Mr. ROSENBLATT. Very few.

Mr. BREAUX How many is very few?

Mr. CLARK. Of the 23, including 3 carriers and 20 shippers, who have made public disclosures so far, to my knowledge, only the disclosure by R. J. Reynolds and Sea-Land was voluntary.

Mr. BREAUX. R. J. Reynolds disclosure, would that come under the disclosure of our act?

Mr. CLARK. I believe it would.

Mr. BREAUX. It would?

Mr. CLARK. Yes. And as far as shippers were concerned, perhaps two or three.

Mr. BREAUX. Two or three shippers?

Mr. CLARK. And I say that they are not voluntary not in the sense of any coercion or forcing any of these companies to come forward. Their decision to come forward was their own decinsion. The disclosures by shippers to which I refer were not voluntary because the first contact came from the staff of the Commission to the company asking for information. Once that fact or that act has taken place, we simply consider that, as far as the working of the voluntary program is concerned the company simply does not fit in the same category as a company like Sea-Land, for example, or R. J. Reynolds.

Mr. BREAUX. Mr. Rosenblat, in your statement, on page 6, you point out that R. J. Reynolds, when they announced the possibility of $19 million in rebating being paid by Sea-Land, that no immunity from civil or criminal prosecution was promised to Reynolds nor to the company seeking such immunity. That is with the SEC.

Mr. CLARK. That is with the SEC.

Mr. BREAUX. Do you know of any other agreement that they would have with any of the other Federal departments that would allow them to have their penalty modified or changed?

Mr. CLARK. I know that Sea-Land entered into an agreement, and settled under the Maritime Act with the Maritime Commission. But, as far as other agencies are concerned, I am not aware of that.

Mr. BREAUX. Would that allow them to come under any provisions if this act were to be adopted, that would allow them to modify their agreement with the Federal Maritime Commission?

Mr. CLARK. Sir, that is an area of the act, and an agency whose operations I am not really familiar with.

Mr. BREAUX. It should be properly addressed to FMC?

All right. Thank you, gentlemen. Thank you, Mr. Chairman.
The CHAIRMAN. Mr. McCloskey.

Mr. MCCLOSKEY. Mr. Rosenblat, going back to this matter of getting full disclosure from the companies. When one of your staff goes to a shipper and says we have information that you have received illegal rebates as a result of, say, the Sea-Land disclosure or the U.S. Lines disclosure, is it true you make no representation of any kind to that company that if they make a voluntary disclosure, they are going to be immune from any criminal prosecution?

Mr. ROSENBLAT. That is correct, Mr. McCloskey.

Mr. MCCLOSKEY. Are you familiar with the blackmail statute or extortion statute? The SEC enforcement staff has one of the finest records of any Government agency, and you have done commendable

work in this area, but can you believe that every member of your staff understands when he goes beyond the bounds of seeking information or seeking voluntary disclosure, and begins the threaten or coerce a person? Do you believe that? Perhaps your colleague could answer that.

Mr. CLARK. To my knowledge, Mr. McCloskey, in no instance of any discussions or conference or meeting, or anything, communication between staff members and the SEC and people representing any of these 400-odd companies who made voluntary disclosure, I am not aware of any pressure or threat that a company, if it did not cooperate

Mr. MCCLOSKEY. That was not my question. My question was, is every single one of your staff people, particularly your lawyers, familiar with how far they can go and how far they cannot go before they violate ethics in seeking disclosure?

Mr. CLARK. We hope they are aware, yes.

Mr. MCCLOSKEY. That being so, it would seem that if I were a company dealing with you, and one of your staff people approached me and said we have received information that you receved an illegal payment, which is a conspiracy situation

Mr. CLARK. It is a potential conspiracy.

Mr. MCCLOSKEY. If more than one person was engaged?

Mr. CLARK. Yes. But again the conspiracy statute is not one that

Mr. MCCLOSKEY. With the arsenal of weapons that the SEC has available to them, certainly the thought of strong SEC enforcement action might encourage them to disclose, might it not?

Mr. CLARK. It might.

Mr. MCCLOSKEY. You would like to think that it might.

Mr. CLARK. But every company that I am aware of which comes in or has a discussion with the Commission staff regarding disclosure, anything of this nature, it seems to be well represented by counsel at every stage of the game. And we just do not go into the motivation of why a company wants

Mr. MCCLOSKEY. Then, you do not discuss with them this arsenal of weapons because their counsel is aware of what you can do if you want to invoke the maximum force of the law?

Mr. CLARK. I see what you are getting at. But

Mr. MCCLOSKEY. Let me turn it over to the Treasury.

Mr. CLARK. Our people do not

Mr. MCCLOSKEY. Do not threaten?

Mr. CLARK. Do not threaten to invoke this arsenal.

Mr. MCCLOSKEY. It is sort of a smiling approach, "We know that you receive an illegal payment."

"Do you not want to tell us about it?"

Mr. CLARK. No. Take some of the companies that I approached equipped with some of the Sea-Land information. Say you had a company that was a public company, a shipper, that they had received maybe $4,000 or $5,000 from Sea-Land.

Mr. MCCLOSKEY. Well, we do not make any distinction as to how much money is involved.

Mr. CLARK. But I think as far as the

Mr. MCCLOSKEY. From your standpoint.

Mr. CLARK. If you are investing a lot of time in a $5,000 payment, perhaps you would better be spending your time on something else. Mr. MCCLOSKEY. From your standpoint. But immoral conduct does not matter whether it is $5,000 or $500,000. Is that the position of the SEC?

Mr. CLARK. Receipt or payment can be of such a minimal nature in the context of the company's revenues or earnings that it does not reach the point of materiality or, in some of these instances the amounts can be quite large, but the companies are even larger. The knowledge of the people running the company, or who knew of the payment, may or may not amount to a kind of knowledgeable conduct of a nature that we believe should be disclosed. These matters must be considered on a case-by-case basis.

Mr. MCCLOSKEY. That is why I thought maybe a summary of your cases might give us some judgment as to what we should do in this field. But let me leave that.

I think your testimony is clear. You believe that any grant of criminal immunity would inhibit your ability to learn these facts and presumably also the FMC's ability. But let me turn to Mr. Hufbauer. Mr. CLAPK. May I say one thing, Mr. McCloskey?

Mr. MCCLOSKEY. Surely.

Mr. CLARK. My personal feeling is, having been involved in virtually all of the disclosures by companies engaged in the shipping business where no promise was made to any of these companies of immunity or amnesty, anything of that nature-the disclosures were made freely. It did not seem to me that any disclosure would not have been made in the absence of any promise of immunity. I think the disclosures were made by these companies knowing full well that perhaps some further investigation would be conducted by some other agency that might have a more direct responsibility for the prosecution of the kind of activities that were disclosed.

It seems to me that where you have a considerable number of disclosures coming from companies engaged in this industry, that it indicates that to get more disclosure or hopefully to have more companies come forward and identify, for example, as far as shippers are concerned, identify the carriers, particularly the foreign carriers, if that is the object of other agencies' investigations, it just does not seem to us to be necessary to have to hold out the promise of immunity from prosecution.

It seems that a considerable number of these companies have come forward without that promise.

Mr. MCCLOSKEY. That is true. But on the record it would appear that in spite of the companies that have come forward there have been no prosecutions. In fact, the more companies that come forward and disclose, and the broader it appears that the pattern of illegal conduct is, then the better the possibility that no prosecutions will

ensue.

Mr. CLARK. As far as the Commission is concerned, I do not think that it true. I wish I could reveal to you the exact cases that the Commission staff is working on in this very area. But I can point out to

you that we have investigated and filed the Gamble Skogmo case involving a shipper and the U.S. Lines case involving a carrier.

Mr. MCCLOSKEY. At what stage do you refer information to, say, the Justice Department?

Mr. CLARK. The information could be referred at any stage to the Department of Justice or any criminal prosecutor could ask for access to the files.

Mr. MCCLOSKEY. Let us assume that the prosecutor is not asking. What is the rule in the SEC when one of your investigators comes across an act that clearly constitutes a crime which is not within the jurisdiction of the SEC? Is it then a uniform matter of your practice to refer it to the U.S. Attorney in the Justice Department? What guidelines do you use when you refer a case to a prosecutorial agency for criminal prosecution?

Mr. CLARK. I am not sure of the precise guidelines. I know from my experience any matter that is discovered, particularly when the Commission can make no determination of what is a crime and what is not. It only believes that a set of facts

Mr. MCCLOSKEY. Let us take this situation. When you ascertain that a citizen of the United States has paid an illegal rebate in conjunction with the knowledge and cooperation of some other person, do you refer it to the Justice Department for prosecution, yes or no?

Mr. CLARK. Yes, the procedure for that is that the staff would make a recommendation to the Commission that the Commission refer it. Mr. MCCLOSKEY. Let us take the precise situation of a rebate and the passage of a law by the Congress in 1972, which said that a rebate shall no longer be a criminal violation, but will be a civil violation. Are you familiar with that statute?

Mr. CLARK. Generally, yes.

Mr. MCCLOSKEY. In your opinion, if two people conspire or agree, one to pay a rebate and the other to receive it, is that a conspiracy to commit a civil violation which, in itself, is a crime under section 371? Mr. CLARK. It is really a determination, Mr. McCloskey, that has to be made by a prosecutor. The SEC people are not criminal prose

cutors.

Mr. MCCLOSKEY. But you have said when you come across things that, in your opinion, are crimes, you refer them to Justice.

Now, in your opinion, is that situation I described a crime? Mr. CLARK. Well, we believe may be, or which may constituteMr. MCCLOSKEY. Do you believe that a crime may have occurred where there has been agreement to solicit rebate and to pay a rebate? In your opinion, has a crime occurred?

Mr. CLARK. I think that is a set of facts where the staff would probably refer the matter to the Commission itself.

Mr. MCCLOSKEY. Wait a minute. That is not my question.

In your opinion, has a crime occurred in that circumstance?

Mr. CLARK. It is my opinion that a crime may have occurred.

Mr. MCCLOSKEY. A crime may have occurred. So, when in the past the SEC has learned that a rebate has been paid and solicited between two or more people, in that case have you referred it to the Justice Department as a possible prosecution?

Mr. ROSENBLAT. Mr. McCloskey, may I answer your question by-
Mr. MCCLOSKEY. I hope so.

Mr. ROSENBLAT. By a more general statement.

I think that we are involved here in a matter of rigorous application of legal principles which, in the real world, really does not

occur.

Mr. MCCLOSKEY. Now, wait just a minute. I am asking a specific question that I think can be answered yes or no. I do not want to get into these esoteric principles.

What I am trying to find out is, when you learned about these rebates, that affect our committee and this law that we are trying to develop or amend, when you found a case of a rebate paid and solicited, where more than one person was involved, did you refer it to the Justice Department?

: Mr. ROSENBLAT. We do refer criminal matters to the Justice Department, but I do not have the specific details.

Mr. MCCLOSKEY. I am asking what you did with the Sea-Land disclosures of rebates.

Mr. ROSENBLAT. I think Mr. Clark can answer that.

Mr. MCCLOSKEY. I hope so.

Mr. BREAUX [presiding]. I would state for the record that I think the member's question does allow for a yes or no because it is a question of what has occurred in the past. It is not a philosophical question or a policy question. It is just a question of what has occurred and how has it been handled.

Mr. ROSENBLAT. I think that the answer is that the Justice Department asked us for access to the information that we had, and we gave them that access. And it is within their prosecutorial discretion at this point what to do about it.

Mr. MCCLOSKEY. Do I understand from what you are saying that you have no policy?

I understood Mr. Clark to say that you refer the case to the Justice Department. Am I wrong in that?

Mr. ROSENBLAST. No, you are not, Mr. McCloskey. Most respectfully, we have a policy. That policy is that when a staff member becomes aware of facts that point toward the commission of a crime, then there are two general procedures for making those facts known to prosecutorial authorities.

One is a formal referral by the Commission to the prosecutor with a recommendation for criminal prosecution, and we have done that over the years when we have discovered conduct that points toward criminal violations.

The other policy and procedure is more informal. It arises out of informal contacts between Commission staff members and prosecutors. And there it is possible for a staff member to say informally to a prosecutor, we are investigating a certain situation. And then if the prosecutor feels that it is a matter of enforcement interest to him, he may request that the staff make those facts available to him. At that point, the staff makes a judgment as to whether they should recommend to the Commission-that is, the five Commissioners-whether that information should be made available. The Commission in each