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OFFICE OF THE ATTORNEY GENERAL,

Washington, D.C., January 27, 1978. Hon. Paul N. McCLOSKEY, Jr., Committee on Merchant Marine and Fisheries, House of Representatives, Washington, D.C.

DEAR CONGRESSMAN MCCLOSKEY: This is in response to your letter of November 9, 1977 concerning rebate practices in the U.S. ocean liner trades. Please accept my apology for the delay in responding which is due, in large part, to our need to review the prosecutive options open to the Department as a result of the 1972 amendments to the Shipping Act.

One aspect of your letter concerned the correspondence of Daniel K. Inouye, Chairman, Subcommittee on Merchant Marine and Tourism, Senate Committee on Commerce, Science and Transportation, John M. Murphy, Chairman, House Committee on Merchant Marine and Fisheries, and Ted Stevens, Member, Senate Committee on Commerce, Science and Transportation, suggesting that ongoing investigations of illegal rebating practices be suspended pending the outcome of legislation which would provide a form of limited amnesty for such prior conduct. I am enclosing a copy of my reply of January 25, 1978 to Senator Inouye, et al. for your information.

You note that the action of Congress in reducing rebating from a criminal to a civil offense in 1972 seems to support the interpretation that it did not intend to leave open the possibility of a criminal prosecution for conspiracy to rebate. As you point out, this is a matter of law and the Department's position in this regard was explained in some detail by Deputy Assistant Attorney General John C. Kenney, Criminal Division, in his testimony before your Committee on January 24, 1978. Our position simply is that the 1972 amendments to the Shipping Act do not preclude the possibility of a criminal prosecution for conspiracy to rebate.

You also comment that if prosecutions are to go forward in the rebating area it is essential that all of the companies who have admitted rebating or who are under investigation for rebating be treated equally. I can assure you that we will take an even-handed approach and will prosecute only those companies or individuals against whom credible evidence of a violation of law has been established. Yours sincerely,

GRIFFIN B. BELL,

Attorney General. Enclosure.

Mr. KEENEY. Mr. McCloskey, in connection with your letter, I might just point out at this juncture that we are in the process of responding to your letter.

Your letter was held up for the same reason that Chairman Murphy's letter was held up, the need to look into very closely the legislative history of the 1972 amendments to the Shipping Act.

Mr. McCLOSKEY. Are you able to comment on my earlier question regarding omission of the language the Justice Department recommended in Ms. Wald's letter of December 12?

Mr. KEENEY. Well, the language you are referring to, Mr. McCloskey, my understanding is that that was in the original draft.

What we came back with were certain suggestions with respect to limiting the amnesty that would be granted, so that it would not include tax violations, bank secrecy, and several other types of violations.

But we just went along with the language that had been submitted to us by the committee, as I understand it.

Mr. McCLOSKEY. I appreciate it. I think I am asking you a new question at this point.

Mr. KEENEY. Yes. With respect to the new question, I would like time for reflection, and let us get back to you in writing, if we may, Mr. McCloskey.

Mr. McCLOSKEY. I ask unanimous consent the record be held open for that response.

Mr. Treen. Would you yield? Would you hold up the markup on this bill.

Mr. MCCLOSKEY. Mr. Treen, we are presently scheduled for markup on Tuesday, unless the administration can convince the chairman to change his mind.

Mr. Treex. Do you anticipate that will happen?

Mr. McCLOSKEY. I hope so and I have joined in the request made by the Office of Management and Budget that markup be postponed. Their request, Mr. Treen, is because OMB has not been able to get a consensus of the various agencies which have testified on this bill and would like markup postponed until they can.

Mr. KEENEY. Yes, sir. We will give you a response.

Mr. Kyros. Mr. McCloskey, may I point out to you, sir, that the Justice Department actually has considered during the testimony a limited use immunity. The general provision in the bill as filed was soon set aside because it was too broad an immunity.

Since November, in discussions with Justice, it has really been before the Justice Department--that is, the fashioning of a limited use immunity. So it does not seem to me that the question about when such a person had knowledge is a novel one for the Justice Department. It seems to me they should be able to come up with a solution to that, quite readily.

Mr. MCCLOSKEY. That is the heart of this thing. It is State's and FMC's position that not removing the conspiracy threat against these 27 companies is what is frustrating their efforts.

Mr. KEENEY. Yes, but that is another question, isn't it, Mr. McCloskey?

Mr. McCLOSKEY. Yes.

Mr. KEENEY. The question that we were addressing Tuesday was we went into the two aspects of 18 U.S.C. 371, the conspiracy statute. I was addressing myself at that time to Ms. Wald's letter, and the legislative proposal that was in that, and said that the language in that letter effectively removed the authority or the right of the Department of Justice to proceed on a conspiracy to violate the civil statute.

But I pointed out--and here is where the difficulty came, Mr. Mc. Closkey, between our positions--I pointed out that that still left openthe language in Ms. Wald's letter still left open to the Department of Justice the right to proceed under a conspiracy to defraud theory, the defrauding being impeding the lawful functioning of the Federal Maritime Commission. And my point was that if the legislation were enacted in the form that it was in Ms. Wald's letter, that we would still have the right to proceed in an aggravated situation if a carrier in some manner, some aggravated manner, was impeding and frustrating the congressionally mandated function of the Maritime Commission with respect to rebates.

So that issue is still open. The conspiracy to defraud issue is still open, insofar as the language in Ms. Wald's letter.

Now, for the Department of Justice, the Criminal Division's enforcement policy, we think it should be retained, because we think that where there is an aggravated situation, and when various devious methods are utilized, such as foreign subsidiaries or laundering through foreign bank accounts, and because of that the Commission is unable to carry out its function, we should be able to use this statute.

However, that is a matter for congressional judgment.

Mr. McCLOSKEY. I've been studying this issue for the past several months in an attempt to reach a judgment. Let me state my sense of the matter and my confusion about it and then I would like your comments and advice. Until 1972, rebating was a crime. In 1972, the Congress enacted a law to change that and make rebating solely a civil wrong, subject only to a fine.

When we considered that legislation in 1972, we had the testimony of then Attorney General Richard Kleindinst, who in a letter to the committee dated June 29, 1971, said among other things, “The Department has no objection to enactment of this legislation."

He described the legislation as a bill to amend the 1916 Shipping Act and the 1933 Intercoastal Shipping Act converting criminal penalties to civil penalties, in certain instances.

The Justice Department do not want to retain the right to prosecute conspiracy to commit rebating in an ordinary case, but does want the right to prosecute an aggregated case of conspiracy to defraud the U.S. Government of its lawful right to enforce the rebating laws.

Mr. KEENEY. Yes, sir.
Mr. McCLOSKEY. Your answer is "yes"?

Mr. KEENEY. My answer is “yes," if I fully understand. We viewedand this was a matter of considerable study-We went into the legislative history of the 1972 amendments and found that Congress expressed an intent to take away the substantive criminal penalties and substitute therefor a scheme which would provide enforcement totally in the Maritime Commission.

But we did not find a congressional intent to remove from the Department of Justice the right to proceed under existing law, under 18 U.S.C. 371, on either a conspiracy to violate that civil statute or a conspiracy to defraud the United States.

With respect to the conspiracy to violate the civil statute, we have agreed in Ms. Wald's letter that the formulation that is in there would take away from us the right to proceed for a violation, a conspiracy to violate the civil statute. But I pointed out that we still, under that draft that was presented to the committee, could proceed on a conspiracy to impede and frustrate the Maritime Commission, and that we would so proceed, but only in aggravated situations.

Mr. McCLOSKEY. That is my problem. The Justice Department says it does not want to pursue a conspiracy to rebate prosecution in an ordinary case, but wants to prosecute a conspiracy to defraud the Government of its lawful function of enforcing the rebating law in an aggravated case. You are describing a government of men, not a government of law, because no one can predict what the Justice Department will consider aggravated.

Do we not owe this industry as a matter of law a very clear definition of what is criminal and what is civil?

Mr. KEENEY. Well, in talking about aggravated, I am talking about an aggravated situation, where they not only use false billing, Mr. Congressman, but they use other things. They use the foreign subsidiaries, the foreign secret bank accounts; it is something in addition.

Mr. McCloskey. Let me stop at that point, because that is my problem. Every time there is a rebate, it involves a conspiracy. It is a payment by the shipping company to the shipper, and presumably, the shipper and the shipping company are conspiring to illegally rebate.

It takes two parties, and isn't that the definition of a conspiracy?
Mr. KEENEY. Yes, sir.
Mr. McCloskey. So every act of rebating is a conspiracy, is it not?
Mr. KEENEY. Yes, I would say it would be, yes.

Mr. McCLOSKEY. Now, you do not wish to prosecute that kind of conspiracy. But this morning you described a scheme, using some examples, where the Justice Department would like to prosecute. If we are going to leave to you the right to prosecute in an aggravated case, I want a clear legislative history of what the Justice Department means when it says "an aggravated case."

Mr. KEENEY. Well, I am describing, or trying to describe an aggravated frustration of the function of the Maritime Commission, and I really cannot go any farther than that, Mr. Congressman, because you are in a situation where you are going to have to evaluate each situation and see just how the function of the Commission is being impeded.

Mr. McCloskEY. How do we meet our standard of establishing clearly what the law is? The basic law school teaching is that no crime is committed unless a person is apprised in advance that the conduct is criminal.

I do not think that we should prosecute people for crimes, unless they know in advance that a course of conduct is going to be criminal.

Now, I am asking you to describe for me what course of conduct you would feel was criminal with respect to an aggravated conspiracy to violate the rebate law,

Mr. KEENEY. What I have tried to describe is a situation where they go beyond what is set forth in the civil statute. They go beyond false billing, they go beyond false classification, or false report of weight.

And they do something in addition. Say they have been notified by the Commission that they have been in violation, and they nonetheless thereafter enter into a scheme whereby they use the various devices I have mentioned—foreign subsidiaries, concealed bank accounts, and so forth. That is a violation of the statute, Mr. McCloskey.

What I am saying is--

Mr. McCLOSKEY. Wait a minute. Let's be precise on that. What is a violation of the statute?

Mr. KEENEY. That--what I have described there is a violation of the statute, of the second part of 371, a conspiracy to defraud.

What I was saying is if it is sufficiently aggravated that we would prosecute.

Mr. MCCLOSKEY. What you are saying, then, is that conspiracy to defraud the U.S. Government of any of its lawful functions is such a complicated field that no one, in advance, can say what the prosecutorial discretion will be in any given case or what combination of factors in violation of the law is aggravated enough to justify prosecution.

Mr. KEENEY. But, Congressman, you have that situation any time that statute is used.

Mr. KEENEY. You have it for bribery situations, you have it for various kickback situations, in connection with housing, in connection with any congressionally mandated programs.

Mr. NcCLOSKEY. What I am wondering is do we engender respect for the law in the business community by having a law so broad that no one can predict when it will be invoked.

Mr. KEENEY. Well, Congressman, when this law is invoked, people are engaged in conduct which they are on notice of is in violation of the law.

They are running the risk—they are acting at a minimum in wreckless disregard of being in violation of the law when they move.

I do not think that this area is as nebulous as you suggest.

Mr. McCloskey. We are hampered in reaching our judgment based on the judgment you just expressed because we do not have the facts that are before you, and we do not know what factors you are considering. And, by law, since you have investigations under way, you are precluded from revealing those facts to us.

The problem is that we are legislating in a field of an ongoing criminal prosecution. We do not want to intrude on your decisionmaking.

But making your decisions have taken so long we are now beginning to delay the legislative process because we do not know what you are going to decide. At the time you do make a decision, I take it you then can reveal those facts to Congress, and we can then make a judgement whether you are right or wrong.

Take the Garmatz case. We considered the cargo preference bill in August. At that time, the Garmatz case was going to go to trial, because the Justice Department had reached a conclusion it had had evidence of bribery of a Chairman of this committee. Suddenly, in December or January, the Justice Department dismissed that case, and consequently, we can only reach the conclusion that the Justice Department was wrong in its judgment, and conceivably could be wrong in its judgment in these ongoing investigations.

Do you see my problem? Mr. KEENEY. Yes, sir. The Garmatz case was a rather unique situation. The circumstances during trial preparation brought our facts that were not previously known, and rendered the case--put us in a posture where we could not successfully prosecute.

Mr. McCloskey. I appreciate that. But it has been over a year since the Justice Department has had the full facts of the Sea-Land case, has it not?

Mr. KEENEY. I am not sure of that. I am at a little bit of a disadvantage here, because that was run by a U.S. Attorney's Office, and as you know, the rebating matter developed out of an entirely different matter.

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