Mr. MOORHEAD. We are concerned that we will get into a big dollar program in Cambodia with what appears to be very few people to monitor the program.

Mr. O'CONNOR. Well, Mr. Chairman, let me first of all say that this is a different program than what we are doing anyplace else. We are not going to have project aid. We are not going to have engineers working on large-scale projects with massive equipment onsite in six or eight different places.

Now, it is quite clear we will need to have a closer scrutiny, particularly of end use, once goods start to be delivered, and when goods start to be delivered in any volume I suspect, as I mentioned earlier, this will be 3 or 4 months from now, considering the problems of setting up a pipeline and the slowness of deliveries from the States. We don't know at this moment how many people we will need in that category, but I am sure it will be in the neighborhood of another six or eight or 10 or 20. Whether they all need to be in Phnom Penh and whether some of them can, for example, check these goods out as they come through Saigon as one possibility, I don't know. But we are working on that with a lot of what I hope is imagination and vigor to try to find some system better than just populating the country with American bureaucrats. We may not succeed in planning a different system. We may end up with more people than we would like. But we recognize we have an obligation and I am not fond of being chastised for not carrying out our responsibilities.

Mr. MOORHEAD. What role did U.S. officials have in selecting Sonexim to help administer our AID program? Did we select them or did Cambodia?

Mr. O'CONNOR. Basically we decided that that institution was, all things being equal, probably the best way to get the program started. It existed; it had been used previously. In our previous experience, it seemed to have the kind of know-how that was required to centralize in one place the handling of these import licenses and other regulatory items.

Now, that decision has been criticized in some quarters. To date I must say Sonexim has not showed quite the degree of effectiveness and energetic application to our import program as we would have liked. There have in the past been some charges of corruption in Sonexim.

The gentleman who runs Sonexim is a very able man and I think most of our people who have dealt with him and some of his senior associates are impressed with the ability of the individuals.

I think only time can tell as to whether this was a wise choice on our part or not. The reason we picked it is that we did not here again want to set up our own bureaucratic entity in large numbers that would be needed to perform that function. We felt if we could use a Cambodian institution we would be a lot better off. If it turns out there are real problems there we will have to find an alternative. This is really in line with our thinking in using the GSA here in the States, at this end of the pipeline to try to put this in one place and try to make it efficient. I have a good deal more hope for the success we will have with GSA than I have to say, I am at this moment in Sonexim. I think they haven't been used to ordering American goods. I think only 3 percent of all Cambodian imports came from the United States in the period after our AID program was removed from there. So they are not up

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to date on our procedures and not up to date on our general market. And that does create some problems.

Mr. MOORHEAD. Did you check out the reports of widespread corruption in Sonexim?

Mr. O'CONNOR. We did the best we could given the limitations of how much one can check that kind of reporting directly. We don't have the police authority there, of course. The Cambodians do. We obviously wouldn't have made the decision we did, which I may say was a Government-wide decision, if we weren't reasonably satisfied that the reports had been pretty exaggerated.

That does not suggest that everything is perfect in that organization. But we felt, and still feel, that the organization is one that can perform this function and that the corruption aspects to the degree to which they are present should be minimized by the finding of an appropriate flexible exchange rate that in effect takes the largest portion of the profit out of corruption.

Mr. MOORHEAD. It is that spread in the official exchange rate that we use and the one that actually exists. Isn't that what creates the best opportunity for currency manipulation and wind fall profits?

Mr. O'CONNOR. There are two things. A spread between a black market rate and in the official rate is one great source of profit for corruption. There is also an ancillary activity which is in the granting of import licensing which allows some degree of favoritism or at least an opportunity for favoritism to be shown with presumably extracurricular payments made. Those are the two major areas of potential corruption.

Mr. CORNISH. Have you run into much flack at all from Sonexim about having to deal with GSA rather than independently?

Mr. O'CONNOR. Not to my knowledge. I am told that Sonexim, as a matter of fact, supported that decision. As a matter of fact, I now recollect that what happened was that the head of Sonexim came to this country and looked over how he would handle the placing of these orders, and when we suggested that perhaps GSA could handle it for him, I think he breathed a sight of relief. I think that is about what happened.

Mr. CORNISH. So he has no direct relationship with American suppliers whatsoever?

Mr. O'CONNOR. No; his relationship is with the Cambodian importer. We have to get Sonexim and the private entrepreneur importer fully aware how they should process our documents to get this thing going. We are already in that process, of course.

Mr. CORNISH. Have you investigated at all in any way the possibility of the so-called tea money relationship between the importers and Sonexim?

Mr. O'CONNOR. I think it is fair to say we have not investigated that in any depth, and it is a question of how much you can do in those areas. I suppose we could get some police types of our own in there to try to do that kind of a job. I am not certain how wise that would be. I think that tea money is a source of corruption that is of far less broad impact than the kinds of things you get out of a gross inequity in the exchange rate. I am not condoning it, but I doubt very much you will find many Asian institutions that do not have a certain

amount.

Mr. CORNISH. Would you support, instead of this system of the granting of import licenses to selected groups, a more open system of opening up the import system?

Mr. O'CONNOR. We did take a look at that, and I think that could be a possibility at some point in time. I think it might take longer to get the flow started. But it is one of the number of alternatives, or semialternatives in other words, you wouldn't necessarily do only thatthat we have looked at.

I think at some point in time it might be appropriate to do some of that sort of open bidding kind of arrangement.

Mr. CORNISH. Do you note any resistance on the part of the Cambodian Government to that train of thought?

Mr. O'CONNOR. We have, I should say, open bid competition from suppliers on the orders they put in on the offshore bases. And they have had three or four of those here. Specifically, to answer your question, we have not gotten any flack from the Cambodians. But, actually, we haven't sat down to negotiate with them how a system you described might work, so perhaps it is a little academic at the moment to say we haven't had any flack. I do not know we will have, but so far we have not.

Mr. CORNISH. I guess you can see why we are pursuing this line of questioning, because this is one of the key problems that came up in our Vietnam investigation, and some changes were made to liberalize the import license system and attempt to get rid of some of this favoritism and payoffs and what have you.

Mr. O'CONNOR. Well, Mr. Cornish, we are aware of this problem. We have not lived through Vietnam for nothing, I hope, and although I personally have not had any experience there a good many of the people I worked with have. So we are trying to avoid these pitfalls.

I would be very foolish indeed if I said I was certain we are going to avoid them all. I am not. But I am hopeful we can minimize them. And what I think we all want to do is to try to stay as flexible as we can as we approach these alternatives. In other words, our minds are not fixed. What we want is one that works with the minimum pain and maximum efficiency.

I think a system such as you describe might well be one we should try, but we have not gotten to that point yet. We have 3 or 4 months before we have any serious flow in large volume of goods imported from the United States. We do have goods already flowing in small amounts from the first $20 million that was in essence united aid. These emergency items not susceptible to import from the United States; namely, petroleum products.

Mr. CORNISH. Do your subordinates in your office who work on these problems have a running dialog with those in the Vietnam Bureau who have had to deal with these same problems?

Mr. O'CONNOR. Well, the gentleman that I have quite recently appointed as head of the Cambodian office has spent 10 years of his career in the Vietnam program, Mr. Silver.

Mr. CORNISH. We are very familiar with Mr. Silver; yes, sir.

Mr. O'CONNOR. I think Mr. Silver knows where virtually all of the bones are buried.

Mr. CORNISH. And the skeletons, too, I think.

Mr. O'CONNOR. He has been very helpful and imaginative in addressing himself to how we can hopefully profit from that experience. Mr. CORNISH. I might just say personally I have a very high regard for Mr. Silver.

Mr. O'CONNOR. I appreciate that comment very much, Mr. Cornish. Mr. PHILLIPS. Our Government deals in Thailand and Laos with two transportation monopolies. In Thailand, it is the Express Transportation Organization; and in Laos, the Lao Transport Association. You mentioned this morning that the Finance Minister of Laos is a Mr. Sisouk.

Could you tell us, is he a stockholder or a director of either of those two transportation monopolies?

Mr. O'CONNOR. I have a list of the Thai officers and stockholders, and Mr. Sisouk is not listed as either an officer or a board member of that organization. And I would frankly have been very surprised if any high-ranking Lao official would be a member of that organization.

Mr. PHILLIPS. Of course, that is Thai, so I would be surprised, too. How about the Lao Transport Association?

Mr. O'CONNOR. I must confess I am taken a little by surprise. I have heard about the Thai one quite often

Mr. PHILLIPS. The reason I raise the question is that in hearings before a subcommittee of the other body, it was brought out that, in fact, the principal director of the LTA is a member of the Laotian National Asesmbly. I thought perhaps there might be a pattern extending into other parts of their Government. Could you inquire into that?

Mr. O'CONNOR. I must say you take me by surprise. I am not familiar myself with the Laotian Transport Association. I would just have to dig into it, Mr. Phillips, I am sorry. (The information follows:)

EXPRESS TRANSPORTATION ORGANIZATION AND LAO TRANSPORTERS ASSOCIATION

CONTRACTS

EXPRESS TRANSPORTATION ORGANIZATION OF THAILAND (ETO)

The AID mission in Thailand does not have a contract with the ETO. The AID mission in Laos has a contract with ETO which provides for transportation of in-transit cargo from the Port of Bangkok to Thanaleng and other Lao border entry points. The ETO rates are established by Thai law and published in an approved public tariff schedule. These rates are exactly the same as the public tariff rates charged on Thai National Railways. The rate of profit earned by ETO is not included in the rate schedule and is not a matter of public knowledge. The general provisions of the ETO contract provide that all books of account and records shall be subject to inspection and audit. Although audits have not been performed on the AID contract, the Defense Contract Audit Agency (DCAA) performed a "Review of In-Transit Cargo Rates" in 1967. The audit contained an analysis of the ETO rates, but made no recommendations. The DCAA also prepared an "Advisory Report on Evaluation of Price Proposal," per an audit report dated January 1969.

LAO TRANSPORTERS ASSOCIATION (LTA)

The AID mission in Laos has a contract with the Lao Transporters Association to transport in-transit cargo from the port of entry (Thanaleng) to Vientiane. A Lao Government decree makes LTA the sole organization authorized to transport such cargo. Another government decree sets trucking rates for intransit cargo to Vientiane and for all cargo between Vientiane and other points in Laos. The LTA contract incorporates these rates. However, the profit rate is not known.

The LTA contract specifies in the general provisions that all books of account and record shall be subject to inspection and audit. No audit has been made to date.

Dollar volume (equivalent) of LTA contract (obligations)

Mr. PHILLIPS. All right. I wonder at the same time if you could give us a rundown of the number of contracts that we have entered into for the transport of our assistance supplies in both countries with these two transportation monopolies the details of the contracts, the dollar volume, and that sort of information.

Mr. O'CONNOR. All right. That we will certainly have to go to the field to get. It may take some time, so with your permission, I would prefer we didn't hold the record open to insert that information: I am afraid it would hold it open for probably several weeks. In other words can I send it up by letter afterward?

Mr. PHILLIPS. It may have been requested by the Symington subcommittee last year, so you may have it already in the files.

Mr. O'CONNOR. Well, we could.

Mr. PHILLIPS. At the same time, if you could compute the rate of profit that these complaints are making on our contracts.

Mr. O'CONNOR. Well, we will give that a stab. Without having access to their books, I am not sure how accurate it would be. We did make an estimate of what the Thai Transport Association-no, we made an estimate at the cost of using that organization over and above what we roughly computed was what we might regard as the normal U.S. cost. And I can supply that to you.

Let me make a stab at trying to get an estimate of the profits. I am not certain we will be highly successful in that endeavor.

Mr. PHILLIPS. Have any of these contracts been audited?

Mr. O'CONNOR. Our contracts with these agencies?

Mr. PHILLIPS. Yes. You question our access to the books. If we conduct audits, I assume we would know what rate of profit they are making.

Mr. O'CONNOR. Well, I am afraid I can't answer the question, Mr. Phillips. We obviously do have multiple auditing sources, and where we contract, they are subject to audit.

Now, with the ETO of Thailand, I will have to dig into it further; I just don't know exactly what portion of this activity is subject to our audit and what portion is not.

Mr. PHILLIPS. It would be helpful if you could also include for the record the names of the officers and directors of ETO.