
Gorham division. 2/ Ames knew that Employee did not fully own the
dealer, and the attempted purchases suggested to A m e s that Employee
was not without some important contacts in the Dubai government;
(2) the dealer also held the franchise for Falcon aircraft which
was considered very significant to A m e s as the Falcon was the type
of aircraft "sheiks run around in" and holding such a franchise
suggested a considerable amount of wealth was focused on the dealer;
and (3) in a small country where oil is the source of wealth,
"there's a potential for a feedover from influential people to
anyone in power."
In or about December 1977, Ames told Tom Soutter
("Soutter"), Textron's General Counsel, that he had been thinking,
about the FCPA and "if there is any one country that I think bothers
me in the relationships it is Dubai."
Soutter asked Ames if he
had any facts that the dealer was in fact owned by people in power.
Ames responded negatively.
Soutter told Ames that Soutter would
be preparing instructions to Textron divisions clarifying the
act and calling for strict compliance. 3/ Neither Soutter nor
1/
Further, Beck's narte appears in a blind carbon copy of a
letter dated April 11, 1975 from Gallagher to Frank Sylvester,
which mentions that Employee "is running the local (Dubai)
dealership owned by Dubai's Secretary of Defense."
Beck did
not recall receiving the letter although he normally would
receive carbon copies of Gallagher's correspondence if his
name was listed as an intended recipient.
2/
Miller rejected selling the silver to Employee.
chased the brass eagle for $5,000.
3/
Soutter did not distribute such instructions until April 1978.
- 23 -
Employee pur-
55
Ames contacted anyone at Bell to investigate Aerogulf.
Soutter
did not follow up on Ames* expression of concern.
The factors
which prompted Ames to have a concern in December 1977 about the
dealer were known to Ames in 1976.
From 1976 to December 1977,
Ames did not make any inquiry as to who was behind Employee's
company. 1/
In late January 1978, Hal Tune ("Tune"), Director of Trade
Development for the Middle East for Textron Trading, Inc., a subsidiary of Textron, 2/ travelled to Dubai and visited the branch
office of the United States Embassy for the UAE.
Tune knew that
Aerogulf was the UAE representative for Bell and reviewed the
commercial file available in the Embassy on Aerogulf. 3/
That
file contained a copy of a telex written by the officer in charge
of the Dubai branch office of the U.S. Embassy for the UAE, and
sent to the State Department by the Deputy Chief of Mission of
the U.S. Embassy in Abu Dhabi, reporting that the Minister of
Defense, Mohammed, and the Deputy Minister of Defense, Naboodah,
of the UAE, were the principal owners of Aerogulf Sales. A/
At or about February 16 to February 18, 1978, Beck was working
with Tune in Tune's office in Athens.
Tune related to Beck the
information Tune learned about Aerogulf Sales.
Tune understood
it was against Textron policy for Textron divisions to use as
foreign dealers any entities which were owned in whole or in part
by foreign officials.
Having learned that Bell apparently was
using an agent in conflict with Textron policy, Tune believed
it important to report that fact to his supervisor, Beck.
At or about February 21, 1978, Beck met with Soutter and
relayed to him that Tune had seen an American Embassy report
which identified Khalifa Naboodah, DMOD of the UAE, as a principal
owner of Aerogulf.
Soutter knew that Aerogulf was a Bell dealer.
Soutter told Beck that he would pass on the information to Bell.
While Soutter has no recollection of passing on the information
to Bell, Atkins has testified that at or about February 21, 1978,
1/
Further, Ames' name appears in a blind carbon copy of a letter
dated April 11, 1975 from Gallagher to Frank Sylvester, which
mentions that Employee "is running the.local (Dubai) dealerships
owned by Dubai's Secretary of Defense."
Ames testified that
he does not recall seeing the document but has no reason to
believe he did not receive it.
2/
Tune reported directly to Andrew Beck.
3/
It was Tune's normal course of business to review any files
that the commercial attache has related to representatives
in the countries.that are already serving as agents for
Textron divisions to determine whether those agents might
be able to provide representation for other Textron divisions.
A/
The staff has received a copy of the telex Tune
- 24 -
examined.
56
he was contacted by either Soutter or Ames about Tune's information.
On or about February 21, Atkins did instruct Sylvester
to prepare a memorandum on the Aerogulf ownership issue.
On
February 21, Sylvester prepared such a memorandum.
About half
of the one page memorandum discussed the history of Aerogulf
naving its name changed, including a name change from "Aerogulf
Services Co.", which name Mohammed preempted and gave to a stateowned charter operation, to "Aerogulf Sales Co."
Sylvester stated
that it was probable that Tune,
Textron's zealous Athens-based representative,
has gotten the two names confused.
In any
event, I wish that he had contacted me direct
with his question.
Although it appears hearsay
evidence in the form of rumor that a Dubai
Deputy Defense Minister may have an interest
in Aerogulf sales, we are unable to determine
from our files that this is based on fact.
Sylvester suggested that Bell should now ask Aerogulf for an
affidavit of ownership.
At or about the time that Sylvester prepared his memorandum,
Bell's files on Aerogulf contained numerous documents which identify
Naboodah as a military official and chairman or partner of Aerogulf. 1/ Sylvester received many of these documents.
Further, at
or about February 1978, Sylvester asked Moore whether he was aware
of an ownership relationship between Aerogulf and the Minister of
Defense.
Moore told Sylvester that it was his understanding that
there was a relationship between the Minister of Defense's office,
through the Deputy Minister of Defense, and Aerogulf. 2/
On February 27, 1978, Soutter testified before the Senate
Banking Committee on Miller's nomination.
The questions posed
to him primarily related to allegations that another Bell dealer,
Air Taxi of Iran, was owned by government officials.
While
Soutter was not asked whether he was aware of information which
suggested other questionable payments by Textron, 'some of Soutter's
responses expressed his views on Textron's high standards of ethics
and Textron's attempts to detect questionable payments.
Soutter
did not mention that he received information on February 21 which
suggested that another Bell dealer was owned by a government
official.
At or about March 1, 1978, Beck was concerned that he had
heard no response from Soutter or Bell on the information he relayed
to Soutter on February 21.
Beck told Gallagher of the information
1/
Some letters authored by Naboodah himself
the chairman of Bell's dealer.
2/
Moore is the author of the trip report described on pages 19
and 20 which identified Employee's partner as the "Assistant
MOD. "
25
identify him as
57
received by Tune and that after relaying the information to Soutter,
he had not heard of any response to the information.
Gallagher suggested that the matter should again be discussed with Soutter.
A
meeting among Beck, Gallagher, Soutter and Erskine White, Textron's
Senior Vice President, was held in Soutter's office where Beck
repeated the information he received from Tune.
All of the attendees
have testified before the staff and indicated that Aerogulf was not
discussed in connection with Textron's preparations for the Miller
hearings, which ended prior to March 1.
C.
MOROCCO
1.
Summary
Beginning in 1971, certain Bell officials, including Bell's
President, Senior Vice President and Vice President for International
Marketing participated in promoting a Foreign Military Sale 1/ to
the Moroccan government knowing that commissions paid to its
Moroccan agent would be shared in whole or in part with Moroccan
government officials.
2.
Military Attache's Request for Payment
In or about early 1971, Robert L. Ramsey ("Ramsey"), director
of Bell's International Marketing Department office in Washington,
D.C. 2/ w a s contacted by Colonel Abdeslam Bouziane ("Bouziane"),
Morocco's Military Attache in Washington, D.C.
Bouziane informed
Ramsey that the Moroccan government was considering the purchase
of helicopters through money provided to Morocco by the U.S. government for procurement of military equipment.
Bouziane told Ramsey
that he could be most helpful to Bell in procuring Bell helicopters
because of his own position as attache and his friendship with the
Chief of the Moroccan Air Force.
Bouziane told Ramsey that he
would expect to receive remuneration as a result of any of his
efforts in favor of Bell.
Ramsey responded that he was not authorized to respond to Bouziane's request until he checked with his
superiors in Fort Worth.
In or about early 1971, Ramsey wrote a memorandum addressed
to Sylvester, Weichsel, Bell's Senior Vice President, and Yates
1/
A Foreign Military Sale ("FMS" ) occurs when a U.S. manufacturer
enters into an agreement with the U.S. Department of Defense
to provide the Department with equipment such as helicopters
which would be sold subsequently by the Department to a foreign
government.
In 1973, after the Moroccan government lessened
its FMS order from ten to two Bell helicopters, Bell received
approximately $1.7 million for the two helicopters and related
accessories which generated in 1974 a $100,000 payment by Bell
to its agent's Swiss bank account.
2/
Ramsey reported directly to Frank Sylvester, Bell's Vice
dent for International Marketing.
26
Presi-
58
stating that there was a potential of a large sale to Morocco
(twelve helicopters) and that he had been approached by Bouziane
who felt he could be most helpful to Bell but would expect some
remuneration if the sale was consummated. 1/ Ramsey felt free to
present the issue of Bouziane's renumeration to Fort Worth as he
was unaware of any Textron-Bell policy against Textron-Bell making
payments directly or indirectly to foreign officials.
Ramsey
received
a memorandum authored by Weichsel responding to Ramsey's
The Weichsel memo advised Ramsey that Bell could not
memorandum.
enter into any kind of a direct negotiation with Bouziane but that
there would be no objection to Ramsey telling Bouziane that Bell
would accept his recommendation of a viable representative to
possibly represent Bell in regard to the transaction. 2/ Ramsey
understood that the instructions permitted Bouziane to make his
own arrangements for compensation with an agent Bell retained as
a result of Bouziane's recommendation.
Ramsey, in following Weichsel's instructions, told Bouziane
that Bell would not deal with him in any direct way but that Bell
would appreciate his recommendation of a representative for this
particular sale.
Ramsey did not advise Bouziane that the representative would have to be familiar with the aviation field.
Bouziane supplied Ramsey with the name of Maghreb Equipment &
Supply Company ("MESCO"), a Paris based company.
Ramsey forwarded
Bouziane's recommendation of MESCO to Yates. About three weeks
later, Yates told Ramsey that it had been decided that M E S C O was
an unacceptable company because it was not based in Morocco and
that Ramsey should inform Bouziane that there had to be an incountry representative.
Ramsey relayed to Bouziane the need for
an in-country representative and, after Bouziane returned to
Washington from a short visit to Morocco, he supplied Ramsey with
the name of Air Services Company ("Air Services").
At the time
Bouziane supplied the name of Air Services, Ramsey assumed that
Bouziane would make an arrangement with Air Services to receive a
share of any commission Bell paid to Air Services.
Ramsey advised
Sylvester that Bouziane recommended MESCO and Air Services and
shared with Sylvester his understanding that Bouziane would make
arrangements with Air Services for compensation.
1/
Ramsey would normally address his memoranda to Sylvester and
Yates, but he added Weichsel because Ramsey felt that the
potential sale was important to Bell.
Ramsey realized at the
time he wrote the memorandum that Morocco could buy as much
as $10 million worth of helicopters.
The staff learned of
the memorandum through Ramsey's testimony.
The document cannot be found by Textron and has not been produced.
2/
The Weichsel memorandum has not been found by the company and has
not been produced.
27
59
At or about July 30, 1971, Vernon Hunt ("Hunt") 1/ was
requested by Yates to visit Morocco to evaluate Air Services. 2/
Prior to Hunt visiting Morocco in August, Bell gave some consideration to using Air Services simultaneously with MESCO.
Handwritten
notes of Hunt reflect a need to "protect" Bouziane; that Bouziane
requested 2 percent commissions to be paid to MESCO; that Air
Services is not to know about the 2 percent and that Bell would
pay 6 percent commissions on the helicopters - 4 percent to Air
Services and 2 percent to MESCO.
A draft "consultant agreement"
between Bell and apparently MESCO has been obtained from Textron
files which calls for a 2 percent consultant fee in connection
with the sale of helicopters to Morocco. 3/
By August 12, 1971, Hunt traveled to Morocco to learn about
Air Services.
On August 12, Hunt reported to Sylvester that Air
Services' shareholders "are high personalities unwilling to be
named" and that 4 percent commissions on helicopters and 5 percent
on related spare parts "is inadequate for local redistribution,"
while 6 percent commission on total invoice is the minimum.
Hunt
stated that Agusta's influence is through the Moroccan Crown Prince
who may become interested in Air Services if Bell raised the commission. 4/ Hunt requested the current status of the "proposed Paris
paid consultancy."
3.
Bell's President
Informed
In August 1971, Ducayet and Ramsey met with officials of the
U.S. Department of Defense ("DOD") to discuss the Moroccan helicopter program, particularly whether the United States would sell
Bell commercial model helicopters as opposed to military helicopters.
Bell very much favored the U.S. selling the commercial
model at Bell's standard list prijce because it would generate a
greater profit to Bell 5/ and more commissions would be paid on
the commercial model sold at Bell list price. 6/ There is also
1/
Hunt was General Manager of Bell's European office in Brussels
and reported directly to Sylvester*
2/
Yates knew Bouziane recommended Air Services and was told
directly by Bouziane that he wanted a payment.
3/
That Bouziane requested a separate consultant fee for MESCO
is further supported by other documents.
y
Agusta, Bell's Italian licensee, competed with Bell on the
Moroccan sale.
5/
The Bell military model would contain an engine, avi-onics
and other items not provided by Bell but by DOD from its
inventory.
6/
Bell's standard list price for a commercial helicopter
an amount for commission.
28
includes
60
evidence that Bell urged DOD to sell commercial as opposed to
military helicopters through FMS channels because the amount of
commissions generated on a sale of military helicopters would not
be enough for Moroccan officials who could influence the sale in
favor of Bell.
Prior to meeting with DOD officials, Ducayet and Ramsey met
to discuss the Moroccan program.
Ramsey testified his purpose
in meeting with Ducayet was to brief him on the extent of his
In performing such a briefing,
knowledge about the transaction.
Ramsey told Ducayet that the Moroccan military attache had recommended MESCO and Air Services as representatives of Bell.
Ramsey
informed the staff that he had advised Ducayet of the issue of the
defense attache's possible personal involvement in, and remuneration from, the Moroccan program. 1/ Further, Ramsey recalls discussing with Ducayet at his briefing and at'the DOD whether the sale
of a commercial helicopter through FMS would result in a commission
being an allowable item of cost which Bell would receive from the
U.S.
In addition, at or about August 13, 1971, Hunt sent a telex
to Sylvester inquiring of the outcome of "Duke 2/ Ramsey talks in
Washington" and in particular its relation to the timing of Hunt
advising Air Services about its percentage of* commissions.
At
or about the same day, Yates telexed back a response that after
discussions between Ducayet and Ramsey, Ducayet is to discuss
justification of commission on FMS transactions and if "Duke
approves program, 3/ plan is for Fort Worth to advise Washington
contact of commission structure so that he can advise Air Services,
who would then call on you for specific proposal." 4/ Yates' telex
also informed Hunt that Bell management determined that there will
be no fee to consultant (apparently MESCO) paid by Bell.
By August 17, 1971, Ramsey became concerned that Bell managem e n t s rejection of a separate consultancy with MESCO and Hunt's
communications directly with Air Services about commission structures might result in Bouziane not receiving a payment if the sale
went through.
On August 17, 1971, Ramsey sent a telex addressed to
1/
Ducayet does not recall being advised by Ramsey of the
attache's involvement with Air Services.
2/
Ducayet
3/
The "program" Yates was referring to was "an appointment of
a dealer in Morocco and the amount of commission to be paid."
Yates testimony, page 68.
4/
The "Washington contact" referred to by Yates was Colonel
Bouziane.
Yates testimony, page 64.
is often referred
to as "Duke" by Bell employees.
29
61
Sylvester, Weichsel 1/ and Yates stating that after Bell's insistence
that Bouziane provide Bell with a bona fide dealer with a Moroccan
address
we attempt an end run and cut him out of
the picture I predict we have an excellent
chance of losing the whole ball game.. . .
Air Services has been named as a front only
because of our request . . . .
If Hunt has
in fact now accomplished primary, task, i.e.,
determination that Air Services is a bona
fide business contact for our purposes, I
recommend he withdraw until . . . Washington
principle [sic] settles his problem with Air
Services as a single entity.
At or about August 17, 1971, Sylvester, in accepting Ramsey's
advice, telexed Hunt that it was Bell's plan to have "Ramsey's
friend . . . make first overtures to Air Services so that he can
cement'his relationship at outset."
At or about August 19, 1971, Sylvester, Yates, Ducayet,
Mitchell, Charles Rudning 2/ and Weichsel met to discuss paying
commissions on the transaction.
Weichsel's handwritten notes of
this meeting reflect that specific commission percentages were
discussed.
The notes also reflect the words "only one agent,"
"this deal only for dealer Morocco" and "only way FMS at com $."
At the time of the meeting there were only two possible agents
that were in the picture - Air Services and MESCO.
The "only one
agent" and "this deal only for dealer Morocco" language apparently
reflects an awareness at the meeting that Bouziane had requested
a separate fee arrangement through Paris based MESCO and that Bell
rejected the request.
The "only way FMS at com
apparently is
the meeting's conclusion that the only way Bell could pay sufficient
commissions to Air Services would be as a result of a sale of commercial helicopters through FMS at Bell's standard list price.
The
notes also reflect that the dealer had not yet been appointed and,
therefore, it would be difficult for Bell to justify commissions
to DOD on military helicopters, where each cost claimed by the
manufacturer, including commissions, is negotiated.
Prior to this
meeting, Sylvester received a telex from Hunt stating that unless
commissions were paid on a commercial model sold at Bell's list
price, there would not be enough commissions 1 for Air Services'
backers with the "likely result might be they would try to divert
funds for other purchases."
1/
One of the reasons Ramsey listed Weichsel to receive a copy
of this telex was Weichsel's early involvement with how Bell
would handle Bouziane.
2/
In 1971, Rudning was Bell's Director for Program management.
Rudning is now President of Bell Operations Corporation.
30
62
At or about September 1, 1971, Sylvester addressed a memorandum
to Ducayet and Atkins, with Weichsel listed to receive a copy, which
covered a proposed representative agreement between Bell and Air
Services and a draft of a "Supplemental Agreement" to the representative agreement "to cover the F M S sale in the manner discussed yesterday [August 31]."
On August 31, 1971, Sylvester advised Hunt that
Bell was having difficulty drafting an agreement with Air Services
that would enable Bell to justify to the DOD that money paid to
Bell by DOD for helicopters include an amount for commission to
Air Services.
The telex further advised that Bell would need to
show Air Services' contribution to the sale and its history as
a Bell representative. 1/ As of August 31, Air Services had not
been appointed and had not participated in any sales activity or
negotiations.
The proposed underlying agreement sent to Ducayet, Atkins and
Weichsel is back dated to July 30, 1971 and calls for sales rights
to be given to Air Services on model helicopters not exclusive to
Agusta, Bell's Italian licensee. 2/ The draft of the supplement to
the underlying agreement is dated September 1, 1971.
Under the
draft agreement, Air Services would have received 6 percent of
Bell's invoice price on the sale of ten helicopters (each helicopter would be at $400,000 per helicopter) and related spare parts.
3/
At or.about September 1, 1971, Ducayet approved the agreements.
On the same day Sylvester sent the proposed agreement to
Ducayet, Atkins and Weichsel, (September 1, 1971), he received a
report from Hunt which expanded on his visit to Morocco to evaluate
Air Services. 4/
Hunt described Air Services as "a front to permit
certain influential Moroccans to operate in the aviation industry."
Hunt stated that the political figures for whom "Geeraerts 5/ fronts
are apparently General Oufkir (since the coup d'etat, Minister of
of Security, National Defense and Chief of the General Staff), and
his nominees and associates . . . " Hunt stated that neither Air
Services nor Geeraerts has any helicopter experience but as a
major sales representative for fixed aviation companies, A.S.C.
should be appointed as Bell's representative.
By appointing Air
Services "we are tacitly aware of, but do not need to recognize
1/
The agreement would be given to DOD as a justification for
DOD to pay Bell's standard list price which would include
6 percent commissions to the dealer.
2/
On July 30, 1971, Air Services was not a Bell
3/
As explained below, the agreements with Air Services were not
executed.
4/
The report was also sent to Yates, Robert Kenworthy and Ramsey.
Sylvester's initials and handwriting appear in a copy of the
report.
5/
Robert Geeraerts was President of Air Services.
31
representative.
63
their h i d d e n h i g h level g o v e r n m e n t i n f l u e n c e and i n t e r e s t s .
Coram i s s i o n s , o p e n l y paid to them, can be r e d i s t r i b u t e d as they w i s h . "
Hunt f u r t h e r e m p h a s i z e d the i m p o r t a n c e of D O D p u r c h a s i n g h e l i c o p t e r s
at B e l l ' s list p r i c e .
He reported that: "Inability to j u s t i f y and
pay an FMS c o m m i s s i o n , would l e a v e the p e o p l e behind A . S . C . looking
for some m o r e interesting p u r c h a s e with the US loan f u n d s . "
A t o r a b o u t N o v e m b e r 2, 1 9 7 1 , W e i c h s e l w a s a g a i n informed
that A i r S e r v i c e s w a s a q u e s t i o n a b l e c o m p a n y .
In or a b o u t S e p t e m ber 1971, a c o m p e t i t o r of A i r S e r v i c e s , M a p r o c e l , s o l i c i t e d Bell
to b e c o m e its r e p r e s e n t a t i v e in M o r o c c o .
At or about S e p t e m b e r 27,
1971, B e l l r e c e i v e d a l e t t e r from a r e p r e s e n t a t i v e of M a p r o c e l d e s cribing A i r S e r v i c e s as s t r i c t l y a p a p e r c o m p a n y and o r g a n i z e d by
G e e r a e r t s s p e c i f i c a l l y for the p u r p o s e of o b t a i n i n g the B e l l license
in M o r o c c o .
On N o v e m b e r 2, 1971, W e i c h s e l w a s furnished a copy of
the M a p r o c e l l e t t e r .
B e l l ' s r e s p o n s e to the a l l e g a t i o n s in this
M a p r o c e l letter was contained in a t-elex dated S e p t e m b e r 28, 1971
from Hunt to Y a t e s and S y l v e s t e r , w h i c h r e i t e r a t e d that h i s early
report stressed A . S . C . w a s a "front c o m p a n y . "
4.
Hiring
of the
Agent
At or about O c t o b e r 19, 1971, S y l v e s t e r r e c e i v e d a telex from
Hunt a d v i s i n g that the r e p r e s e n t a t i v e and s u p p l e m e n t a l a g r e e m e n t
b e t w e e n Bell and A i r S e r v i c e s "will p r o b a b l y now need be w i t h
Maghreb Aviation - associated company A.S.C. - which for military/
p o l i t i c a l / s h a r e h o l d i n g r e a s o n s is to h a n d l e m i l i t a r y b u s i n e s s
s e p a r a t e l y from civil."
In the u p p e r l e f t hand c o r n e r of the
telex, S y l v e s t e r w r o t e the name "EJ D u c a y e t , " i n d i c a t i n g that
S y l v e s t e r sent the telex to D u c a y e t .
A t or a b o u t O c t o b e r 19,
1971, Y a t e s responded to H u n t ' s s t a t e m e n t r e g a r d i n g the a g r e e m e n t s
flowing to M a g h r e b A v i a t i o n ( " M a g h r e b " ) . Y a t e s r e v i e w e d B o u z i a n e
supplying B e l l with the n a m e s of M E S C O and A i r S e r v i c e s and
requested H u n t ' s o p i n i o n o n w h e t h e r B o u z i a n e w a s to r e c e i v e comp e n s a t i o n from M a g h r e b .
At or a b o u t O c t o b e r 21, 1971, Y a t e s and
S y l v e s t e r received a telex from Hunt s t a t i n g :
A m assured 8 B. w i l l still get a share from A . S . C .
or M a g h r e b A v i a t i o n though d o u b t l e s s not 2P.C.
L a t t e r is holding c o m p a n y for c l o s e p e r s o n a l
friend of V I P w i t h w h i c h G e e r a e r t s w i l l be a s s o c i a t e d , and m a y be needed instead of A . S . C . to
separate military sales. 1/
In or a b o u t M a r c h 1972, S y l v e s t e r , on b e h a l f of B e l l , e x e c u t e d
a r e p r e s e n t a t i v e a g r e e m e n t and a s u p p l e m e n t a l a g r e e m e n t w i t h M a g h r e b
Aviation.
The r e p r e s e n t a t i v e a g r e e m e n t w a s b a c k - d a t e d to July 30,
1/
At or about D e c e m b e r 13, 1971, S y l v e s t e r and at least five
o t h e r B e l l e m p l o y e e s w e r e f u r t h e r informed by H u n t that the
a g r e e m e n t s should be w i t h M a g h r e b w h o s e p r i n c i p a l s a s s u r e d
him that B o u z i a n e "will be in on t h e d e a l , and that their
c o n t a c t s w i t h G e n e r a l O u f k i r should keep him u n d e r c o n t r o l . "
32
57-608
0 - 8 0 - 5
64
1971 and contains precisely the same language and terms as the
draft representative agreement with Air Services.
The supplemental
agreement to the underlying representative agreement was back
dated to September 1971 and contains similar language to the draft
of the supplemental agreement with Air Services except that it is
more closely tied to the particular sale under discussion in March
1972 - eight model 205A-1 and two model 212 helicopters.
As described below, the agreements executed by Sylvester were submitted
by Bell to DOD in 1973 to justify a 1974 $102,000 commission payment to Maghreb in connection with the FMS transaction of the
two 212's.
The length of time an agent has been retained and his
experience are factors considered by DOD in reviewing a request
that the agent be paid a commission.
The supplemental agreement also contains a statement that
Maghreb received an inquiry from the Moroccan government concerning
the possibility of its purchase of models 205A-1 and 212 under
the authority of a Foreign Military Sale.
As of September 1, 1971,
(1) Bell had no representative and (2) Maghreb received no such
inquiry.
Rather, by September 1, Air Services, a company related
to Maghreb, was recommended to Bell by Bouziane and w a s described
to Sylvester by Hunt as having a president who fronted for Moroccan
military officials.
Prior to Sylvester's execution of the agreement, Ducayet learned
that the agreements would be between Bell and Maghreb.
In light of
Ducayet's prior approval of the draft agreements between B e l l and
Air Services, the evidence indicates that Ducayet knew or should
have known of the circumstances Hunt explained above for shifting
Ducayet has no recollection of these matters.
to Maghreb.
On or about April 27, 1972, Hunt sent a telex to Sylvester,
Yates and three other Bell employees re-emphasizing the Importance
of Bell convincing the DOD to purchase Bell helicopters at list
price which would generate sufficient commissions to retain Maghreb's
influence. 1/ Hunt stated that as he advised Ducayet and Atkins,
his latest information was that Bell's competitor, Agusta, was
contacting Maghreb and it is quite essential that the 6 percent
commissions called for in the supplemental agreement be preserved
and possibly increased to 7 percent to assure that Maghreb does .
not leave Bell to represent Agusta.
Hunt further advised that
at Ducayet's suggestion, he would be writing a justification of
Maghreb's commissions "to help hold list price line" with DOD.
In or about June 1972, an FMS transaction was approved by the
U.S. and Moroccan governments whereby the U.S. would sell eight
205A-1 and 212 Bell helicopters at Bell's list price and related
1/
Hunt introduced his telex by referring to his discussions
April with Ducayet, Atkins, Weichsel and Sylvester.
33
in
65
spares for about $6,877,000. 1/ On or about June 20,
sent a memorandum to Sylvester enclosing a summary of
of the successful sales effort.
The memo stated that
an important direct part in the transaction, "despite
stage that we would 'burn our fingers.'" 2/
1972, Hunt
the history
Ducayet played
stating at one
In September 1972, the DOD informed Bell that the Moroccan
government had cancelled that part of their FMS order relating to
the eight 205A-l's.
The cancellation followed an attempted assassination of the King of Morocco which resulted in many military
officials in the Air Force being replaced and the cancellation
of many Air Force contracts.
5.
Submission of Back-Dated
Contracts to DOD
In March 1973, Bell signed a contract with DOD to supply
Morocco with the remaining two 212's and related spare parts for
approximately $1.75 million.
The 212's were sold to the U.S. at
As part of its justification that Maghreb
Bell's list price.
should receive commissions on the FMS of the 212's, Bell submitted
a false statement to DOD that Maghreb had served as its Moroccan
representative since July 1971.
Bell also submitted the representative and supplemental agreements which were executed in March
1972 and described on pages 32-33.
On or about May 3, 1974, Bell
transferred $102,000 to Geeraert's Swiss Bank account from the
$1.4 million it received from the United States government.
At least one Moroccan official, General Oufkir, with whom
Maghreb was to share commissions on the sale of the ten helicopters,
was replaced after the attempted assasination of the King.
However,
there is the following evidence that Bell realized that commissions
transferred to Geeraert's Swiss bank account were to be shared with
Moroccan officials:
1/
Just prior to the FMS agreement, Sylvester and others at Bell
received a telex from Hunt stating that according to Geeraerts,
the Commander-in-Chief of the Moroccan Air Force has been
replaced "by an officer very much part of Maghreb Aviation
team."
2/
Hunt informed the staff, while not under oath, that Ducayet's
statement about "burn our fingers" related to Ducayet's concern that Bell's use of an agent to.solicit a sale of model
helicopters in a country where Agusta had exclusive sales
rights on a direct sale could severely strain Bell-Agusta
relationships.
34
66
On or about April 30 , 1973 , Sylvester and at least four
Bell employees received a memorandum from Hunt which described a Col. Dlimi, "the King's right hand man" or his
wife as being on the Board of Maghreb and other companies
owned by Geeraerts. 1/
On or about October 13, 1972, Sylvester, Ron Taylor, Bell's
Regional Manager for Northern Africa, and others at Bell
received a telex from Hunt that Maghreb's costs associated
with their commissions are now increased and they will
now lose much of the 6 percent commissions on the two 212's.
Taylor testified that the telex or one of its type which
crossed his desk suggested to Taylor that a payment was
going to be made to a Moroccan official.
Bouziane, while no longer the Moroccan attache, returned
to Morocco and regained in the Moroccan military.
Geeraerts
had earlier assured Bouziane that Bouziane would receive
compensation.
On or about August 20, 1975, Hunt wrote to Geeraerts,
enclosing press clippings concerning the U.S. investigations
of Lockheed's payments to and through dubiously constituted
dealers and consultants.
Hunt stressed the impossibility
for Bell to pay dealer commissions "to imaginary or illusionary or virtually non-existent organizations.
As I said
to you, our reputation is certainly worth more than the
business concerned, and it remains essential that you
find some way to create a valid and viable dealership . . ."
D.
DOMINICAN
1.
REPUBLIC
Summary
In September 1976, Bell entered into an agreement with the
Dominican Republic ("DR") to sell it two helicopters and related
spare parts for approximately $1.4 million.
In connection with
this transaction, Bell transferred in 1977 approximately $60,000
(half in cash) to DR officials responsible for approving
Bell made the paythe agreement on behalf of their government.
ments after receiving $1.4 million from the United States under
the Foreign Military Credit Sales Program. 2/
1/
The two 212*s supplied by Bell to Morocco were to be used by
the King, while the eight cancelled 205A-l's were to be used by
the Air Force.
2/
Under this program, the U.S. Government loans and guarantees
funds to friendly nations which may be used by them for the
purchasing of equipment to meet their military requirements.
35
67
2.
Discussion
By April 1976, Bell received indications that the DR Air
Force had a need to purchase helicopters.
It was the understanding
of Dee Mitchell ("Mitchell") 1/ and a Bell marketing salesman
("Salesman") that a payment would have to be made to government
officials in connection with such a purchase.
According to Salesman, their understanding was based on a letter received by Bell
on May 26, 1976 from Juan Rene Beauchamp Javier, Major General
of the DR Armed Forces ("Javier"), authorizing a DR company to
serve as an agent in negotiating a sale of helicopters to the DR.
Their understanding was also based on Salesman being contacted
by a Miami-based businessman who informed Salesman that he could
be helpful in selling to the DR but that DR officials would have
to receive a payment.
The letter and the contact of the businessman
led Salesman and Mitchell to believe that the DR was serious about
purchasing helicopters and that a payment would most likely have
to be made to facilitate the transaction.
Bell was unrepresented in the Dominican Republic, and, therefore, could not pay commissions to an entity which would in turn
pass the commissions on to government officials.
Mitchell suggested
to Salesman that Bell enlist its Puerto Rican dealer to handle
the payment problem.
Before Salesman contacted C. Stanley Robles
("Robles"), President of Flight, Inc., Bell's Puerto Rican dealer,
Salesman travelled to DR on or about May 3, 1976 to learn whether
the DR government was indeed serious about purchasing helicopters.
In DR, Salesman met with Javier to discuss a potential sale
After seeing Javier, Salesman met with the
of Bell helicopters.
military secretary to Javier ("Secretary") who requested information
on the amount of commission Bell would pay on the sale of helicopters.
The Secretary informed Salesman that a sale of Bell helicopters
would have to be made with the understanding that commissions on
the sale would have to be rebated to the DR government.
According
to Salesman, it was obvious that this meant that commissions paid
would be given to Javier for his personal use.
Salesman telephoned Robles from the Dominican Republic and
inquired as to whether Robles would be agreeable to participate in
this transaction.
Salesman told Robles that he would not have to
promote the sale in any way and that Bell would pay Robles $2,500
per helicopter for allowing Bell to use him to pass on commissions.
Robles expressed his inclination to accept Salesman's proposal.
On or about May 6, Salesman returned to Fort Worth and briefed
Mitchell on the trip to DR, including his discussions with the
Secretary and Robles.
Salesman told Mitchell that Robles understood
that he would not be doing anything to promote the transaction.
1/
Mitchell has been Bell's sales manager and has reported
to Sylvester.
36
directly
68
Mitchell told Salesman that he would let him know if the transaction using Robles would be approved.
Approximately two weeks
later, Mitchell informed Salesman that the transaction could be
handled by inserting Robles into the transaction.
On or about May 10, 1976, Salesman authored a report of his
May 3-5 trip to the Dominican Republic. Salesman stated that all
the arrangements for his meetings had been made by Robles and that
Robles "will continue to work with the Air Force, and will keep me
informed of any new developments."
Salesman created a fictitious
record as to Robles 1 activities in connection with the transaction
which would make it appear in Bell's files that Bell paid Robles
legitimate commissions on the sale.
Salesman also instructed Robles
to send Bell letters which erroneously described Robles' activities
on behalf of the transaction.
Bell received such letters from
Robles which were then placed in the Bell files.
Shortly after Salesman was told by Mitchell, that he could
proceed with the transaction, Salesman telephoned the Secretary
to inform him that the transaction as discussed in the Dominican
Republic had been approved.
Several months passed during which
(1) the particular helicopters were selected; (2) a proposal was
written by Bell and (3) Bell received confirmation that the United
States would be purchasing these helicopters under the Foreign
Military Credit Sales Program.
On or about August 23, Salesman traveled to the Dominican
Republic.
Salesman carried a standard export purchase agreement
to be signed by Javier.
On the 23rd, Salesman went to the office
of Javier where Javier signed the standard export purchase agreement.
After Javier signed the agreement, Salesman met with the
Secretary.
The Secretary and Salesman discussed the form of payment to Javier.
The Secretary mentioned that there were two preferred methods to make the payment.
He said that Javier preferred
the commission to be paid in cash if possible.
If not, a cashier's
The
check should be made out to a company called F. Lagomarsino.
Secretary told Salesman that he had cleared checks before through
this company.
Salesman also understood if cash was to be paid,
he would deliver it to the Dominican Republic.
Salesman returned
to Fort Worth hand carrying a signed standard export purchase
agreement for the purchase of two helicopters and related spare
parts for approximately $1.4 million.
On or about late January 1977, Courtland Gray prepared an
amendment to the dealer agreement between Bell and Flight, expanding
Flight's territory to DR. 1/ The amendment spelled out the commissions Flight would receive on the sale of the two helicopters. 2/
1/
Gray, head of the administration section of Bell's International
Marketing Department, reported directly to Sylvester.
2J
The amendment contains statements about Bell
Flight to assist in the sales effort.
37
encouraging
69
Gray acknowledges that at the time he prepared the amendment he
understood that a "payoff" would have to be made in connection with
the sale.
On February 4, 1977, Gray sent a copy of the amendment
to Robles in Puerto Rico for his signature. On February 8, 1977,
Robles signed the agreement.
At or about February 17, 1977, Gray
signed as a witness to the signature of Sylvester who signed the
agreement on behalf of Bell.
Gray was not present when Sylvester
signed the agreement.
Gray testified that he obtained Sylvester's
signature through inter-office mail after sending Sylvester a
copy of the amendment signed by Robles and covered by a "Document
Review" sheet which provided minimal explanation for expanding
Robles' territory.
On or about February 7, 1977, Robles wrote a letter addressed
to Salesman requesting Bell to issue two checks to Robles —
one
in the amount of $2,500 and the other in the amount of $26,327.50.
Robles stated in his letter that "as soon as I receive these checks,
I will return to you my check for $26,327.50 for payment to F.
Lagomarsino, S.A."
At or about February 7, 1977, Robles discussed
this letter with Salesman prior to his mailing it to Bell.
Salesman
instructed Robles to delete the language quoted, above.
At or about
February 16, 1977, Bell received a letter dated February 7, 1977
from. Robles.
The letter requested Bell to issue Robles two checks
in the amounts described above.
The letter did nQt make any reference to Robles returning the check for payment to Lagomarsino.
Robles' letter that was received by Bell was assigned to Gray for
action.
On February 16, 1977, Gray requested Bell's accounting
department to issue two checks per Robles' letter, except that one
shall be $2,500 and the other $24,627.50, representing the balance
of commission payable for the first model 205A-1 delivered in
December.
On February 22, 1977, Bell issued two checks, one in the amount
of $2,500 and made payable to C. Stanley Robles, and the other check
was made payable to the First National Bank of Fort Worth in the
amount of $26,327.50.
Salesman testified that he told Gray that
the larger check had to be made payable to a bank for the purpose
of purchasing a cashier's check in Robles' name.
Salesman testified that he told Gray that this would facilitate the cashing of
the check in Puerto Rico.
Salesman also testified that Gray
informed Bell accounting to issue the check to the bank.
Gray
denied knowing about the $26,327.50 check being made payable to the
bank and that Salesman told him that the check to the bank would
be necessary to purchase a cashier's check.
Gray testified that
he did not d o anything other than instruct Bell accounting to
follow Robles' letter, but with one of the checks being lessened
by about $2,000.
In assessing the credibility of Gray's testimony,
three factors should be considered.
First, it was Gray's function
as Manager of Administration of Bell's International Marketing
Department to request the issuance of checks to dealers of Bell.
Second, when it came time in April 1977 for Bell to issue Robles
second commission payment, Gray instructed accounting to make the
check payable to the Fort Worth bank. Third, the staff recalled
Gray in February 1979 to ask him about the events surrounding
38
70
the Dominican Republic transaction. When Gray testified previously
in July 1978, the staff asked him whether he was aware of any indication that suggested that any improper payments had been made.
He did not mention the Dominican Republic when he testified in
July. When he was recalled, Gray acknowledged that he did hear
that a "payoff" would be made in connection with this transaction.
On or about February 24, 1977, Salesman took the Bell check
issued to the First National Bank of Fort Worth to the First
National Bank of Fort Worth.
At the bank he purchased a cashier's
check made payable to C. Stanley Robles in the amount of $26,327.50.
Salesman carried with him instructions from someone in the Bell
Accounting Department to the bank requesting the bank to issue a
cashier's check to Robles.
The bank issued such a cashier's check
in the name of Robles and gave it to Salesman.
At or about March 4,
1977, Salesman travelled to Puerto Rico carrying the cashier's *
check and a check for $2,500 made payable to Robles.
Robles and
Salesman went to the First National City Bank of P u e r t o Rico and
attempted to cash the cashier's check.
However, the bank informed
them that they did not have sufficient cash at the bank t o cash
the check.
Salesman then requested Robles to have the bank issue
a cashier's check made out to F. Lagomarsino, S.A. for $26,327.50.
On March 4, 1977, the bank did issue such a check.
Robles kept
the $2,500 check and gave Salesman the check to Lagomarsino.
Salesman left the Dominican Republic and flew to Miami carrying
the check issued to Lagomarsino.
From Miami, Salesman mailed the
check directly to the Secretary.
About a week after Salesman's
return to Fort Worth, he called the Secretary.
Salesman asked
the Secretary if he had received Salesman's correspondence.
The
Secretary informed him that he had.
Prior to April 1977, the second helicopter was delivered to
the Dominican Republic.
In connection with the payment of commissions on the second helicopter, Salesman telephoned Robles on
or about the first week of April 1977 and requested that he come
to Fort Worth to pick up his commission checks.
Salesman told
Robles that the second commission payment should be made at Port
Worth to assure that they could cash the check at a bigger bank.
It was Salesman's intent to m a k e sure that the second commission
would be paid in cash and not a check because this was the stated
preference of the Secretary.
At or about April 21, 1977, Robles
travelled to Fort Worth from Puerto Rico.
Prior to his arrival,
Salesman had requested Gray to instruct Bell's accounting department to give Robles' check to Salesman.
Salesman a l s o informed
Gray that Robles would be coming to Fort Worth to p i c k up the
check.
On April 18, 1977 Gray wrote a memo to B e l l ' s accounting
department asking them to issue a check to the First National
Bank of Fort Worth in the amount of $34,569.28, the amount of
commissions Flight "earned" on the sale of the second helicopter.
Gray further requested the check be forwarded to Salesman.
On
April 21, Salesman and Robles w e n t to Bell's accounting department
39
71
where Salesman received the check m a d e payable to the bank. 1/
Salesman and Robles then proceeded to the First National Bank of
Fort Worth.
At the bank they met with a customer service officer
and requested that he prepare a cashier's check made payable to
Robles and that the cashier's check be immediately cashed.
The
bank issued Robles a cashier's check in the amount of $34,569.28.
Robles endorsed the cashier's check and after the customer service
officer called a Bell Helicopter financial officer to verify Bell's
check made payable to the Bank, the bank issued Robles $34,569.28
in cash. 2/ Salesman and Robles then left the bank and drove to
Dallas/Fort Worth Airport.
On the way to the airport, Robles
removed $2,900 from the briefcase representing his $2,500 commission on this one helicopter as well as $400 in expenses for his
travels to and from Fort Worth and Puerto Rico.
Salesman went to
his own bank, First National Bank of Fort Worth, and placed approximately $30,000 into his safety deposit box at the bank (April 22,
1977).
Between April 23 and May 3, Salesman telephoned Javier's
Secretary from Fort Worth to alert him that he was on his way
to the Dominican Republic.
On May 3, 1977, Salesman arrived in
the Dominican Republic carrying approximately $30,000 in cash.
Salesman was met at the airport by a military officer who took
Salesman to the V.I.P. room at the airport.
Salesman gave him
the briefcase containing the cash.
The military officer left
after telling Salesman that he would be waiting for him outside
the airport terminal.
Salesman went through customs and the military officer returned the briefcase to Salesman.
The next morning
Salesman visited Javier's Secretary at the Ministry of Defense
building.
He gave the Secretary the briefcase containing the
cash.
The Secretary opened the briefcase and looked inside an
envelope which contained the cash.
He put the envelope into a
drawer in his desk.
After the Secretary accepted the cash, the
secretary told Salesman that the Dominican Republic was now interested in purchasing additional helicopters from Bell.
Salesman
informed the Secretary that he would send them additional standard
export purchase agreements with equipment that Salesman considered
to fit the requirements of the DR.
Salesman then returned to
Fort Worth.
Between the end of May and June 1977, Salesman forwarded
Javier's Secretary additional information about a prospective sale
of additional helicopters.
Salesman testified that it was his
understanding that because of the change of government in the
Dominican Republic and because of difficulty in the Dominican
Republic in arranging additional financing for the purchase of
1/
Bell Helicopter Textron credit memo dated April 20, 1977
reflects that this check was to be picked up by Salesman
"for cashier's check to C. Stanley Robles."
2/
The financial officer was told that the bank had been
to cash the check.
i+0
requested
72
helicopters, subsequent sales were not made.
Salesman did acknowledge, however, that had Javier accepted such additional helicopters that he would have received a payoff in connection with such
an order.
It does not appear that anyone at Bell other than Salesman
was aware of the method by which such payments were made to
DR officials.
E.
MEXICO
1.
Summary
In 1973 Bell made direct payments of approximately $150,000
to a Mexican Colonel in connection with a $3.46 million sale to the
Mexican Air Force.
2.
Discussion
In late 1971 and early 1972, Bell was negotiating a sale of
over ten helicopters with the Mexican Air Force ("MAF").
Near
the conclusion of the negotiations, the Mexican authorities allocated sufficient funds in the 1972 budget for the purchase of ten
helicopters.
However, as the fall of 1972 grew near, the MAF had
failed to finalize a formal contract to purchase the ten helicopters
from Bell.
Bell's Regional Manager responsible for Latin America,
Gonzalez, suspected that the Chief of Staff of the Mexican Air Force,
General Solito Beltran ("Beltran") was delaying final approval of
the sale to implicitly signal that he desired a payoff. 1/
Gonzalez's suspicion was confirmed some time prior to October
1972 when Carlos Nino de Rivera ("de Rivera"), Manager of Bell's
Mexican dealer, CIA Mexicana De Aeroplanos ("Aeroplanos") informed
Gonzalez that Colonel Enrique Gomez ("Gomez"), Beltran's assistant
and a participant in the negotiations, told de Rivera that Beltran
wanted to be paid off in connection with the purchase of the ten
helicopters,
de Rivera told Gonzalez that he was to have further
discussions with Gomez on the size of the payment and' would report
back to Gonzalez the results of such discussions.
Gonzalez did
not discourage Bell's dealer from having any further discussions
11
with Gomez about Beltran's "payoff .
At this time, Gonzalez knew
that such a "payoff" would involve Bell commissions credited to
Aeroplanos.•
Shortly after the first conversation between Gonzalez and
de Rivera, de Rivera called Gonzalez to inform him that Gomez and
Aeroplanos agreed to an even split of whatever commissions Bell
paid to Aeroplanos.
de Rivera stated that he was now optimistic
1/
Gonzalez based this suspicion on the impasse in finalizing
a contract and on information which came to his attention that
Beltran approached a third party to serve as an agent on the
sale.
73
that Bell and M A F could proceed with finalizing the contract.
Gonzalez informed Mitchell about the agreement between Gomez and
Aeroplanos.
Neither Gonzalez nor Mitchell raised any concerns
with anyone about such an agreement.
On or about November 29, 1972, Bell signed a contract with
MAF to sell it five model 205's and five model 206's with related
spare parts for approximately $3,460,000.
Beltran's signature
appears on the contract as a witness to the Mexican government's
execution of the contract.
It was Bell's policy not to credit commissions to its dealers
until the helicopters were paid for and delivered. At or about
April 1973, six of the ten helicopters were paid for and delivered.
At or about the first week of May 1973, de Rivera called Gonzalez
to inform him that he and Colonel Gomez were planning to travel
from Mexico City to Bell's main offices in Fort Worth to receive
whatever commissions Bell credited to Aeroplanos on the MAF sale.
At or about May 9, 1973, de Rivera and Gomez arrived at Bell headquarters where they met with Gonzalez and Mitchell.
During their
visit, de Rivera dictated a letter to Gonzalez's secretary requesting
Bell "to issue a check in the amount of $109,750 to Col Enrique
Gomez Gomez."
Gonzalez delivered the letter to Bell's accounting
department, which, in a matter of hours, complied with the request
Gonzalez then
by issuing a $109,750 check made payable to Gomez.
handed the check to de Rivera.
A copy of the cancelled check reflects
Gomez's endorsement.
By August 1973, the remaining four helicopters were paid for
by and delivered to MAF. At or about August 29, 1973, de Rivera
again travelled to Bell's offices to request that Bell issue a
check to Colonel Gomez for approximately $50,000.
Bell again
complied with the request by giving de Rivera a check made payable
to Gomez on September 6, 1973.
C.H. Jankowski, Bell's manager of
credit and collection, and J.R. Caster, head of Bell's Accounts
Receivable, approved Bell's issuance of the check to Gomez. 1 /
A copy of the cancelled check reflects the endorsement of Gomez.
F.
COLOMBIA
1.
Summary
In December 1972, Bell signed a contract with the Government
of Colombia ("Colombia") for the sale of six helicopters, totalling
$2,915,000, to the Colombian Air Force ("CAF").
The helicopters
were purchased with the proceeds of a loan to Colombia from the
United States government.
Evidence obtained from Bell indicates
that, prior to the contract signature, Bell's dealer in Colombia
entered into financial arrangements with the Director General
of Aeronautical Materiale of the CAF (a lieutenant colonel), who
1/
Caster has supplied the staff with a sworn affidavit
he would invoke his fifth amendment privilege.
42
stating
74
was providing the dealer with "confidential" information regarding
Colombian military equipment needs and desired technical specifications.
Moreover, in October 1972, Gonzalez became aware of,
and acquiesced in, a decision by the "Colombian dealer to divert
approximately $30,000 in commission proceeds to an import-export
agency located in New York City, with the belief that the
import-export agency would pay all or some of the commission money
to a military attache at the Colombian Embassy in Washington,
whose signature was necessary for processing of the paper work
underlying tne contract.
2.
Questionable
Payments
Since the early 1950's, Bell's dealer in Colombia has been
Antonio Angel and CIA, Ltd. ("Angel").
In late April 1972, Angel
informed the International Marketing Department of an interest
expressed by Colombia for the purchase of several Bell model
205A-1 helicopters or the military version thereof. Because the
purchase was to be financed by the United States government, Angel
reported that Bell would not be facing competition from foreign
helicopter manufacturers but would be submitting bids in competition
with other American helicopter manufacturers such as Hughes and
Sikorsky.
Shortly thereafter, at the instruction of Sylvester,
Gonzalez 1/ traveled to Colombia to present a proposal for the
sale of 205A-l's.
In presenting the proposal, Gonzalez met with,
among others, Colonel Juval Gomez ("Gomez"), the materiale officer
of the CAF, and Major Belarmino Pinella, helicopter pilot for
the President of Colombia, to discuss the Bell proposal.
During
this first trip to Colombia and a subsequent one in May 1972,
Gonzalez became aware of the fact that Gomez and Pinella were providing "inside" information to Angel concerning the Colombian helicopter equipment and delivery requirements. 2/ Gonzalez surmised
that Gomez and Pinella would be paid in return for providing the
"inside informaton." 3/
1/
Gonzalez was named Regional Sales Manager for Colombia in
the spring of 1972.
Previously, he had been responsible
solely for Central America and the Caribbean.
2/
It was Gonzalez's understanding, based upon discussions with Dr.
Soto (Angel's manager), that at least two of Gomez's superiors
would review recommendations for helicopter acquisition.
3/
Gonzalez's predecessor as Regional Manager responsible for
Colombia, Dowe S. Rhodes, had been told by Soto that Angel
employed Gomez on a regular basis to process orders for spare
parts required in the Bell helicopters previously required
by the Colombia military.
Rhodes testified that Gomez was
still "moonlighting" in this fashion for Angel in the spring
of 1972.
43
75
During the summer of 1972, via telex and letters in Spanish
sent to Bell, Angel provided Bell with "inside" information that
had been supplied it by what it called "our" "advisors" and "consultants" regarding the status of the Bell proposal. 1/ This information indicated (1) that the outstanding loan from the United
States government had been reduced, (2) that the CAF wanted to
incorporate certain armament systems into the Bell helicopters, and
(3) that the CAF had cabled the U.S. Defense Department requesting
confirmation as to whether certain helicopters available on an
FMS basis contained new or rebuilt avionics components.
Bell was
also sent what appeared to be an internal CAF memorandum comparing
FMS pricing and armament requirements with those of helicopters
completely manufactured by Bell.
Copies of these letters and'telexes from Soto were routinely
translated into English and then circulated to Yates and Mitchell
during the summer of 1972.
Also, Gonzalez specifically recalls
having shown to Sylvester on several occasions English translations
of letters and telexes which referred to "consultants" and "advisors."
However, Gonzalez testified that he did not discuss with Sylvester
the identities or function of the advisors or any possible financial
incentives that induced them to provide "inside" information to
Angel.
By late September 1972, the appropriate authorities in
Colombia had approved the purchase of six Bell 205A-l's and all
paperwork had been forwarded to General Alba ("Alba"), the military attache at the Colombian Embassy in Washington, D.C.
It was
Gonzalez's understanding in September 1972 that Alba's processing
of the paperwork was a non-discretionary act that could have been
accomplished relatively quickly.
However, Gonzalez testified that
by mid-October he was contacted by one David Einhorn ("Einhorn") 2/
and told that Einhorn was a friend of Alba's and that, if Bell
agreed to pay Einhorn a commission, he would influence the processing
of the 205A-1 paperwork . At Gonzalez's direction, Einhorn contacted
Angel, with whom Einhorn negotiated a $30,000 commission conditional
upon processing of the paperwork (which would primarily consist of
signature of the contract by Alba) within two weeks.
Soto telexed
Gonzalez about the various stages of the negotiations with Einhorn.
Alba signed the contract four weeks after the establishment
of the Angel-Einhorn agreement.
Eleven months later, following
delivery of all six 205A-l's and associated spare parts, Angel
authorized Bell to issue a check for $29,500 to a corporation
owned by Einhorn.
Correspondence received at Bell by Gonzalez
also indicated that Angel's "consultants and advisors" would be
!/•
One telex sent to Bell by Soto specifically
as Soto's "advisor."
2/
Einhorn asserted his fifth amendment privilege on all matters
pertaining to Columbia when called to testify before the staff
about these matters.
identified
Gomez
76
receiving some or all of the commission monies, which totalled
$226,000.
It was Gonzalez's understanding through the end of
1973 that Angel's primary "advisors" were Colonel Juval Gomez
and Major Belarmino Pinella. 1/
3.
Removal and Alteration of Textron
Documents
Bell presented a series of additional proposals for the sale
of additional 205A-l's to Colombia during the period 1974 through
1976.
Code named White Rose II,'the proposals resulted in December,
1976 in a contract for the sale of seven 205A-l's.
In February 1974, Angel informed the International Marketing
Department that Colombia had received additional American monies
for the purchase of helicopters.
During the next eighteen months,
Angel communicated with Bell by telex and letters in Spanish regarding
the progress of sales efforts.
Again, these letters and telexes
were routinely translated and circulated to Mitchell and Yates.
Some of the communications made reference to Angel's "advisors"
and "consultants" and "confidential" information provided by them
regarding internal discussions of Colombian military officials
with respect to Colombian helicopter requirements. Angel also forwarded Bell at least one report on CAF requirements that possibly
contained information classified under Colombian law. 2/ It was
Gonzalez's understanding, at least until June 1975, that Juval
Gomez still had formal input into the CAF procurement process and
that he was one of the "advisors" referred to .in the correspondence
from Angel.
Gonzalez assumed that Gomez would be paid for his
advice regarding White Rose II if a sale eventuated.
By mid to late 1975, approximately one third of the White Rose
II correspondence that Bell had received from Angel contained passages indicating that Angel was privy to "confidential" internal
deliberations of the Colombian military regarding the latest Bell
helicopter proposals.
Certain of the correspondence also made
reference to "advisors."
Mitchell, aware of the Lockheed scandal,
became somewhat concerned that certain portions of the White Rose
II correspondence might imply that the Colombian dealer was paying
military officials to promote the sale of Bell helicopters or to
provide it with confidential information.
Mitchell testified that
in mid to late 1975, he convened a meeting of the Regional Managers
in the International Marketing Department and instructed them that
in accordance with Bell's policy of "remain(ing) at arms length
from any improper transaction," the International Marketing Department files henceforth should not contain any information which
could impute knowledge to Bell of possible improper activities on
the part of Bell's dealers.
Mitchell directed the Regional Managers
1/
The staff has been able to trace through a New York bank account
of Angel approximately $35,000 paid to Gomez by Angel.
2/
Despite a diligent search by Textron's outside counsel,
document could not be found in Bell's files.
45
the
77
both to correct any "mistranslation" of existing documents and to
warn dealers not to disclose in any way in future correspondence
their questionable activities.
However, Mitchell testified that
he did not intend to imply or suggest to the Regional Managers
that accurate translation indicating improper activities by the
dealers should be falsified to eliminate such references.
During
the same time period, Mitchell also met privately with Gonzalez
to express his concern regarding the White Rose II correspondence.
According to Gonzalez, Mitchell expressed a suspicion that
Bell would or could be investigated by the United States government
as a result of the Lockheed scandal, and in that event, all sensitive
documents, such as the references to "advisors" or "consultants" in
the Angel correspondence, should be deleted. Mitchell told Gonzalez
to instruct his secretary, Margaret Hernandez, to remove all such
correspondence from the Colombian file; he also told Gonzalez to
request from Angel replacement "originals" of the correspondence
that would not contain the word "advisors."
Mitchell denied Gonzalez' version of the discussion.
However,
based on the testimony of Margaret Hernandez, that in late 1975
or early 1976, Gonzalez instructed her to comb through the White
Rose II file to locate all references to "advisors" and "consultants,"
discard the Spanish originals and translations of these references,
replace the discarded Spanish letters with a set of sanitized
Spanish letters transmitted by Angel late in 1975, and then translate the second set of Spanish letters.
Hernandez did so. 1 /
As a result of Gonzalez's instruction, 24 letters in the White
Rose II file, ranging in date from February 1974 through January
1975, were replaced.
There the matter rested until sometime during
the Miller confirmation hearings when Mitchell requested Gonzalez
to review the Colombian files to ascertain, according to Gonzalez,
whether they contained any "sensitive materials," and according to
Mitchell, whether there were any documents that might have revealed
any "improper activity."
Gonzalez testified that he conducted a
search of the Colombian files but did not discover any documents
which he considered to be of a "sensitive" or "improper" nature.
G.
OMAN
1.
Sale of Five Model 214
Helicopters
At or about October 1974, Bell received a signed order from
the Oman Department of Defense ("ODOD") to purchase five model 214
helicopters and related spare parts for approximately $8,700,000. 2/
1/
Numerous Spanish originals and original translations were
kept by Hernandez in her personal letter file.
2/
After adjustments were made to this order in 1975, the total
amount of the order was over $9 m i l l i o n .
46
78
In connection with this order, Bell assisted in structuring a payment of approximately $275,000 through its dealer in the United
Arab Emirates, Dubai Helicopter Services ("DHS"), to Sayyid Tariq
Bin Taimur ("Taimur"), who was designated by the Sultan of Oman
to negotiate the purchase of _the helicopters by the Sultanate
and was the former Prime Minister of Oman and uncle and personal
assistant to the Sultan of Oman. 1/
Sequence of Events
During the summer of 1974, Bell employees and agents communicated with ODOD about a potential sale of Bell 214's to ODOD.
The principal Bell employees promoting the sale were Ormand K.
Moore ("Moore") 2/ and Hunt.
Bell used DHS to promote the sale
wnich in turn used an Omani based company, Waleed Associates,
whose managing director was Omar Zawawi ("Zawawi"). 3/
On or about August 1974, Moore was contacted by Friedhelm
Jost ("Jost"), president of a New York brokerage firm.
Jost told
Moore that he was contacting him on behalf of Taimur, the Sultan's
uncle and personal assistant on diplomatic affairs.
Jost told
Moore that Taimur (1) was very influential in Oman; (2) wanted
Bell to contact him to arrange the sale with him; (3) wanted Bell
to pay him commissions on a 214 contract regardless of any prior
arrangements Bell may have with any other agent; and (4) said there
would be no sale of Bell helicopters if Bell paid commissions to
any agency outside Oman.
Moore told Jost that Bell had a policy
of operating within the limits of its dealer agreements, including
its agreement with its Dubai dealer, and that Taimur should therefore contact DHS. 4/
1/
As explained below, it appears that the actual payment to
Taimur was made in the spring of 1976, after the delivery
of and payment for the helicopters.
2/
Since about August 1974, Moore has been Bell's International
Marketing Department's area manager for Europe, the Middle
East and Africa.
On August 8, 1978, Moore appeared before
the staff and invoked his fifth amendment privilege with
respect to all questions relating to Oman and the United
Arab Emirates.
Moore has reported to Dee Mitchell, Sales
Manager, International Marketing Department, who in turn
has reported to Sylvester.
3/
As described below, Waleed was part of .Zawawi Trading Company
which was operated by Zawawi and his brother Qais Zawawi,
Foreign Minister of Oman.
4/
Jost testified that according to Taimur, the Sultan of Oman
requested Taimur to negotiate the sale of the helicopters on
behalf of Oman.
47
79
A f t e r his d i s c u s s i o n s w i t h J o s t , M o o r e m e t with S y l v e s t e r and
M i t c h e l l and briefed them on what J o s t told h i m . 1/
It w a s decided
at this m e e t i n g that DHS would be informed of Jost's c o n t a c t s on
b e h a l f of T a i m u r .
On S e p t e m b e r 16, 1974, O D O D signed the $8,700,000 o r d e r to p u r c h a s e five 214's and related s p a r e p a r t s from Bell.
From a s e r i e s
of c o m m u n i c a t i o n s involving Z a w a w i , T r o s c h and B e l l e m p l o y e e s ,
it b e c a m e a p p a r e n t to Bell that the o r d e r w a s a p p r o v e d due to the
influence and p o w e r of T a i m u r and that Zawawi and Trosch p r o m i s e d
to p a y T a i m u r all of the c o m m i s s i o n s p a i d by B e l l o n the s a l e of
the five h e l i c o p t e r s .
On S e p t e m b e r 27, 1 9 7 4 , Hunt sent a teiex
to M i t c h e l l , w i t h S y l v e s t e r and o t h e r s d e s i g n a t e d to r e c e i v e a
copy. 2/
The telex stated that T a i m u r needed r e a s s u r a n c e via
T r o s c h and Z a w a w i on h i s c o m m i s s i o n s and that O m a n ' s d e p o s i t on
the c o n t r a c t m i g h t be held up until he w a s s a t i s f i e d . 3/
Hunt
r e q u e s t e d M o o r e to p r o v i d e T r o s c h w i t h a b r e a k d o w n of the total
c o m m i s s i o n s p a y a b l e on the 214 c o n t r a c t .
Hunt f u r t h e r i n d i c a t e d
he w o u l d a s s i s t T r o s c h in d e t e r m i n i n g h o w m u c h m o n e y w o u l d be paid
to T a i m u r .
M o o r e supplied the r e q u e s t e d c o m m i s s i o n s t r u c t u r e .
B e t w e e n O c t o b e r 1, 1974 and O c t o b e r 1 4 , 1 9 7 4 , Hunt m e t w i t h T r o s c h
in 'Bonn to a r r a n g e a s u i t a b l e c o m m i s s i o n s t r u c t u r e for T a i m u r .
On O c t o b e r 14, 1 9 7 4 , H u n t sent a telex to M o o r e , w i t h S y l v e s t e r
d e s i g n a t e d to r e c e i v e a copy, 4/ w h i c h in p a r t s t a t e d :
1/
M i t c h e l l t e s t i m o n y , p a g e s 249, 2 5 1 - 5 3 .
A c c o r d i n g to M i t c h e l l ,
S y l v e s t e r w a s informed by M o o r e t h a t T a i m u r w a s the p e r s o n a l
a s s i s t a n t to the S u l t a n and that it w a s t h e intent of T a i m u r
to r e c e i v e c o m m i s s i o n s on the s a l e .
2/
H u n t s p e c i f i c a l l y l i s t e d S y l v e s t e r to r e c e i v e a copy of this
telex.
Incoming t e l e x e s r e c e i v e d at B e l l ' s m a i n o f f i c e in
Fort W o r t h are s t a m p e d w i t h an I n t e r n a t i o n a l M a r k e t i n g D e p a r t ment date stamp.
T h e d a t e s t a m p is filled o u t u p o n r e c e i p t
to r e f l e c t by title t o w h o m t h e t e l e x is a s s i g n e d and to w h o m
i n f o r m a t i o n c o p i e s a r e to be s e n t .
Should the a u t h o r of the
telex d e s i g n a t e a p e r s o n to r e c e i v e a copy, that p e r s o n ' s
title n o r m a l l y w o u l d be c h e c k e d o f f in the d a t e s t a m p and a
copy would be sent to that p e r s o n ' s o f f i c e .
W i t h r e s p e c t to
H u n t ' s t e l e x , a c h e c k m a r k a p p e a r s n e x t to "Vice P r e s i d e n t , "
i n d i c a t i n g S y l v e s t e r w a s sent a c o p y .
V
T h e H u n t telex is i n d i c a t i v e of B e l l ' s b e l i e f t h a t
had the p o w e r to upset the h e l i c o p t e r c o n t r a c t .
A/
A check mark appears next t o
S y l v e s t e r w a s sent a copy.
"Vice P r e s i d e n t "
48
57-608
0 - 8 0 - 6
Taimur
indicating
80
The Trosch/Tarik 1/ meeting which was
outcome our planning meeting in Bonn has
produced very satisfactory arrangement
for 214 commissions . . . It should get
Jost and Tarik off your backs, but in
unlikely event of further Jost contact,
refer him back to Tarik.
Bell's agreement with its dealers, including its UAE dealer,
provided that commissions would not be paid until delivery of helicopters.
By March 29, 1976, the first two 214's were delivered
to Oman.
Trosch instructed Bell at or about March 29, 1976, to
transfer all of his company's commissions to his Swiss bank account
"to honor my longstanding commitments" and to arrange that further
214 commissions as credited are also immediately transferred to
that account.
Trosch stated that:
"This needs urgent attention
as cannot lose faith with our Oman partner."
On March 31, 1976,
Bell complied with this request by transferring about $200,000
to Trosch's Swiss bank account.
On May 21, 1976, Bell transferred
another $270,000 to this account, which partially represented
commissions paid on the 214 contract.
Bell paid commissions totalling $337,338 on the 214 contract.
Based on documents and testimony obtained by the staff, it appears
that Taimur received approximately $275,000 on the 214 sale.
The
books and records of Textron reflect that its payments on this sale
were legitimate commissions paid to its dealer in the United Arab
Emirates. 2/
2.
Sale of Five Model 205
Helicopters
On or about January 1974, Bell received a signed order from
ODOD to purchase five model 205 helicopters and related spare
parts for approximately $2,860,000.
At or about February 1974,
Hunt sent a telex to Sylvester, Mitchell and others stating that
a local Oman representative of Bell's dealer, DHS, provided much
assistance in concluding the sale and that DHS should be credited
1/
Taimur was referred
2/
No evidence has been found which indicates that Textron executives knew of the details of the Taimur payment. However, Hunt
sent Robert Ames, Senior Vice President of Textron, and
G. William Miller a copy of a memorandum describing the activities of Bell's European office fronul970-1975.
The memorandum mentioned that Hunt had met with Trosch "to arrange
suitable commission structure with Waleed Associates and
Said Tarik for SOAF [Sultanate of Oman Air Force] 214B's."
Ames acknowledges reading the memorandum in 1975, but he
testified he did not have any information with respect to the
identify of Tarik.
Miller acknowledges receiving the memorandum
but does not recall reading it.
to as Sayyid Tarik in Textron
49
documents.
81
dealer commissions on the sale of the helicopters.
At least by
April 1974, Bell knew that the local representative was owned in
part by the Foreign Minister of Oman.
Moore, after visiting Oman,
authored a memorandum dated April 23, 1974 that described the
Omani based company, Waleed Associates, as part of Zawawi Trading
Company.
The memorandum described Zawawi Trading Company as being
owned by the Zawawi family and "operated primarily by the two
brothers; Mr. Qais Zawawi, who is the foreign minister of Oman,
and Dr. Omar Zawawi . . . " 1/
On or about February 18, 1975, Trosch instructed Bell to send
Trosch
D H S 1 s commissions on the 205 sale to his Swiss bank account.
stated that his "urgency due to the fact that I have to sign cheques
at Swiss bank for subcommissions amounting DLR 200,000." 2/
Bell
immediately complied with Trosch's request by transferring $200,332
to Trosch's Swiss account on February 18, 1975.
Prior to Bell's transferring of the commissions, Bell did not
raise any concerns internally or with DHS with respect to DHS
sharing Bell commissions with an entity owned in part by Oman's
foreign minister.
The evidence indicates that Bell was concerned
with the relative power of Qais Zawawi and Taimur after the signing
At or about November 1974, a Bell
of the 214 and 205 contracts.
employee visited Oman and made inquiries with the U.S. Embassy
with respect to which individual — Taimur or Qais Zawawi —
had
more power with the Sultan.
The Bell employee was told that they
were both very powerful and evenly balanced in influence.
In
his trip report, the Bell employee stated that:
"This information
confirmed what we had believed previously and has bearing on the
Trosch/Zawawi relationship."
H.
CEYLON
(SRI LANKA)
In February of 1972, Bell signed a $640,000 contract with the
U.S. government to sell four helicopters and related spare parts
for delivery to Ceylon under the U.S. Military Assistance Program
("MAP"). 3/
In connection with the contract, Bell represented
1/
This memorandum was addressed to Weichsel, Sylvester, Hunt
and others.
Moore sent the memorandum to Fort Worth from
Bell's European office.
The date stamp reflects that Weichsel
and Sylvester were sent a copy of the memorandum.
2/
Trosch telex, 2/18/75.
Other Textron documents indicate
Waleed received compensation on the 205 sale.
See Trosch
letter to Zawawi April 20, 1975; Trosch letter to Moore,
11/27/74, enclosing proposed agreement between DHS and
Waleed.
3/
This MAP contract resulted in Bell manufacturing and selling
the helicopters to the U.S. government which in turn made a
gift of the helicopters to the Government of Ceylon.
50
82
in writing to the U.S. that it has not paid or agreed to pay commissions to its representative in Ceylon on the sale.
Prior to the signing of the contract, Bell received a letter
from its representative in Ceylon, U. Moonesingha of Brown & Co.,
which, in part, stated that commissions paid to him would have to
be used "to take care of the personal interests of the Government's
top officials to sustain their continuous interest in [Bell] amidst
competition . . ." 1/ After the signing of the contract, Bell
received additional correspondence from Moonesingha requesting commissions on the four helicopters in order to enable him to discharge commitments he made with Paddy Mendis, Ceylon's Air Commodore,
and another top Ceylon official, in connection with the helicopter
transaction.
Moonesingha specifically requested Bell to remit his
commissions to a West German bank account of a third party, H.
Pokorny.
The additional correspondence was either posted outside
Ceylon or delivered to Bell by a Bell employee.
Notwithstanding Bell's representation to the U.S. government
with respect to commissions on the MAP transaction, in the summer
of 1972 Bell employees began exploring a means to circumvent its
representation 2/ by making payments to Moonesingha totalling
approximately $40,000, the amount Moonesingha would have received
had standard commissions been paid by Bell on the sale of the
four helicopters. 3/ At or about August 1972, Kenworthy met
with Hans Weichsel, Senior Vice President of Bell. 4/
Kenworthy
explained to Weichsel that Moonesingha deserved to be compensated
on the MAP transaction but that Bell could not pay commissions or
that it would be awkward to pay commissions because of a representation made by Bell to the U.S. government.
On August 18,
1972, Kenworthy sent a memo to Bell's legal counsel advising him
1/
November 11, 1971 letter from Moonesingha to R. Kenworthy of
Bell's International Marketing Department.
Moonesingha noted
that he arranged for this letter to be posted outside Ceylon
because of censorship of business correspondence.
2/
While the representation was that Bell "has not paid or agreed
to pay" commissions, Bell employees correctly interpreted the
representation to include prospective payment of commissions.
It was Department of Defense policy that no communications
would be paid in connection with a MAP transaction of this
type.
3/
In addition to Bell's representation to the U.S., the representative agreement between Bell and Moonesingha expressly
stated that Bell would not pay commissions on grant-in-aid
deliveries, which include MAP transactions of the type in
this case.
4/
Weichsel reported directly to James F. Atkins, President of
Bell, who in turn reported to G. William Miller, President
of Textron.
51
83
that W e i c h s e l instructed that a " c o n s u l t a n t ' s
M o o n e s i n g h a be prepared and that W e i c h s e l had
M o o n e s i n g h a $39, 000. 1/
a g r e e m e n t " for
agreed to pay
On J a n u a r y 26, 1973, W e i c h s e l , on behalf of Bell, and M o o n e s i n g h a e x e c u t e d the c o n s u l t a n t a g r e e m e n t .
The a g r e e m e n t called
for future s e r v i c e s to be p e r f o r m e d by M o o n e s i n g h a , m a n y of which
he was a l r e a d y o b l i g a t e d to p e r f o r m as B e l l ' s r e p r e s e n t a t i v e in
It a p p e a r s that no s e r v i c e s w e r e p e r f o r m e d p u r s u a n t to
Ceylon.
this a g r e e m e n t . 2/
M o o n e s i n g h a received a total of $ 3 9 , 0 0 0
p u r s u a n t to this a g r e e m e n t in 1973 and 1974.
Of the $39,000,
$32,000 was paid by two Bell c h e c k s which were d e p o s i t e d in a bank
in W e s t G e r m a n y .
One of the two c h e c k s w a s endorsed by M o o n e s i n g h a
and the third p a r t y mentioned a b o v e . 3/
I.
GHANA
In 1971, Bell structured a $ 3 0 0 , 0 0 0 p a y m e n t to a senior m i l i tary o f f i c i a l of the G h a n i a n Air Force in c o n n e c t i o n with a
$1.67 m i l l i o n sale of two h e l i c o p t e r s to the G h a n i a n A i r F o r c e .
Bell first b e c a m e aware of the need for such a p a y m e n t on July 8,
1971 w h e n B e l l ' s sales m a n a g e r , K e n w o r t h y , met in G h a n a with Dan
L a n g e l e r ( " L a n g e l e r " ) , a sales r e p r e s e n t a t i v e of Bell's G h a n a
d e a l e r , T r o p i c a l A i r c r a f t Sales Co. ("Tropical"). 4/ L a n g e l e r
told K e n w o r t h y that he had been informed that a $300,000 b r i b e had
to be paid to the head of the Air F o r c e , G e n e r a l C h a r l e s B e a u s o l e i l ,
and at least one other G h a n i a n o f f i c i a l to f a c i l i t a t e a sale by
Bell, or the sale would be lost to B e l l ' s I t a l i a n l i c e n s e e , A g u s t a .
1/
W e i c h s e l was listed
memo.
on this m e m o to receive a copy of
2/
Kenworthy
the a g r e e m e n t w a s a
3/
The staff h a s not been able to o b t a i n any useful
about this third p a r t y , H. P o k o r n y .
testified
this
"sham."
information
S e v e r a l l e t t e r s from M o o n e s i n g h a to Bell during 1 9 7 1 - 1 9 7 2
state that M o o n e s i n g h a had c o m m i t t e d a s u b s t a n t i a l a m o u n t of
his c o m m i s s i o n on the four h e l i c o p t e r s to M e n d i s and that
these funds would be used by Ceylon for h e l i c o p t e r t r a i n i n g ,
o f f i c i a l t r a v e l , etc.
H o w e v e r , all the c o r r e s p o n d e n c e which
m e n t i o n e d these p u r p o s e s a p p a r e n t l y w a s mailed from w i t h i n
C e y l o n , w h i l e d o c u m e n t s indicating that g o v e r n m e n t o f f i c i a l s
were to r e c e i v e p a y m e n t s were not mailed from Ceylon and
thus were not subject to the g o v e r n m e n t ' s review of b u s i n e s s
mail.
F u r t h e r , the bulk of the c o m p e n s a t i o n was d e p o s i t e d
in a West G e r m a n bank account as o p p o s e d to being sent to
M o o n e s i n g h a or the Ceylon g o v e r n m e n t in C e y l o n .
4/
In early J u n e 1971, Bell p e r s o n n e l w e r e informed by G e n e r a l
B e a u s o l e i l , Chief of G h a n a Air F o r c e , that his g o v e r n m e n t w a s
c o n s i d e r i n g the p u r c h a s e of h e l i c o p t e r s .
52
84
Kenworthy agreed with Langeler that the total price quoted by Bell
in its SEPA (standard export purchase agreement) to Ghana could
be inflated by $300,000 by itemizing as so called "accessories"
various pieces of engine and airframe equipment that Bell normally
included in the computation of the standard list price. Bell would
charge Ghana separately for these so called "accessories."
Kenworthy then telexed Bell headquarters, seeking approval of
the means of incorporating the $300,000 overpayment into the contract.
On July 12, 1971, William Yates, Manager of the International Marketing Department, 1/ responded with definite instructions, which were that Bell could not sell directly to Ghana at
any inflated price, and that Bell would have to forfeit the sale
to Agusta unless Tropical purchased the helicopters for resale
to Ghana at a higher price.
Yates maintains that he must have consulted with either Sylvester or another Bell executive as to how
to respond to Kenworthy because (1) Bell international sales were
down, so that Yates would not have felt free to reject a potential
sale without prior consultation with one or more of his superiors
and (2) the model helicopter in question was a relatively new one
and Sylvester wanted to keep abreast of its sales.
Thus, by July 12, 1971 Bell had decided to reject a direct
sale to Ghana at an inflated price and had at least broached (if
not initiated) a means of effecting an indirect sale to Ghana,
i.e., sale by Bell to Tropical at list price with immediate resale
by Tropical to Ghana at a higher price incorporating the $300,000
overpayment.
The immediate problem facing the proposed two step
sale was that Tropical did not have the funds to purchase the
helicopters from Bell.
One document, a telex of July 13, indicates that by that date,
Bell, Tropical and Continental Illinois Bank had discussed preliminarily the mechanics for effecting a resale through Tropical.
Continental Illinois would have been consulted because it was the
party who would be financing a substantial portion of the purchase
price by purchasing promissory notes to be issued by Ghana in payment for the helicopters.
The telex, allegedly authored by Yates,
reads:
"Preliminary discussions McAdams, ("McAdams") 2/
Treff, 3/ Greene 4/ result in tentative approval
contract with Tropical with additional cost added
1/
Yates reported directly to Sylvester.
2/
In 1971, McAdams was a second vice president of Continental
Illinois Bank, with responsibility for assisting U.S. companies with financing international sales.
He is now a
first vice president of the bank.
3/
Bell's
4/
In 1971, Green was president of Tropical.
Treasurer.
53
He is deceased.
85
to fifteen percent for down payment.
Note would
be payable to Tropical endorsed to me without
recourse for payment of separate contract between
Greene and myself and I would endorse to McAdams
with normal recourse.
McAdams now checking his
guarantor. 1/
The telex indicates that it was contemplated by Bell, Tropical
and Continental Illinois that the payment of the $300,000 overpayment was to be made at the time of the 15 percent downpayment.
The second sentence apparently refers to issuance of notes and
the role of the Export Import Bank.
The note from Ghana would
be payable to Tropical, then endorsed without recourse by Tropical
to Bell, which in turn would endorse the note with recourse to
Continental Illinois Bank.
Because the sale was to be guaranteed
by the Export Import Bank, the third sentence indicates that its
The
concurrence had to be obtained in the wording of the notes.
wording of the proposed notes recognizes that Bell would not be
depending upon Tropical for payment of $1.6 million to be charged
under the Bell-Tropical contract.
By July 14, the proposed financing had been rejected.
A
telex from Yates to Kenworthy on that date indicates that the
Export Import Bank had "raised problems."
Kenworthy returned to Fort Worth after July 18, bringing with
him a SEPA for a direct sale by Bell of two helicopters at a price
inflated by $300,000.
Prior to Kenworthy's return, James Atkins,
Bell's then Executive Vice President and presently its President,
had called Dee Mitchell 2/ into his office and informed him "when
Kenworthy comes back I want to talk with you about Ghana."
Mitchell
recalls that he and Kenworthy were later reprimanded by Atkins for
having allowed a SEPA reflecting inflated charge for standard equipment to be prepared since "Bell would never sell directly at an
overstated price."
Mitchell testified that he had the impression
that Atkins realized why the SEPA had been inflated.
However,
Atkins did not ask why the SEPA was inflated, or if the sale were
to be consummated indirectly through Tropical.
Restructured
Sale Through Bell Dealer
The testimony adduced by the staff indicates that, faced with
rejection of a direct sale by Bell to Ghana at an inflated price,
International Marketing employees met to discuss the mechanics of
1/
A copy of this telex was located in Sylvester's files.
Yates
testified that he believes that someone else must have prepared
this telex for him.
Treff, McAdams and Yates do not recall
the preliminary discussions.
2/
In 1971, Mitchell was Manager of Administration of Bell's
International Marketing Department.
54
86
a restructured sale.
According to Clarence Jankowski, 1/ by the
last week in July, Yates, Mitchell and Kenworthy had presented a
proposal to him for an indirect sale of the 212's at an'inflated
price through a two-step transaction: Bell's sale to Tropical at
standard list price with immediate resale by Tropical to Ghana
at an inflated price.
Jankowski warned International Marketing
employees that Continental Illinois Bank might not agree to finance
an indirect sale.
Jankowski's concern, and the related one that
he would be blamed for a fall-through on the deal prompted him,
prior to contacting McAdams, to inform Theodore Treff, Bell's
Treasurer, that the price for resale to Tropical was in excess of
list price, that the excess probably would be used for a payoff,
and that consequently the bank might refuse to finance the transaction.
Jankowski consulted with McAdams of Continental Illinois
Bank, in late July, as to how to structure the financing for a sale
to Ghana via Tropical.
Jankowski informed McAdams that Bell would
be selling the 212's to its dealer, as opposed to a direct sale
to Ghana, because Tropical would be reselling the 212's to Ghana
at a price approximately $300,000 higher in order to facilitate
a "payback".
McAdams tentatively suggested, with confirmation to
follow after consultation with the Export - Import Bank, that Bell
prepare notes payable by Ghana "to Bell for the account of Tropical
Aircraft Sales."
He also told Jankowski not to be concerned about
the requirement of a payoff since "this goes on all the time."
By July 28, McAdams had broached the mechanics of financing with
Export - Import Bank, and the Export - Import Bank had tentatively
agreed to guarantee notes worded as above.
An Export — Import Bank
memorandum, dated July 28, 1971, indicates that McAdams described
the Bell - Tropical portion of the transaction as requiring "cash
payment sufficiently large enough to cover full down payment plus
complete broker commission."
Jankowski, Mitchell and Yates met in Fort Worth with Langeler
and John Lewis of Tropical on August 3, at which time Lewis signed
a SEPA between Bell and Tropical for a price of $1,667,608.
Treff
signed on behalf of Bell.
Langeler testified that while he was in
Fort Worth,at or about August 3, he met with Atkins and two other
Bell employees in Atkin's office to discuss the transaction. 2/
While Langeler does not recall that a payment to a government
official was mentioned during his discussion with Atkins, he has
a strong recollection that (1) prior to his discussion with Atkins,
he was told by a Bell employee that Atkins w a s aware of and had
to approve the transaction and had received a copy of a letter
of intent of the Ghana government to purchase at a price of over
$1.9 million (the precise amount reflected in the $1.9 million
SEPA which caused Atkins concern in July 1971); (2) he was
1/
Jankowski has been Manager of Credit and Collection at Bell.
2/
Neither Atkins nor the two other Bell employees recall this
meeting.
55
87
surprised that Atkins would have to approve the transaction as it
was Langeler's understanding that Bell had already approved the
indirect sale; (3) at his meeting with Atkins, Atkins questioned
whether it was necessary for Langeler to have travelled from Africa
to Fort Worth as Bell was aware of what was necessary to conclude
overseas sales; (4) after meeting with Atkins for about ten minutes
during which Atkins did all the talking, Atkins said he (Atkins)
would let Langeler know if the deal would go through; and (4) that
the day after his meeting, he was told by a Bell employee, probably
Mitchell, that the indirect sale had been approved by Atkins.
The
staff notes that prior to his meeting with Langeler, Atkins opposed
Langeler's testimony indicates
a direct sale at an inflated price.
that Atkins was aware that Bell would be selling directly to its
dealer for resale to Ghana rather than selling directly to the
Ghana government.
On August 8, Hon Taylor, Bell's Regional Manager for Africa,
travelled to Ghana to discuss final arrangements for the helicopters
configuration.
A contract for sale of the 212's at a price of
$1,988,452 was signed by Ghana and Tropical on August 12 and Taylor
departed from Ghana on August 13. 1/ In late August Taylor returned
to Ghana to pick up the ten promissory notes.
However, Taylor was
provided with copies of eleven promissory notes which were worded
"payable to Bell" and not "payable to Bell for the account of
Tropical."
Upon Taylor's return to Fort Worth, Mitchell and
Jankowski inspected the notes and informed Taylor that they were
wrongly worded.
These Bell employees then prepared unsigned versions of ten of the promissory notes with the proper wording.
On September 7, Kenworthy telexed Don Sittman, Tropical's vice
president, who was still in Ghana, that Bell could not accept the
promissory notes as written, including a $316,120 promissory note
due on September 15 since "for reasons of which you are aware
Tropical is seller not Bell." Kenworthy's telex sets out three
alternatives to rectify the problem. 2/ Taylor recalls that, at
1/
Mitchell assisted Langeler and Lewis in drafting the contract
between Tropical and Ghana; the contract called for Ghana to
issue promissory notes payable to Bell, for the account of
Tropical.
Payment terms provided by the contract were first,
a deposit of $297,017.89 upon signature; payment of $316,120.89
no later than September 15, 1971 upon delivery of the helicopters; financing of the $1,371,241.89 balance through a
promissory note "payable to Bell Helicopter Company, Fort
Worth, Texas, for the account of Tropical Aircraft Sales,"
to be paid in ten half yearly installments.
2/
The alternatives were:
cancellation of the note for $316,120
and substitution of cash payment; amend the note to read "for
the account of Tropical Aircraft Sales"; amend all eleven
promissory notes to read "for the account of Tropical Aricraft
Sale."
56
88
Mitchell's suggestion, on or about September 13, he drafted a
letter for Sylvester's signature authorizing him to meet with
Ghanian officials in order to obtain signatures on the second set
of promissory notes. 1/ Lou Suitter, legal counsel, reviewed the
draft. 2/ Also, Taylor specifically recalls that he brought the
letter to Sylvester for Sylvester to sign and that he probably
explained to Sylvester that the wording of the eleven promissory
notes was unacceptable.
The letter, which was addressed
read as follows:
to Governor, Bank of Ghana,
13 September 1971
"The bearer of this letter, Mr. R. E. E. Taylor, is duly
authorized to hand-carry promissory notes and/or a bank draft 3/
made payable to the Bell Helicopter Company to the account of
Tropical Aircraft Sales.
The above-mentioned promissory notes and/or bank draft pertains to thje sale of two (2) Bell model 212 helicopters.
s/Frank
Sylvester"
Taylor returned from his trip to Ghana with signed photocopies
of the ten promissory notes on September 19, 1971.
On September 29,
the government of Ghana transferred to Bell cash payments of
$297,019.89 and $316,120.89 plus ten promissory notes for $1,371,241.
These items were processed through the Bell accounting department
in the following manner:
$1,667,608 for payment of the SEPA between Bell and
Tropical;
$310,000 to be transferred to Tropical's bank in Miami, Florida;
$6,774 retained by Bell to defray freight
charges.
The $310,000 represented an overpayment in t h e contract between
Bell and Tropical.
Sittman on or about September 24 received the
money from Bell and immediately caused his bank to prepare a draft
1/
Bell was telexed by General Beausoleil on September 10 that
the first set'of promissory notes had been cancelled and
"fresh ones being made in strict compliance to the letter with
article three of the contract."
Copies of the telex were circulated to Kenworthy, Yates and Mitchell.
2/
"OK Suitter" appears on a copy of the Sylvester letter.
3/
The staff has determined that the "bank draft" referred to
appears to have been a draft of $316,120 as a substitute for
the eleventh promissory note.
The $316,120 had to be freely
disbursable as it was to be used for the p a y o f f .
57
89
for $272,000 to General Beausoleil's Swiss bank account.
On September 27, Sittman hand carried the check to the Swiss bank, and
then, journeying on to Accra, Ghana, hand delivered the $25,000
remainder of the payoff to Beausoleil on September 29.
The "Exporter's Certificate" of the Export-Import Bank, which
Bell filed with the Bank on or about September 24, 1971, requested
information on "any discount allowance, rebate, commission, fee
or other payment in connection with the sale-of or for obtaining
the contract to sell" the helicopters to Ghana.
Bell did not
disclose any information about commissions to Tropical or the
payment to the Ghanian General in the certificate.
Role of Bell
Officials
Atkins:
In addition to meeting with Langeler, Atkins was
apparently aware of other developments in the Ghana transaction
after he rejected a direct sale at an inflated price.
During the
period August - September 1971, Atkins received bi-weekly International Marketing Reports.
The Report dated September 7, 1971,
which summarized business matters through the week ended September 3, 1971, contains the following entry for Ghana:
"Ron Taylor has returned with signed promissory notes and
various other documents pertaining to the Ghanian contract.
The Ghanian 212 helicopters are expected to be air freighted
on September 22."
The report was initialed by Frank
Sylvester.
By late October 1976, Atkins had been informed of the consummation of the sale to Ghana.
Jn mid-October, Langeler addressed a
letter to Atkins to express his appreciation for the after sales
service Bell had provided with respect to the Ghana sale.
On or
about October 21, Sylvester replied to Langeler to thank him for
the letter.
Handwritten notations on a copy of Sylvester's letter
indicate that either a copy of Sylvester's letter or the original
was to be circulated to Taylor, Kenworthy, Yates, Atkins and
Weichsel.
Sylvester:
Yates is positive that he briefed Sylvester, his
immediate supervisor, on the restructuring of the transaction to
provide a payoff. 1/
Sylvester also received two inter-office
memoranda from Yates during the period August - September 1971 that
1/
Yates cites his reasoning outlined on page 53 and the fact
that Sylvester signed a letter to the Ghanian authorities
authorizing Taylor to carry the notes and/or bank draft.
Yates
testified:
"There was no reason for these notes and bank
drafts to flow through Tropical Air with all the complications
with the Export-Import Bank, if it was not a payoff.
It would
have been a clean transaction directly to Bell, if there was
not a payoff."
58
90
made reference to Ghana.
The first, which discusses a proposed
sale of helicopters to Kuwait, states that the sale should be
handled "as we are handling Ghana - i.e., let them [Kuwait dealer]
resell at prices they see fit."
The second discusses sales to
Cambodia through a proposed representative, and notes that these
would be feasible "provided any transaction is handled at arms
length - i.e., Ghana."
Further, on or about November 29 and 30,
1971, Ducayet, Atkins and Sylvester met with Agusta executives
to discuss various matters arising out of the Bell Agusta license
agreement.
A memorandum in Sylvester's handwriting indicates
that Ducayet requested -Sylvester for "summary of controversial
sales (Ghana - Taylor)" that was in the agenda for discussion
with Agusta the following day.
Treff:
Treff admits that at the time he executed the direct
contract between Bell and Tropical, he was aware that the indirect
sale through Tropical was in all likelihood to facilitate a payment.
1978 Disclosures of the Ghana
1.
Senate
a.
Transaction
Hearings
Introduction
On January 24, 1978, during the course of a hearing before
the Committee on the nomination of Miller, Chairman Proxmire questioned Miller with respect to the 1971 sale of two Bell helicopters
Proxmire stated that after negotiating
to the Ghana government.
by Bell with Ghana for a sale by Bell, the sale was made not to
Ghana but to a Nigerian firm, Tropical, with the understanding
it would immediately resell to Ghana.
Proxmire noted that the
price to Tropical was $1.6 million and Tropical would resell to
Ghana for more than $2 million.
Proxmire cited an SEC attorney's
advice that the circumstances suggested that Tropical was a conduit for payments to Ghana officials, otherwise it would not have
made any sense for Ghana to overpay $400,000 for the same helicopters.
Miller • testified that he was not familiar with the transaction and therefore could not comment on it. Proxmire requested
Miller to "report back details as fully as you can on which services
Tropical performed."
In a letter to the Committees dated February 15, 1978, George
Galerstein ("Galerstein"), the Chief Legal Counsel of Bell, responded
to Proxmire's inquiry by stating as follows:
59
91
1971 Sale of tv/o Model 712's to T r o p i c a l A i r c r a f t
TN'iq^rja) Ltd. for G h a n a .
Sale's
T o date our i n v e s t i g a t i o n of this matter i n d i c a t e s
the f o l l o w i n g :
At the P<irir. Air Zhow (2r> Kay - 7 Juno 1371)
a r e p r e s e n t a t i v e of the A i r F o r c e of Chana expressed an
interest in the purchase of two Model 212 h e l i c o p t e r s for V I P
transportation.
Eell relayed this i n f o r m a t i o n to T r o p i c a l
A i r c r a f t S a l e s (Nigeria) I.td. (TAS), itu manufacturer*'c r e p r e sentative for Ghana.
A b o u t one month later, Bell received a
Bell Standard Export P u r c h a s e Agrc<?r..;nt
, prepared by T A S ,
c o n s t i t u t i n g an offer by G h a n a for the p u r c h a s e frcr-.s E e l l of
two M o d e l 212 h c l i c o n t r r s , w i t h spares end a c c t s s o r i o s , at a
total price of $1, 967 ,594 . 20.
Thir, price w a s higher than the
Cell list price for sir.iilar oqniprr.ont, as it included c h a r g e s
for a c c o s s o r i e ? t!at wore considered standard e q u i p m e n t on
the r.odcl 212.
Bell o f f i c e r s , A c c o r d i n g l y , d i r e c t e d that the
offer be r e f u s e d .
T h e r e a f t e r , at t h e request of TAS, a F.ell S t a n d a r d
Export P u r c h a s e Agreement, w a s prepared c o n s t i t u t i n g an offer
by V A C for t h e purchase of two Itod'.l 212 h e l i c o p t e r s , w i t h
a c c e s s o r i e s and. spares, at the Bell standard lir.t price
($1, 667 ,COS.96).
T h i s o f f e r to p u r c h a s e / w a s not submitted to
Boll o f f i c e r s for action and w a s accepted by B e l l e x p o r t
salesmen.
In connection, v/ith this sa.le, Bell received funds
a m o u n t i n g to $ 1 , 9 3 4 , 3 8 2 . 6 2 froir. the Republic of Ghana for the
a c c o u n t of T A S .
Bell t h e r e u p o n deducted $ 1 , C C 7 , C O S . 9 6 (Ecll's
standard list pricc for the two h e l i c o p t e r s , a c c e s s o r i e s and
spares) and $6,774.56 (for spares air freight charges). At the
d i r e c t i o n of TAS, in w h o s e account the funds were rccciwad by
Hell, Bell deposited the r e m a i n d e r of the funds ($310,000) by
bank transfer to the a c c o u n t of Tropical A i r c r a f t Sales, Mia-T.i,
Florida.
N'o o f f i c e r of Doll w a s involved w i t h or nware of the
t r a n s a c t i o n s involving the sale of these tv/o Model 212
h e l i c o p t e r s to TAS, and there is a b s o l u t e l y n o t h i n g . t o
indicate that those t r a n s a c t i o n s were k n o w n to T e x t r o n
c o r p o r a t e luannyencnt or to G. William M i l l e r in p a r t i c u l a r .
W h i l e there is no indication of any u n l a w f u l act by
Bell p e r s o n n e l in c o n n e c t i o n with the f o r e g o i n g sale (or
of their having p e r s o n a l l y profitlcd from such sale), the
Bell p r o c e d u r e s and c o n t r o l s in c o n n e c t i o n w i u h the exportsale of h e l i c o p t e r s a r e c u r r e n t l y being .reexamined.
By letter dated February 22, 1978, Chairman W i l l i a m s informed
Proxmire that the 1971. Ghana sale was included within the Commission's
investigation of Textron.
Chairman Williams' letter prompted then
Senator 3rooke to ask Miller during the course of a hearing on
February 28, 1978, additional questions on the Ghana transaction.
Miller's responses substantially repeated the information contained
in Galerstein's letter.
From January 24 through March 8, 1978, the
date of his confirmation, Miller did not make any personal inquiry
into the Ghanian transaction referred to at the Committee hearing.
Miller testified that he relied on his subordinates for the information.
The evidence indicates that relevant information about the
Ghana transaction was made available to Galerstein and known to
Bell employees prior to February 16, 1978 and through the confirmation of Miller on March 8, 1978, and not disclosed to the Committee, the staff 1/ or stockholders.
1/
At the staff's request, on February 23, 1978, Textron submitted to the staff a report on the Ghana transaction, which
contained similar information as that contained in Galerstein's
letter.
60
92
b.
Discussion
On the evening of January 24, 1978, Robert Ames, Textron's
Group Vice President for Aerospace, who was present at the Miller
hearing earlier in the day, contacted Gainor Lindsay 1/ at Fort
Worth and informed him that Proxmire alleged that in 1971 Bell sold
two helicopters through Tropical to Ghana for the purpose of adding
cost to the sale.
Lindsay was requested to obtain information which
would permit Textron to respond as quickly as possible.
Also during
the evening of January 24, Dee Mitchell received a telephone call
from Sylvester who advised him that according to Charles Rudning, 2/
who was also present at the hearing, the sale to Ghana had created
turmoil at the hearing.
Sylvester advised Mitchell that the allegation was that Bell negotiated with Ghana at an inflated price, had
withdrawn from the negotiations and then sold the two helicopters
to Bell's agent at standard list price who resold them to Ghana
at the inflated price.
Sylvester requested Mitchell to review
Bell files the following day to obtain verification that Bell had
not negotiated with Ghana at an inflated price and had sold to
Tropical at its standard price.
Mitchell admits that he recalled
on the 24th that a "payoff" had been made by Tropical to a Ghanian
official but did not mention his recollection to Sylvester.
c.
Destroyed
Document
On January 25, Mitchell reviewed a Ghana file 3/ a n d f a t the
request of Sylvester, prepared a written report of the transaction
("Mitchell Report").
The Mitchell Report contained inaccurate
statements as to how and why the transaction was arranged.
It did,
however, confirm that a $1.9 million sale was submitted to Bell
and rejected, that Bell then accepted an order from Tropical for
$1.6 million, and that Bell received from Ghana "for the account
of Tropical" funds in the approximate amounts of $297,000 and
$316,000 by bank transfer and ten promissory notes in the aggregate
amount of $1,371,000. 4/ The Mitchell report mentioned that Bell
1/
Lindsay was Bell's Vice President for Administration.
President, James Atkins, was in Iran on January 24.
Bell's
2/
Rudning was President of Bell Operations Corp., which
nated Textron's production efforts in Iran.
coordi-
3/
The Ghana file reviewed by Mitchell was the only file available to the International Marketing Department on January 25.
Most of the files concerning the six-year old transaction
were kept in dead storage.
4/
Bell iinmediately sold the notes to the Continental Illinois
Bank ("Bank") for $1,371,000 cash.
The language of the notes
made payable to Bell "for the account of Tropical" was suggested
to Bell by an officer of the Bank to have it appear that Tropical
was Bell's purchaser when Bell absorbed the $1.6 million it
allegedly held on its books as Tropical's money.
61
93
liquidated the account by absorbing the $1.6 million against the
Bell-Tropical contract and transferring $310,000 i-n excess of
the $1.6 million to a Tropical bank account in Florida.
The Mitchell
Report reflects that Ghana, not Tropical, paid for the helicopters
allegedly purchased by Tropical from Bell, with the $310,000 excess
amount remitted to Tropical.
By January 26, a copy of the Mitchell
report was given to Galerstein, Lindsay and Sylvester.
During the course of Mitchell's review of the Ghana file
referred to above, he observed a July 12, 1971 memo to the file
authored by Yates. 1/
The memo described the need to make a "payoff" to successfully conclude a sale of two helicopters to Ghana.
Mitchell destroyed the document on January 25. Mitchell testified
that he destroyed the document because he was embarrassed that
such a document would be maintained in Bell's files.
On January
25, Mitchell did show the document to at least two other Bell
employees, Court Gray 2/ and Rex Marion 3/, before he destroyed
it.
Prior to seeing the document and as a result of Sylvester
giving Gray a copy of a newspaper article which discussed the
hearing of the 24th, Gray became aware of Proxmire's allegation
that a payment may have been made in connection with the Ghana
transaction.
After seeing the document on January 25, Gray did
not mention it to anyone until April 1978, when, at the staff's
request, Textron counsel made an inquiry about the existence of
the document.
It is uncertain whether Marion told anyone about
the document as Marion refused to testify before the staff by
invoking his fifth amendment privilege.
d
*
Meetings of January 27, 1978
On January 27, Mitchell was invited by James Atkins, Bell's
president, to a meeting with Atkins and Sylvester where the Ghana
transaction was discussed.
Atkins first told Mitchell that he
thought he (Atkins) rejected a direct sale at an inflated price.
Mitchell responded that Atkins was correct but that Bell "found
another way" to complete the transaction.
Mitchell mentioned that
there may have been collusion between Bell and Tropical in structuring the sale in that Bell had to send Taylor to Ghana to correct
promissory notes which ran between Ghana and Bell instead of Ghana
and Bell for the account of Tropical.
Atkins then cut Mitchell
1/
William Yates was Manager of International Marketing
and reported directly to Sylvester.
2/
Since 1974, Gray has been the International Marketing Department's Manager of Administration and has reported directly
to Sylvester.
3/
Marion reported directly to Gray in 1978.
62
in 1971
94
off, expressed a desire not to discuss the Ghana matter further and
advised that Galerstein would talk to Mitchell about the matter. 1/
Atkins did not ask Mitchell whether a payment was made in connection
with the transaction, and Mitchell did not volunteer his understanding that a payment was made.
Mitchell and Sylvester then left
Atkins' office.
Shortly after Atkins' meeting with Mitchell, Atkins requested
that Clarence Jankowski ("Jankowski") come to his office. 2/
Galerstein was present in Atkins' office when Jankowski arrived.
Atkins asked Jankowski what he knew about the Ghana transaction.
Jankowski responded by making reference to the fact that there
was a sale of two helicopters six years prior and that what made
him recall it was the fact that the sale was being structured in
an irregular manner and that Bell was asked to make a sale for
$300,000 or more greater than they would sell normally.
Atkins
then asked who else was knowledgeable about the matter.
Jankowski
responded that he had a meeting in 1971 with Taylor, Kenworthy
and Mitchell about the structuring of the sale and that he recalled
meeting Mr. Lewis of Tropical.
Jankowski indicated that he would
need to review his files to refresh his recollection as to what
took place.
Atkins told Jankowski to give his files to Galerstein
and to talk to him about it. Neither Atkins nor Galerstein asked
whether he was aware that a payment may have been made. 3/
Atkins
did inform Jankowski that Bell's outside counsel would be looking
into the transaction on Monday, January 30, and that Jankowski
1/
Atkins denies that Mitchell mentioned "collusion."
He admits,
however, that Mitchell said that Bell found another way to complete the transaction.
Atkins also admits that he stopped
Mitchell after Mitchell began explaining the situation.
Atkins explained that he was to request Bell's outside counsel to look into the Ghana matter and since he was involved
in rejecting the direct sale, he would most likely be interviewed by counsel and did not want to appear to influence
the fact gathering.
However, Atkins requested after the
Mitchell meeting that another Bell employee, Clarence
Jankowski, come to his office where Atkins inquired into
what Jankowski knew about the transaction.
2/
Jankowski was active in 1971 in arranging financing for Ghana,
which included matters pertaining to the wording of the promissory notes.
3/
As described in the section "Ghana 1971", Jankowski had knowledge in 1971 about the structuring of the transaction to
facilitate a "payoff."
63
95
should p o s t p o n e a business t r i p s c h e d u l e d for that day until he
responded to their q u e s t i o n s . 1/
M i t c h e l l , T a y l o r and K e n w o r t h y
w e r e s i m i l a r l y advised on J a n u a r y 27.
J a n k o w s k i returned to his o f f i c e with G a l e r s t e i n and p u l l e c
h i s G h a n a file. 2/
G a l e r s t e i n took the file from J a n k o w s k i , sat
d o w n at J a n k o w s k i ' s desk and flipped through most of the d o c u m e n t s
in the file to d e t e r m i n e w h a t kind of m a t e r i a l w a s c o n t a i n e d therein.
G a l e r s t e i n then left J a n k o w s k i ' s office with the file.
A b o u t an
h o u r l a t e r , G a l e r s t e i n telephoned J a n k o w s k i to a r r a n g e a S a t u r d a y
m o r n i n g m e e t i n g (January 28) in G a l e r s t e i n ' s office w h e r e J a n k o w s k i
•ould t r a n s c r i b e h a n d w r i t t e n G h a n a d o c u m e n t s w h i c h w e r e illegible
to G a l e r s t e i n .
On January 27, A t k i n s called T h e o d o r e T r e f f , B e l l ' s T r e a s u r e r ,
and inquired if T r e f f had seen n e w s p a p e r a r t i c l e s about the G h a n a
a l l e g a t i o n raised at M i l l e r ' s h e a r i n g .
T r e f f confirmed that he had.
A t k i n s requested that I n t e r n a l A u d i t p r e p a r e a report on the G h a n a
sale and establish what the Bell r e c o r d s reflected on the m a t t e r . 3/
T r e f f a s s i g n e d W a y n e H e s t e r ("Hester"), M a n a g e r of I n t e r n a l A u d i t ,
to p r e p a r e the report, which is discussed below.
T r e f f k n e w that the
G h a n a t r a n s a c t i o n had been r e s t r u c t u r e d to f a c i l i t a t e a p a y m e n t to
a g o v e r n m e n t o f f i c i a l but did not m e n t i o n this to A t k i n s or H e s t e r .
J a n k o w s k i and G a l e r s t e i n m e t on J a n u a r y 28 to t r a n s c r i b e
Jankowski's handwritten notes.
J a n k o w s k i read aloud h i s notes and
G a l e r s t e i n typed what J a n k o w s k i read.
T h e s e n o t e s w e r e of t e l e p h o n e
c o n v e r s a t i o n s J a n k o w s k i had w i t h M c A c a m s of the Continental- IllinoisBank ("Bank") and the E x p o r t - I m p o r t B a n k . A/ The h a n d w r i t t e n notes
which G a l e r s t e i n typed i n c l u d e d e s c r i p t i o n s of (1) a S e p t e m b e r 27,
1971 t e l e p h o n e c o n v e r s a t i o n w i t h M i t c h e l l r e g a r d i n g a r e q u e s t for
a w i r e transfer, of $310,000 to a F l o r i d a bank account of T r o p i c a l
1/
P r i o r to A t k i n s ' m e e t i n g with J a n k o w s k i and G a l e r s t e i n , A t k i n s
requested J o h n S c o t t , s e n i o r p a r t n e r of a D a l l a s law firm
("Scott firm"), to conduct an i n v e s t i g a t i o n of a l l e g a t i o n s
w h i c h came up during the M i l l e r h e a r i n g s c o n c e r n i n g the Ghana
transaction.
A t k i n s told Scott that he rejected the initial
inflated sale.
A t k i n s w a s advised that m e m b e r s of the Scott
firm w o u l d be at Bell on J a n u a r y 30 to begin t h e i r inquiry.
2/
J a n k o w s k i kept a file for every c u s t o m e r that r e q u i r e d financing to conclude a sale.
As described b e l o w , the file c o n tained d o c u m e n t s w h i c h indicated that the s t r u c t u r i n g of the
t r a n s a c t i o n through T r o p i c a l was for the p u r p o s e of f a c i l i tating a p a y m e n t to a g o v e r n m e n t o f f i c i a l .
3/
The
4/
T h e b a n k financed the t r a n s a c t i o n by p u r c h a s i n g
p r o m i s s o r y notes of Ghana which w e r e g u a r a n t e e d
Import Bank.
Internal Audit D e p a r t m e n t
64
57-608
0 - 8 0 - 7
reported
directly
to
Treff.
from Bell
by the E x p o r t -
96
Aircraft Sales Nigeria Ltd and (2) several telephone conversations
pertaining to the Export-Import Bank raising legal objections
to Tropical being a party to the promissory note. 1/ Apparently,
the wording of the notes to Bell "for the account of Tropical"
disturbed the Ex-Im Bank because it appeared that Tropical, a
non-exporter, would have recourse against Ghana on notes where
the obligee is supposed to be the exporter.
During the meeting,
Jankowski started to explain some of the notes, but Galerstein
cut him off. Galerstein explained to the staff that his sole
purpose in having Jankowski read the notes was so members of the
Scott law firm would have them in a legible form when they arrived
on January 30. Galerstein said he was not attempting to learn
facts about the Ghana matter and therefore did not want to spend
time on a Saturday listening to explanations. 2/
e<
Role of Bell's Outside
Counsel
On January 30, 1978, Beale Dean ("Dean") and William Brown
("Brown"), members of the Scott law firm, went to the Bell plant
and met with Galerstein.
Galerstein tendered to Dean the documents
that were in the Jankowski file which Galerstein controlled from
January 27 until his meeting with Dean and Brown on January 30.
The Jankowski file contained documents which indicated that the
restructuring of the sale was to facilitate a payment to a government official.
One such document authored by Jankowski and dated
February 4, 1972, discussed the restructuring of a sale to Nigeria
and Liberia and another sale to Ghana by selling indirectly "through
Bell's dealer.
The document, in part, states:
I pointed out that it would be best if he
[Taylor] could avoid that [sell through
dealer] because even though we might sell
Ghana because of the precedence for Ghana,
we may not be able to get financing for
Nigeria and Liberia, if we have Tropical . . .
in the act as the one making the sale to
the government.
Kenworthy and Taylor
reacted vehemently saying that they had
1/
For example, one of the handwritten notes typed by Galerstein
stated:
"Telecon with McAdams [Bank officer] 10/8/71 Ghana
2 problems
1. Legal Tropical a party to-the note, therefre
(sic) need to endorse (?) 2. Policy — note foreign third party
mentioned on note is a problem not desirable . ..
Normally
XM never see note or know who is the obligor. -Looks as if had
I not revealed' what was on the note regarding who is obligor
and who is obligee and for the account of Tropical Air the
note would have been paid off 2 weeks ago."
2/
Galerstein's testimony was that he was not attempting to learn
facts about the Ghana matter.
However, Atkins testified that
Galerstein had informed him on February 27 that he was searching
into the Ghana matter.
65
97
no choice, that what caused us to arrange
the sale of ships to Ghana by our dealerwas because of our attempt to avoid participation in any paybacks.
If it was
valid for Ghana it has to also be valid
for Nigeria and Liberia because the payback problem is there also.
Perhaps
Liberia is the worse country in this
regard in all of black Africa (as opposed
to white Africa or the country of South
Africa).
Galerstein admits that the file was available to him for
three days, but denies that he attempted to read any of the documents other than Jankowski's handwritten notes, which were interspersed throughout the entire file.
Dean and Brown reviewed the documents given to them by Galerstein
Galerstein, while not
in an office adjacent to Galerstein's office.
present during the review, was aware of their review.
After reviewing
the documents, Dean was suspicious that a "payoff" may have been made
to someone in the Ghanian government and he wanted to find out
if that occurred and whether Bell employees had knowingly participated.
Dean testified that it is his recollection that he shared
his suspicion with Galerstein but that his recollection is fuzzy
and vague and he may be wrong. 1/
Galerstein has no recollection
of Dean stating that he suspected that a payment may have been made
to a Ghanian official.
1/
In a telephone conference with the staff on February 23, 1979,
Dean stated, without qualification, that he shared his suspicion with Galerstein before he left Bell on January 30.
On
January 9, 1979, Dean also stated to counsel to Textron's Special Committee that he shared his suspicion with Galerstein.
Prior to February 21, 1979, Dean was given an opportunity by
Special Committee counsel to correct the Committee's memorandum
of interview with Dean.
Dean, while making certain corrections,
left intact the statement that he briefly discussed his suspicion with Galerstein before he and Brown left Bell. On or
about March 29, 1979, and after Dean discussed the matter with
counsel to Galerstein, the staff received a letter from Dean
acknowledging his earlier statement to the staff but stating
he was now uncertain that he told Galerstein of his suspicion.
To clarify the record, the staff requested Dean to testify on
April 6, 1979 to determine whether Galerstein was told by
someone who Galerstein knew had reviewed Bell files that
a payment may have been made. Dean testified in the manner
described in the text above.
Dean testified that he is
troubled by the fact that Brown does not recall that Dean
shared his suspicion with Galerstein but "he may be wrong,
too. "
66
98
At the conclusion of their review on January 30, Dean told
Galerstein that he would be taking the Ghana documents with him
for further review and that he would be giving Galerstein a letter
setting forth any additional material he may need and the names
of Bell personnel to be interviewed.
On January 31, Dean delivered
such a letter to Galerstein.
Galerstein read the letter in Dean's
presence.
The letter described nineteen documents which Dean
requested to examine.
Among those documents requested, as described by Dean, were a telex dated July 30, 1971 (approximately
two weeks after Bell rejected the inflated sale) received by Bell
from General Beausolei; Bell's August 3 response to such telex,
if it is in writing, and any Bell memoranda concerning Mr. Taylor's
proposed trip to Accra and the proposed contract meetings there. 1/
The letter also stated that Dean would promptly review the requested
materials when they had been collected and that he would then wish
to interview various Bell personnel-, including Sylvester.
Galerstein did not respond to Dean's January 31 letter until
March 7, 1978.
No documents were tendered to Dean until March 7.
No interviews of Bell personnel were ever scheduled.
Galerstein
explains that for the next few days after his receipt of the January
31 letter he was totally immersed in supplying the Committee staff
with documents pertaining to the Committee's investigation of the
Iranian transaction and attending the Committee staff's taking of
depositions of Bell officers about the same transaction.
However,
oy February 6, the taking of the depositions were completed and
by February 10, Galerstein was no longer preoccupied with Committee
requests for documents.
On February 8, Galerstein informed Brown
that after four days and 1,000 pages of testimony in which the
subject of Ghana was not mentioned, the materials requested would
be assembled and Galerstein would be in touch.
Galerstein did not
respond for five more weeks to Dean's request for a relatively
small number of documents and easily arranged interviews.
Prior
to writing his February 15 letter to the "Committee, Galerstein
did not inquire if the Scott law firm had any information which
might supplement or alter his February 15 letter. 2/ With respect
to the behavior of the Scott law firm, Dean acknowledges reading
the document quoted on pages 65-66 on or about January 31, 1978.
However, he did not to alert anyone at Bell about its contents.
1/
The letter also requested, among other documents, notes originally delivered by Ghana as part of the purchase price, the
ten "replacement" notes, all writings transferring such notes
to any parties and all documents reflecting the payment of any
commissions by Bell in connection with this sale.
2/
Even after March 7, the Scott law firm did not conduct an
investigation of the Ghana matter.
On March 7, Galerstein met
with Scott and questioned whether it would be appropriate for
the firm to conduct the inquiry in light of Textron retaining
Cravath Swaine and Moore in connection with the Commission's
investigation of approximately 30 countries.
Scott agreed it
would be inappropriate to proceed with its inquiry.
67
99
f.
Hester Report
On January 27, Treff met with Hester and informed him of
Atkins 1 request that a report be prepared to determine what Bell
records showed about the Ghana sale.
Treff also tcld Hester that
Atkins indicated to him that he recalled rejecting the initial
sale.
Between January 27 and January 31, Hester prepared a handwritten report of ten pages which outlined in chronological order
events indicated by Ghana documents available to Hester. 1/
While
the report does not mention a payment or a need for a payment, it
does include material information pertaining to the manner in which
Bell arranged the receipt of cash from the Ghana government in
excess of the Bell-Tropical 1.6 million contract which Eell transferred to Tropical.
The report indicates that the Bell-Tropical
and Tropical-Ghana sales were two interdependent transactions.
According to the report, 2/
- On August 31, 1971, Taylor sent a telex to
Bell from Ghana indicating that a Ghana
official had sent the deposit 3/ o n the
contract and eleven promissory notes
directly to Continental Bank.
- On September 7, 1971, after examining copies
of eleven promissory notes, Kenworthy sent a
telex to Sittman of Tropical indicating that
the promissory notes were incorrectly worded
and that Bell can neither accept nor endorse
a promissory for $316,000 representing first
payment on delivery September 15 "for reasons
of which you are aware Tropair is seller not
Bell. j4/ This TV7X went on to suggest that
this $316,120.89 promissory note be cancelled
and remittance be cabled directly to Continental
Bank for the account of Tropical . . . The
message specified it was the responsibility
of interest Ghanian officials to make this
change. "
1/
Ghana files kept in dead storage as well as other files were
given to and used by Hester during his review.
2/
Parts of the report are summarized below because the evidence
is that a copy of the report was given to Galerstein prior
to his writing of the February 15th letter to the Committee.
3/
T h e Hester report mentions that Bell received about $300,000
as a deposit on the sale from Ghana on September .10 , 1978.
4/
The promissory notes were made payable by Ghana to Bell,
without Tropical being mentioned in the notes.
68
100
- A telex dated and received by Bell on September
13, 1971 from General Beausoleil indicated that
payment of $316,120.89 being made by draft and
not by promissory note.
- Taylor was sent to Ghana on September 13, 1971
to hand-carry promissory notes and/or a bank
draft payable to Bell for the account of Tropical.
- On September 22, Bell was notified by its Fort
Worth bank of "Duplicate deposit slip for
$316,120.89 which has been credited to your
account.
By order of accountant general,
Accra, Ghana.
This payment was recorded in
the Tropical . . . account."
On September 24,
Bell directed its Fort Worth bank to transfer
$310,000 to a Florida bank account of
Tropical. 1/
- At or about October 1, 1971, Bell received a
September 27, 1971 letter from a John Lewis
confirming that "all commissions and other
monies 2/ due Tropical" should be transferred to a Florida bank account of Tropical.
- Tropical was entitled to commissions on the
sale.
The Hester report also cites a trip report prepared by a
Tropical employee which strongly suggests that a Tropical employee
was willing to participate in improper payments. 3/
On or about February 1, 1978, Hester and Treff met to discuss the handwritten report.
Both men agreed that the information
in the report described above indicated that Bell was active in
providing an avenue by which excess money came into Bell and went
out to Tropical, apparently for a payment to a government official
Treff stated at the meeting that the handwritten report would be
given to Galerstein since the legal department was the focal point
for ail reports, documents, etc. relating to the Miller hearings.
1/
The money transferred by Bell was the money paid by Tropical
to General Beausoleil.
2/
Emphasis
3/
The Hester report quotes a September 15, 1971 trip report
about a potential sale to Liberia which mentions "a semiofficial quotation (leaving enough possibilities for additional
'commission' which has been mentioned already)' in conjunction
The Tropical employee
with meeting with Liberian officials."
who authored this report confirmed that this sentence referred
to a possible payment to a government official.
supplied.
69
101
On or about February 1, 1978, Galerstein received a copy of
Hester's handwritten report.
Galerstein testified that when he
received it, he immediately put it in his desk drawer where it
stayed until almost one or two hours later when Treff came to
the office, saying that he wanted the report back from Galerstein
so it could be typed up.
According to Galerstein, he gave Treff
Treff
his copy of the handwritten trip report without reading it.
denies retrieving the report and is absolutely confident that he
did not make any trips to Galerstein's office between January 27
and February 9. 1/ The staff has given consideration to this
serious conflict in testimony, including Treff's possible motive
in hiding his own participation in facilitating the 1971 payment.
In assessing this conflict, the following points are relevant.
1. On January 30, Hester informed Galerstein that he was
directed to conduct an internal audit on the Ghana transaction.
Galerstein suggested to Hester that he delay his audit until after
another investigation (apparently by the Scott law firm) was completed.
Hester informed Treff of Galerstein's suggestion.
Treff
called Galerstein and told him that Atkins had requested that
Internal Audit prepare a report and that they would proceed.
If
Treff wanted to block the preparation and distribution of Hester's
report, he could have easily told Hester to follow Galerstein's
suggestion to delay the report.
2. Treff routinely records on his Bell expense reports all
automobile trips which he takes from his office to the office nine
miles away where Galerstein is located in order to obtain reimbursement for the mileage charges incurred.
A review of Treff's mileage
records for the period January and February 1978 shows that Treff
took no trips between the two offices between January 27 and
February 9, 1978. Further, no one other than Galerstein places
Treff in the building where Galerstein is located Ot or about
February 1, 1978.
3.
It might be incriminating for Galerstein to admit that he
had the Hester Report during the period he prepared his February 15
letter to the Committee which omitted much of the information contained in the Hester Report.
Treff, on the other hand, could have
testified with little or no difficulty that he went to Galerstein's
office, discussed the report with him and at Galerstein's suggestion,
took the report from Galerstein to have it typed up. 2/
1/
Treff's office is located nine miles away from
office.
2/
As explained below, a condensed version of the Hester report
was typed up at or about February 2, 1978.
70
Galerstein's
102
4.
On June 15, 1978, Galerstein testified without qualification tnat Treff handed him the Hester report and retrieved it one
or two hours later.
On February 1, 1979, the staff was advised
by counsel to Galerstein that Galerstein was no longer certain
that Treff personally handed him the handwritten report.
On or about January 26, 1979, the staff was informed by the
counsel to Textron's Special Committee that they had interviewed
a Bell internal auditor who may have delivered the report to
Galerstein's office.
g.
Galerstein
Letter to Senate Banking
Committee
On or about February 2, 1978, Treff requested Hester to condense his handwritten report into a final, typed report covering
points which Treff considered salient:
that there was an unexecuted $1.9 million agreement between Ghana and Bell which was
rejected; that Bell then executed an agreement with Tropical for
$1.6 million; that payments came into Bell for the account of
Tropical for $1.9 million; that the excess over the $1.6 million
contract was transferred to Tropical and that Bell paid commissions
to Tropical on the sale. 1/ Hester expressed a concern to Treff
that if his handwritten report were summarized, a reader of the
summary who did not have the handwritten report might miss the point
that Bell provided the avenue by which the excess money was received
by Bell and remitted to Tropical.
Treff agreed and told Hester
that Galerstein already received the handwritten report and would
receive the typed report.
Hester testified that he was not
restricted from adding to T r e f f ! s list of salient points.
Hester prepared the typed report at or about February 2, 1978,
which outlined the mechanics of the transaction, substantially in
the manner described in Galerstein's letter to the Committee 2/and
stated that Bell paid Tropical about $60,000 in commissions. 3/
1/
Hester testified that Bell's payment of commissions was an
important point in that a reader of the report would know
that the $310,000 remitted to Tropical was not a commission
but an "extravagant payment."
2/
See page 60 above. As described below, Galerstein's
added statements with respect to the actions of Bell
in the Ghanian transaction.
3/
Hester's typed report contained four attachments:
the unexecuted $1.9 million agreement between Bell and Ghana; the executed $1.6 million agreement between Bell and Tropical; a
letter of intent, dated .July 27, 1971, of Ghana to purchase
two helicopters and related accessories from Bell for $1.9
million; and a Bell interoffice memo directing the distribution of $1.9 million received by Bell "for the account of
Tropical,"
The letter of intent makes specific reference to
discussions between Bell and Ghana in Ghana between July
22, 1971.
71
letter
officers
103
The typed report did not include the information contained in the
handwritten report which is referred to on pages 68 and 69 above.
Galerstein received a copy of the typed report and attachments at
or about February 2. At or about February 8, Tom Soutter ("Soutter"),
Textron's General Counsel, asked Galerstein for a report on
Ghana. 1/ Galerstein took Hester's typed report and, after making
some minor changes, telecopied a "Report on 1971 Sale of Two Model
212's to Tropical Aircraft Sales (Nigeria) Ltd" ("Report") and
the attachments referred to on page 71, note 3, to Soutter at Bell's
office in Washington.
The Report telecopied by Galerstein did
not have the information contained in Hester's typed report pertaining to Bell paying commissions to Tropical.
The information
pertaining to Bell paying commissions appeared on the last page
of Hester's typed report.
Galerstein does not recall receiving
the last page of the typed report.
However, Hester testified that
he caused a copy of his typed report to be delivered to Galerstein's
office.
Hester made no effort nor caused anyone to leave off the
report's last page. Information that Bell paid commissions on a
sale to Tropical would be inconsistent with the existence of two
independent purchases and sales.
At no time during February 1978 did Galerstein inquire why
Bell received $1.9 million for the account of Tropical after
Bell rejected a $1.9 million direct contract with Ghana which
included costs already included in Bell's list price of $1.6 million.
Also, Galerstein did not inquire during this period about
the contract discussions between Ghana and Bell referred to in
Ghana's letter of intent, 2/ why Ghana would overpay $300,000 for
the helicopters or whether anyone at Bell had any information that
a payment was made in connection with the transaction.
Soutter made some minor modifications to the Report and then
permitted the SEC staff to read it on February 10.
On February 14,
Galerstein drafted the letter to the Committee referred to on
page 59, with Soutter reviewing its contents before transmittal to
the Committee.
With respect to the letter's statement that "Bell
officers, accordingly, directed that the offer be refused," -the
staff has found no evidence that any officer of Bell other than
Atkins refused the $1.9 million offer.
When requested to substantiate his statement, Galerstein admitted that the statement was
incorrect in that he was only aware that one officer, Atkins, had
rejected the $1.9 million offer.
With respect to the statement
1/
Soutter was to meet with the staff on February 10 and wanted
at that time to be able to respond to the staff's request
for information on the Ghana transaction.
Galerstein did
not know that there was a Commission inquiry into Textron
until February 17, and, therefore, was also unaware on
February 8 that Soutter would share a report on Ghana with
the staff.
2/
See note 3, page 71.
72
104
that "no officer of Bell was involved with or aware of the transaction involving the sale of these two model 212 helicopters to
Tropical," Galerstein testified that Atkins and Sylvester made
statements that they were unaware of the sale.
Galerstein did
not ask other Bell officers, including Treff, whether they were
involved with the sale.
Further, Dean's letter to Galerstein of
January 31 specifically requested that Sylvester be made available
for an interview. Soutter adopted without question all the statements contained in Galerstein's draft.
Soutter did not ask
Galerstein who conducted the investigation referred to in the
letter or the manner in which such an investigation was conducted.
Galerstein testified that the "investigation" referred to was the
investigation he believed Hester had conducted as outlined in his
typed report.
Soutter also did not inquire why Bell received
$1.9 million for the account of Tropical after Bell rejected a
$1.9 million direct contract with Ghana which 'included costs already
included in Bell's list price of $1.6 million.
Nor did Soutter
inquire about the contract discussions between Ghana and Bell
referred to in Ghana's letter of intent, why Ghana overpaid $300,000
for the helicopters or whether anyone at Bell had any information
that a bribe was paid.
By letter dated February 22, 1978, Chairman Williams informed
Proxmire that the 1971 Ghana sale was included within the Commission's
investigation of Textron.
Chairman Williams' letter prompted then
Senator Brooke to ask Miller during the course of a hearing on
February 28, 1978, additional questions on the Ghana transaction.
Miller's responses substantially repeated the information contained
in Galerstein's letter, including that no Bell official knew of
the final sale and that Bell officers had rejected the sale.
Miller continued, "And then, down in the export department, when
the order came in, the people just sent it [excess money] on.
They shouldn't have done that."
At no time between his hearings
on January 24 and February 28 did Miller make any personal inquiry;
rather, he relied on his subordinates for his information on Ghana.
2.
Form 8-K Disclosure
On May 8, 1978, Textron filed a Form 8-K to describe Bell's
involvement in the payment in 1971 of $300,000 to a senior military
The Form 8-K was filed as a
official of the Ghanian Air Force.
result of information coming to the attention of Textron during the
staff's investigation.
The 8-K supplemented information given to the
Senate Banking Committee by Textron during the Miller hearings by
disclosing, among other things, that several Bell employees were
aware that a payment would be made to a Ghana government official
from the proceeds of the transaction as restructured through the
Bell dealer; that Bell's then executive vice president (Atkins)
rejected the initial proposal of a purchase by Ghana from Bell of
two helicopters at a total price of $1,967,594; and that a Bell
employee destroyed a document on January 25, 1978 which described
73
105
the need for a payment 1/ and that because Galerstein did not have
available to him this destroyed memorandum and because certain other
information was not known to him at the time, his letter to the
Committee "was in some respects inaccurate and incomplete."
Based upon the staff's investigation, we have discovered
certain information about the Ghana transaction which was not
included in the 8-K. Two Bell officers, Sylvester and Treff, had
knowledge in 1971 about structuring the transaction to facilitate
a payment.
Dan Langeler, a former Tropical employee, has testified that after Bell rejected a direct sale to Ghana at an inflated
price, he met with Atkins who told him that he (Atkins) would
let Langeler know "whether he would go through with this deal or
not" and that the day after his meeting with Atkins, he was told
by a Bell employee that the indirect sale had been approved by
Atkins.
We have also discovered that information about the Ghana
transaction was brought to the attention of Galerstein prior to his
letter to the Committee which was not included in said letter.
J.
INDONESIA
1.
Summary
In 1972, Bell sold a model 212 helicopter to Heli-Orient, one
of its dealers, with the knowledge that in connection with HeliOrient 's immediate resale of the 212 at an inflated price to
Pertamina, an agency of the Indonesian government, Heli-Orient
intended to give all or part'of $50,000 in Bell commissions to
one-or more government officials.
Contrary to longstanding operating
procedures, Bell advanced commissions prior to delivery and payment
for the helicopter.
1/
The staff learned of the document when Kenworthy described
it during the taking of his testimony.
In response to the
staff's request for a copy of this document, Textron counsel
learned that it had been destroyed by Mitchell.
74
106
Discuss ion
In or about October 1971, W. A. Van Houtert, an official consultant to Pertamina, telephoned a Bell International Marketing
employee in Fort Worth seeking pricing information for a model
212 helcopter. 1/ One month later Van Houtert informed Bell that
he had a firm order for sale of one 212 to an unidentified customer
and that "in dealing with African/Middle East countries additional
compensation is required." On November 29, 1971, the" International
Marketing Department relayed this information to the head of its
Brussels office, Dick Hunt.
On November 30, Hunt telexed Bell
that Van Houtert had told him he "will want to increase price
above list by reinvoicing.
He says this will be with consent
of customer, and also sale will be with consent of dealer." 2/
By November 30, Van Houtert still had not identified the customer
because he wanted to make sure that Bell would deal through him
and pay him a commission.
By mid-December, Bell realized that the intended customer was
Pertamina, Indonesia's national petroleum company, which fell within
the sales territory of Bell'^ Indonesian dealer, Heli-Orient.
After
initial discussions in Brussels between Hunt and Van Houtert on a
possible sale between Bell and a Swiss company represented by Van
Houtert, 3/ Bell arranged a meeting in Fort Worth between VanHoutert
and Brian Woodford ("Woodford"), Managing Director of Heli-Orient. 4/
1/
Van Houtert identified himself as somehow associated with a
company called Aviation Consulting and Marketing, Geneva,
Switzerland.
2/
A copy of the telex was received by Sylvester.
The telex's
discussion about increasing list price by reinvoicing clearly
indicates that the customer would be willing to pay more
for the same helicopter by buying through Van Houtert rather
than directly from Bell.
3/
Sylvester was aware of these discussions.
4/
Sylvester was aware that although Bell could not deal directly
with Van Houtert, Bell could get Van Houtert and Woodford together.
75
107
Van Houtert arrived at Bell ahead of Woodford at or about
December 13.
He met with Kenworthy and Sylvester.
Kenworthy and
probably Sylvester were informed of Van Houtert' s role as a pa-id
advisor to Pertamina.
When Woodford arrived, Kenworthy introduced
the two men and provided them with an office to negotiate in.
Kenworthy testified that Bell did not want to participate in these
discussions for fear that they might learn what Van Houtert might
do with his commission.
At or about December 14 and while still
at Bell, Woodford and Van Houtert reached an agreement, whereby
Heli-Orient was to pay Van Houtert $35,000 in commission if the
resale were made by Heli-Orient to Pertamina. 1/ A contract of sale
between Heli-Orient and Pertamina was then entered into on December
16. For the identical helicopter and accessories, the price Pertamina
agreed to pay Heli-Orient was approximately $200,000 more than the
price at which Pertamina could have paid Bell on a direct sale.
On or about May 21, 1972, approximately two weeks prior to the
scheduled delivery of the 212, a Bell salesman telexed Woodford
that Bell was expecting a "party" in Fort Worth on or about June 2,
and that "to keep principals happy and insure smooth consummation
of the sale and enhance others, BHC had deviated from policy and
advances amount requested."
The next day Woodford telexed Fort
Worth that Van Houtert and "Haroyono plan to arrive Fort Worth for
Haroyono was an official of Pertamina
acceptance on May 30,1972."
and a top lieutenant or advisor to Ibnu Sutowo, the head of Pertamina
On or about May 30, 1972, Woodford telexed Fort Worth (copy to
Kenworthy and the Head of Administration):
Pertamina's top people in Washington current
time and advance of commissions requested.
Please remit urgent $50,000 to Israel Bank
and Trust Company New York . . . for account
of W . Van Houtert.
He will collect and disburse prior to Fort Worth.
Debit our account
and collect the amount by adding to sight
draft for 212. 2/
It was against Bell policy to issue commissions to a dealer prior
to receipt of payment for the helicopter.
However, a May 31, 1972
memo to Accounts Payable authorized the issuance of a check for
$50,000 to First National Bank of Fort Worth, to cover a wire transfer to Chase Manhattan Bank.
Chase in turn credited the Israel
Bank & Trust Company account, which on June 1 authorized the
issuance of a check to Van Houtert.
1/
As explained
$50,000.
2/
Although the staff was successful in having Woodford personally
served with a subpoena while he was in the U.S, he refused to
testify by invoking his fifth amendment right against selfincrimination.
below, the commission was later increased
76
to
108
K.
ATTEMPTED
1.
PAYMENTS
Philippines
In May 1973 while on a trip in the Philippines to promote the
sale of approximately ten model 206B helicopters to the Philippine
Air Force, Bell's Regional Sales Manager for Southeast Asia ("Sales
Manager"), was informed by Joe Larcena, an independent Filipino
businessman, of a necessity to make a payment to the Undersecretary
of Defense of the Philippines, Manuel Salientes. 1/ Salientes was
the official who had tne authority to approve the contract of sale.
The Sales Manager immediately rejected the possibility of a direct
payment by Bell or an increase in list price of the 206B's, with the
increase to be passed by the dealer to Salientes, but did inform him
that if he "was going to get any money out of this at all it would
have to be from Delta Air ("Delta") and that any commissions that
were earned would have to be paid to Delta Air (Bell's dealer in the
Philippines) and then it would be up to them to [distribute] any
portion of his commissions." Larcena suggested that the money flow
through an American company, "B Associates."
Upon the Sales Manager's return to Fort Worth, he discussed
Lacerna's proposal with Sylvester and identified Salientes as the
ultimate recipient of the commission monies.
The Sales Manager
also advised Delta that he believed that the only way Bell was
going to make the sale would be if Delta would be willing to share
its commissions with someone else who had connections with the
Philippine government and that that person insisted that B Associates be the recipient of such commissions.
By May 23, Delta agreed to assign a substantial portion of
its commissions to B Associates.
A preliminary written assignment of commissions by Delta to B Associates had been prepared
by Bell tor Delta which stated in part: 2/
"Although Bell Helicopter Company contractually reserves
the option of negotiating commissions payable to Delta
Air Corporation on sales of five or more units, I will
accept your'assurance that Bell will pay full commissions
on the sale of up to and including ten (10) units on this
particular transaction."
The Sales Manager has testified that Sylvester would have been
the only individual in International Marketing with the authority
to approve a promise by .Bell to pay full commissions on the sale
1/
Larcena told the Sales Manager that he was a business
of Salientes.
2/
This preliminary written assignment began "pending execution
of a formal document being prepared by Bell Helicopter Company."
Full commissions on the ten units would have totalled
about $140,000.
77
partner
109
of five or more units since Bell's contract with Delta Air provided
for negotiated commissions on the sale of all units greater than
five.
In late May the Sales Manager returned to the Philippines,
where the head of Delta Air executed the preliminary written assignment.
Sylvester received a telex informing Fort Worth of the assignment. 1/ Sometime later, the Sales Manager met with Larcena and
the head of B Associates in Washington.
The head of B Associates,
according to the Sales Manager, confirmed that he was affiliated
with Larcena.
Bell's attempted payment was unsuccessful.
The Sales Manager
testified that in the summer of 1975, that Philippine A i r Force
signed a contract with Hughes and that at or about the time of the
contract he heard that Salientes was accused by his government of
corruption for taking "kickbacks."
2.
Nigeria
In December 1973, Weichsel, Hunt and
Taylor, Bell's Regional
Manager for Africa, contemplated using a p e ^ ^ i described in testimony and documents as a "bagman" for the Coi^Knder of the Nigerian
Air Force, in connection with a potential sale of two model 212
helicopters to the Nigerian Air Force. 2/ At or about December 4,
1973, Hunt informed Weichsel that he met with a "consultant" to
Agusta, Bell's Italian licensee, who had been successful in selling
aircraft to the Nigerian Air F o r c e / 3/ Hunt advised Weichsel that
the consultant's agreement with Agusta guaranteed 15 percent commissions on helicopters in connection with a "grossly padded" Agusta
offer to the Nigerian Air Force. 4/ Hunt advised Weichsel that the
consultant wished to do business with Bell and that Bell's dealer
in Nigeria was unlikely to conclude the sale.
Hunt recommended to
By December 4, Taylor
Weichsel that Bell employ the consultant.
1/
The telex stated in part:
"Arrived there just in time to
obtain written consent to assign commissions and to eliminate
Brand X Everyone apparently happy with and/or resigned to
settlement."
Brand X referred to Hughes Helicopters which competed with Bell on the sale. The Sales Manager testified that
his reference to "everyone apparently happy" refers to Larcena
and Salientes.
2/
The total amount of money Bell would have received on a sale
of two 212's and related spare parts was approximately
$60,000.
3/
Hunt telex to Weichsel, December 4, 1973.
writing appears on a copy of this telex.
4/
15 percent commissions on helicopters at that time was
dibly high."
Taylor testimony, page 440.
78
Weichsel's
hand-
"incre-
110
learned .from B e l l ' s N i g e r i a n d e a l e r that the c o n s u l t a n t w a s in all
p r o b a b i l i t y the N i g e r i a n A i r Force C o m m a n d e r ' s "bagman."' F u r t h e r ,
T a y l o r w a s tola by the d e a l e r that w h i l e the d e a l e r w a s reluctant
to part with any of its c o m m i s s i o n s , it was p r e p a r e d to enter into
d i s c u s s i o n s with the c o n s u l t a n t to obtain the s a l e .
On or about D e c e m b e r 5, 1973, T a y l o r and W e i c h s e l met to d i s cuss B e l l ' s approach w i t h respect to the u t i l i z a t i o n of the consultant. 1/ Taylor told W e i c h s e l that the c o n s u l t a n t in all
p r o b a b i l i t y w a s the N i g e r i a n A i r Force C o m m a n d e r ' s "bagman."
W e i c h s e l determined that w h i l e Bell would not hire the c o n s u l t a n t
d i r e c t l y , Bell w o u l d pay c o m m i s s i o n s to its d e a l e r w h o could d i s b u r s e
W e i c h s e l also d e t e r m i n e d that the d e a l e r
them at its d i s c r e t i o n .
and c o n s u l t a n t should c o o p e r a t e on the sale.
F u r t h e r , on D e c e m b e r
5, Hunt sent a telex to T a y l o r , with W e i c h s e l listed to receive
a copy, w h i c h stated "we d o n ' t wish insert any third p a r t y w h e r e
u n n e c e s s a r y , but my present guess is that Ikuwe [Nigerian A i r
F o r c e C o m m a n d e r ] w o n ' t sign u n l e s s c o n s u l t a n t in loop . . ."
On or about D e c e m b e r 19, 1973, T a y l o r d i s c u s s e d the p o t e n t i a l
s a l e w i t h the c o n s u l t a n t .
Obeying Weichsel's instructions, Taylor
e n c o u r a g e d the c o n s u l t a n t to c o m m u n i c a t e d i r e c t l y w i t h B e l l ' s
dealer.
The c o n s u l t a n t r e s p o n d e d that he w o u l d a s c e r t a i n from the
A i r F o r c e C o m m a n d e r w h e t h e r they would want to be involved with
B e l l ' s d e a l e r in c o n n e c t i o n w i t h the d i s b u r s e m e n t of B e l l c o m m i s sions .
For reasons the staff has been unable
did not take p l a c e .
L.
W E I C H S E L - HUNT
to d e t e r m i n e ,
the
sale
DISCUSSIONS
O n at least two o c c a s i o n s H a n s W e i c h s e l r e c e i v e d i n d i c a t i o n s
from Hunt, G e n e r a l M a n a g e r of the B e l l B r u s s e l s o f f i c e , that some
B e l l d e a l e r s a n d / o r c o n s u l t a n t s m i g h t be sharing c o m m i s s i o n s with
government officials.
W e i c h s e l recalled one c o n v e r s a t i o n with H u n t w h e r e the e m p l o y m e n t of c o n s u l t a n t s v e r s u s d e a l e r s w a s d i s c u s s e d .
A c c o r d i n g to
W e i c h s e l , he thinks that H u n t left him w i t h t h e i m p r e s s i o n that
d e a l e r s m a y be sharing c o m m i s s i o n s w i t h f o r e i g n o f f i c i a l s .
The
date of the first c o n v e r s a t i o n could have been as early as O c t o b e r ,
1 9 7 3 , w h e n , W e i c h s e l r e c a l l s , B e l l w a s c o n s i d e r i n g the a p p o i n t m e n t
of a consultant in G r e e c e .
1/
T a y l o r testified that he reported d i r e c t l y to W e i c h s e l on
this e n t i r e m a t t e r b e c a u s e S y l v e s t e r w a s out of the country
and he did not have the a u t h o r i t y to resolve the issue of
the u t i l i z a t i o n of the c o n s u l t a n t .
79
Ill
The second c o n v e r s a t i o n occurred in Germany in F e b r u a r y , 1974.
T h e c o n v e r s a t i o n is m e m o r i a l i z e d in a m e m o r a n d u m p r e p a r e d by Hunt
and then forwarded to W e i c h s e l by March 1974.
A f t e r first touching
upon s t a t u s of d e a l e r s in several E u r o p e a n c o u n t r i e s , W e i c h s e l
and Hunt discussed c i r c u m s t a n c e s w h e r e a p p o i n t m e n t of a c o n s u l t a n t
m i g h t be a p p r o p r i a t e , such a s in s e v e r a l M i d d l e E a s t e r n countries.
W e i c h s e l ' s v i e w . w a s that c o n s u l t a n t s should be a p p o i n t e d on a
p e r m a n e n t basis; Hunt c o n c u r r e d , but m a d e the g e n e r a l p o i n t that
Fort W o r t h should defer m o r e r e a d i l y to B r u s s e l ' s r e c o m m e n d a t i o n s
about c o n s u l t a n t s and d e a l e r s , i n c l u d i n g the a m o u n t of the c o m m i s sions to be awarded them.
The m e m o c o n t i n u e s :
"I instanced O m a n and the need to build f i n a n c i a l l y
strong dealers.
This would only be a c h i e v e d by m a j o r
c o m m i s s i o n p a y m e n t s for m a j o r s a l e s . . . C o m m i s s i o n s
inside list p r i c e s should never be w i t h h e l d or r e d u c e d .
T h e s e s e l d o m remained in d e a l e r s ' h a n d s , and their
r e d i s t r i b u t i o n w a s the 'sine qua n o n ' of sales. . . 1/
In O m a n o u r d e a l e r had d i s b u r s e d m o r e than $ 1 0 0 , 0 0 0
from his c o m m i s s i o n on a f i v e - s h i p 205A-1 sale to the
S . O . A . F . and the r e m a i n d e r w a s to be spent e x p a n d i n g
their f a c i l i t i e s . "
(Emphasis in o r i g i n a l )
W e i c h s e l received this m e m o , read it, and w h i l e he testified
that there were certain s t a t e m e n t s he d i s a g r e e d w i t h in the m e m o
(although h e could not recall w h e n h e t e s t i f i e d w h i c h s t a t e m e n t s
he d i s a g r e e d w i t h ) he "decided not to m a k e an issue of i t . "
S y l v e s t e r received a copy of the m e m o r a n d u m . A h a n d w r i t t e n
buck slip dated March 20, 1974 from S y l v e s t e r to W e i c h s e l , c o n t a i n s
the f o l l o w i n g m e s s a g e :
"on balance [Hunt's m e m o ] is a f a c t u a l
e s t i m a t e of the s i t u a t i o n . "
and
reasonable
W e i c h s e l did not a t t e m p t to a s c e r t a i n w h e t h e r the O m a n d e a l e r
o r any o t h e r B e l l d e a l e r s h a d p a i d m o n i e s t o f o r e i g n o f f i c i a l s
in c o n n e c t i o n w i t h s a l e s of h e l i c o p t e r s .
M.
DISPOSITION
OF D E A L E R ' S C O M M I S S I O N S :
POLICY AND
PRACTICE
P r i o r to M a y 1977, B e l l lacked any p o l i c y o r p r o c e d u r a l c o n t r o l s w i t h respect to a c c o m m o d a t i o n p a y m e n t s , i.e., the t r a n s m i t t a l
of m o n i e s accrued on B e l l ' s books as d e a l e r c o m m i s s i o n s e i t h e r to
third p a r t i e s , o r to the d e a l e r ' s b a n k a c c o u n t ( s ) i n c o u n t r i e s other
than those in w h i c h the d e a l e r w a s doing b u s i n e s s o r d i r e c t p a y m e n t
by B e l l c h e c k t o a p r i n c i p a l of a d e a l e r a g e n t at Fort W o r t h .
1/
A c c o r d i n g to H u n t , he told W e i c h s e l t h a t r e d i s t r i b u t i o n m i g h t
i n c l u d e but not be l i m i t e d t o p a y m e n t s to g o v e r n m e n t o f f i c i a l s
as p a r t of a variety of e x p e n s e s incurred in g e n e r a t i n g s a l e s .
80
57-608 0 - 8 0
112
Accommodation payments made during the period 1971-1977 totalled
$13,000,000. 1/ Moreover, the staff has uncovered certain instances
prior to 1977 where Bell employees were informed that particular
accomodation payments would facilitate the evasion of tax laws
or currency restrictions.
Several Bell employees testified that
Bell disbursed commissions to whomever and whereever the dealer
wanted the commissions to be sent.
In May 1977 Textron issued a policy banning accommodation
payments.
However, Bell took three months to implement the
general policy and continued to make accommodation payments on
behalf of the Jamaican and Korean dealers through the end of 1977.
In addition, until early 1978, Bell allowed dealers to pick up
checks at Fort Worth for deposit in American bank accounts.
The following are representative instances in which Bell
honored requests made by dealers for accomodation payments.
Beginning in 1970, Bell's dealer in Korea, United
Korea:
Industries International, requested that no Bell correspondence
regarding its commissions be sent to Korea.
Robert Kenworthy was
told by Kyu Rim, the president of United Industries International
that Rim did not want commission confirmations sent to Korea
since this would enable Korean officials to better audit United
Industries' income for purposes of imposition of a defense tax.
During the period 1970-1977, Bell paid approximately $500,000
to Rim personally for deposit in a Texas bank account or to third
parties.
On September 19, 19781, Rim appeared before the staff
and invoked his fifth amendment privilege with respect to all
substantive matters.
Jamaica:
In August 1973, Bell issued a $50,000 check made
payable to the First National Bank of Fort Worth, representing
commissions owed by Bell to its Jamaican dealer, Heli Taxi.
The
principal of the dealer, Andrew Bogle ("Bogle"), deposited the
check in his new bank account with another Texas bank. A Bell
salesman assisted Bogle in establishing the account and the Bell's
salesman's residence was listed as the mailing address for the
bank statements.
Bogle withdrew the $50,000 approximately four
weeks after he deposited the check.
Since 1975, Bell has obeyed
Bogle's instructions not to send anything to Jamaica which discusses commissions and has either mailed Bogle commission checks
to Florida or permitted B o g l e to pick up checks in Fort Worth.
On April 19, 1979, Bogle appeared before the staff and invoked
his fifth amendment privilege with respect to all questions pertinent to Bell paying him commissions outside Jamaica.
1/
During the period 1971-mid 1977, B e l l disbursed approximately
$6,500,000 t o third parties and approximately $6,600,000 to
bank accounts outside the dealer's sales territory.
Of the
latter figure, approximately $1.3 million was transmitted
to Swiss bank accounts.
81
113
Sri Lanka:
In June 1973, Bell's dealer in Sri Lanka, Brown &
Company, instructed that a $10,000 consultant fee be remitted to an
address in Hamburg, West Germany.
Brown & Company did not transact
any business in Germany on Bell's behalf.
The principal of the
dealer, U. Moonesingha, periodically directed Bell to issue him
so-called official travel expenses from Bell funds for travel
to the United States that supposedly were paid by Bell, whereas
his commission monies would be used to pay for the travel expenses.
Once arrived in this country, he would withdraw other commission
monies for other expenses.
Beginning in 1976, moreover, Brown
& Company directed that-no credit statement or letter be sent
to its headquarters in Ceylon regarding payment of commissions.
1/
In the early 1970's, Bell obeyed the instructions of
India:
its Indian dealer, Maneckji Aviation, to disburse commiVsions to
places outside India and not to send written communications to the
dealer in India about such disbursements.
May 1977:
The New Textron Policy
In May 1977 Textron headquarters promulgated a policy memorandum,
under signature of G. William Miller, that prohibited accommodation
payments.
These payments were defined as "where all or part of a
commission or discount actually earned is paid, at the request of
the customer, in a country other than the country in which the customer is located or to a third party, or is retained in the books
and later paid to an individual officer, director or shareholder
of the customer."
Because the directive did not set out a firm
date for its implementation, during the early summer of 1977,
the president of Bell, James At.kins, discussed with Miller the
transmittal of commissions to a bank account maintained by the
dealer in the United States.
Miller stated to Atkins that such
payments violated the May directive.
A memorandum dated July
29 from Lou Suitter, Bell counsel, to, among others, Atkins
and Courtland Gray, 2/ states that Tom Soutter, Textron general
counsel, told him that he concurred with Miller's opinion. 3_/
1/
Kenworthy testified
lations.
that Sri Lanka had strict currency
2/
Gray was manager of the administration section of Bell's
international marketing department.
3/
Suitter's memo also explicitly states that Bell's obligation
pursuant to the May directive is simply to -transmit money
to the country where the dealer does business.
In the memo
Suitter stated:
"We would then, at least, have evidence which
would dispel any appearance of impropriety.
What
the dealer does thereafter is, of course, of no
concern of Bell Helicopter."
82
regu-
114
When Bell ultimately took steps to implement the directive in an
August 26, 1977 letter to dealers authored by Gray, Bell retained
as one permissible means of payment the issuance of a check to a
dealer for pick up in Fort Worth. 1/
Several instances involving payment of substantial sums of
commission monies after issuance of the Textron directive barring
such payments occurred during 1977. On June 17, 1977, a $430,000
check was given to Kyu Rim at Fort Worth.
The check was made
payable to Rim, rather than the Bell dealer, United Industries
International.
The same day Court Gray assisted Rim in opening
savings and checking accounts at the Arlington B a n k of Commerce,
and Gray's residence was listed as the mailing address for these
bank statements.
A $30,000 check made out in the name of the
Jamaican dealership was picked up at Fort Worth by Andrew Bogle,
president of the dealership, in October 1977. Finally, in late
December, 1977, Bell issued a $100,000 check in the name of
Carlos Nino de Rivera, manager of Bell's Mexican dealer.
IV.
FAFNIR DIVISION OF TEXTRON
Summary
During the period 197.2 through 1977, Fafnir effected sales
totalling $3,079,109 to at least two agencies of the government
of Iraq through the intervention of an agent, Nadhir Mustafa
("Mustafa"), and paid him approximately $450,000 in commissions
for services rendered.
From and about mid 1973, Fafnir had reason
to believe that Mustafa had paid at least one high ranking Iraqi
official on at least one occasion as a means of obtaining Fafnir
orders, and that Mustafa intended to do so in order t o promote
future orders by Iraq.
Fafnir, with Mustafa's assistance, also
increased a sales order of the Iraqi government in order to generate
more commissions to Mustafa.
The staff's investigation of Fafnir
consisted of reading of subpoenaed documents and review of notes
of interviews of certain Fafnir officers and employees by Counsel
to the Special Committee of Textron. The staff did -not take any
testimony of past or present Fafnir officers or employees.
1/
The permissible alternatives were payment to be made at:
(1) the address of the representative noted in the agreement;
(2) a bank account in t h e country designated in the agreement,
or;
(3) by check, at Bell in Fort Worth.
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115
Background
Fafnir manufactures ball and roller bearings at several
locations in the United States and around the world, including
Fafnir United Kingdom ("Fafnir UK") and Fafnir Roulements in
France.
Fafnir UK reports 1/ directly to the Vice President of
International Operations, at Fafnir headquarters in New Britain,
Connecticut ("Fafnir U.S.A.").
In August 1973, the Marketing Director of Fafnir UK met with
Mustafa in England to discuss billing arrangements for business
that might be generated by Mustafa with Iraqi government agencies.
As indicated in a memorandum summarizing t h e meeting, Mustafa
claimed "to have connections within the Government of Iraq such
that he is able to influence the placing of orders overseas based
upon payment to a high ranking Government official of an amount
equal to 4 percent of the value of the orders over which Mustafa
exercises control." Mustafa requested that no mention of commission or discount was to appear in any Fafnir invoice documentation
to be sent to Iraq by Fafnir UK.
A copy of the memorandum was
circulated to the Export Sales Manage,r of Fafnir U.S.A. and to
the. Managing Director of Fafnir UK.
In December 1974 and May 1975 Fafnir U.S.A. received two orders
totalling $581,651 placed by the General Automobile Company, ("GAC"),
an agency of the Iraqi government; the quantity of bearings requested
by the first order represented a doubling of the quantity indicated
in the p r o forma invoice sent by the agency.
On both orders Mustafa
was t o receive a 1 0 percent commission.
In December 1 9 7 5 , prior to
payment of any of the commissions on these two orders, however,
Mustafa informed Fafnir U.S.A.'s Export Sales Department by letter
that all commissions earned by him were to be deposited in a
Luxembourg bank account.
During the fall of 1975 and early winter of 1976, Fafnir U.S.A.
sent the GAC price quotes for the sale of additional bearings*
In
late November 1975 Mustafa telexed the Export S a l e s Manager of Fafnir
U.S.A. that he w a s attempting to, double the quantity of bearings
to be ordered.
By early December the Export Sales Manager of Fafnir
U.S.A. was informed by t h e x E x p o r t Sales Manager of Fafnir UK 2/
that "if you grant extra 5 percent 'commission 1 3 / on pro forma
to General Automobile Baghdad, confirmation will follow for doubled
quantities." Before Fafnir could respond to Mustafa's request, it
received a letter of credit for $240,339, which was a sum greater
than the price indicated on the p r o forma.
Subsequently the Fafnir
1/
Fafnir UK is headed by a Managing
2/
Mustafa travelled at least semi annually to England; t h e order
discussed in the above paragraph was to be filled solely by
Fafnir U.S.A.
3/
Fafnir U.S.A. intended
Director.
to pay Mustafa a 1 0 percent "commission.
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116
U.S.A. Export Sales Manager and vice president for Interational
Operations were telexed by Fafnir UK Export Sales Manager to the
effect that Mustafa had stated he would have to earn a 15 percent
commission to procure an order for double the quantity of bearings
quoted in the pro forma. On March 4, 1976 Fafnir U.S.A. agreed to
pay the 15 percent commission.
The $14,000 excess approximated the
extra 5 percent requested by Mustafa. 1/
In April 1976, GAC 2/ placed a $600,000 order with Fafnir
Roulements on which Mustafa was to earn a 17.5 percent commission.
According to the Marketing Director of Fafnir UK, the $600,000
order was initiated in January 1976 while Mustafa and the Managing
Director of Fafnir UK met in England to discuss a possible $20,000
GAC order. 3/ Mustafa brought a typed list of bearings and after
some discussion about commission, Mustafa entered a zero after each
quantity of bearing, thereby increasing by tenfold the price of
the order and the number of bear ings subject to an "official" GAC
request for quote.
Fafnir UK passed the request for quote on to
Fafnir Roulements, since the bulk of the bearings indicated in the
list were of the type then being produced by a licensee of Fafnir
Roulements.
In March 1976 Mustafa and the Managing Director of
Fafnir UK met with the head of Fafnir Roulements to discuss the
Fafnir Roulements quote on these parts. At this meeting, Mustafa
inquired what commission he would earn if the $.200,000 GAC order
were doubled or tripled.
It was agreed that a tripling of the
order would result in a 17.5 percent commission.
Approximately
three weeks later, in April 1976, GAC placed an order with Fafnir
Roulements for triple the quantities indicated in the request for
quote. 4/
1/
The GAC eventually did place an order for a quantity of bearings
greater than the quantity quoted on the pro forma. However,
certain bearings were ordered in double quantity, while others
were ordered in triple quantity.
2/
GAC was by this time called the Automobile State
3/
The Marketing Director of Fafnir UK was interviewed by Counsel
to the Special Committee of Textron about the transaction and all
references to his statements are from notes taken by Special
Committee Counsel of the interview^
4/
In late 1977, after delivery of the bearings pursuant to the
inflated order, Fafnir was requested by GAC to accept a return
of over half of the bearings.
GAC claimed that the quantities
ordered in its April 1976 order were substantially in excess
of the quantities required by GAC. Textron has refused to
accept the return of any of the bearings.
85
Enterprise.
117
In June 1976, Mustafa, accompanied by the Export Sales Manager
of Fafnir UK, visited Fafnir U.S.A. headquarters in New Britain,
Connecticut.
Mustafa met with the president of Fafnir, as well
as with the vice president for international operations.
The
Export Sales Manager of Fafnir UK has told counsel for Special
Committee that Mustafa indicated to these individuals that he
(Mustafa) had incurred and would be incurring "expenses with
respect to Iraq" and requested that his commission be deposited
in a Luxembourg bank account since Mustafa explained that it was
illegal under Iraqi law for an Iraqi national to receive commissions from suppliers who had entered into contracts with Iraqi
government agencies.
After Mustafa's departure from New Britain,
Fafnir paid Mustafa approximately $235,000 in additional commission
through 1977.
V.
UNSUBSTANTIATED ENTERTAINMENT
EXPENSES
Between 1971 and 1976, two Textron divisions, Bell Helicopter
and Bell Aerospace, expended approximately $490,0*00 of unsubstantiated entertainment expenses. 1/ A substantial part of this money
was used in connection with entertaining employees of the U.S.
Department of Defense ("DOD") and the National Aeronautics and
Space Administration ("NASA"), usually by purchasing their meals
at various restaurants. 2/
At Bell Helicopter, a Bell employee who entertained DOD personnel would seek reimbursement by submitting an expense account
report reflecting "Miscellaneous" expenses, the amount and the date
of the expense. The employee would attach to the report a penciled
notation describing the details of the expense, including the identity of who was entertained.
The employee's superior, usually a
top Bell executive, would review the penciled notation, approve the
expense and destroy the penciled notation.
It can not be determined from Bell's books and records how or upon whom the money was
actually spent.
The above unwritten procedure was approved in 1965
by Ducayet, Atkins and Treff.
Ducayet, Atkins and Weichsel 3/
1/
Bell Helicopter and Bell Aerospace expended approximately
$252,000 and $235,100, respectively.
As explained below,
Bell Aerospace expended additional unsubstantiated entertainment expenses of $59,793.96, $59,371.38, and $25,556.87 during
1976-77, 1977-78 and January 1 - July 1978, respectively.
2/
Through April 1979 proxy material, Textron made a general
disclosure that the IRS is investigating possible criminal
violations in connection with Textron's deduction of certain
business meal and entertainment expenses for government
employees for which substantiation is considered by the IRS
to be inadequate.
3/
Weichsel discarded the penciled notations of Warren Rockwell,
Bell's Vice President in Washington, and other Bell personnel
who reported directly to Weichsel.
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118
admitted that the above procedure was employed to save DOD personnel
from possible embarrassment in the face of DOD policies indicating
that DOD personnel should not accept entertainment from U.S. defense
contractors. 1/
At Bell Aerospace, there was a written procedure that if a Bell
Aerospace employee sought reimbursement for a "sensitive" entertainment expense, the employee should attach a notation similar to the
one described above which would be reviewed by the employee's superior.
The superior would approve the expense and then return the
notation to the employee.
Bell Aerospace did not consider the
notations as corporate documents, did nothing to assure that the
employee retained the documentation and is unable today to find
such documentation. Certain Bell Aerospace officials had knowledge
of this written procedure and actually received reimbursement pursuant to such procedure.
In 1969 and 1971, Miller received a memorandum from Textron's
Assistant Treasurer, Jack Reardon, which discussed the Internal
Revenue Service examination of Textron's tax returns, including
the IRS agent's disallowance of certain claimed deductions. These
memoranda informed Miller that two Bell divisions were entertaining government employees, that there was no substantiation
retained by the company and the IRS had disallowed these claimed
entertainment expenses.
For example, in two separate places in
the 1971 memorandum, Reardon states that the IRS agent disallowed
$29,525,48 (Bell Aerospace) and $54,642,51 (Bell Helicopter) in
entertainment expenses.
In the memorandum, Reardon explained:
"Inasmuch as the major portions of the proposed disallowances
represents entertainment costs expended by [the Bell division]
1/
Expenses reimbursed pursuant to the procedure were charged to
a Bell account #7122. The staff has also obtained evidence
that certain expenses of foreign officials were charged to
account #7122 was used to hide expenses of foreign officials.
In or about January 1976, Bell received invoices totalling
$1,425 from a Dallas company for limousine services provided
to General Toufanian, Iran's Minister of War. B e l l had
ordered the services on Toufanian's behalf.
Edward Farmer,
Bell's V.P. for Finance, and Treff were concerned that
Toufanian's name appearing on the invoices may cause embarrassment if later disclosed.
Treff prepared two expense account
reports, claiming $1,425 in "miscellaneous expenses."
Farmer
approved the claim.
Treff received $1,4 25 from Bell and then
sent a personal check to the limousine company for the same
amount, enclosing all of the invoices sent to Bell.
There
are no corporate records indicating the true e x p e n s e incurred
by Bell.
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119
with respect to government employees, for obvious reasons no substantiation was retained." 1/ On February 7, 1979, Keardon told
the Textron Special Committee that obviously documentation for
Department of Defense entertainment was not retained to avoid the
embarrassment of DOD people because of rules prohibiting them from
receiving such entertainment. 2_/
In or about November 1975, Miller received a letter from
Senator Proxmire, then Vice-Chairman of the Joint Committee on
Defense Production, requesting information from Textron on any
gratuties . hospitality or entertainment that Textron may have
extended uuring 1971-1975 to military officers or civilian employees
of any executive agency with which Textron had contracts as well as
the names of any officials accepting the gratuities.
The letter
specifically requested information about entertainment at night
clubs, restaurants or private clubs.
At or about January 2, 1976,
Miller received a letter from Senator Tower modifying Proxmire 1 s
request.
In regard to provision of meals, Tower stated that the
Committee would appreciate some aggregate estimate of funds spent
if it is available.
Tower also stated that the Committee was
interested in information about the incurrence of entertainment
costs exceeding an estimated $100 per guest.
Miller assigned Robert Ames, Textron's Group Vice President
over the aerospace divisions, to assist in preparing a response to
the request.
During the course of Ames* gathering of information
from Bell Aerospace and Bell Helicopter executives, he learned of
the procedures described above and that the undocumented expenses
were in the magnitude of $50,000 a year for each of the two # Bell
divisions. Ames failed to ask why such procedures were maintained
and did nothing to ascertain what amount of money reflected in the
undocumented expenses was spent on U.S. government employees. 3/
1/
Miller's handwriting appears on this memorandum and on the
1969 memorandum which contained almost the identical language.
Joseph Collinson, Textron's present Chairman and former Executive
Vice President, also received the 1969 and 1971 memoranda.
In 1972 and 1974, Miller received two other memorandum from
Reardon.
Under the section entitled "Entertainment," the
memoranda state: "The agent has disallowed claimed entertainment expenses totalling [amount of money] for lack of substantiation.
The adjustment is proper.
2/
On June 21, 1979, Reardon invoked his fifth amendment privilege
on all matters pertaining to Textron entertaining U. S* government
personnel.
3/
Ames testified that because of the lack of documentation it
would have been extremely difficult to separate legitimate
expenses; i.e., money spent on the Bell employee who a c c o m panied the U.S government employee, and the cost of hospitality
suites open to government and nongovernment employees, from the
actual amount of money spent on the U.S. government employee.
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120
According to Ames,
that the two Bells
to U.S. government
expenses was about
Miller learned prior to responding to the request
did not maintain records of entertainment extended
employees and that the level of undocumented
$50,000 a year for each of the two Bell divisions.
In a letter dated March 1, 1976, Miller responded to Senator
Proxmire's request -as clarified by Senator Tower's letter of January
2. Miller mentioned that Textron's information was gathered through
Miller
a survey of all Textron operations for the period 1971-75.
stated that none of Textron's divisions involved in government contracts provide government personnel with any unusual or extravagant
entertainment.
Miller further stated:
Our survey confirms that courtesies and
hospitalities have been limited
....
Because of the relatively modest activity,
we are not able to provide further details.
We have not been able to find any instance
where the cost of hospitality would have
been as much as $100 per guest.
Prior to the time Miller stated the above, he received a memo
from Atkins which contained information about hospitality and
entertainment provided by Bell Helicopter to government personnel.
The memo included the statement:
"The Company does not maintain
records of any hospitality or entertainment extended to our guests."
The Textron Special Committee has informed the staff that in connection with its inquiry into hospitality expenses incurred in connection with Textron's marketing to the U.S. government, Miller and
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.
At or about the time of Miller's response, the DOD and NASA
reemphasized their rules against their employees accepting any gift,
gratuity, entertainment or any other thing of monetary value from
U.S. contractors.
At Bell Helicopter, the amount of undocumented
entertainment expenses was sharply reduced after the reemphasis,
from about $61,000 in 1975 to about $8,000 in 1976 and $2,000 in
1977.
However, at Bell Aerospace, the level of unsubstantiated
entertainment expenses remained high (about $200,000 from 1976
to July 1978) and the company's procedure of returning the documentation to the employee was continued, notwithstanding a provision in a revised policy manual which called for adherence to
government directives against government employees accepting anything of monetary value from U.S. contractors.
While the staff
can establish that part of the $200,000 was spent in connection
with entertaining NASA or DOD employees, the lack of documentation
precluded the staff from determining how much of the $200,000 was
spent in such a manner.
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121
VI.
1.
CONTRIBUTION TO SOUTHWESTERN MEDICAL
FOUNDATION
Summary
In April 1974, Textron Charitable Trust Foundation, 1/ at
the suggestion of James Atkins, president of Bell Helicopter,
decided to pledge a $100,000 charitable contribution payable
over a three-year period to the Southwestern Medical Foundation
of Dallas, Texas ("the Foundation").
The Foundation was a source
of funding for a Dallas medical school whose faculty selected participants in, and were the administrators of, a medical residency
program in which Dr. Toufanian, the son of the Iranian Minister
of War (who was an extremely influential decision-maker in a
country which was then by far Bell's largest foreign customer)
had been accepted in late December, 1973 for a three-year term
commencing July, 1974. Atkins had spoken to the head of the
Foundation on behalf of Dr. Toufanian during the pendency of
his application for admission.
2.
Background:
Textron's Internal Procedures for Initiation
and Review of Proposed Charitable Contribution^
During the 1970 - 1974 time frame, in accordance with Textron's
overall policy of decentralized management, the initiation of proposed annual Textron contributions to specific charities began at
the division level.
It was the practice at Bell that, by October
of each year, Bell's president would provide Textron headquarters
with a list of recommended contributions falling within a total
charitable contribution budget allocated Bell by Textron for the
upcoming fiscal year (July 1). There was no formal p r o c e s s within
Bell whereby suggested donees could be identified or commented upon
by other Bell officers or employees.
Following submission of the package of the proposed contributions to Textron, each proposal would be screened initially by the
Textron group vice president for aerospace.
He would then turn the
package of proposed contributions over to the Corporate Relations
Department and the Textron Charitable Contributions Committee.
These two bodies would condense the written proposal into a memo
to be reviewed by Miller.
Upon completion of Midler's review, the
proposed contributions would be considered by the Textron Administrative Committee. Among the factors that the Administrative
Commmittee would evaluate were the size of the contribution in
relation to Bell's revenues and their taxable status.
After the
Administrative Committee approved the contribution, the matter would
be turned over to the Executive Committee f o r final discussion. The
total review process at Textron headquarters ordinarily required
four to six weeks.
1/
This Foundation was, at the time, controlled by Textron.
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122
Textron's annual charitable contribution budget approximated
$1,000,000 dollars. However, in view of the fact that divisions
were constantly being solicited by potentially worthy charities,
in the early 1970's Miller vested the Charitable Contributions
Committee with the authority to consider such requests throughout
the year as they were referred to Textron from the division level.
It was expected that the Charitable Contributions Committee would
carefully screen such requests.
The evaluation by the Charitable
Contributions Committee would then be reviewed by the Administrative
Committee and the Executive Committee. As of 1974, however, Bell
had not recommended any significant charitable contribution through
this auxiliary process.
3.
Application of General Toufanian's
Son
Bell's first contacts with and actions taken on behalf of Dr.
Toufanian were initiated by Atkins in the summer of 1973 shortly
after Dr. Toufanian's arrival in Dallas to commence a one year
internship program at Methodist Hospital, Dallas, Texas.
During
that time period, Atkins took Toufanian and Toufanian's wife to
dinner on several occasions both as a means to acclimate the
Toufanians to this country and as an expression of Bell's appreciation for his father's (General Toufanian's) continuing support
of B e l l ' s helicopter program in Iran. Atkins testified that he
probably charged off to Bell some of the entertainment expenses he
incurred with respect to the Toufanians, 1 / and that he would have
done so under the assumption that these entertainment expenses
were business related since Bell was involved with a large program
in Iran at the time.
In the fall of 1973, Dr. Toufanian submitted an application
to the residency program at Parkland Memorial Hospital ("Parkland"),
in Dallas, for a three year term commencing July, 1974. Parkland is
a teaching hospital, i.e., Parkland's physician-residents and interns
are selected, supervised and trained by the teaching staff of the
Southwestern Medical School ("Medical School") pursuant to a contract
between Medical School and the County of Dallas.
A substantial source
of annual funding of Medical School is provided by the Southwestern
Medical Foundation.
Over the past thirty years, the Foundation has,
periodically, provided capital funds f o r use by the Medical School,
such as for the purchase of equipment and construction of facilities.
The Foundation has also supplemented the salaries of several of
the "chiefs of service", i.e., those Medical School faculty members
w h o serve on the selection committee or on other administrative
committees of Medical School related to the Parkland residency
program and who administer the Parkland residency program in
addition to teaching medical students at the Medical School.
1/
Atkins specifically recalls that he bought $125 worth of
silver as a wedding gift f o r t h e Toufanians and charged the
expense to Bell.
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123
Sometime in October or November, 1973, shortly after he had
applied for the Parkland residency program, Dr. Toufanian approached
Atkins to seek his assistance with respect to the application.
Dr.
Toufanian informed Atkins that, although his credentials appeared
to be satisfactory from a scholastic standpoint, it was his understanding that there were more applicants than spaces available in
the residency program. Atkins did not mention the Foundation nor
did he indicate to Dr. Toufanian how he might attempt to assist him.
On November 10, 1973, Atkins met with James Aston ("Aston"),
president of the Foundation.
Atkins had been acquainted with Aston
for the past fifteen years during which Bell had been a customer
with the Republic National Bank, where Aston served in an executive
capacity. 1/ W h e n asked why he contacted Aston, Atkins testified it
was his understanding in November 1973 that "The Foundation has
supported the medical program at Parkland and I believe they may
have made contributions to their building program and so forth and
also that the Administration of the residency program perhaps were
'funded' by the Foundation."
Consequently, Atkins sought Aston's
assistance because "I thought he [Aston] could talk to the Administration people that ran the residency program to see if Dr.
Toufanian could get consideration."
At the meeting Atkins explained
to Aston that, in connection with Bell business in Iran, he had
become acquainted with Dr. Toufanian, who was then interning at
Methodist Hospital, who now wanted to enroll in the Parkland residency program, and whom Atkins thought to be of fine moral character.
Atkins further described Toufanian as. the son of an
Iranian general who was an important m a n with respect to B e l l ' s
business in that country.
He was approaching Aston, Atkins said,
"as President of the Southwestern Medical Foundation to see if
you can be of any help."
Aston's response was that he would pass on Atkins' recommendation to Dr. Sprague, the head of the Medical School but that he,
Aston, did not have any input into the selection process and it
was his understanding that applications were being considered by
a Medical School faculty committee that would insist upon certain
academic standards.
However, Aston also mentioned that the Medical
School did allot some spots in the residency program to foreign
students who intended to return to their homeland to practice
medicine following completion of the residency. .2/
1/
Aston was chairman of the board of Republic of Texas Corporation,
holding company for Republic National Bank.
He had become
president of the Foundation in May 1973 after having served
as trustee since 1961.
2/
Shortly thereafter, Aston telephoned Dr. Sprague and told
him that Atkins had recommended that the son of a prominent
citizen of Iran, who was interning at Methodist Hospital, be
admitted to the residency program at Parkland.
Dr. Sprague
replied that he "would look into the matter."
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124
4
*
Textron
Informed
Some time after this first meeting with Aston, Atkins told
Miller in a telephone conversation that he had contacted Aston
about Dr. Toufanian's application for the Parkland residency
program.
Atkins testified he "think[s] he [Miller] was pleased
at my rendering some assistance to the General's son" because "we
recognized how important that [medical] training was to his Country
and recognized we would be [in Iran] for a long time so we were
interested in helping the doctor." W h e n the staff asked Atkins
as to why he was keeping Miller informed of what he was doing
on behalf of the General's son,.Atkins testified "maybe it was
over-reaction on my part, but I told him what my efforts were."
Atkins then testified that Miller had not requested him to keep
Miller advised of his efforts on behalf of Dr. Toufanian.
When
asked whether Miller encouraged him to continue his efforts, Atkins
testified, "I don't know if he encouraged me or not.
I was more
or less in a reporting mood." Atkins testified he probably told
Miller that the Foundation directly or indirectly financially
supported Parkland. 1 /
Atkins met with Aston a second time in early December, 1973.
Aston reported to Atkins that in the interim he had spoken with
Dr. Sprague, and that Sprague had indicated that Toufanian had
good credentials, but whether or not Toufanian would be accepted
depended upon the competing applications and the number of spots
that were open. Aston also mentioned to Atkins that he was a
Fundraiser for the Foundation, thought the work of the Foundation
was quite beneficial to Bell employees and "he thought at some
point we ought to take a look at the Foundation and determine if
we could make a contribution to the Foundation." Atkins replied
that this was a matter Bell ought to consider in its contribution
budget, and "at an appropriate time Bell could look at it."
However, as Atkins knew, Bell's recommended charitable contribution
budget for fiscal year 1974 had already been forwarded to Textron
headquarters for Textron's consideration in late November 1973. 2/
1/
Atkins testified that the contribution budget for 1974, which
had already been submitted to Textron, approximated $150,000,
and that Textron would decide, by December 1973, or January,
1974, about the propriety of the contributions.
As president
of Bell, Atkins was the sole individual to decide on proposed
contributions.
1973 was the first year he had carried out
this responsibility alone, because Edwin Ducayet, who had
served as Chairman of Bell through December 31, 1972, had
processed Bell's proposed charitable contributions for fiscal
year 1973.
2/
Miller did not recall this conversation but has no reason to
believe it did not occur.
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125
On December 10, 1973, which was a few days after the second
Aston-Atkins meeting, Dr. Sprague spoke oyer the telephone with
Atkins regarding Toufanian's application.
Sprague mentioned that
the Admission Committee at Medical School considered Toufanian
highly qualified, but that it had not yet decided one way or the
other on his application. 1/
On or about December 12, 1973 Atkins received a form letter
from the Foundation addressed to Bell requesting a contribution.
No suggested amount or schedule of payment was indicated on it.
N o one at Bell questioned by the staff remembers receiving such
a form letter from the Foundation prior to December 1973.
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." According to Atkins, Miller replied "that [a contribution] is something we should consider at the appropriate time
on its own merits," 2/ and the discussion ended. At his appearance
before the staff, Miller did not recall the conversation. 3_/
The Medical School approved Dr. Toufanian's application by the
end of December, 1973.
Atkins learned of Dr. Toufanian's admission
when he telephoned Atkins to thank him for "his help."
Atkins
testified that he did not tell Dr. Toufanian whom he had contacted
on his behalf.
Shortly thereafter, in turn, Atkins contacted
Aston to thank him for "whatever assistance he [had] rendered."
And Atkins recalls that sometime prior to March 1974 h.e probably
1/
The staff did not take the testimony of Dr. Sprague.
2/
Ames testified that Atkins told Miller and him that he had
contacted the hospital where Toufanian's application was
pending and that "he would like to make a contribution for
the hospital." This was the first A m e s heard of Dr. Toufanian's
application.
3/
Miller recalls one conversation with Atkins that took place
in 1973 regarding Dr. Toufanian's application.
According to
Miller, Atkins informed him that the "General's son was
looking for references and sponsorship to help him get a
residency. . . that he [Atkins] felt that as a courtesy he
should try to assist the young man in finding [the] residency" and that "he would give him a reference and indicate
that he knew him and knew him to be a person that would be
appropriate for medical residency."
Miller does not recall
being told by Atkins that Atkins had met with anyone associated with the hospital, medical school, or foundation.
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informed Miller of Toufanian's acceptance in the Parkland
program.
5.
Contribution
residency
Approved
Atkins decided at some point during the next two months to
forward to Textron his recommendation that Textron contribute
$100,000 to the Foundation.
The $100,000 contribution was the
largest ever proposed by Bell for payment to an individual hospital or foundation.
Atkins testified that he recommended that
figure because "maybe I thought that I needed to help my ego
and gave away $10'0,000", and he thought it warranted serious
approval because of Bell's substantial revenues.
Atkins decided
to seek Textron's immediate approval rather than wait until the
fall of 1974. 1/ On March 8, 1974, Atkins wrote A m e s to recommend
that Textron donate $100,000 to the Southwestern Medical Foundation, beginning July 1, 1974, to be at a rate of $35,000 per year
Atkins telephoned
for the first two years and $30,000 the third.
A m e s to tell him that the request was in the mail, but he did not
mention Dr. Toufanian's acceptance to Ames.
Atkins also mentioned
to Miller, during the course of a routine telephone conversation
early in March touching upon many subjects, that he was "submitting
a recommendation for a $35,000 contribution to Bob Ames. . ."
According to Atkins, Miller replied that "the [Textron Charitable]
contributions committee would act on it when it had been properly
received."
Miller did not recall this conversation.
A m e s received the letter during the week of March 20 and
routinely signed off on the request, thereby turning the decision
over to Textron's Charitable Contributions Committee. Ames testified that he did not investigate the existence of any quid pro
quo between the contribution and the acceptance of Dr. Toufanian.
Ames testified that Miller's instructions [that the request for
the contribution and Dr. Toufanian's application were to be
separate] were clear and that "I felt they were being followed."
The contribution was approved by the Charitable Contributions
Committee in late March. 2/ The matter was then considered and
approved by the Textron Administrative Committee at a weekly
meeting held on April 8, 1974.
The agenda of the Administration
Committee indicates that among those present at the meeting-were
Miller; Ames; Joseph Kruse, Textron's secretary; John Henderson,
Textron vice president; and Erskin White, another Textron vice
president.
1/
Atkins did not recall Bell ever having made a recommendation
to Textron separate from the package of recommendations made
in the fall of each year.
2/
The staff did not take the testimony of any member of the
Charitable Contributions Committee, but took the testimony of
members of the Administrative Committee before which the substantive discussion of the proposed contribution took place.
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Henderson testified that at the meeting of the Administrative
Committee, someone noted that it was Bell's belief that a contribution to the Foundation would be highly beneficial to Bell employees.
Henderson added that, either just prior to the meeting of the
Administrative Committee or at the meeting itself, Ames made
the following remarks directly to him:
"Dr. Toufanian, who was a son of General Toufanian,
was in Dallas and was connected with the Southwest
Medical Foundation and that it would not displease
Bell Helicopter to see that a contribution would
be made which would — well, which would in the
sense that the contribution to a foundation that
Dr. Toufanian was at, would probably —
Bell
Helicopter would like it in the sense that Dr.
Toufanian was the son of General Toufanian.
. . . I remember very little discussion on it, but,
such as it was, was that Bell would be comfortable
with a contribution, one, because it was of major
assistance to employees, and two, because it was
in association with which —
rather, a foundation
with which Dr. Toufanian was associated." 1/
Henderson's response to a questionnaire of Textron's Special
Committee elaborates that he remembers hearing that B e l l was
interested in seeing that Dr. Toufanian was well treated, but
he did not recollect what direct benefits, if any, Dr. Toufanian
might receive from the hospital or the Foundation. 2 /
Kruse and White each testified that they did not recall
A m e s ' remarks.
However, Kruse answered his Textron questionnaire
as follows:
1/
Henderson testified at one point that A m e s ' comments quoted
above were made at the meeting of the Administrative Committee.
He later testified he was not sure in what context A m e s made
the remark "to him", although it probably was during the meeting
of the Committee.
Ames did not recall having made any remarks
about Dr. Toufanian.
2/
Henderson stated this understanding in response to a question
that asked for, among other things, any information concerning
a request for a charitable contribution "made by the corporation in connection with any contract or business that the corporation was seeking to obtain or release."
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"I recall vaguely a discussion of a charitable
contribution request from Bell Helicopter in March
1974 requesting approval of a contribution to
Southwestern Medical Foundation in Dallas, Texas.
This was approved by the Textron Administrative
Committee in April 1974.
The contribution may have
partially been associated with the acceptance of
an Iranian student into the Southwestern Medical
School." 1/
And White answered his questionnaire by stating that he:
"can recall discussions —
and I believe action
taken — concerning charitable contributions
for scholarships for one or more Iranian students,
including the son of an Iranian general studying
in the U.S. to be paid by Bell Helicopter." 2/
On April 11, 1974, Atkins notified Aston and George L.
MacGregor, (chairman of the Foundation), by letter that Textron
had decided to pledge $100,000 to the Foundation to be paid in
"three installments of $35,000 in 1974 and 1975 and the balance
in 1976."
In early May, 1974, Aston announced the pledge at a
meeting of the Foundation Board.
Atkins testified that he believes "that perhaps during my
first trip to Iran in 1974 that the General [Toufanian] expressed
his pleasure that his son had been accepted at the University
and that his son told him that he felt that I had rendered some
assistance."
In response to a question whether General Toufanian
thanked Atkins for his efforts on behalf of the General's son,
Atkins testified: "Yes, probably so."
1/
Kruse testified that he answered the questionnaire in the above
fashion because he was merely bringing to the attention of the
Special Committee his vague recollection that General Toufanian's
son was enrolled in an internship program in a hospital that
was funded by the Southwestern Medical Foundation and that
Bell Helicopter had contributed to the Southwestern Medical
Foundation.
He testified that he did not know whether there
was a connection between Dr. Toufanian's admission and the
contribution.
2/
White testified that what he meant in answering the questionnaire
as he did was to bring to the attention of the Special Committee
two separate facts: (1) that Textron had considered instituting
scholarships for Iranian students studying in this country,
and (2) that he was aware of the fact that General Toufanian's
son was in the United States as a medical student. White testified that he was not trying to state that Textron had made a
charitable contribution "connected to General Toufanian's son."
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VII.
OVERBILLINGS
A review of Textron's billing and payment practices reveals
that several Textron divisions had routinely engaged in overbillings
during the period 1971 - 1977.
"Overbilling" was a practice whereby
Textron would honor requests from foreign distributors or customers
to overbill them on the sale of various products with the understanding that the amount overbilled would be remitted to the distributor or customer or applied against their account with Textron.
In a Miller policy directive against overbillings, dated May 12,
1977, Miller stated that:
"While [overbilling] may only lead to
the establishment of a credit balance which can l a t e r b e applied
against subsequently purchased products, overbilling has the
potential for abuse as a method to evade exchange control restrictions or taxes." 1/
The staff can establish that at least $1,276,000 in overbillings
were engaged in by the Homelite, Sheaffer-Eaton, Shuron 2/ and
Fafnir divisions during the 1971 - 1977 period.
Textron would often accomplish the overbilling by issuing an
invoice to thle distributor or customer which reflected an inflated
price for Textron's products.
The issuance of the inflated invoices
sometimes caused misleading export declarations to be filed with
the U.S. Commerce Department by freight forwarders w h o relied
upon the Textron invoices to determine the value of the goods.
1/
The staff has found numerous situations where overbilling
permitted an individual officer of a corporate customer or
distributor to receive outside his home country excess payments made by his corporate employer.
2/"
After directly*overbilling two Brazilian customers in 1976
for approximately $100,000, Shuron decided that it would no
longer overbill customers.
However, in 1977 Shuron found
and utilized a Virginia based exporter to continue the overbilling of one of the customers.
Shuron "sold" the goods to
the exporter at the true price and the exporter immediately
resold the goods to the customer at an inflated price.
The
customer assumed responsibility for payment of the amount
due to Shuron from the exporter.
The exporter remitted the
overpayment (about $15,000) to the customer's Swiss bank
account.
During the course of the transaction, Shuron guided
the exporter on the structuring of the overbilling, back
dated important letters and knowingly received and prepared
documents containing the signature of a fictitious person.
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VIII.
STATEMENTS TO SHAREHOLDERS
The 1976 annual meeting of Textron shareholders was held on
April 28, 1976. At the meeting Miller addressed the shareholders
about Textron's "high standards of conduct."
Miller stated:
It's been a tentative (sic) trend of Textron's
pattern of growth and principles of business
that we will live by the highest standards and
the highest consideration of business efforts,
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.
Miller testified that his remarks were in the context of the
1970-76 time period.
Miller based his statement on the fact that
Textron's outside auditors never raised possible questions about
possible illegal or improper payments and that he emphasized at
annual meetings of Textron division presidents and controllers
that improper activities were against Textron's standards.
Miller
also testified that Textron's management guide, which he believed
was widely distributed throughout the company, contained general
references to obeying the letter and the spirit of the law and
Textron's expectations of high ethical conduct.
At the time this statement was made, no investigation had
been made to determine whether Textron had caused any improper or
illegal payments to be made.
Textron had no written policies with
respect to foreign bribes, questionable payments, foreign officials
having a beneficial interest in Textron representatives, and Textron
representatives sharing commissions with foreign officials.
The
distribution of the management guide described by Miller was left
to the discretion of division presidents and did not reach most
members of Bell's International Marketing Department.
The 1977 annual meeting of Textron shareholders was held on
April 27, 1977. At the meeting Miller addressed the shareholders
and stated:
We know of no case in Textron where there
has been any improper payments, illegal
payments.
We've made a survey of the company.
The Audit Committee has supervised the questionnaires to well over a thousand employees
to make sure that we could search for any
deviations for policy and we have found
none.
Textron, I'm proud to say, is one
of the companies for which you have heard
no reports of the illegal or improper or
inappropriate payments of any kind, and that
kind of record I think we should all feel
proud of shareholders and directors and
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officers. 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 to do something else, but we have
found none and none is authorized or none is
condoned by management in any sense.
The survey referred to by Miller was initiated by him on
December 27, 1976.
The limited period covered by the survey January 1976 to January 1977 - was not communicated to Textron's
shareholders at the meeting.
At the time Miller made the above
statement, no investigation of illegal, improper or questionable
payments had been made other than statements distributed to and
signed by employees about improper and questionable payments during
1976.
When asked about the survey covering the period 1976-1977,
Miller testified:
"Unfortunately this got kind of tied to an audit,
and as I say, in retrospect, I probably should have broadened that."
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@FedFRASER