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"As to the effectiveness of the investigative methods used by the neutral bodies and the effectiveness of the neutral bodies themselves, witnesses claimed both were using techniques which were capable of detecting malpractices other than cash rebates. (Volume I, p. 35)
"Testimonies received reflect the broad allegation that to some extent the self-policing systems have become partially involved in catching minor misdeclarations and questionable interpretations of tariff rules and regulations. The enforcement staffs are bothered with "Mickey Mouse" situations which do not lend themselves to a reputation for deterring or uncovering sophisticated malpractices. Conference members state that they want a strong neutral body which would give the assurance that their associates are not deviating from their espoused principle of no malpractices.
"Satisfaction has been expressed that the obvious methods of committing certain malpractices are being detected and stopped. A degree of the advantage obtained from misdeclarations, absorptions and drayage malpractices is being taken away from the lines. However, concern has been expressed that conditions are coming about for the occurrence of those types of rebates which may not be within the investigative expertise of the present staffs, and which officials claim may be impossible to detect. The neutral bodies should be asking themselves what they would have done to catch those cash rebates now being disclosed and how they could acquire the requisite expertise. " (Volume I, p. 54)
"From observation to date, the present system is not geared to uncover cash rebates. Accordinglyi consideration should be given to installing another level of personnel with high-level auditing/investigative experience. As a result, the policing techniques now used would be complemented by analyses, and audits of steamship lines' financial records directed towards cash rebates.
"The new approach suggested would require trained investigators with financially related experience to inquire in-depth into the areas of cash rebate malpractices uncovered by neutral bodies and the Commission, as well as those previously tabled. They would explore new methodology which would analyze shipping corporations' and their subsidiaries' financial records to search out those areas from which funds for malpractices could be sourced. They would also be valuable by giving to the neutral bodies the benefits of their experiences in developing investigative techniques and in the administration of an investigative organization." (Volume I, p. 55)
"Officials interviewed state that cash rebates cannot be traced. This is a negative position. Ruses for hiding the allocation of funds for rebates are no more complex than those used, for example, by taxpayers in siphoning off business receipts for their own use. Sophistry in fraud is not cornered by shipping industry officials and the self-policing systems now in being should consider expanding their expertise to the auditing/ investigative area. IRS Special Agents do not throw in the towel when confronted with garment industry tax fraud. Neither should neutral body investigators looking for cash rebates. The personnel required to uncover the varied, intricate gambits used for malpractices must be trained in the pursuit of fraud, which is what a cash rebate is. They would have the auditing/investigative acumen which is present in those investigators trained to accept challenges in devising methods of uncovering fraud.
"The ideal, then, is to continue the present methods of uncovering misratings and the other malpractices, and to improve upon these methods. Auditor-type investigators should be used to pursue the developed leads which indicate rebates, as well as to analyze prior cash rebates and the financial structures of shipping companies so that they can explore the ways of conducting financial audits
which will be practicable and fruitful.
The above observations are quoted to restate the appraisal of the witnesses and myself that present selfpolicing methods do not address themselves to the problems of cash rebates. These opinions should be considered in relation to remarks made recently before the American Shipping International Forum in New York by Senator Daniel K. Inouye (D-Hawaii), Chairman of the Senate Subcommittee on Merchant Marine and Tourism, of the Senate Committee on Commerce. Excerpts from his address follow.
"On the subject of rebating, our Government
"There is no question in my mind that we must
Continuing, Senator Inouye said:
"When the Congress reaffirmed its approval of the conference system in 1961, it did so on the statutory provision that the Federal Maritime Commission shall disapprove any conference agreement on a finding of inadequate policing of the obligations under the agreement. Given adequate
self-policing, I find it inconsistent that
Senator Inouye also stated:
"These hearings are intended to establish that rebating is in fact going on in our trades and to seek recommendations as to what we are going to do about it. As I said in the Senate, these hearings will not be a witch hunt; they will not be the type of hearing where one company can expect to be intimidated or to intimidate another company. We are looking for solutions to a problem that is an incurable malignancy to the American fleet."
This study has concluded that the neutral body, as a self-regulated, self-policing entity, is the solution. It is the best vehicle to attack the rebate problem and all other malpractices. With a well-organized, well-staffed and well-financed investigator-auditor approach, the cash rebate situation will at long last receive the serious attention it demands.
I am convinced that government intervention is not the solution. Having worked during my career with five different government investigative agencies and many grand juries, I have an experience quotient upon which to base this conclusion. Present staffing inadequacies at the Commission's Bureau of Enforcement is one of the many difficulties the government approach encounters.
The required access to foreign lines' records by federal investigators is an historically insurmountable
problem. Such access, if granted, could eventually require a reciprocity agreement which would give foreign governments access to the records of United States corporations. Some of the United States lines, even though strong advocates of self-policing, probably would object to having foreign government agents rummaging through their files and financial records.
Another possible solution would be reciprocity by the various governments in prohibiting rebates and enforcing the prohibition. But imposing the anti-rebate morality of the United States on those countries that consider rebates a perfectly legitimate business practice is another insurmountable obstacle. The shipping industry suffers, along with other industries, in this regard. A few governments might agree with the U.S. position, but there will never be unanimity on this issue.
The conclusion is that the neutral bodies, with proper staffing, especially in the financial analyses area, can attack the cash rebate problem more effectively than any other approach. However, if the financial analyses approach is not adopted by the conferences, the door remains open for the Congress and the Justice Department to conclude with justification that the adequate self-policing methods required by Section 15 of the Shipping Act do not exist.
As in the other areas of investigations, the task of assessing manpower needs is rather tenuous. The major consideration in arriving at a number is that, hopefully, the investigator-auditor approach will be principally a monitoring, deterrent force. If major investigations are required, the personnel requirements could change for what would be basically a pilot program.
It is contemplated that the principal neutral bodies operating in the United States trades would have investigatorauditor teams both for their inbound and their outbound conferences. Arbitrarily, it could be estimated that each major conference being policed would require one investigatorauditor. But, for overall needs, each of the neutral bodies should have four of the required specialists for the United States team and four for the overseas areas of responsibility.