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MUNITIONS INDUSTRY
HEARINGS
BEFORE THE
SPECIAL COMMITTEE
INVESTIGATING THE MUNITIONS INDUSTBY
UNITED STATES SENATE
SEVENTY-THIRD CONGRESS
PURSUANT TO
S. Res. 206
A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
PART 1
SEPTEMBER 4, 5 and 6, 1934
ELECTRIC BOAT CO.
Printed for the use of the
Special Committee Investigating the Munitions Industry
UNITED STATES
GOVERNMENT PRINTING OFFICE
83876 WASHINGTON : 1935
MUNITIONS INDUSTRY
< « •
HEARIN>0S
BEFORE THE
SPECIAL COMMITTEE
INYESTIGATING THE MUNITIONS INDUSTRY
UNITED STATES SENATE
SEVENTY-THIRD CONGRESS
PURSUANT TO
S.Res. 206
.A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
PART 1
SEPTEMBER 4, 5, and 6, 1934
ELECTRIC BOAT CO.
Printed for the use of the
^Special Committee Investigating the MunitrOo;^ Industry
•fi '^rK-
" ^1
) * ^ A
UNITED STATES
GOVEUNMENT PRINTING OFFICE
S?87« WASHINGTON : 1934
MR 13 193'
SPECIAL COMMITTEE INVESTIGATING THE MUNITIONS INDUSTRY
GERALD P. NYE, North Dakota, Ohairman
WALTER P. GEORGE, Georgia ARTHUR H. VANDENBERG, Michigan
BENNETT CHAMP CLARK, Missouri W. WARREN BARBOUR, New Jersey
HOMER T. BONE, Washington
JAMES P. POPE, Idaho
Stephen R^ushenbush, Secretary
u
MJB 13 1935
Cteried to cr«dit awt^
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ri
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CONTENTS
Testimony of: ^^se
Carse, Henry R., president, Electric Boat Co__ 2, 10, 24, 30, 45, 51, 65, 67, 70,
74, 90, 100, 107, 108, 113, 125, 132, 138, 148, 157, 165, 171, 175, 180, 189,
193, 206, 211, 217, 227, 236. 242, 256, 264, 275, 282, 287, 293, 299, 301,
304.
Spear, Lawrence Y., vice president, Electric Boat Co__ 5, 10, 12, 15, 19, 22, 27,
42, 48. 60, 66, 69, 72, 85, 91, 108, 111, 113, 126, 130, 136, 140. 154, 163,
168, 173, 176, 182, 193, 205. 208, 214, 226, 231, 237, 245, 257, 265, 278,
281, 283, 292, 296, 300, 303, 306.
Sutphen, Henry R., vice president, Electric Boat Go__ 6, 54, 83, 99, 106, 279
Relations with Vickers 11
Relations with Austria, Germany 14
Relations with Vickers and Zaharoff 19
Zaharoff — Income tax 37
Directors and stockholders 51
Relations with United States Government Departments 61
Relations with Zaharoff 65
Relations with South American countries 74
Relations with Peru 85-95
Peruvian Loan 104
Relations with Brazil 164
Relations with Argentine Republic 180
Relations with Vickers in South America '. 194
Relations with Zaharoff and Spain 205
Relations with United States Government 218
Foreign Relations — Roumania 225
Foreign Relations — Italy 226
Foreign Relations — Germany 229
Foreign Relations — Holland 238
Foreign Relations — France ^= 241
Foreign Relations — Turkey 245
Foreign Relations — Japan 252
Vickers -1, __^ ._ 255
United States Government relations 1— ^-1* 260
Submarine building operations — domestic and. foreign 263
United States Government business : . 281
in
N
INVESTIGATION OF MUNITIONS INDU8TEY
TUESDAY, SEPTEMBEE 4, 1934
United States Senate,
Special Committee to Investigate the Munitions Industry.
Washington, D.C.
The committee met, pursuant to call, at 10 a.m., in the caucus room,
Senate Office Building, Senator Gerald P. Nye presiding.
Present: Senators Nye (chairman), George, Clark, Bone, Pope,
and Barbour.
Also present : Stephen Raushenbush, secretary, and Robert Wohl-
forth, assistant to chief investigator.
The Chairman. The committee will be in order.
This committee, a select committee of the Senate, is met in com-
pliance with and in consideration of Senate Resolution 206, which
the Chair asks to have made a part of the record at this point in
the proceedings.
(S.Res. 206 is as follows:)
[S.Res. 206, 73d Cong., 2cl sess.]
Whereas the influence of the commercial motive is an inevitable factor in
considerations involving the maintenance of the national defense; and
Whereas the influence of the commercial motive is one of the inevitable factors
often believed to stimulate and sustain wars ; and
Whereas the Seventy-first Congress, by Public Resolution No. 98, approved
June 27, 1930, responding to the long-standing demands of American war
veterans speaking through the American Legion for legislation " to take the
profit out of war ", created a War Policies Commission which reported recom-
mendations on December 7, 1931, and on March 7, 1932, to decommercialize
war and to equalize the burdens thereof; and
Whereas these recommendations never have been translated into the statutes :
Therefore be it
Resolved, That a special committee of the Senate shall be appointed by the
Vice President to consist of seven Senators, and that said committee be, and
is hereby, authorized and directed —
(a) To investigate the activities of individuals, firms, associations, and
of corporations and all other agencies in the United States engaged in the
manufacture, sale, distribution, import, or export of arms, munitions, or other
implements of war ; the nature of the industrial and commercial organizations
engaged in the manufacture of or traffic in arms, munitions, or other imple-
ments of war ; the methods used in promoting or effecting the sale of arms,
munitions, or other implements of war ; the quantities of arms, munitions, or
other implements of war imported into the United States and the countries of
origin thereof, and the quantities exported from the United States and the
countries of destination thereof ; and
(b) To investigate and report upon the adequacy or inadequacy of existing
legislation, and of the treaties to which the United States is a party, for the
regulation and control of the manufacture of and traffic in arms, munitions,
or other implements of war within the United States, and of the traffic therein
between the United States and other countries ; and
1
Z MUNITIONS INDUSTRY
(c) To review the findings of the "War Policies Commission and to recom-
mend such specific legislation as may be deemed desirable to accomplish the
purposes set forth in such findings and in the preamble to this resolution ; and
(d) To inquire into the desirability of creating a Government monopoly in
respect to the manufacture of armaments and munitions and other implements
of war, and to submit recommendations thereon.
For the purposes of this resolution the committee or any subcommittee
thereof is authorized to hold hearings, to sit and act at such times and places
during the sessions and recesses of the Congress until the final report is sub-
mitted, to require by subpena or otherwise the attendance of such witnesses
and the production of such books, papers, and documents, to administer such
oaths, to take such testimony, and to make such expenditures, as it deems
advisable. The cost of stenographic services to report such hearings shall not
be in excess of 25 cents per hundred words. The expenses of the committee,
which shall not exceed $15,000, shall be paid from the contingent fund of the
Senate upon vouchers approved by the chairman.
' For 3 weeks the committee will engage in what will amount to a
very general study, though perhaps not a detailed study, of the
American munitions industry. It should not be felt that the ap-
pearance of witnesses at this 3-weeks' session indicates that at the
end there has been a completion of the study of the specific cases
in which those witnesses might be concerned.
The Chair is delighted to note that with but one exception all of
the members of the committee named by the Senate are present
this morning and hopes that the committee is going to be able to
stay close by the study throughout the hearings. The absentee is
one of the co-authors of the resolution occasioning the investigation.
Senator Vandenberg, of Michigan, who is absent at this time for
reasons beyond his own control. We are hoping that he may be
with us at some time during the proceedings.
First of all this morning we want to hear the officers of the Elec-
tric Boat Co. We will ask Mr. Carse, Mr. Spear, and Mr. Sutphen
to come forward and be sworn at this time.
TESTIMONY OF HENRY R. CARSE, LAWRENCE Y. SPEAR. AND
HENRY R. SUTPHEN
(The witnesses were duly sworn by the chairman.)
The Chairman. Gentlemen, we have asked 3''ou all to come for-
ward at this time because the line of questioning is apt to be such
as will occasion a question here and there of any one of you sep-
arately.
Mr. Carse, what is your connection with the Electric Boat Co.?
Mr. Carse. I am president.
The Chairman. Where are the headquarters of the Electric Boat
Co.?
Mr. Carse. New York City.
The Chairman. And where is your plant or plants?
Mr. Carse. Groton, Conn.
The Chairman. You have only the oTne plant?
Mr. Carse. We also have other plants at Bayonne, N.J.
The Chairman. Mr. Spear, will you give to the committee your
name and your official connection with the Electric Boat Co.?
Mr. Spear. Lawrence W. Spear, vice president.
The Chairman. And Mr. Sutphen?
Mr. Sutphen. Henry R. Sutphen, vice president.
MUNITIONS INDUSTEY 6
The Chairman. Mr. Carse, when was the Electric Boat Co.
organized ?
Mr. Carse. About 1900.
The Chairman. And by whom was it organized ?
Mr. Carse. Isaac L. Rice.
The Chairman. Alone ?
Mr. Carse. I was not connected with the company at that time.
I think that he formed the Electric Boat Co. and had some friends
join with him in purchasing the stock.
The Chairman. Could you furnish the committee the names of
the officers and directors of the corporation when it was first formed ?
Have you the records here in Washington with you ?
Mr. Carse. No; not in Washington.
The Chairman. Would you supply that to the committee upon
jour return home?
Mr. Carse. If I can find them ; yes.
The Chairman. What is the business of the Electric Boat Co.,
generally speaking?
Mr. Carse. The Electric Boat Co. designs and builds submarine
boats, motor boats, and also electric machinery primarily designed
for use in submarine boats. We also design and construct Diesel
engines primarily for use in submarine boats.
The Chairman. How long have you been at work on the Diesel-
engine phase?
Mr. Carse. I think about 1908.
Mr. Spear. 1910, I think.
Mr. Carse. 1910.
The Chairman. When did you first become connected with the
Electric Boat Co.?
Mr. Carse. 1915.
The Chairman. You had no connection with it prior to that?
Mr. Carse. I had been a director for a few years, ofi:' and on,
prior to that time.
The Chairman. With whom is the business of the Electric Boat
Co. primarily ? With whom do you deal primarily ?
Mr. Carse. With different governments of the world.
The Chairman. Does the Electric Boat Co. own stock in other
corporations ?
Mr. Carse. Our electric plant was formerly the Electric Dynamic
Co. The Electric Boat Co. owned all that stock. It has lately con-
solidated, and outside of that the Electric Boat Co. does not own
stock in any other corporation except names, like the Holland
Torpedo Co. We own the stock of or maintain that corporation
simply for the old patent rights. There may be one or two other
corporations we have organized with nominal capital simply to
maintain the trade name; for instance, Elco, on the motor-boat end
of our business.
The Chairman. Mr. Carse, do other corporations own stock in the
Electric Boat Co. ?
Mr. Carse. None that I know of.
The Chairman. Let us distinguish between these two companies
of which you speak. One is the Electric Boat Co. ?
Mr. Carse. Yes.
The Chairman. And the other?
4 MUNITIONS INDUSTRY
Mr. Carse. There isn't an_y other now.
The Chairman. The one that was in existence.
Mr. Carse. Electric Dynamic Co.
The Chairman. The Electric Dynamic Co.?
Mr. Carse. Yes. They built electric machinery.
The Chairman. But they arc no longer in existence?
Mr. Carse. No. Tl;ey have been consolidated with the Electric
Boat Co.
The Chairman. Are all of your sales in the name of the Electric
Boat Co. — all of your dealings?
Mr. Carse. Yes.
The Chairman. What is the name of the corporation whose name
you bought?
Mr. Carse. Holland Torpedo Co.
The Chairman. You never use their name in selling or contracting
for your products?
Mr. Carse. No, sir.
The Chairman. Were you on the board of directors of each of
these companies before the Electric Dynamic Co. was consolidated
with the Electric Boat Co.?
Mr. Carse. Yes, sir.
The Chairman. Was that true pretty generally of all the direc-
tors?
Mr. Carse. Yes, sir.
The Chairman. They were holding common directorates on both
boards ?
Mr. Carse. Yes, sir.
The Chairman. In your financial relations, Mr. Carse, with what
banking firm do you do business primarilj^ ?
Mr. Carse. We have deposit accounts in the Central Hanover
Bank & Trust Co. in New York; the Guaranty Trust Co. of New
York ; the Chase National Bank of New York ; Mechanics Trust Co.
of Bayonne; Baj^onne Trust Co. of Bayonne, and a bank in New
London
Mr. Spear. The National Bank of Commerce of New London.
Mr. Carse. The National Bank of Commerce of New London.
Those are deposit and checking accounts.
The Chairman. Do you have any foreign banking accounts?
Mr. Carse. We have; yes. We have an account with Morgan &
Grenfell, London.
The Chairman. Any Paris accounts?
Mr. Carse. No, sir.
The Chairman. Mr. Carse. you were asked to bring with you a
statement of the special commissions that were ]:)aid to other than
agents of your corporation. Has that been supplied the committee?
Mr. Carse. It has been. The examiners told us that we had sup-
plied everything that they wanted.
Mr. Raushenbush. Mr. Chairman, we have the statements of the
salaries of the officers and commissions paid to agents. We do not
have the statements of the connnissions or payments made to other
than agents. There may be some misunderstanding and possibly the
company can furnish us that later. Would that be satisfactory to
you?
Mr. Carse. There are no other.
MUNITIONS INDUSTRY O
Mr. Raushenbush. There are no payments to any other than
agents ?
Mr. Carse. No.
Mr. Raushenbush. There are no paj^ments to anyone other than
the agents you have listed here on this exhibit?
The Chairman. To what exhibit do you refer, Mr. Raushenbush?
Mr. Raushenbush. To a calculation prepared by the Electric Boat
Co. giving the salaries of the officers and the expenses paid to them
^nd to certain of their agents.
The Chairman. Then, I take it Mr. Carse, there is before you a
statement which the committee understands has been approved by
you showing the payments made by the Electric Boat Co. to Mr.
ilenry R. Carse as president of the corporation during the period
from 1919 to 1934; is that correct?
Mr. Carse. Yes, sir.
The Chairman. Down to and including August 15?
Mr. Carse. Yes, sir.
The Chairman. Let that statement be marked as " Exhibit No. 1 "
and be made a part of the record.
(The statement referred to was marked " Exhibit No. 1 ", and
appears in the appendix on p. 309.)
The Chairman. Mr. Spear, I call your attention to a statement
which we shall have marked " Exhibit No. 2 ", and which will be made
part of the record, showing the payments in salary and expenses
made to L. Y. Spear, vice president.
(The statement referred to was marked "Exhibit No. 2", and
appears in the appendix on p. 309.)
The Chairman. Are you conversant with that statement?
INIr. Spear. No, sir. I have not seen it.
The Chairman. A copy will be laid before you.
(Mr. Spear was thereupon handed a copy of the statement re-
ferred to.)
The Chairman. Is that acknowledged by you, Mr. Spear, as be-
ing a true statement of the amounts received by you from 1919 to
August 15, 1934?
Mr. Spear. Not having had any chance to check it, I cannot swear
to the accuracy of it ; but so far as I know, it is.
The Chairman. This shows the total salaries to have been paid
you in that period to be $414,218.75; with the total of the expenses
being $28,396.44, or a total altogether of $442,615.19.
Mr. Spear. Yes, sir.
The Chairman. Referring back to " Exhibit No. 1 ", Mr. Carse,
that statement shows your salary to have been during that period a
total of $459,218.75, and expenses paid to you totals $2,729.57, or a
grand total of $461,948.32; is that correct?
Mr. Carse. Yes, sir ; that is correct.
The Chairman. I shall now offer as " Exhibit No. 3 ", a statement
of salaries and expenses paid to H. R. Sutphen, vice president. Elec-
tric Boat Co.
(The statement referred to was marked " Exhibit No. 3 ", and
appears in the appendix on p. 310.)
The Chairman. Mr. Sutphen, with a copy of that statement be-
fore you, do you acknowledge that to be a true account of the
6 MUNITIONS INDUSTRY
salaries and expenses paid to you through that period, from 1919 to
1934?
Mr. SuTPHEN. I do.
The Chairman. Which shows a total of salaries of $304,500; a
total of expenses of $8,647.G3, or a grand total of $313,147.63.
Mr. SuTPHEN. That is correct.
The Chairman. I shall now offer as " Exhibit Xo. 4 " a statement
of salaries and expenses paid to H. A. G. Taylor, secretary-treasurer
Electric Boat Co., for the period 1919-34, up to August 15.
(The statement referred to Avas marked " Exhibit No. 4 ", and
appears in the appendix on p. 310.)
The Chairman. Mr. Carse, with a copy of that exhibit before you,
do you acknowledge that to be an accurate statement of what was
paid to Mr. Taylor during the period from 1919 to 1934?
Mr. Carse. I do.
The Chairman. That statement shows a total salary paid of
$105,783.20; a total of expenses paid of $3,035.46, and a grand total
of $108,818.66.
Mr. Carse. Mr. Chairman, I might mention that that is over a
period of 16 years.
The Chairman. That covers the period mentioned, which is 15 or
16 years.
I shall now offer as " Exhibit No. 5 " a statement of salaries and
expenses paid to G. C. Davison, vice president, Electric Boat Co.,
for the same period referred to, 1919 to 1934.
(The statement referred to was marked " Exhibit No. 5 ", and
appears in the appendix on p. 310.)
Mr. Carse. Mr. Davison resigned in 1922.
The Chairman. That is correct. This shows that Mr. Davison
drew a salary and expenses only through the years 1919, 1920, 1921,
and 1922, the total in those 4 years being $50,833.32, with expenses
totaling $761.11, or a grand total of $51,594.43?
Mr. Carse. That is correct.
The Chairman. And you acknowledge that to be a true state-
ment ?
Mr. Carse. Yes, sir.
The Chairman. Mr. Davison resigned in 1922, did he?
Mr. Carse. Yes, sir.
The Chairman. And has no connection now with the corporation?'
Mr. Carse. None at all.
The Chairman. I shall now offer as " Exhibit No. 6 " a statement
of the Washington office expenses of the Electric Boat Co. from 1919
to 1934, showing the expenses of this office during that period of 15
or 16 years to have been $292,617.80.
Do you acknowledge this to be a true and accurate account of the
expenses of your Washington office ?
Mr. Carse. I do.
The Chairman. That shows salaries and expenses paid clerical
help, rent, office expense, traveling expense, and apparently Messrs.
C. S. McNeir and S. J. Joyner were in charge of the office?
Mr. Carse. Yes, sir.
The Chairman. Mr. McNeir until 1927 and Mr. Joyner there-
after?
MUNITIONS INDUSTRY 7
Mr. Carse. Yes, sir.
(The statement referred to was marked "Exhibit No. 6", and
appears in the appendix on p. 311.)
The Chairman. Mr. Carse, I shall now offer as an exhibit a state-
ment of contracts for naval vessels, ammunition, and so forth, Jan-
nary 1. 1919, to August 15, 1934, of the Electric Boat Co. A copy
of the statement is laid before you, Mr. Carse.
(The -statement referred to was marked " Exhibit Xo. 7 ", and
appears in the appendix on p. 311.)
The Chairman. That shows a total of $26,722,153.44, which in-
cludes business done with the United States Navy, the Government
of Peru, and the Argentine Government. Do you acknowledge that
to be a true account of the contracts for this material referred to?
Mr. Carse. I do.
Mr. Spear. Just to get the record correct, Mr. Chairman, this first
item is wrong. That order was placed in 1918.
The Chairman. You are referring to the order
Mr. Spear. For the United States Navy Department, Submarines
S-Ji.2 to S-Jf.7. That was a mandatory order placed during the war
bv the President.
^The Chairman. In 1918?
Mr. Spear. In 1918. The formal contract, however, was not en-
tered into until a month afterward, and evidently this record is
made up from the formal contract record.
The Chairman. So that this would be true of the formal contract
record ?
Mr. Spear. Yes; and the formal document.
The Chairman. But the actual facts are that the order was
placed
Mr. Spear. And the work was begun in 1918.
The Chairman. Thank you for that explanation.
I shall now offer for the record as " Exhibit No. 8 ", Mr. Carse, a
statement of the royalties received by the Electric Boat Co. during
the calendar years shown,
(The statement referred to was marked " Exhibit No. 8 ", and
appears in the appendix on p. 312.)
The Chairman. That shows royalties from 1916 down to and
including 1927 from the British Vickers, Japanese Vickers, Dutch
Vickers, Australian and DeSchelde Vickers.
Mr. Carse. No. Those are all received from Vickers divided in
accordance with the submarine boats built for the British Govern-
ment, those on account of a contract with the Mitsubishi, of Japan,
and also contracts Vickers had in regard to supervision, and so forth,
of boats built by the Dutch. Some of that Dutch was received from
Vickers because of supervision that they gave to the Government in
connection with the building of submarine boats by Dutch shipbuild-
ers and some came to us from a shipbuilding concern in Holland
directly because of the winding up of an old license agreement.
The Chairman. Is that what is known as the DeSchelde ?
Mr. Carse. Yes,
The Chairman. Mr. Carse, what is the reference " S.E.C. Naval "?
Mr. Carse. That is a Spanish name. I think it is Sociedad Es-
panola Construccion Navale, That is a Spanish concern.
8 MUNITIONS INDUSTRY
Mr. Kaushenbush. I think it is " Constructora Naval."
Mr. Carse. DeSchelde is a Dutch concern. The Australian refers
to submarine boats built for Australia by Vickers.
The Chairman. What was the nature of these royalties? For
what were these royalties paid?
Mr. Carse. For the granting of a license on our part for them to
use our patents on submarine boats.
The Chairman. Have you totaled this statement of royalties
received during that period from 1916 down to and including 1927?
Mr. Carse. No.
The Chairman. We have not had that totaled.
Mr. Carse. No ; but they are here.
The Chairman. Could you approximate from your memory of
the corporation records what that total might be? (This figure,
later supplied, is $3,869,637.38.)
Mr. Carse. No. That would be a guess. I would want to figure it.
The Chairman. Mr. Carse, who is Capt. Paul Koster?
Mr. Carse. He is a native of Holland.
The Chairman. A native of Holland?
Mr. Carse. A native of Holland who was in the Dutch Navy when
the first submarine boats were built in Holland under license that we
granted to a shipbuilding concern in Holland. He was a naval
officer who made the first trial of that Dutch submarine boat built
in Holland. He had very extensive knowledge in regard to sub-
marine boats and submarine-boat construction, and in 1912 Mr. Rice,
then president of the company, appointed him the agent of the com-
pany in Paris, and he continued so until some few years ago.
The Chairman. When was he first appointed ?
Mr. Carse. 1912.
The Chairman. Is he still serving?
Mr. Carse. No, sir.
The Chairman. When was his service discontinued? I have a
note before me indicating it was in 1932.
Mr. Eaushenbush. I think it was in 1931.
Mr. Carse. A little before 1932.
The Chairman. What was the occasion for his retirement?
Mr. Carse. It was the impossibility of the manufacturers in the
United States — in the manufacture of submarine boats, securing any
orders in Europe.
The Chairman. Mr. Koster was virtually in charge of your Paris
office, was he not?
Mr. Carse. He was.
The Chairman. That was known as your European office?
Mr. Carse. Yes.
The Chairman. Did you discontinue that office?
Mr. Carse. We discontinued it entirely.
The Chairman. In 1931 or 1932?
Mr. Carse. Yes, sir.
The Chairman. I shall offer as " Exhibit No. 9 ", a statement of
the salary, commissions, and expenses paid to Capt. Paul Koster from
1919 to 1931, showing a total salary of $80,833.32; total commissions
of $17,633.13; a total of traveling expenses, rent, taxes, clerical,
office maintenance, and so forth, of $78,200.60, or a grand total paid
MUNITIONS INDUSTRY \f
to Capt. Paul Koster or through him of $176,667.05. You recognize
that to be a true statement of the moneys paid to Captain Koster ?
Mr. Carse. I do ; for a period of 13 years.
The Chairman. Over a period of 13 years; yes.
(The statement referred to was marked " Exhibit No. 9 ", and
appears in the appendix on p. 312.)
The Chairman. You have told us, Mr. Carse, that the receipts
from royalties were for patent rights.
Mr. Carse. Yes, sir.
The Chairman. Did that include other items; that is, did it in-
clude such items as that of supervision in other plants than your
own in America ?
Mr. Carse. Supervision in plants in this country ?
The Chairman. Yes; did it provide for sujpervision of plants in
Europe ?
Mr. Carse. Oh, yes ; but that supervision was paid for also. The
wages of the men were paid for in addition to the license fee.
The Chairman. You mean the Vickers, or the boat builder abroad,
paid the salary of that supervisor?
Mr, Carse. Yes, sir.
The Chairman. As well as paying you the royalties ?
Mr. Carse. Yes, sir.
The Chairman. Does the American Navy use your submarine
patents ?
Mr. Carse. Well, any submarine boat that has ever been built has
been obliged to use our patents.
Senator Bone. I did not get your last answer. They are obliged
to use your patents ?
Mr. Carse. Yes, they are obliged to use our patents.
Senator Barbour. I think Mr. Carse means the committee to un-
derstand their patents are basic patents.
Mr. Carse. They were; yes.
Senator Barbour. At the time they were in force they were basic
patents originally.
Mr. Carse. Yes.
The Chairman. The payment of royalties by Vickers and others
would indicate they recognized your right to those patents and plans.
Mr. Carse. Yes ; we had taken out patents in every country in the
world.
The Chairman. Has the United States recognized your patents?
Mr. Carse. They have.
The Chairman. Do they use your plans and your patents ?
Mr. Carse. Yes, sir.
The Chairman. Do they use your patents with your consent?
Mr. Carse. Yes, sir.
The Chairman. Have you ever denied them consent to use those
patents?
Mr. Carse. No, sir.
The Chairman. Mr. Carse, under date of April 20, 1925, as presi-
dent you wrote Capt. Paul Koster in Paris saying :
We have never assented to the United States Government building our type
of boat in its navy yard, and have never given them a permit to cover the use
of our patents, but in the contract entered into on July 17, 1917, for submarine
boats 8-17 to S-^l, inclusive, and contracts entered into on .July 1, 1919, for
10 MUNITIONS INDUSTRY
construction of submarine boats S-Jt2 to S-47 in tbeir own plants or plants of
subcontractors, clause 5 of the said contract reads as follows :
I will not bother to read that clause, bat I call your attention to
the fact you told Mr. Koster that your company had never assented
to the United States Government building your type of boat.
Mr. Carse. We had not assented at that time.
The Chairman. You have since assented^
Mr. Carse. We have; yes.
Mr. Spear. Let me correct that.
The Chairman. You want to make a correction?
Mr. Spear. Yes, because that is a matter with which I am more
familiar than Mr. Carse is. What was the date of that letter, Mr.
Chairman ?
The Chairman. April 20, 1925. At this point let that letter be
offered as " Exhibit No. 10."
(The letter referred to was marked " Exhibit No. 10 ", and appears
in the appendix on p. 313.)
Mr. Spear. There have been, Mr. Chairman, two licenses, one di-
rectly and one in an indirect way to the United States Government
to build in the United States navy yards submarines from our plans
and designs prior to that date. Mr. Carse was probably not familiar
with that.
Outside of that, the Government has built quite a number of
submarines in its own yard, which, according to our patent attorneys,
involved a good many of our patents, but there never had been any
agreement with the Government with regard to that, or any nego-
tiations. We simply let the matter run as it was. I think that
makes it actually in accordance with the facts.
The Chairman. What was the occasion now for stating to Mr.
Koster here, as Mr. Carse did, that there had not been assent?
Mr. Spear, You will have to ask Mr. Carse.
The Chairman. Mr. Carse, what was the occasion for that? You
will find that statement in the second paragraph of the letter.
Senator Barbour. A question suggests itself to me at this point,
Mr. Chairman. At that time was the United States Government
building any submarines or other vessels which used any of your
patents, whether you consented to it or not?
Mr. Spear. We considered that they did, but we never had any
negotiations with them about the matter, or gave them any license,
or even discussed it with them.
Senator Barbour. In other words, while there may have been no
assent, it is a fact that they were constructing vessels in which, in
your opinion, they were using certain of your patented features?
Mr. Spear. That is a fact.
The Chairman. You never challenged the Government's use of
those features, then?
Mr. Spear. No.
Mr. Carse!. The way this should read is that we have never con-
sented generally to the United States Government using our types.
Mr. Spear reminds me that in 1916, of the " O " boat type, we did
grant them a license to build two boats in the navy j^ard while we
were building a certain number in our own yard.
The Chairman. A little later we shall come to the correspondence
and the understanding that did exist as regards that.
MUNITIONS INDUSTRY 11
Mr. Cakse. Then later, when we sold them the parts of some boats
we constructed for Russia, we sold those parts to the Government,
and they assembled them in one of their navy yards. But I do not
know exactly now ^Yh.J Koster was asking about this, and perhaps
.at that time I did not think it was necessary to go into minute detail
with him. But, generally speaking, that is a correct statement.
The Chairman. Is it probable that Koster had encountered abroad
the thought on the part of those that he and you might become cus-
;tomers, that the United States was not using your boats ?
Mr. Carse. I do not recall what he could have been doing in 1925.
RELATIONS WITH VICKERS
The Chairman. Let us leave that for the moment. In that same
.letter is information that prompts me to ask you this: Does your
.company consider Vickers a competitor in submarine building, o"
in the building of machiner}^ for submarines ?
Mr. Carse. In relation to building submarine boats in countries
other than the United States or the British possessions.
The Chairman. In the strict sense of the word you consider them
.competitors, do you not?
Mr. Carse. Competitors, because they can build them cheaper,
and if in negotiations with some of these outside governments the
government does not insist upon the American design, or is per-
fectly willing to take the British design, Vickers can build them
cheaper and make delivery cheaper than we can in the United States ;
so, we grant Vickers permission or license to build in those coun-
tries and they pay us a royalty.
The Chairman. Perhaps this fourth paragraph in your letter of
April 20 to Mr. Koster reveals better that situation. That para-
graph says :
In relation to submarines built in England, our arrangement is direct with
yickers, we never having had any negotiations direct with the British Gov-
ernment.
Mr. Carse. That is right.
The Chairman. Reading further it says :
The conditions of our agreement with Vickers is that on any type of sub-
marine boat built by that firm for the account of the British Government we
■receive a certain percentage of the net profit accruing to them on such busi-
ness, and during tlie entire period of such construction, running over 20 years,
our average profit has been £28,467 per boat, and the profit of Vickers accruing
on this business has been larger than our proportion.
That is substantially correct, so far as relates to your relations
with Vickers, on British business?
Mr. Carse. Yes, sir. I think I know what this letter refers to
now. We had a claim before the American-German Mixed Claims
•Commission for infringement of our patents by Germany in the
construction of submarine boats during the war, and we had figured
there was due us $40,000 royalty per boat. They hacl built some-
thing over 400 boats; and, of course, there was a great deal of dis-
.cussion back and forth as to the fair amount of royalty to charge;
and this information I evidently wrote to Koster to show what we
^had been paid by other shipbuilding concerns in different countries.
The Chairman. In any event, you made a percentage on all of the
submarine building that Vickers did for the British Government?
12 MUNITIONS INDUSTRY
Mr. Carse. Yes, sir.
The Chairman. Now, did you pay Vickers any percentage on
the boats you built for the American Government?
Mr. Carse. No, sir.
Tlie Chairman. In no case?
Mr. Carse. In no case.
The Chairman. It resolves itself to this, does it not, Mr, Carse^
that, whether you did or whether Vickers built for the British Gov-
ernment, you got a profit out of it?
Mr. Carse. Yes.
The Chairman. And to the extent that Vickers is a competitor^
you proht even when your competitor gets the business ?
Mr. Carse. Yes, sir.
Senator Barbour. In reality Vickers was more in the category of a
customer than a competitor, so far as the business you two have in
common is concerned?
Mr. Carse. Yes ; they were a customer to use our patent in all of
these different countries.
The Chairman. I offer now to the committee " Exhibit No. 11 'V
this paper being an agreement between the Electric Boat Co. and
Vickers, and as supplement A to Exhibit No. 11, a letter by the
Electric Boat Co., signed by Mr. Rice, to Vickers ; and as supplement
B, a letter by Isaac L. Rice to Messrs. Vickers, Ltd. ; and as supple-
ment C, a third supplement, being a letter by A. T. Dawson, director^
for Vickers, to Isaac L. Rice, at that time president of the Electric
Boat Co.
(The agreement referred to was marked " Exhibit No. 11 ", and
appears in the appendix on p. 313.)^
All of these exhibits having to do with the one contract.
I am referring to the contract made in London on the 21st day of
October 1913.
That contract, Mr. Carse, you will notice in the opening para-
graph makes reference to a contract of December 12, 1902. What
can you tell us of that contract, or Mr. Spear or Mr. Sutphen, if
either of you are prepared to ansAver the question ?
Mr. Spear. Yes; I recall the general terms of it. It was a con-
tract defining the relations of the two with regard to submarines, a
contract granting Vickers a license, exclusive so far as Great
Britain is concerned, and confined, as I recall it, to Great Britain,
and defining the conditions under whicli the license should operate,
and defining the compensation to the Electric Boat Co. for the use
of the patents.
The Chairman. Mr. Spear, of course, that contract is still to be
had.
Mr. Spear. Not unless it is is the New York office ; but I presume
it is there.
The Chairman. We are without it, and I should like to have a
copy of it. Will you supply it on your return ?
Mr. Spear. If it can be found, I will be glad to do so.
The Chairman. That is the 1913 contract?
Mr. Carse. Here is the 1902 contract.
The Chairman. That is only a letter, is it not?
Mr. Spear. This is a letter of modification, I believe.
1 The letters referred to ■were marked "Exhibits Nos. 11-A, 11-B, and 11-C ", and
appear in the appendix on pages 314 and 315.
MUNITIONS INDUSTRY 13
The Chaiemax. Of which agreement; the 1902 agreement?
Mr. Spear, Yes ; this is a letter of modification of the 1902 agree-
ment, but the agreement itself is not here.
The Chairman. That I should like to have.
Mr. Spear. We will furnish it, if it can be found.
The Chairman. And now in the letter bj'' Mr. Rice to Vickers,
the letter being dated October 21, 1913, there are these provisions:
The Electric Boat Co. will also agree to the following disposition of any
profits which may be gained in the continental business conducted by the
Vickers Co., vi/ :
1. In the event of any boats being constructed for continental countries in
the Vickers yards iu Great Britain, 60 percent to Vickers, Ltd., and 40 per-
cent to the Electric Boat Co.
2. In the event of such boats being constructed in any other yard in Great
Britain or Ireland approved by the Electric Boat Co., 50 percent to Vickers,
Ltd., and 50 percent to the Electric Boat Co., after deducting the profits
allowed to the building firm.
3. In case such boats are built in continental Europe, or patents or licenses
thereunder are sold, 50 percent to Vickers, Ltd., and 50 percent to the Electric
Boat Co.
So then you had an agreement, I take it, Mr. Carse, that gave you
consideration and profits for whatever boats Vickers built for Britain
or for continental Europe.
Mr. Carse. Yes, sir.
The Chairman. Does that continue true today?
Mr. Carse. Yes.
The Chairman. You signed another contract with Vickers on
March 4, 1924, which contract is being offered as committee " Exhibit
Xo. 12.-
(The contract referred to was marked " Exhibit No. 12 ", and
appears in the appendix on p. 316.)
The Chairman. I shall read very briefly from that contract, as
follows :
This agreement witnesseth :
First : That from all of the covenants and agreements herein contained, as
to the territory therein included, there is and shall be excluded and excepted
therefrom the following territory : Spain, Japan, France, Italy, Belgium, Hol-
land, Norway, Finland, Brazil, Argentine, and Peru, and all territory, colonies,
and dependencies of each of said countries and of all communities and places
that are subject to the government and/or suzerainty of the respective govern-
ments of the respective countries above set forth. The business of manufac-
turing, building, and/or selling submarines to each of the above-mentioned
countries shall be, and is hereby, declared to be governed, managed, or con-
trolled by a series of agreements either heretofore made and entered into or
to be hereafter made and/or entered into, and Vickers hereby agrees that it
will not attempt to do nor seek business in or for the aforesaid countries just
mentioned, except in accordance with such special agreement as have been
or may hereafter be made with E. B. Co.
Second : Under this agreement, from which the countries listed in paragraph
" First " hereof are and shall be excluded, as between the parties hereto,
there shall be the following division of territory, to wit :
(a) Territory reserved exclusively for Vickers; that is, Great Britain and
her colonies and dependencies, including self-govering territories such as
Canada, Ireland, Australia, and India.
(b) Territory reserved exclusively for E. B. Co., viz. The United States of
America, the colonies and dependencies thereof, and the Republic of Cuba, and
all communities and countries governed by or under the suzerainty of the
United States of America.
(e) Common territory in which both parties shall be free to act, namely, all
countries of the world, but eliminating therefrom all countries and territory
83876— 34— PT 1 2
14 MUNITIONS INDUSTRY
includod in any of the subdivisions set forth in paragraph " First " hereof, and
the countries and territories set forth in subdivisions " a " and " b " of this
paragraph " Second " of this agreement.
So there was a division of territory as well as a division of profits
accruing thronj2:h the building of submarines.
Mr. Carse. There was a provision for the granting bj^ us of the
right to Vickers to use our patents in building in these different
countries. The reason of that subdivision, the latter jDart of j^ara-
graph 1, and the exclusion of Spain, Japan, France, Italy, Belgium,
Holland, Norway, Finland, Brazil, Argentine, and Peru, was that we
either had a licensee in those countries or were ourselves negotiating
to build submarine boats for those countries, so we told Vickers they
must not go in there and compete with us. In the other countries
and those mentioned, if the people preferred the British submarine
design to the American design, we would be perfectly willing for
them to take the business in preference to having Italian or Spanish
or German concerns that had located in Holland to go in and get
the business.
The Chairman. Under that contract or agreement any submarine
built under your plans, and according to your argument the only
submarine that could be built would have to be built under your
plan, would have to be bought from either Vickers or from you.
Mr. Carse. No; because there were other people who ignored our
patents, and there were other licensees, too.
The Chairman. I understand ; but at this time you had that
agreement that between you and Vickers there should be a division
of submarine business.
Mr. Carse. According to the wishes of the customer.
The Chairman. Yes; provided the customer was removed from
the area upon which there had been an agreement. You had agreed
that all countries would have only one that they could really go to.
Mr. Carse. No; we having granted licenses to shipbuilding con-
cerns in these countries, and they being exclusive licensees, we could
not give Vickers a license to go into those countries and compete.
The Chairman. Certainly not ; but where there has been no license
previously granted, you and Vickers a;2:reed you would not interrupt
Vickers in the territory you were giving the agreement on, and he
was not to interrupt you in the territory that would be exclusively
yours.
Mr. Carse. Tlieir territory was the British, and ours was the
United States. In the other part of the world, we Avere perfectly
willing for them to go in and bid if people preferred the British
design. If they preferred the American design and were negotiating
with us we would not give them the right to go in and bid against us.
relations with AUSTRIA, GERMANY
The Chairman. Who was the Whitehead Co.. Ltd. ?
Mr. Carse. That was a concern organized to build submarines
down in Trieste, Austria, wasn't it?
Mr. Spear. No; it was not organized to build submarines, but it
was organized to build torpedoes.
The Chairman. Where?
Mr. Spear. In Fiume.
MUNITIONS INDUSTRY 15
The Chairman. A little before the v.ar you granted Whitehead a
license to build submarines in accordance with patents, secrets, and
designs belonging to the said American company. I have before me
the agreement of June 11, 1912, which I shall ask to be incorporated
as " Exhibit No. 13."
(The document referred to was marked " Exhibit No. 13 ", and
appears in the appendix on p. 324.)
Mr. Carse. Mr. Spear knows about that agreement.
The Chairman. Mr. Spear, in paragraph marked 1 on the first
page of that agreement I find the following language :
The American Co. hereby grants to the Whitehead Co. for the term of
twenty (20) years from the date hereof the exclusive right during the con-
tinuance of this license to manufacture submerged boats in Austria-Hungary in
accordance with the said patents, secrets, and designs, or any other letters
patent now or hereafter belonging to the American Co. or which may either
directly or indirectly come under its control relating to or connected with
submerged boats, all of which are hereinafter referred to as " The American
Company's Patents " and to sell the same exclusively in Austria-Hungary,
Greece, Turkey, Rumania, and Bulgaria, for the use of the respective Govern-
ments of those countries.
You are acquainted with that contract?
Mr. Spear. Yes, sir.
The Chairman. That means Austria-Hungary was building these
submarines from your patents just before the war?
Mr, Spear. Yes, sir.
The Chairman. Is it also true Germany got hold of these patents ?
Mr. Spear. Yes, sir; and we were allowed some compensation in
the Mixed Claims Commission for infringement of our patents by
the German Government.
The Chairman. How many submarines did Germany build under
those jDatents?
Mr. Carse. We claimed they used one or more of our patents in
every one of their boats, but they did not acknowledge that.
The Chairman. I have before me a letter from Koster in Paris
which I offer as " Exhibit No. 14."
(The letter referred to was marked " Exhibit No. 14 ", and appears
in the appendix on p. 327.)
The Chairman. I note that Koster says in the opening paragraph
of this letter dated August 2, 1919, after the war, the following:
Now that we are on the point of getting peace with Austria-Hungary, or
with what politically may be left of these countries, it undoubtedly will interest
you to know that during the war two submarines have been built in Flume.
Before going further into this matter I herewith call to your attention the
agreement which we arrived at with Messrs. Whitehead & Co. on June 28, 1913.
Then Mr. Koster quotes the agreement.
Mr. Spear. That is the agreement terminating the license.
The Chairman. You put in a claim, did you not ?
Mr. Spear. Yes.
The Chairman. Do you know just how many boats were built in
Austria and how many were built in Germany or how many Ger-
many built?
Mr. Spear. I do not remember the figures, Mr. Chairman, but I
did have the information when it was in question.
The Chairman. Is it true you put in a claim with the Mixed War
Commission against Whitehead for building two German sub-
marines ?
16 MUNITIONS INDUSTRY
Mr. Spear. I think not.
Mr. Carse. I think I can tell you that, Mr. Chairman. Koster
was very anxious to i^roceed and bring action against the Whitehead
Co. or the receivers or successors or something of that nature, so he
wrote these letters. I gave the thing my best thought and concluded
we would simply be wasting good money in trying to secure any-
thing from a defunct concern in Austria, and he finally came along
with a letter by which he proposed to continue the action in his own
behalf. I stated if he wanted to go ahead and do that and pay all
of his expenses and give us 50 percent of all he received above the
expenses I was perfectly willing for him to do it. Nothing has been
accomplished in connection with it.
The Chairman. You never recovered anything from Whitehead
& Co. ?
Mr. Carse. No.
The Chairman. Did you recover anything from Germany?
Mr. Carse. We had a very trivial recovery; yes.
The Chairman. You had some trouble with the Alien Property
Custodian in that connection — or, did you seek to collect through
the Alien Property Custodian?
Mr. Carse. No; through the Mixed Claims Commission.
Senator Clark. What was the amount of that claim with the Claim
Commission ?
Mr. Carse. According to the record with the Navy Department,
Germany had built, or were building, 441 submarine boats, and
we thought a ro5^alty of $40,000 a boat was about fair, and that
would amount to about $17,000,000. The Germans, of course, denied
infringing any patent, and we said, " Well, why don't you show the
plans of your boats, that will be jour defense; and if your plans
show no infringing of patents, that ends it." They said they had no
plans ; they said they had all been taken by the Versailles commission,
so that we were in a way stalled for evidence. I went over there in
1924 and appeared before the Mixed Claims Commission and made
a hairbreadth advance. But then we found that all of the German
submarines taken by Great Britain had been destroyed, the sub-
marines brought over here had also been destroyed, but we found
that France had kept a couple of submarine boats they had gotten
from German3\ We were able to secure some of the plans of the
interior arrangement of those boats.
Senator Clark. Mr. Carse, this claim had to do with boats con-
structed during the war or immediately prior to the war, did it not?
Mr. Carse. Yes. In 1913 Krupp had demanded in the German
court a license from us at a very nominal figure.
Senator Clark. That was what year ?
Mr. Carse. About 1912 or 1913, and they brought in the German
Government on the basis they were doing the work for the Father-
land. We contested that, asking a great deal more, because the
patents they wanted to use were basic ; and while they were not such
a very large portion of the submarine, they were the most important
parts, they were the vital parts. So it was tried in the courts of
Germany, and finally the patent appeal court at Liepzig, in 1913,
gave a decision allowing us a certain royalty per tube on submarine
boats built by them.
Mr. Raushenbush. That is per torpedo tube.
MUNITIONS INDUSTRY 17
Mr. Carse. Yes,- per torpedo tube, and the tanks connected with
them. They claimed the}^ had not infringed our patents, but had
done something else. We could not produce the boats and we could
not get access to their drawings, although counsel we employed told
us there was no question that copies of every drawing of the German
Admiralty was in existence. Finally we found some drawings of
these German submarines in possession of France, and when we pro-
cUiced those, then the Germans found some designs of the interior,
and General Parker, head of the Mixed Claims Commission, ques-
tioned them how they discovered those at that time and had never
been able to discover them before. They claimed they had secured
them from the clitTerent shipbuilding yards who had built the Ger-
man submarines during the war. We clearly showed from those de-
sigiis to the satisfaction of the American agents and, it seemed, of
General Parker that they had infringed. But General Parker was
sick at that time and he died of cancer later. Finally there came
down a decision arrived at by the German American Claims Com-
mission that we were entitled to the royalties stated by the Liepzig
court in 1913 on a very small portion of the submarine boats that had
been built by Germany, and this was because of a very slight devia-
tion from the actual drawing, although the portions of the boat were
exactly the same. We had to accept the decision.
The Chairman. Does it not pretty nearly come to this, that about
the only thing that is left to be honored at all in time of war is a
patent on war machines?
Mr. Carse. They ignored the patents over there.
The Chairman. Haven't you stated there was some recovery from
them ?
Mr. Carse. Based on the judgment of the German court in 1913,
and the recovery was only $12'5,000.
The Chairman. Well, all the same where there was a recovery
on the rights to manufacture a machine, there has been no right to
recovery for any life or other property.
Mr. Carse. Yes; the Mixed Claims Commission granted claims
and recovery on other things such as merchant vessels.
The Chairman. Who was Count Hoyos?
Mr. Spear. Count Hoyos was the managing director at one time
of the Whitehead firm at Fiume.
The Chairman. What nationality was he?
Mr. Spear. He was an Austrian.
The Chairman. They became our enemy during the war, of course,
or we became theirs. Count Hoyos held stock in the Electric Boat
Co.. did he not?
Mr. Carse. I believe he did.
The Chairman. How did he come in possession of that?
Mr. Carse. I do not know. It was before my time.
The Chairman. How much stock did he hold?
Mr. Carse. I do not know. Not very much.
The Chairman. Is there any record to reveal what he paid for that
stock?
Mr. Carse. No; I do not know.
The Chairman. There will now be offered in evidence as " Exhibit
No. 15 ", as letter dated July 12, 1921, signed by Carse, addressed to
Capt. Paul Koster.
18 MUNITIONS INDUSTRY
(The letter referred to was marked " Exhibit No. 15 " and appears
in the appendix, p. 328.)
The Chairman. This letter refers to 100 shares of the Electric
Boat Co. stock which the Alien Property Custodian wanted posses-
sion of or wanted new stock issued to the Alien Property Custodian
in place of that which had been issued to Count Hoyos. Was Count
Hoyos ever in the employ of the Electric Boat Co. ?
Mr. Carse. Not that 1 know of.
Mr. Spear. No, sir.
The Chairman. Were not these shares of stock owned by Count
Hoyos given to him for service that he had rendered at some time ?
Mr. Carse. Not that I know of.
The Chairman. The Alien Property Custodian wanted you to issue
new stock?
Mr. Carse. Yes.
The Chairman. Count Hoyos had not surrendered his stock?
Mr. Carse. No.
The Chairman. And you could not issue stock above the amount
you were authorized?
Mr. Carse. No.
The Chairman. Did the Alien Property Custodian ever come into
possession of that stock?
Mr. Carse. I do not know.
The Chairman. Is Count Hoyos a stockholder in the Electric Boat
Co. still?
Mr. Carse. No ; I do not think so. I never saw Count Hoyos.
The Chairman. This letter to which we have referred says:
A j'oung relative of Count Hoyos was making inquiries here —
That is at your office, I take it —
some time ago in relation to the dividends, and I do not know how far he may
have gone in stirring up the matter which we felt had been passed upon some
time ago.
Mr. Carse. He was going down to Washington to see somebody or
had been down to Washington to see somebody, and I did not know
what he had accomplished or what he could accomplish.
The Chairman. Had you paid a dividend to stockholders?
Mr. Carse. There had been some dividends declared prior to that
time.
The Chairman. But were the dividends on this 100 shares of
Hoyos' stock paid ?
Mr. Carse. They were mailed to him.
The Chairman. Were they mailed to him during that year?
Mr. Carse. I do not know. I suppose they could have been. I
cannot answer that offhand. We could check it out but I have never
kept it in mind. It was a small matter.
The Chairman. How much such stock ownership has there been
abroad in your company?
Mr. Carse. Not very much that we know of. Of course, stock is
very often in other names; just a few shares, not very many shares.
Senator Barbour. Mr. Carse, is your stock or the stock of the
Electric Boat Co. listed on the New "York Stock Exchange ?
Mr. Carse. Yes, sir.
MUNITIONS INDUSTKY 19
Senator Barbour. Has it been for some time?
Mr. Carse. Yes, sir; for many years.
Senator Barbour. Was it at that time?
Mr. Carse. Yes; at that time.
Senator Barbour. In other words, anybody could acquire stock
who went to a broker and ordered and bought it?
Mr. Carse. Of course.
relations with tickers and zaharoff
The Chairman. Mr. Carse, who was Mr. Craven?
Mr. Carse. Craven is one of Vickers' principal men.
The Chairman. What is his full name?
Mr. Carse. Commander Sir Charles Craven.
The Chairman. And what is his official connection with Vickers?
What do you know it to be?
Mr. Spear. He is managing director of their shipyard plants and
I believe also some of their steel plants. I do not know exactly
how far his authority goes.
The Chairman. Lieutenant Spear, on January 29, 1926, Mr.
Craven, for Vickers, wrote to you a letter that was marked " Strictly
private ", which letter I ask be known as " Exhibit No. 16."
(The letter referred to was marked " Exhibit No. 16 ", and appears
in the appendix on p. 328.)
The Chairman. The heading of " Exhibit No. 16 " is " Strictly Pri-
vate." It is addressed as follows:
Lieut. L. Y. Spear, U.S.N.,
Electric Boat Co., Groton, Conn.
Were you connected with the United States Navy in January 1926 ?
Mr. Spear. No, sir; I v,'as not. My connection with the Navy
ceased in 1902.
The Chairman. How long were you connected with the Navy?
Mr. Spear. From 1886 to 1902.
The Chairman. And you obtained finally the rank of lieutenant?
Mr. Spear. Yes, sir.
The Chairman. What does the reference here to " lieutenant "
mean ?
Mr. Spear. It is a European habit. Over there a man may retire
and keep his rank, without pay, and engage in any business he
likes.
The Chairman. Let us get that correct. In Great Britain a man
could retire from the British Navy.
Mr. Spear. Yes, sir : if he gives up his pay, and he can retain his
title and rank and engage in any business he likes.
The Chairman. But you cannot do that in this country?
Mr. Spear. That is illegal. It is simply a custom they have, and
they have gotten in the habit of calling me " Lieutenant Spear ",
although I think I am pretty old for that.
The Chairman. Have you a copy of " Exhibit No. 16 " before you,
Mr. Spear?
Mr. Spear. Yes, sir.
The Chairman. It comes to this, then, Mr. Spear, does it not:
That when Mr. Craven comes into possession, directly or indirectly,
of your patents, they are in the possession of the British Navy ?
20 MUNITIONS INDUSTRY
Mr. Spear, Yes; indirectly.
The Chairman. In this letter, Mr. Craven, for Vickers, asks you
to lower your percentage on the bids for their Australian submarines
from 3 percent to 11/2 percent. In next to the closing paragraph
that letter reads as follows :
I dislike very much having to ask your company to meet us in a matter of
this kind so very soon after the new agreement has been made. * * *
That is the agreement of 1924, I take it?
Mr. Spear. Yes, sir.
The Chairman (continuing reading) :
but times are really terrible here, and I think that if for a year or two we
can obtain all the submarine building that there is aliout. we may be able to
freeze out a lot of wartime builders, who are relatively much more favourably
situated now to compete with us than they would be if times were good, as
the three percent to the E. B. Company weighs heavily when one is putting on
practically no profit for one's self, whereas in proper times we should not feel
it to anything like the same extent.
Who were these war-time builders?
Mr. Spear. During the war the British admiralty had need for a
great many submarines. They therefore took the designs of the
vessels which Vickers were building, and under their war-time
powers they said that the Vickers firm did not have sufficient ca-
pacity to build as many submarines as they needed, and they ac-
cordingly took, as I recall it, four other firms, passed the plans to
them, and directed the construction by them of these submarines to
the Vickers plans. Cammell-Laird w^as one of the firms, and I think
White was another; and I think Beardmore was another. Those
are all the names wdiich I recall right now but my memory is that
there were four or five of them.
The Chairman. This commission that Craven speaks of had been
a 3-percent commission?
Mr. Spear. Yes, sir.
The Chairman. What was that commission?
Mr. Spear. That was the commission providing for the use of
our patents in the last agreement we made with them in the vear
1924.
The Chairman. Your last agreement with Vickers?
Mr. Spear. Our last agreement v/ith Vickers. It was a royalty.
The Chairman. Vickers got the contract for the Australian sub-
marine?
Mr. Spear. Yes. they built that submarine.
The Chairman. You reduced your commission from 3 percent to
114 percent?
Mr. Spear. My memory is we agreed to that.
Mr. Carse. We did not always meet Mr. Craven's requests for
reductions and we used sometimes to split the difference.
Tlie Chairman. But you were agreeing with Vickers that it was
desirable to eliminate or " freeze out ", as he expressed it here, the
war-time builders and get as much business as you could alone?
Mr. Carse. Yes, but we sometimes thought that Mr. Craven was
a little gloomy in the matter of his opinion as to the future. We
wanted all the income we could get.
MUNITIONS INDUSTEY 21
The Chairman. Did you pay any commissions to anyone for
business abroad outside of your Paris representative?
(Mr. Carse conferred with associates.)
The Chairman. Did you not pay commissions to Basil Zaharoff?
Mr. Carse. That is what we were talking about. We do not pay
him, but under an old agreement there a certain percentage is paid
to us and we transmit it to Sir Basil Zaharoff.
Senator Clark. When was that agreement made, Mr. Carse?
Mr. Carse. We later get a commission which we return.
The Chairman. You get a commission which you return?
Mr. Carse. Spanish business only.
The Chairman. I offer as " Exhibit No. 17 ", a statement by the
Electric Boat Co. showing commissions paid to B. Zaharoff, starting
in 1919 up to and including 1930, showing the total amount of com-
missions paid as $766,099.74.
(The statement referred to was marked " Exhibit No. 17 ", and
appears in the appendix on p. 329.)
The Chairman. How would you explain the general nature of
these commissions shown on " Exhibit No. 17 " ?
Mr. Carse. These are our Spanish business. I think it goes back
before my time, but we have an agreement there with this Spanish
company, Sociedad de Construccion Naval, by which they were to
have paid a certain percentage of the profits which they made in
building submarine boats for the Spanish Government.
The Chairman. In which Vickers were interested?
Mr. Carse. Not in the beginning; not originally.
Senator Clark. What was that percentage, do you recall, Mr.
Carse ?
Mr. Spear. Originally it was a profit-sharing agreement; 50
percent.
Senator Clark. They paid you 50 percent of the profits on the
Spanish submarines ?
Mr. Spear. Yes, sir.
Mr. Carse. That was the basis of all of our original agreements.
We have since been obliged to modify them from time to time, owing
to the change of conditions, and so forth. This agreement was
modified so that they paid us a certain percentage, which under
another agreement we transmitted direct to Sir Basil Zaharoff and
then they paid us another basis of compensation for ourselves.
Senator Barbour. Mr. Carse, who is this Sir Basil Zaharoff? Is
he a Spaniard?
Mr. Carse. Sir Basil Zaharoff is called the mystery man of Eu-
rope. He is a verj^ able man. There have been all sorts of stories
about his parentage and early youth, and so forth, most of them
probably just fables; but I think he probably is a Greek, but he is
also Sir Basil Zaharoff, and is a Knight of the Garter of Great
Britain.
Senator Clark. He has also claimed to be a Frenchman at vari-
ous times, has he not, Mr. Carse ?
Mr. Carse. I do not think he claims to be a Frenchman, but he
has lived in Paris and Monte Carlo. He is a Spanish duke also.
He is a very able and a very brilliant man. There seems to be a lot
of slurring around about him, but I met him in 1924 and I think
22 MUNITIONS INDUSTRY
he was one of the very greatest men I have had the honor to meet,
and I think you will find that the President of the United States
in 1919 gave Sir Basil his confidence and advised with him in
relation to the matter he was in Europe for.
The Chairman. I am surprised to hear that. I was about to re-
mark that the only country that has not recognized Sir Basil or
decorated him is the United States.
Mr. Carse. He has not had so much to do with the United States.
He is a European.
Senator Clark. Mr. Carse, when was this original arrangement
made with this Spanish concern with respect to the division of
profits 50 percent?
Mr. Carse. It was before m}^ time.
Senator Clark. Can you get that contract for us so that it can be
put in the record?
Mr. Spear. Yes, sir.
Senator Clark. Mr. Carse, when was this modification of that
original contract made ?
Mr. Carse. Mr. Spear can probably answer it more directly.
Mr. Spear. Just to make the subject clear, while the original agree-
ment provided for a share of the profits, we found
Senator Clark. Do you know about when the original agreement
was made, Mr. Spear ?
Mr. Spear. I could tell you roughly.
Senator Clark. Yes, sir.
Mr. Spear. I should say about 1910 or 1912.
The Chairman. This statement which was made, " Exhibit No.
17 ", showing commissions paid starting in 1919 is not inclusive of
all commissions that were probably paid to Sir Basil Zaharoff ?
Mr. Spear. No; I think there was a great deal before that. No;
business was received immediately after the agreement. It was some
years after the agreement, Mr. Chairman, before there was any busi-
ness. Just to finish my statement : Wq found our Spanish friends a
little bit slow in accounting, and so forth, so that before we had
formally modified this agreement, we did reach an agreement with
them that instead of paying us 50 percent on the business which they
were then doing, they would pay a fixed percentage, which merely
meant that we could get some money as we went along instead of
waiting for them to finish the boats and make up an accounting.
Senator Clark. That was a fixed percentage of the gross business
which was done?
Mr. Spear. Yes, sir.
Senator Clark. As against a division of profit?
Mr, Spear. Yes, sir; that was the first modification of the original
agreement. .
Senator Clark. Do you know about when that was, Mr. Spear?
Mr, Spear. That, I think, was in 1921,
Senator Clark. That was entered into by you on behalf of the
Electric Boat Co.?
Mr. Spear. I negotiated that in Europe; yes, sir. Then later on
our original agreement with them expired, came to an expiration
date — our license agreement.
Senator Clark. When was that?
MUNITIONS INDUSTRY 23
Mr. Spear. I do not know. I did not bring these dates with me.
At any rate, it was subsequent to this modification of which I have
told you.
Thereupon a new agreement was entered into in which they be-
came
Senator Clark. Do you have that agreement with you ?
Mr. Spear. I did not bring any of these papers. I do not know
whether you have them or not.
Senator Clark. All right.
Mr. Spear. Under the new agreement, they became licensees of
both ourselves and Vickers; the reason for that being that Vicker3
owned some stock in this Sociedad de Construccion Naval.
Senator Clark. That is the Spanish company ?
Mr. Spear. That is the company which had been directed techni-
cally by British engineers, largely from the beginning.
Senator Clark. Does Vickerg have any patents as distinguished
from your patents?
Mr. Spear. Yes, sir; they have patents as distinguished from our
patents. Under the new agreement we jointly give them a license.
In other words, they take a license from both of us so that they can
u^e Vickers' patents, Vickers' engines, and so forth, if they choose,
as well as ours.
Senator Bone. Are you permitted to use Vickers' patents under
that agreement?
Mr. Spear. Yes.
The Chairman. Do you pay Vickers anything for the use of those
patents?
Mr. Spear. We do not.
Senator Clark. Mr. Spear, what was the intention of the second
agreement entered into in 1924: or 1925? What did you get out of
that?
Mr. Spear. My recollection is we got 3i/^ percent, when the sub-
marines are built according to our designs and when we supply all
the working plans, and so forth.
Senator Clark. That is on the gross?
Mr. Spear. Three and a half percent on the gross. If, on the
contrary, they should be directed by their own government to build
a different kind of boat we did not design for them, but they used
our patents, then they pay li/^ percent.
Senator Clark. What does Zaharoff get out of it under that con-
tract ?
Mr. Spear. Nothing.
Senator Clark. Then what are the sums set out in the exhibit
which has just been put in evidence, indicated as sums paid to
Zaharoff? What do they represent?
Mr. Spea.r. They came under the old agreement.
Senator Clark. They apparently extended to 1930, which is sev-
eral years after the old agreement expired, according to your testi-
mony.
Mr. Spear. I cannot tell you, because I did not make this up.
Mr. Carse. This new thing which the Spaniards have advised us
that they have made, without consultation with us, lyo percent is
Just lately.
24 MUNITIONS INDUSTRY
Senator Clark. What I am trying to <ret at, Mr. Spear, is this:
In 192C this exhibit shows that there was paid to -Sir Basil Zaharoff
the sum of $67,309.58.
Mr. Spear. Yes, sir.
Senator Clark. And in 1927 you paid in $33,327.44.
Mr. Spear. Yes. sir.
Senator Clark. And in 1928 you paid in $90,080.79.
Mr. Spear. Yes, sir.
Senator Clark. And in 1929 you paid in $35,744.65.
\[r. Spear. Yes, sir.
Senator Clark. In 1930 ^-ou paid in $77,883.12. Now you say
that this is not part of the three and a half percent or one and a
half percent which you get back, and at the same time you say that
Sir Basil Zaharoff did not receive anything under that contract.
What do these payments represent?
jMr. Spear. You misunderstood.
Senator Clark. I understood that that was what you said.
Mr. Carse. Sir Basil at the present time, under this latest modi-
fication which we have been advised the Spaniards themselves have
made, gets nothing; and there is no provision for Sir Basil Zaharoff
at all, but prior to this late episode 5 percent went to Sir Basil
Zaharoff on the Spanish business.
Senator Clark. But the figures which I have just enumerated
from the exhibit you have said were under the orio-inal contract
which has expired, and that a new contract was entered into which
provided nothing for Sir Basil Zaharoff.
Mr. Carse. You misunderstood him. He did not mean that. I
think the thing Avas modified so that we got 3^4 percent and Vickers
314 percent and Sir Basil continued the 5 percent, the same as he
had previously.
Senator Clark. In the new contract?
Mr. Carse. Yes, sir.
Senator Clark. Is that contract still in effect ?
Mr. Carse. It is still in effect, only, as I say, the Spaniards have
given us notice that instead of operating under the three and a half
percent clause, they propose to operate under the one and a half
percent clause.
Senator Clark. I am not now speaking, Mr. Carse, of the amount
of your commission. I am speaking of your payments to Sir Basil
Zaharoff. What do they represent for the years 1926 to 1930, in-
clusive ?
Mr. Carse. Remittances which were made to us by the Spanish
Company of 5 percent, and we transferred that to Sir Basil Zahai'off.
Senator Clark. Now, Mr. Carse, will you explain to the committee
why it is that you were required on a fixed commission to make these
payments to Sir Basil Zaharoff for the Spanish company, and why
they should have been transmitted to you and the actual pajanents
made by you?
Mr. Carse. I do not know.
Senator Clark. What is the basis for that arrangement?
Mr. Carse. Sir Basil Zaharoff' secured that business for us entirely.
It was his business. The Spanish business was his business. He
secured that business and he held it for us against very keen compe-
tition. He secured the contract originally.
MUNITIONS INDUSTRY 25
Senator Clark. But if the contract provided for an allowance to
you by Zaharoff, why should the payment be made through the
Electric Boat Co. ? That is what I am trying to get at.
Mr. Carse. I suppose because the contract or agreement was made
between the Sociedad de Construccion Naval and the Electric
Boat Co.
Senator Clark. Sir Basil Zaharoff is not a party to it?
Mr. Carse. Not a party to it.
Senator Clark. Did his name appear in the contract?
Mr. Carse. No, sir.
Senator Clark. What was the specification, then, in the contract
covering this 5 percent?
Mr. Caese. I cannot say.
Senator Clark. In other words, let me put it a little bit differently,
Mr. Carse. Did the contract provide that you were to have 5 percent
as your commission, that you were to have 5 percent plus 3i/2 per-
cent 01-11/^ percent; in other words, that you were to have your
commission on one class of business, 8i/^ percent, and on another of
61/2 percent?
Mr. Carse. No, sir; never 6i/^. They simply advised us that they
were going to operate under clause no. 4, li/o percent, which they
have not paid us.
Senator Clark. I understand, Mr. Carse, but since Basil Zaharoff,
as you say, was not a party to this contract, what was the provision
in the contract with regard to your commission? Did the contract
provide for a payment of 5 percent to Sir Basil Zaharoff?
Mr. Spear. No; I think not. I do not think his name was
mentioned.
Mr. Carse. I could not answer that.
Senator Clark. In other words, the contract actually provided for
a payment of 8i/^ percent to you, of which you, of your own accord,
remitted 5 percent to Sir Basil Zaharoff?
Mr. Carse. I do not think I would say " of our own accord." I
think that was based on some old agreement at the time he secured
the business for us.
Senator Clark. That was based upon an old agreement between
the Electric Boat Co. and Sir Basil Zaharoff?
Mr. Carse. Yes, sir; and continuing
Senator Clark. So that, in effect, this 5 percent was simply a
splitting of the commission between you and Sir Basil Zaharoff on
the basis of 5 percent or Si/o percent or li/o percent, as the case
might be ?
Mr. Carse. It was the payment of commission to an agent who
secured for us the business.
The Chairman. And you looked upon Zaharoff as the agent who
had secured the business?
Mr. Carse. Absolutely.
Senator Pope. Whose agent? Your agent?
Mr. Carse. Yes, sir ; our agent in connection with Spanish business.
The Chairman. Senator Bone.
Senator Bone. Mr. Carse, can you tell the committee what service
this gentleman rendered to the British Empire that induced the
King to make him a Knight of the Garter, or which induced the
Spanish Government to make him a duke?
26 MUNITIONS INDUSTRY
Mr. Carse. I do not know.
Senator Bone. AVoukl 3-011 suggest to the committee that it was his
activit}^ in the munitions business that led those Governments to give
him those decorations and titles?
Mr. Carse. I do not know. I do not know his history. He is not
a man who talks very much.
Senator Bone. He seems to have been very influential with the
Spanish Government, and he got an exclusive contract from them,
and I was wondering if it had anything to do with the bestowal of
his title.
Mr. Carse. I could not say.
Senator Bone. Will you advise us why these various European
governments have sought to bestow these titles on this gentleman?
Mr. Carse. Sir Basil married a Spanish duchess.
Senator Bone. I understand that; but you would not bestow a
title on a man because he married some woman. What services did
he render those countries, if you can advise us ?
Mr. Carse. I do not know.
Senator Bone. He appears to have been suppljdng ammunition
and munitions of war to all of them, and they were fighting one
another, and I was wondering what was in the gentleman's history
that led them to bestow upon him these titles. Possibly you can
enlighten us.
Mr. Carse. His wife was the cousin of King Alfonso.
Senator Bone. It was rather a family affair, more than anything
else?
Mr. Carse. It would seem so. I spent a day with Sir Basil at his
country home, and I certainly did not put him on the stand and
cross-examine him.
The Chairman. I think. Senator Bone, j^ou will find your question
answered as we go along further in the inquiry.
Senator Pope. Did 3^ou take up his relation with Greece and the
services which he might have performed for Great Britain in con-
nection with Greece?
The Chairman. Senator Clark will take up that tomorrow.
Senator Clark. One other question, Mr. Carse. This figure of
$760,099.74, which was paid by you to Sir Basil Zaharoff between
1919 and 1930, inclusive, if I understand correctly, rej^resents 5 per-
cent of the business transacted by you with Spain during that period?
Mt. Carse. Yes, sir.
The Chairman. Is Mr. Zaharoff interested in Vickers?
Mr. Carse. I do not know. At one time it was reputed that he
had a controlling interest.
The Chairman. That he had a controlling interest ?
Mr. Carse. Yes, sir.
The Chairman. Vickers, however, speaking generally, is very
much a British concern, is it not?
Mr. Carse. Very much so; yes, sir.
The Chairman. I have before me a letter written by C. W. Craven,
addressed to you, Lieutenant Spear, dated October 7, 1927, and
again marked "Absolutely Personal and Confidential ", which we
will ask to have incorporated as " Exhibit No. 18."
(The letter referred to was marked " Exhibit No. 18 ", and appears
in the appendix on p. 330.)
MUNITIONS INDUSTRY 27
The Chairman. Referring to " Exhibit No. 18 " down close to the
middle of the opening paragraph we find Mr. Craven saying:
* * * we have just received an inquii*y for 1, 2, or 3 boats for the Admiralty.
Armstroug-Whitworth's have also received a similar inquiry.
Who is Armstrong-Whitworths ?
Mr. Spear. Armstrong-Whitworths are now out of business, but
at that time it was a large shipbuilding and engineering company
in Great Britain, also an ordnance company, with large plants at
Newcastle.
The Chairman. Vickers now possess them ?
Mr. Spear. No, sir; only a part. They went through bankruptcy
after the war and Vickers took over some of their plants, but not all.
The Chairman. At any rate, Mr. Craven says : " My present feel-
ing is that we should quote for 1, 2, or 3 from Armstrong's " — that
indicates that Vickers then had a large holding in Armstrong's, does
it not?
Mr. Spear. That would be my conclusion.
The Chairman (continuing quotation) :
Who have agreed to put in whatever price I tell them, and that we should
also quote for 1, 2, or 3 boats from Barrow.
Who is Barrow ?
Mr. Spear. That is where Vickers' principal shipbuilding plant is
located. It is on the east coast of England.
The Chairman. Then Mr. Craven says :
I would keep the Armstrong price very slightly above ours, the idea being
that whatever boats were ordered from either party would be built at Barrow,
so effecting considerable economies. I also think that perhaps it would be
worth while putting forward a tender for six boats, the total number to be
built. I have had a word with the director of contracts at the Admiralty, who
is a friend of mine, and who would like this. He, I know, tried to get us the
order for all live submarines last year.
Now has Vickers kept you informed constantly of such business
as they were contemplating?
Mr. Spear. In general, whenever there is an inquiry.
The Chairman. Do you keep Vickers advised of such business as
you have in prospect?
Mr. Spear. Not unless it is a business in which Vickers is legiti-
mately interested.
The Chairman. Although Vickers is a British concern, in this par-
ticular case they were not opposed at all to " ganging up " when it
is to their advantage to drive a better bargain with their own
Government ?
Mr. Spear. I presume not. I do not know.
The Chairman. This same letter. Lieutenant Spear, in the closing
paragraph, makes reference to the secretary of Vickers and says:
who was put on the board yesterday, is leaving in the Mauretania on Saturday
to see Sheridan and Roberts.
Who are they?
Mr. Spear. I believe they at that time were Vickers' agents in
this country.
The Chairman. In this country?
Mr. Spear. In this country.
The Chairman. Vickers had agents here in America then?
28 MUNITIONS INDUSTRY
Mr. Spear. Yes; they have many products.
The Chairman. Are Mr. Sheridan and Mr. Koberts still in busi-
ness?
Mr. Spear. I believe not.
The Chairman. Where were they located at that time?
Mr. Spear. They have an office in New York.
The Chairman. In New York?
Mr. Raushenbush. Sheridan is still here?
Mr. Spear. Yes, sir.
The Chairman. And how about Mr. Roberts?
Mr. Spear. I do not laiow where Mr. Roberts is.
Mr. Carse. He is in New York.
Mr. Spear. I think he is in New York, but I do not know of my
own personal knowledge.
The Chairman. Is either of them connected with your industry
in any way?
Mr. Spear. Not with our industry.
Mr. Carse. Roberts is a director of the Electric Boat Co.
The Chairman. Mr. Roberts is a director of the Electric Boat
Co.?
Mr. Carse. Yes, sir.
The Chairman. Did you see the secretary of Vickers when he
came over on that trip, Mr. Spear?
Mr. Spear. I do not remember that I did, sir.
The Chairman. Mr. Craven had said in his letter that he did
not suppose he would be getting in touch with you, but if you hap-
pened to meet him :
I know you will be kind to him.
Mr. Carse. What year was that?
The Chairman. 1927.
Mr. Carse. Sims came in the office one time for about 5 minutes.
I do not know whether it was then or some other time.
The Chairman. I have laid before you " Exhibit No. 19 ", being a
letter dated November 30, 1927, addressed to you, Mr. Spear,^ again
written by Mr. Craven, and I will interrogate you with reference
to that.
(The letter referred to was marked " Exhibit No. 19 " and appears
in the appendix on p. 330.)
The Chairman. Down in the fourth paragraph of that letter,
" Exhibit No. 19 ", you will find this language :
When you are next over here I will show you my estimate, but you can take
it from me now that I knew there was going to be keen competition, and I cut
my price to under 5 percent profit, because I felt that, with your support, it was
up to me to get the work and starve out competitors for another year or two.
For your private information, I was in a position to look after Armstrong's
and iieep them out of Ihe picture on this occasion.
Do you know how he kept Armstrong's out of the picture?
Mr. Spear. No, sir; I have no information except what is in this
letter.
The Chairman. He wrote a postcript to that letter, which reads as
follows :■
You will notice in the enclosed report of the meeting that Armstrong's had to
make a terrible fuss about the Merchant Shipyards, etc., which they are retain-
MUNITIONS INDUSTRY 29
ing, and which will continue to be operated by the old company quite apart from
the new amalgamation. This, it will be obvious to you, is for the benefit of
their debenture and shareholders. For your own private information, the
works they are retaining are the ones we refuse to have anything to do with.
Do you know anything more about the consolidation at that time ?
Mr. Spear. No, sir; I know nothing about it except what there
is in this letter and what appeared in the public press.
The Chairman. Mr. Craven wrote you another letter under date
of September 10, 1930, and I will offer that letter at this time as
" Exhibit No. 20."
(The letter referred to was marked " Exhibit No. 20 " and appears
in the appendix on p. 331.)
The Chairman. Kef erring to " Exhibit No. 20 ", Mr. Craven stated
as follows:
I still hope your company will meet me regarding the amount due to you,
because there was certain action I had te take which involved expenditure, and
which I ;!m sure you would have agreed with. I cannot possibly say any more
in writing, but when the long-promised visit takes place we will have a talk.
Has that long-promised visit taken place?
Mr. Spear. No, sir.
The Chairman. You have not seen Mr. Craven since that time ?
Mr. Spear. I have not been abroad since that time. Mr. Craven
stopped one day in New York.
Mr. Carse. I do not know the date, but he came over on the
maiden voyage of one of the big ships built for the Canadian Pacific
road. He came over on that.
Mr. Spear. To make my answer responsive, I know what the
chairman wants to know. He wants to know if I have ever had a
talk with Commander Craven about the subject of this letter.
The Chairman. That is right.
Mr. Spear. The answer is " no."
The Chairman, Have you had a talk with any one connected with
Vickers on the subject matter of this letter?
Mr. Spear. I have not had a talk with anyone connected with
Vickers on the subject matter of this letter.
The Chairman. Did you see Mr. Vickers 2 months ago when he
was over here?
Mr. Spear. No, sir.
The Chairman. Did you, Mr. Carse ?
Mr. Carse. No, sir.
The Chairman. Do you know whether he had a talk with any
officials of the Electric Boat Co.?
Mr. Carse. No; he did not.
The Chairman. Did you know he was in the country ?
Mr. Carse. No, sir; I did not know he was in the country.
The Chairman. Mr. Craven expressed the ho]5e that you would
meet him regarding " the amount due to you." Have you <met him
regarding the amount due to you?
Mr. Spear. I do not recall that. Every time that any business
appeared in sight he always wanted to pay us a smaller amount.
Whether we agreed at that time, I could not tell without looking up
the record.
83876— 34— PT 1 3
30 MUNITIONS INDUSTRY
The Chairman. He said that there was certain action that he had
to take which involved expenditure. What could that actual expendi-
ture be?
Mr. Spear. I could not tell you.
The Chairman. One hesitates to use the word lieutenant, but I
am rather forced to ask here if it could mean anything other than
that there was bribery resorted to in getting business ?
Mr. Spear, Yes; it could very readily mean many other things, I
think.
The Chairman. Do you think it does mean anything other than
that?
Mr. Spear. I think so, because, so far as my knowledge goes, I have
never known of any case of bribery in connection with the British
Government.
The Chairman. Do you know of any cases where officials con-
nected with the Spanish Government, for example, have been sus-
ceptible to bribery in order to help get business, one way or the
other ?
Mr. Spear. I have no knowledge of any such thing.
Senator Clark. Sir Basil attended to that end of it, did he not?
Mr. Spear. I cannot answer for Sir Basil.
The Chairman. Mr. Carse, we find that, in addition to havinor very
positive working agreements and understandings as to divisions of
profit and territory, the Vickers people even went so far as to assume
the right occasionally to reproach your company for your method of
doing business abroad. Here is a letter dated July 30, 1932, ad-
dressed to you by Mr. Craven, which T introduce as " Exhibit No. 21."
(The letter referred to was marked " Exhibit No. 21 " and appears
in the appendix on p. 332.)
The Chairman. A portion of that letter reads as follows :
FirFit may I su^.t^esf that cvpii in code it is bettor not to mention any names
of ships, as I am rather afraid that such telegi-ams misht get into the hands
of our clients, and it would be awkward if they asked me about our agreement
with you. I am sure j'ou will appreciate what I mean.
Is the conclusion to be drawn from that statement that the British
Admiralty had no knowledge at all of the agreement between Vickers
and you ?
Mr. Cause. I think that is what Mr. Craven means, that the British
Admiralty might raise some objection to an American concern receiv-
ing any money on account of business with the British Government,
the same as you asked me, apparently with intent, whether we paid
Vickers anything on American business.
Vickers have behaved in a straightforward manner with us in all
of our arrangements since early 1900,
The Chairman, Has the British Government had knowledge of
the existence of this understanding between you and Vickers?
Mr. Carse. I do not know. We have never had
The Chairman, Has the United States Navy or has the American
Government had knowledge of this agreement between you and
Vickers?
jMr. Carse. Undoubtedly.
The Chairman. You say " undoubtedly." How do you know that
they kncAv?
Mr. Spear. I, for one, have talked to them.
MUNITIONS INDUSTRY 31
Mr. Carse. We have told them many times.
Tlie Chairman. You, Mr. Spear, have advised them of it?
Mr. Spear. Yes, sir.
The Chairman. Did it ever occasion any embarrassment at all ?
Mr. Spear. Not the slightest.
The Chairman. Mr. Carse, what is your own personal opinion
regarding the effort to accomplish agreements looking to disarma-
ment in the disarmament conferences'?
Mr. Carse. I take no position at all.
The Chairman. They had a tendency to slow business down, lead-
ing up to them and during their conduct?
Mr. Carse. Certainly. They have held it up, especially the effort
of Great Britain to do away with submarines, and it has certainly
affected our line of business very substantially.
The Chairman. Speaking now more particularly of Vickers.
have you ever heard them express themselves regarding their atti-
tude toward these disarmament conferences?
Mr. Carse. I so very seldom see Vickers that there is not any
conversation.
The Chairman. With anyone connected with them?
Mr. Carse. The last time I was over in England was in 1924.
They have not expressed any opinion about it.
The Chairman. You have had a pretty constant flow of corre-
spondence between you. Have they expressed themselves in that
respect?
]\rr. Cafse. I do not recall any expression.
The Cpiatrman. Here is a letter dated October 30, 1932, addressed
to you by C. W. Craven, of Vickers, which is offered as " Exhibit
No. 22." '
(The letter referred to was marked " Exhibit No. 22 " and appears
in the appendix on p. 832.)
The Chairman. In this letter, " Exhibit No. 22 ", Mr. Craven says:
All tliat you and I gain hy the transacHon will he that we phall know that
if the ship is built Vickers will get the order. If. on the other hand. Geneva
or some other fancy convention decide that large submarines have to be
abolished, no definite contract will be placed and the Admiralty can retire
gracefully without having to pay us anything. I cannot, of course, commence
spending any money until say March, but, at any rate, our competitors will not
receive the enquiry.
Is not that rather a slurrino; of the disarmament program?
Mr. Carse. No ; I do not think so.
The Chairman. What is the meaning of the reference to " fancy
convention "?
Mr. Carse. Some people sometimes use words and phrases. I
think there was perhaps a division of opinion in regard to these
conferences. Some people, members of the conference, favored cer-
tain things and others favored other things. You cannot blame
private citizens and so forth for having differing opinions. They
had presented a design for a submarine boat wliich had been ap-
proved by the British Government, subject to the result of the Geneva
Conference, and if the conference did not decide against the build-
ing of submarines of this size, they would get the order, and if they
did decide against it, they would not get tlie order. So that they
had to wait until the end of the Geneva Conference.
32 MUNITIONS INDUSTRY
The Chairman. Is there not to be read in this paragraph which
I have quoted to you a desire that the conference fail?
Mr. Carse. Naturally a person would not wish some action to be
taken by any conference that would be detrimental to his interest.
The Chairman. Now Mr. Craven expressed the same thought as
related to H. M. S. Clyde, in a letter under date of January 6, 1933,
addressed to Mr. Henr}'' K. Carse, which I will oflfer as " Exhibit
No. 23."
(The letter referred to is marked " Exhibit No. 23 ", and appears
in the appendix on p. 333.)
The Chairman. In " Exhibit No. 23 ", Mr. Craven stated as
follows :
At the same time the admiralty also promised us the order for II.M.S. Clyde
(another repeat of the Thames), but in this latter case they will not give us a
contract until after the end of March. In other words, they will have the
right to withdraw their promised order for the second ship if Geneva or any
other troublesome organization upsets the large subm^arine. In view of this, I
am not saying anything publicly about the Clyde, and I would suggest that
it would be wise that Spear should not let the information get into the hands
of your Navy Department until after I can tell you that we really have a
proper contract. Cammoll I^airds will get the two small S boats. On the
whole, I am very pleased, because it is impossible in these days of starvation
of shipbuilding to get all the submarine orders.
Who are the " other troublesome organizations " to which he
refers ?
Mr. Carse. I suppose they have pacifists in England, the same as
they have in the United States.
The Chairman. Yes; but pacifists in England could not upset
their submarine program.
Mr. Carse. They might very well. Who can tell what any organ-
ization might do ? He does not refer to Geneva there except "' or
other troublesome organizations."
The Chairman. That was January 1933 and we were approaching
the renewed disarmament conference.
Mr. Carse. People have "different opinions about that.
The Chairman. You do not think Craven was referring to that?
Mr. Carse. No, sir.
The Chairman. Not at all?
Mr. Carse. No ; because he expected to get the order when Geneva
had adjourned unless some other troublesome organization should
come into the picture.
Senator Clark. No; he does not do that, Mr. Carse. He does
not describe the other organization. Pie puts Geneva in the same
class. He states : " In other words, they will have the right to
withdraw their promised order for the second ship if Geneva or
any other troublesome organization upsets the large submarine."
So that he regarded the Geneva Conference as a troublesome organi-
zation, evidently.
Mr. Carse. I could not speak the English words for t]ie man
who wrote that.
The Chairman. Perhaps it is better to let the language stand by
itself without our undertaking to say what it does mean.
Mr. Carse. I would say so.
MUNITIONS INDUSTRY 33
The Chairman. At anj' rate, Mr. Carse, in this case there was a
premium for Vickers ancl for yourself in the event that the confer-
ence failed to come to an}^ agreement?
Mr. Carse, No; that is not it. Not come to any agreement, but
if any agi"eement that they made did not prohibit or prevent the
construction of submarine boats of the size indicated.
The Chairman. Lieutenant Spear, did you withhold from the
Navy Department and did you refrain from letting the Navy De-
partment know what Britain's plans were, as stated in this letter?
Mr. Spear. I said nothing about it to anybody until after it
became an established fact.
The Chairman. Why was he afraid that the information would
get into the hands of the Navy Department?
Mr. Spear. I could not tell you that. I do not know. I presume
they thought it was a confidential matter with the admiralty and
that if the admiralty chose to tell our delegates at Geneva what
they were contemplating, well and good, but it was up to them. I
really do not know anything about it.
The Chairman. Would it have been to the advantage of the dele-
gates of Britain in the disarmament conference to have contem-
plated building for the future and keeping the United States in
the dark as to having such ships that they had in part contracted
for?
Mr. Spear. That I do not know, ?<Ir. Chaiman. I know from
talks which I have had with some people who have attended these
conferences they thought that the right thing to do was to put their
cards on the table and tell each other vphat they contemplated
doing, in the event the agreement took a certain form. A^^ncther
they all lived up to that or not, I do not know, of course.
The Chairman. All in all, you and your associates or your com-
pany have had pretty direct understanding with Vickers all the
way through regarding their plans and your plans as related to
Fhipbuilding?
Mr. Spear, In general; yes, sir.
Senator Clark. Mr. Spear, you say that this information was
confidential information of the British Admiralty. It was not so
confidential to prevent Vickers giving it to yoii, a private con-
cern in this country, was it?
Mr. Spear. No.
Senator Clark. Mr. Carse, or Mr. Spear, do you have any written
contracts with Sir Basil Zaharoff with regard to this Spanish
business ?
Mr. Carse. There was something back in 1912.
The Chairman. Let that be offered as " Exhibit No. 23-A."
(The document referred to was marked " Exhibit 23-A" and ap-
pears in the appendix on p. 333.)
Senator Clark. Was there any subsequent agreement in writing
between the Electric Boat Co. and Sir Basil Zaharoff?
Mr. Carse. No ; not that I know of.
Senator Cl.^rk. Mr. Carse, do you understand that Sir Basil
Zaharoff still controls the Spanish armament business since the
Spanish people rose up and drove his cousin Alfonso out of the
country ?
34 MUNITIONS INDUSTRY
Mr. CaKiSe. I do not know.
Senator ClxVkk. Whatever contractual arrangement you have with
him is still in effect?
Mr. Caese. Still in effect, but we have not got any money.
Senator Clakk. But if you get any, you will have to " kick " over
5 percent to him^
Mr. Cakse. No, sir. Everybody all around the world is repudiat-
ing what they owe, or might owe, so that we do not kno,w where we
might come out.
Senator liAnuouR. You are not doing any business with him now,
or he with you at the moment?
Mr. Carse. We have not paid him any money for some years,
according to the statement.
Mr. Raushenbush. Since 1931?
Mr. Carse. Yes, sir.
Senator George. Mr. Carse, are there any restrictions applicable
to your patents that do not apply to all other American patents
generally i
Mr. Carse. I do not know exactly what you mean. I do not know
of any. Restrictions of what nature, do you mean ?
Senator Cxeorge. With reference to granting license to foreign
firms.
Mr. Carse. No; the patents do not contain any restrictions and
we have granted licenses in times gone by to shipbuilding concerns
of different countries. There was Great Britain, Holland, Norway,
and Austria.
Senator George. There are no restrictions on your base patents
applicable to submarine construction that do not apply generally to
patents issued or granted by our Government?
Mr. Carse. No, sir.
Tlie Chairman. The committee will be in recess until 1 : 30 o'clock
and the witnesses will please come back at that time.
(Thereupon, at 12: 15 p.m., the committee took a recess until 1: 30
p.m. of the same day.)
AFTER RECESS
The recess having expired, the committee resumed at 1 : 30 p.m.,
Hon. Gerald P. Nye (chairman) presiding.
The Chairman. The committee will be in order. There should
be incorporated in the record at this time a telegram received from
Senator Vandenberg, the only member of the committee absent, de-
claring :
[Telegram]
W 5 47 Govt. DL. Grand Rapids, Mich., 10:46 a.m., September 4, 1934.
Hon. Gerald P. Nye,
United States Senate:
Previous unbreakable engagements keep me from opening session of com-
mittee stop Hope to join you Thursday morning stop Deeply gratified at
progress our investigators seem to have made stop More and more convinced
that our committee task is of vital importance and that the people expect
results.
Senatok a. H. V.\.ndenbekg.
1112A
MUITITIONS IISTDUSTRY 35
Senator Pope. Mr. Chairman, I would suggest that the total of the
amount of royalties received by the Electric Boat Co. in connection
with this foreign business be inserted in the record.
The Chaikman. I suggest that that figure be inserted by the re-
porters at the point when that was being considered this morning.
Senator Pope. So that it may be made a part of the record; at any
rate, the amount is $3,809,637.38. That is the total of the figures as
shown on " Exhibit No. 8."
Senator Barbour. Is the range of time over which that is spread
stated ?
Senator Pope. Yes. They cover the years 1916 to 1927.
The Chairman. Before recess there was offered in evidence " Ex-
hibit No. 23-A", that being a copy of a memorandum concerning a
meeting held in London in June 1912.
Mr. Carse, 1912 does not mark the beginning of the relations of
your company with the Vickers concern, does it?
Mr. Carse. No, sir.
The Chairman. Who is Albert Vickers?
Mr. Carse. At that time he was head of Vickers Co.
The Chairman. And who was Isaac L. Rice?
Mr. Carse. He was president of the Electric Boat Co.
The Chairman. And at that time who was Basil Zaharoff?
Mr. Carse. Sir Basil Zaharoff.
The Chairman. Did he have any connection with a Spanish
munitions undertaking ?
Mr. Carse. I think at that time he was our European representa-
tive.
The Chairman. Was he not also at that time a director of the So-
ciedad Espaiiola de Construccion Naval?
Mr. Spear. I think he was.
Mr. Carse. I do not know myself. Mr. Spear thinks he was.
The Chairman. This copy of the memorandum of which I speak
is signed by Albert Vickers and Basil Zaharoff (Exhibit No. 23-A)
and says that—
A meeting was held in London in June 1912 at which an agreement, dated
18th June 1912 was drawn up between the Electric Boat Co. of New York,
and the Sociedad Espanola de Construccion Naval, of Madrid. At this meeting
there were present : Mr. Albert Vickers. chairman of Messrs. Vickers, Ltd.,
and vice president of the Sociedad Espanola de Construccion Naval ; Mr. Isaac
L. Rice, now deceased, but at the time of the meeting president of the Electric
Boat Co., New York; Mr. Basil Zaharoff, director of the Sociedad Espanola de
Construccion Naval.
Clau.se 9 of the above agreement reads as follows :
" For the purpose of maintaining the American company's business in
Europe it is agreed that 5 percent of the selling price of each boat shall be paid
by the Spanish company to the American company and that these payments
will be UKMle pro rata as and when the money is received by the Spanish com-
pany under the order for such boat or boats."
As to the application that had to be given to the amount representing the
said 5 percent of the selling price of each boat and how it was to be dealt
with, it was decided and agreed by the three above-named gentlemen that these
commissions be paid to and distributed by Mr. Basil Zaharoff.
We, the undersigned, hereby confirm the accuracy of the above statement.
(Sgd.) Albebt Vickers.
; (Sgd.) Basil Zahaeoff.
36 MUNITIONS INDUSTRY
I gather from the existence of this memorandum that it was
brought to you in confirmation of an agreement that was reached at
this London meeting.
Mr. Carse. Yes, sir.
The Chairman. Was this agreement the one that was so long dis-
cussed this morning between you and Senator Clark having to do
with the 5-percent commission?
Mr. Carse. Yes, sir.
The Chairman. Just why was the distribution of this commission
left to Mr. Zaharoff?
Mr. Carse. I do not know. It was a commission paid to him of
5 percent, which is not an out-of-the-way commission on securing
any important business, and what he did with it he alone knows.
The Chairman. In any event, Spain was affording a rather large
submarine business at that time, was it not i
Mr. Carse. It was starting a program but — there were only one
or two boats, were there not?
Mr. Spear. There was none for some years and then it began later
after that agreement.
The Chairman. On August 9, 1917, Mr. Carse, you sent certain
disbursements to Mr. Zaharoff. In any event, Mr. Zaharoff under
that date of August 9, 1917, acknowledged receipt, and his letter
read^:
Paris, August 9, 1917.
Heney R. Caese, Esq.,
President Electric Boat Co.,
Nassau and Pine Streets, New York.
Dear Sir: I am in receipt of your letter of 20th ultima, bringing me check
on Paris for francs 82,691.37, and note that further remittances will be made
on this account from time to time, as the funds are received by your company,
and I am, dear sir,
Truly yours,
Basil Zaharoff.
The Chairman. How much commission was paid Basil Zaharoff
up to 1919; are you prepared to say?
Mr. Carse. No, I could not say. This was on the Spanish account.
The Chairman. Will your records enable you to produce for the
committee the figures of commissions paid to him up to that time ?
Mr. Carse. I think 30.
The Chairman. What did you understand this commission that
has been recited here as 82,000 francs to be for? What was that
commission for?
Mr. Carse. The Spanish company would have remitted to us in
pesetas 5 percent of the amounts that they had received on a con-
tract for submarine boats for the Spanish Government.
Senator Clark. That was in addition to your share, was it not?
Mr. Carse. Yes. Our share came later. His share came first.
As he was in Paris we converted the pesetas into francs and sent
him a draft for francs.
Senator Boke. Does it appear in the records who owns this Span-
ish company?
The Chairman. It does not yet. I think now might be a good time
to develop that point.
Who owns the Spanish company?
Mr. Carse. I do not know. We have no knowledge of that at all.
MUNITIONS INDUSTRY 37
The Chairman. You do, however, have knowledge that Zaharoff
was very extensively interested in it?
Mr. Carse. We believe he was, but we have no definite knowledge.
Senator Pope. You do not know whether he is a stockholder in
the company or not?
Mr. Carse. No.
Senator Bone. Do you know whether Vickers had any interest
in it?
Mr. Carse. We do not know, but we believe they have an interest
in it.
Senator Clark. You knew Cravens was an officer of the Spanish
company, did you not?
Mr. Carse. During the last few years he has become an officer.
The Chairman. Do you feel that this commission of 82,000 francs
was Mr. Zaharoff 's own?
Mr. Carse. We have no reason to think otherwise.
ZAHAROFF — INCOME TAX
The Chairman. In 1917, Mr. Carse, the correspondence reveals
that you were drafting or having drafted a letter to help Zaharoff
avoid paying income tax on these commissions. There is now of-
fered in evidence as " Exhibit No. 24 ", a letter dated September 21,
1917, addressed to H. C. Sheridan, Esq., Woodward Building, Wash-
ington, D.C., by yourself.
Who was Mr. Sheridan ?
Mr. Carse. He owns the Hotel Washington. I do not know
whether at that time he had anything to do with the Hotel Wash-
ington, or not. He, at that time, was the agent of Vickers, Ltd.,
in this country, and he also was a representative of Sir Basil Zaha-
roff. I believe some question was raised as to income tax on the
payments to Sir Basil Zaharoff, and Mr. Sheridan took charge of it
and he took up the matter with White & Case, of New York, who
were one of the leading income-tax law firms. This came to me.
The Chairman. Was that income-tax law firm White & Case?
Mr. Carse. White & Case. This came to me — I do not know ex-
actly why they sent it to me instead of direct to Sheridan; and I
transmitted it to Sheridan.
The Chairman. In any event, Mr. Carse, in that letter to Mr.
Sheridan, " Exhibit No. 24 ", you said :
AVe handed to Messrs. White & Case the copy of the letter which you left
with us last Wednesday from Paris, and we are in receipt today of a letter
from them recommending that Mr. Z. make a reply somewhat as follows :
" Commissioner of Internal Revenue,
" Treasury Department,
" Washington, B.C., U.S.A.
" Dear Sir : I have received your letter of June 29 requesting me to fill in
the blank form 1040 enclosed therein showing my income derived from sources
within the United States. In reply I beg to respectfully inform you that I have
received no such income. The commissions of $1,360,000 referred to by you
were not income to me personally but were payments transmitted through me
to the corporation for which I am the agent here in I'aris.
" Respectfully yours ",
It is further suggested that Mr. Z. communicate to us any reply he may
receive to said letter and to advise with us before writing any letters or filing
38 MUNITIONS INDUSTRY
any reports that may be requested. Any commuuifations, of course, that come
from Mr. Z. will be taken up with Messrs. White & Case lor opinion.
Yours very truly,
(Signed) Henky R. Carse, President.
This would indicate, Mr. Carse, that you were in very close direct
knowledge of this income-tax difficulty. Your letter suprgested that
Mr. Z., meaning Mr. Zaharoff, I suppose, make a showing that the
commissions of $1,360,000 were not income to him personally, but
were payments transmitted through him to the corporation for which
he was an agent.
Now, what corporation could that possibly have been ?
Mr. Carse. It might have been many of them. That was a com-
mission not on business done in the United States.
Senator Claek. What corporation did you have in mind, Mr.
Carse, that he was agent for when you made that suggestion to him,
the suggestion that he write that letter ?
Mr. Carse. I did not make that suggestion. White & Case made
that suggestion.
Senator Clark. You transmitted it?
Mr. Carse. Yes ; I transmitted it.
Senator Clark. What did you understand that meant, when you
transmitted that suggestion ?
Mr. Carse. I did not know who he meant. It might have been
Vickers or it might have been someone else.
Senator Clark. Where did you get the suggestion that that had
actually been commission going to a company instead of to Mr.
Zaharoff personally?
Mr. Carse. I did not make that.
Senator Clark. I say, where did you get the suggestion that you
transmitted to Mr. Zaharoff?
Mr. Carse. From White & Case.
Senator Clark. They did not make any suggestion to you as to
what company he was agent for ?
Mr. Carse. No.
Senator Clark. They just suggested to you that you write Zaharoff
and suggest to him to write a letter to the United States Bureau of
Internal Revenue, setting up that he had passed these commissions
on to a firm ?
Mr. Carse. That was not the point. Mr. Sheridan had taken this
up with White & Case directly and they wrote this letter to me. I
think mj^self they should have written direct to Mr. Sheridan, be-
cause he was handling it and I simply transmitted it. These
commissions, I believe it was decided, were not
Senator Clark (interposing). Just before you go on with that,
Mr. Carse, j^ou had first submitted Sir Basil Zaharoff 's letter to
Messrs. White & Case ?
Mr. Carse. No. I had submitted Mr. Sheridan's letter
Senator Clark. To Messrs. White & Case. Did Mr. Sheridan
make any suggestion as to where these commissions had gone at the
time he wrote you this letter?
Mr. Carse. I do not recall that he had made any definite statement.
Senator Clark. Do you have a copy of Mr. Sheridan's letter that
you submitted to White & Case?
Mr. Carse. I do not know. It was all there, but I do not know.
MUNITIONS INDUSTRY 39
Senator Bone. Why would this firm of New York lawyers ask
you to write that kind of a letter, instead of writing it themselves?
Mr. Carse. They did not ask me to write that letter. They sent
that to me to transmit to Sheridan and have Sheridan, who repre-
sented Sir Basil Zaharoff, have him write such a letter.
Senator Clark. Who opened up the negotiations with White &
Case? Did you do it?
Mr. Carse. No. Sheridan did it.
Senator Clark. How did you happen to be submitting a letter to
White & Case from Sheridan ?
Mr, Carse. Sheridan was in the office there. He was one of our
directors at that time and he wrote this letter addressed to White
& Case.
Senator Clark. Why did you have to hand it to Wliite & Case if
Sheridan wrote the letter? Why did you have to do it? You say in
this letter :
Dear Mr. Sheridan: We handed to Messrs. "Wliite & Case the copy of the
letter which you left with us last Wednesday from Paris and we are in
receipt today of a letter from them recommending that Mr. Z make a reply
somewhat as follows :
What did you have to do with it ?
Mr. Carse. I suppose I introduced him to White & Case, that is
all.
Senator Clark. Did your introduction of him to White & Case
make it necessary for you to deliver all communications from Sheri-
dan to White &'Case?
Mr. Carse. He asked me to send it to them. He was in the office.
You see, this goes back a good many years.
Senator Barbour. The Electric Boat Co. would have to report
any income to a third party, I take it?
Mr. Carse. Not if it were earned outside the United States. That
had been passed upon in relation to the salary paid to Koster.
Koster's salary was earned entirely in Europe. It was not anything
that was done in the United States for which he was paid. That
was passed upon by the Internal Revenue Bureau as not coming
within the act.
Senator Barbour. That is exactly what I mean. You people
would know, in other words, whether it was for services in the
United States or not?
Mr. Carse. Yes.
Senator Barbour. If it was not, it would be your duty to desig-
nate it that way, as I see it ?
Mr. Carse. If it were earned in the United States.
The Chairman. But, ]\Ir. Carse, this letter of yours to Mr. Sheri-
dan has you revealing a belief, or at least you are suggesting, that
Mr. Z make a showing that this income of $1,360,000 was not income
to Zaharoff personally. Yet there is a letter written on the 9th of
August 1917 in connection with which you have said that the 82,000
francs paid to Basil Zaharoff was, so far as you knew, his own per-
sonal income.
Mr. Carse. Yes.
The Chairman. That it went to him, not to anyone else.
Mr. Carse. So far as I know ; yes.
40 MUNITION'S INDUSTRY
The Chairman. How do you square off these two letters 6 weeks
apart ?
Mr. Carse, I did not write that letter.
The Chairman. What letter ?
Mr. Carse. This letter here, suggesting the kind of a letter Sir
Basil Zaharoff' should write. That was not my letter.
The Chairman. But that was incorporated in your letter.
Mr. Carse. I passed it along as the advice of White & Case.
The Chairman. Did you know then that this was false, that the
commission of a million dollars referred to actually was Sir Basil
Zaliaroff's income?
jSIr. Carse. No; I did not know anj^thing about Sir Basil Za-
liaroff's income or what he did with it.
The Chairman. But you have told us with respect to a letter by
Sir Basil Zaharoff G weeks earlier that 82,000 francs that he received
was his own personal income.
Mr. Carse. So far as I had any advice. I do not Imow what
Zaharoff did in his business. He did not tell me.
The Chairman. You believed that, but here in this letter you are
indicating a belief or an understanding at least that none of this
commission was personal income to Basil Zaharoff.
Mr. Carse. That Avas not my thought or my knowledge. That
was White & Case's suggestion. I did not say it was so.
The Chairman. The most interesting point of all is this: Did
Zaharoff succeed in escaping the payment of any income tax in the
United States?
Mr. Carse. I do not know. I believe there was some settlement,
but I never knew what it was. Sheridan never told me. It was
handled entirely by him. I did not have any more to do with it
except trajismit that advice from AVhite & Case to Sheridan.
Senator Bone. You do not know whether he or his undisclosed
principals paid any tax to the Government on that?
Mr. Carse. I heard that there was a settlement made.
Senator Bone. A settlement?
Mr. Carse. Yes.
Senator Bone. With the Internal Revenue Bureau ?
Mr. Carse. Yes ; that is correct.
Senator Bone. Could you tell us out of what transactions the
income of $1,300,000 arose ?
Mr. Carse. Well, I would have to check that.
Senator Bone. Were those commissions on sale of munitions?
Mr. Carse. Munitions? What do you call munitions?
The Chairman. Submarines or machinery for submarines.
Senator Bone. That were produced in this country? Was the
equipment produced in this country, on which that commission was
paid ?
Mr. Carse. I would have to check that out.
Senator Bone. Is there any way of finding out, so that j'ou can
let us know on what transactions that commission was paid?
Mr. Carse. Certainly.
Senator Bone. Whether it was on machinery and equipment pro-
duced in this collntr3^ I would like to have that made a part of the
record at some point later, if that information can be checked on.
MUNITIONS INDUSTRY 41
I would like to be informed as to whether that transaction arose in
this coimtr}^, whether the profit or the comuiission was on a trans-
action involving equipment that was produced in the United States.
Because if it was, I cannot see why the Government should have
compromised a case of that kind even though the money went to a
foreign country.
Tiuit is all, Mr. Chairman.
The Chairman. Mr. Carse, the suggestion by White & Case, which
was incorporated in your letter to Sheridan under date of Septem-
ber 21, 1917, is that a showing be made that the $1,360,000 referred
to constitute payments transmitted through ZaharoU' to the cor-
poration for which he was the agent in Paris. For what concern
was he the agent in Paris?
Mr. Carse. Not necessarily in Paris.
The Chairman. That is what the letter says.
Mr. Carse. The business extends all over Europe.
The Chairman. Did Vickers have offices in Paris?
Mr. Carse. I think he represented Vickers in some respects.
The Chairman. Do you sujjpose that this $1,300,000 was income
to Vickers?
Mr. Carse. To anybody. I do not know who it might have been.
I would have to see if I can check it out for you.
The Chairman. I wish we could be clearer on that if it is at all
possible. Could he have been agent for this Spanish boat building
concern that had an office in Paris?
Mr. Carse. He may have been.
Tile Chairman. Did you have any understanding at any time that
these payments were anything other than commissions directly to
Sir Basil Zaharoff?
Mr. Carse. Well, they were made to him. I had no way of going
behind the scene to find out whom he represented or how he was
going to handle the amounts that he received.
Senator Bone. Who paid this money to Zaharoff — your firm?
Mr. Cakse. Yes; our firm.
Senator Bone. The Electric Boat Co.?
Mr. Carse. The Electric Boat Co.
Senator Bone. Paid $1,360,000 to Zaharoff?
Mr. Carse. Yes.
Senator Bone. Was that monej'^ that came into your possession
through business operations?
Mr. Carse. It must have; yes.
Senator Bone. Then 3'ou can inform us now out of what transac-
tions it arose, can you not? That is a very large sum of money.
]Mr. Carse. I know it is.
Senator Bone. Did it represent commissions on submarines that
your firm built?
Mr. Carse. I would like to be exact. I would like to look it up in
our records and figure it all out. I do not want to give you any
inaccurate information.
Senator Bone. Of course, I do not expect you to be able to repeat
from memory; perhaps your memory might be faulty. But that is
a very large -um of money to pay a man in one commission,
Mr. Carse. We did not pay him that in one commission at one
time. It was a series of commissions.
42 MUNITIONS INDUSTRY
Senator Boxe. A series of commissions; but that is a very large
sum of money. I should think perhaps that you would know in a
general way at least out of what transaction or transactions it grew.
Mr. Carse. Well, I could not say what it all grew out of.
Senator Bone. Will you supj^ly the committee Avith that informa-
tion later?
Mr. Cause. Certainly.
Senfitor George. Mr. Carse, this letter to which we have been re-
ferring, after quoting the suggested letter from White & Case, adds
this :
It is further suggested that Mr. Z communicate to us any reply he may
receive fnmi said letter and to advise with us before writing any letters or
filing any reports that may be requested.
That seems to be a part of your own letter, does it not ? AVill you
examine it?
Mr. Carse. I have read it. I do not know whether that — have
you got a letter from White & Case to me, Mr. Kaushenbush ?
Mr. Kaushenbush. No; we did not find that.
Mr. Carse. I think you have it. I think that is a part of White
& Case's letter.
Senator George. I think if you will examine this copy you will
see that it is not.
Mr. Carse. I have the copy right before me. I think you must
have the letter from White & Case to me. I think you will find the
whole thing is in it.
Mr. Raushenbush. We can examine our files, but I do not remem-
ber it.
Mr. Carse. It was a full page, was it not?
The Chairman. Mr. Raushenbush, what have our agents revealed
respecting the condition of the files from which all of this material
was taken?
Mr. Raushenbush. They seem to be in good shape, as far as the
files of the company in New York and at Groton went.
The Chairman. Did there appear to be any part of the con-
secutive file or correspondence missing?
Mr, Raushenbush. Not from the files of the company as far as
the New York and Groton offices went.
The Chairman. So it is fairly possible that we may have in them
the record of this White & Case correspondence?
Mr. Raushenbush. It may be.
Tile Chairman. Mr. Spear, when did you first become connected
with the Electric Boat Co.?
Mr. Spear. In 1902.
The Chairman. As an officer at that time?
Mr. Spear. No; as a technical employee in charge of their design-
ing and construction.
The Chairman. When did your connections become such as to
occasion your activity abroad?
Mr. Spear. I used to accompany Mr. Rice, the president then,
abroad to advise him on the technical aspects of the matter.
The Chairman. In those earlier days?
Mr. Spear. In those earlier days. Later on — I do not recall the
exact date — later on I became a director and vice president. The
MUNITIONS INDUSTKY 43
record will show the date. I do not remember. It was a good many
years ago.
The Chairman. But there came a time when you went or were sent
on your own, not as an adviser, but as a rej)resentative of the com-
pany, to Spain?
Mr. Spear. Yes; later on. I have visited Spain.
The Chairman. Writing to the Electric Boat Co. under date of
July 24, 1923, Basil Zaharoff says :
Although I have no douht that Lieutenant Spear keeps you informed re the
Spanish husiness, it may not be out of pUice if I also report. On his arrival
in Paris, Lieutenant Spear came to luncheon at my house with Mrs. Spear,
after which we had a long talk about the Spanish business, and I prepared
Lieutenant Spear's line of conduct for him previous to his going to Spain,
Just what was the meaning of that? How was 3^our line of con-
duct prepared for you? Tell us about your visit at that time with
Mr. Zaharoff.
Mr. Spear. I am speaking now from memory about that particular
visit, and subject to any lapse in my memory. I think that was the
time when I was endeavoring to arrange with the Spanish company,
instead of waiting until they completed the work we had in hand
and accounted for the costs and profits, to transform that into a fixed
percentage, so that we could receive some money immediately with-
out waiting for this work to be finished. I think that was at that
time, and that was the object, the only object I then had, as I recall
it. The only active business I had to do with Spain was to secure
their consent to a modification of the original agreement. I believe
that is what he is referring to there.
The Chaikman. Surely, there were matters of diplomatic relations
that would have to be considered in a mission of that kind and his
experience would put him in a position to acquaint you with the
situation in Spain, would it not?
Mr. Spear. I thought he was a very good adviser as to how T
should approach the gentlemen, particularly as I then understood
that he was a director in that company himself. I wanted his advice
as to how I should approach and how I should deal with that issue.
The Chairman. Mr. Zaharoff goes on in this letter to say :
On his return from Spain I thought it wise to go and see our Spanish friends,
and to generally study the position, and during my conversations with the
authorities I found that the Ministry of Marine was very frightened about our
idea of introducing German machinery into the submarine boats ; in fact so
disturbed about this that they nearly broke off the negotiations.
Mr. Spear, That came about in this way. At that time we were
the licensees of the Maschinenfabrik Augsburg Nurenberg.
The Chairman, You mean the Electric Boat Co, was the licensee ?
Mr. Spear. We had the American license on their design and pat-
ents on Diesel engines. That was the firm that developed tlie par-
ticular Diesel engine which was used so extensively in Germany in
their submarines during the war and at that time it was considered
generally to be as good, if not better, than any other Diesel engine
for that particular purpose.
We had prepared some designs for the Spanish Government, The
design of a submarine is a very intricate matter and the machinery is
very intimately connected with the whole design. In that design
we had brought up this particular type of engine which could be
44 MUNITIONS INDUSTRY
obtained by the Spanish Government either from us or could be
obtained from Germany or some other licensee of the German firm.
The Chairman, When did you become the licensee of the German
firm?
Mr. Spear. I think 1910.
The Chairman. And you were licensed right on during the war
time and up to this time in 1923 at least?
Mr. Spear. Yes; up to that time. I think the license expired
in that year.
The Chairman. Did you exercise your rights under that license
during the war?
Mr. Spear. Yes and no. During the war, the only instruments
that we built for the United States Government were designed by
us, not by the German firm. During the war, of course, we had
no communication with the German firm and we never received
any plans of any of these developments that they made during the
war, until after the war was over.
The Chairman. Did the German firm have access to your plans
and your designs?
Mr. Spear. No.
The Chairman. The American plans?
Mr. Spear. No.
The Chairman. Were they a licensee of yours?
Mr. Spear. No.
The Chairman. Were thej'^ a licensee of Vickers?
Mr. Spear. No.
The Chairman. Or of this Spanish company?
Mr. Spear. No. They had no connection with them. They were
piirely an engine firm.
The Chairman. Mr. Zaharoff goes on in this letter as follows :
A smoothed the matter carefully, and after meeting the Spanish board in
Madrid I returned to Paris, and shortly after Colonel Fuster, the managing
director of the Constructora Naval, came to see me in Paris, when we ar-
ranged for the line of conduct to be followed by all of us at the meeting which
was to take place between Messrs. Vickers, Lieutenant Spear, and the two
Spanish representatives.
Colonel Fuster has just returned and stopped here on his way to Spain, and
tells nie that the meeting at Messrs. Vickers. in London, was very satisfac-
tory, and that he thought that the ideas put forward by Lieutenant Spear
would be acceptable to the Constructora Naval, and also to the Spanish Gov-
ernment, and I must congratulate Lieutenant Spear on his tact and great
authority in the matter, and I feel confident that everything will go to the
satisfaction of all concerned.
Will you please in future remit me in ])esetas on Madrid, instead of in francs
on Paris, which would be more convenient for me to deal with the question;
and I am, gentlemen.
Sincerely yours,
Basil Zaharoff.
What were tliese ideas that you put forth at that London
meeting?
Mr. Spear. I hesitate to say, because I do not recall the details of
that meeting. I presume that we discussed ways and means of dis-
j)cnsing with the German design engine in those boats.
The Chairman. Of getting away from that design entirely?
Mr. Spear. Of getting away from that design. I also think we
discussed this other question I spoke to you about, of modifying our
MUNITIONS INDUSTRY 45
agreement so we would receive a percentage of the contract price
rather than a share of the profits.
The Chairman. What does Mr. Zaharoff mean when he suggests
that remittance be made to him in pesetas on Madrid instead of in
francs on Paris when he says that this would be more convenient
for him to deal with the question?
Mr. Spear. I do not know.
The Chairman. Were you making remittances to him in connec-
tion with this particular difRcuity you were having with Spain?
Mr. Spear. No, no remittances in that connection at all.
The Chairman. Whatever remittances he got were these com-
missions ?
Mr. Spear. Those that you have already discussed.
The Chairman. His closing paragraph in this letter would make
it appear that there was need for pesetas to do the business with
them.
Mr. Spear. Possibly so. I know nothing about it, Mr. Chairman.
The Chairman. Recalling the matter, do you recollect now that
the Spanish were very much alarmed about the use of this German
machinery?
Mr. Spear. I did not think they were as much alarmed as Sir
Basil thought they were, but I did see some signs that for some
reason of their own they thought it an undesirable thing to do.
The Chairman. On September 11, 1923, Mr. Zaharoff wrote you,
Mr. Carse, saying :
I quite agree with you that the era of submarine boats is now opening all
over the world, aucl I trust it will bring much business to your company, and
you may count upon my little efforts always working in your direction.
Are we to draw the conclusion that his efforts in your behalf were
really little or was he engaged in your behalf in a large way, Mr.
Carse ?
Mr. Carse. Well, I suppose he was a very modest man. When
was that?
The Chairman. September 11, 1923.
Mr. Carse. We have never received any business through any
efforts he might have made other than that Spanish business since
that time.
Senator Clark. It is already in evidence, Mr. Carse, that the
business that he brought in amounted to something like $2,000,000
at 5 percent. In other words, $2,000,000 was only 5 percent of the
business that he brought? That appears from figures already put
in the record.
Mr. Carse. No. I thought it was only $700,000.
Senator Clark. That is since 1919. There was put in evidence
just a while ago the fact that there was $1,350,000 in addition to
that which had been paid by vou to him in commissions.
Mr. Carse. That was before" 1923.
Senator Clark. Well, how much was it? How much did his
commissions amount to during the period of the contract?
Mr. Carse. You have it here.
Senator Clark. That schedule is since 1919. But we have got
an additional figure of $1,350,000 in connection with which the
income-tax matter was taken up.
83876— 34— PT 1 4
46 MUNITIONS INDUSTRY
Mr. Carse. I will have to check that out.
Senator Clark. I should be glad ii: you would do that and
furnish the information for the record, please.
Senator Barbour. Did you get any business for submarine boats
through Sir Basil Zaharotf other than for Spain ?
Mr. Carse. Way back in the early days Sir Basil did arrange some
negotiations with one of the building concerns in Russia, but nothing
developed from that until the war came along.
Senator Bone. How far back was that, Mr. Carse?
Mr. Spear. I should think, speaking from memory now, that that
contract was entered into — that is, with the Nevsky Shipbuilding
Co.— along in 1908, 1909, or 1910.
Senator Clark. Was it under that contract that, during the period
of the war when the United States was supposed to be neutral, you
shipped parts of submarines abroad and had them assembled in
Russia ?
JNlr. Spear. No. That was a direct order from the Russian Gov-
ernment.
Senator Bone. Were Sir Basil's relations with the Russian Gov-
ernment— that is, the old Czarist government — cordial at that time ?
Mr. Carse. It was long before my time. I reall}'' do not know.
Senator Barbour. What I had in mind when I asked j'ou the
question was that there were two altogether separate transactions;
one was the transaction that you people had with the Spanish Gov-
ernment to sell them submarines, which is your business. The other
transaction was with Sir Basil, to give him a certain commission to
help you get that business.
Mr. Carse. Yes.
Senator Barbour. And that is all that it amounts to, is it not?
Mr. Carse. That is right.
The Chairman. I will ask that the letter of September 11, 1923,
become a part of the record as " Exhibit No. 25."
(The letter referred to was marked " Exhibit No. 25 " and appears
in the appendix on p. 334.)
The Chairman. Mr. Spear, writing from the Hotel de Paris,
Monte Carlo, on the 8th of March 1924 Mr. Zaharoff said to you
as follows:
Exhibit No. 26
Hotel de Paris.
Monte Carlo,
8th March 1924.
Lieutenant L. Y. Spear,
The Electric Boat Company,
Groton, Conn.
My Dear Spear : Sir Trevor Dawson, w ho is staying with me, has shown me
your letter about the unsatisfactory way in which the submarine work is being
done, and to begin with I am writing somewhat diplomatically to Madrid,
without going into details, and I will later on either get the managing directors
of the constructora naval to come and see me in Paris on the subject, or,
preft>rably, I will go to Madrid myself, as this matter needs careful attention,
and I will keep you informed of results.
Sir Trevor also showed me your letter about the delay in the new contract,
and as this question calls for speedy attention I am telling Madrid that it is
in the interest of all concerned that the new contract should be signed without
delay, and I have no doubt that this will be done.
I am, my dear Spear,
Sincerely yours,
[S.] Basil Zaharoff.
MUNITIONS INDUSTRY 47
Who was Sir Trevor Dawson?
Mr. Spear. Sir Trevor Dawson was a director in Vickers, managing
director as I recall it at that time.
Senator Bone. In what business?
Mr. Spear. Vickers.
The Chairman. He was a Britisher, of course?
Mr. Spear. Yes, an Englishman.
The Chairman. Mr. Carse, when did you go to Europe?
Mr. Carse. In 1924.
The Chairman. It was after 5^ou had been in Europe, then, that
Basil Zaharoff wrote you from Paris on the 13th of February 1925 as
follows:
Paris, ISth February 1925.
Messrs. The Electric Boat Company,
Nassau and Pine Streets, New York.
Gentlemen:
I beg to acknowledge receipt of your letter dated 3rd inst., bringing me cheque
for — Fes. 391,497.68 on Madrid, with which I am doing the needful.
I avail mj-self of this opportunit}' to say good morning to your president, in
the hope that Mrs. Carse and Master Carse are in excellent health, and
I am, gentlemen.
Truly yours,
Basil Zaharoff.
The Chairman. What is the meaning of that language "with which
I am doing the needful"?
Mr. Carse. I do not know. I do not know what he did with the
money we gave him.
The Chairman. What did you understand that this remittance was
for?
Mr. Carse. That is the 5 percent on some payment that we had
received from Spain. They had sent us 5 percent and I transmitted
it to him.
Senator Clark. What did you understand when you read this
letter Sir Basil Zaharoff to m.ean by the language "with which I am
doing the needful"?
Mr. Carse. I did not understand anything about it. I do not ask
people what they are doing. It is none of 1113^ business.
Senator Clark. That phrase was just a meaningless phrase to you
in Sir Basil's letter?
Mr. Carse. Yes. It did not mean anything. He never told us
what his expenditures were.
Senator Bone. Mr. Carse, does the language "doing the needful"
have any particular significance in a country Uke Spain?
Mr. Carse. I do not know. I do not know what he did with it.
I do not know whom he employed or anything of the kind. One can
make all sorts of guesses and have all sorts of dreams, and so on.
But you are talking facts. You are asking for facts. I do not
know anything about what he did with the money. From what I
know of Sir Basil, I would rather think that he kept it for himself.
The Chairman. I will ask that tliis letter be made a part of the
record as "Exhibit No. 26".
(The letter above referred to was thereupon marked "Exhibit No.
26" and appears in text on p. 46.)
Senator Barbour. So far as you are concerned, you had no under-
standing with him as to what he was to do with any of it?
48 MUNITIONS INDUSTRY
Mr. Carse. No, absolutely nothing.
Senator Barbour. Yon did not care.
Mr. Carse. He would not have explained any of his actions to-
me. He was not a little commission agent that you would find on
the street and tell him what he was to do.
Senator Clark. At this time you were operating under the new
contract, were you not?
Mr. Carse. Evidently.
Senator Clark. 1925?
Mr. Carse. Yes. Evidentl}^ the Spaniards had agreed to the
modification which had been propose'd and which I laid before Sir
Basil in August 1924.
Senator Clark. Which meant that you were getting either 3K
percent or Iji percent on the work yourselves, depending on the basis
on which the Spanish company did the work and Sir Basil was
getting 5 percent. Is it not a rather unusual arrangement by which
your agents in the sale of submarines get more than the company
itself?
Mr. Spear. Just let me correct one thing. I think the 5 percent,
as I recall it, only went with the 3 percent, but when we got only
|1K percent, he got nothing, I believe.
1 Senator Clark. He got nothing. ,
Mr. Spear. I think so.
Senator Clark. He only got 5 percent when you got 3K percent.
Mr. Spear. Yes.
Senator Clark. It is not rather unusual to have an arrangement
by which the agent in the sale of submarines gets a bigger percentage
than the company itself?
Mr. Sfear. It is the only case I know of. Perhaps I might add
this, that new contract was a joint agreement and the two licensors
got more than the agents — the two put together. But they had to
divide it up.
Senator Clark. He got 5 percent in order that "he might do the
needful."
Mr. Spear. We got a total of 7 percent and he got a total of 5
percent. We had to divide the 7 percent up.
Senator Bone. Can you tell us whether this British gentleman who
was named a moment ago, Sir Trevor Dawson, is a director or an
officer of this Spanish company?
Mr. Carse. He is dead.
Mr. Spear. I believe he was.
Senator Bone. That would seem to indicate that the British
firm of Vickers had some interest in the Spanish firm.
Mr. Spear. It is my understanding that they did. They certainly
had a technical interest, because they had a technical board in Eng-
land advising them on their technical operations. It is my under-
standing— I cannot testify to that as a fact — but it is my under-
standing that they also owned some of the stock of tie Spanish
company at that time.
Senator Bone. Did Sir Basil ZaharofT have any stock in it?
Mr. Carse. It is my understanding that he did. I do not know
how otherwise he could have been a director, as I understand he was.
Senator Bone. He was a director of the Spanish company also?
Mr. Carse. So I understand, and I suppose he held stock.
MUNITIONS INDUSTRY 49
Senator George. Did you understand that he was a director of the
Spanish compan,y all along over a period of years?
Mr. Spear. Sir Trevor Dawson or Sir Basil Zaharoff?
Senator George. Sir Basil Zaharoff.
Mr. Spear. My understanding is that he was a director over a
period of years, yes.
Senator George. And was also director of Vickers?
Mr. Carse. I believe he was, although I do not know that he
continued to be a director of Vickers as long as he was a director of
the other company or not.
Senator Bone. Do the facts seems to indicate that he, as a director
of Vickers and an officer of the Spanish company, was getting this
commission aside from what the company was getting out of it?
Mr. Spear. The facts are just as wc testified.
Senator Bone. Are those facts that he was getting that 5 percent
outside of what the company was getting out of it?
Mr. Spear. Yes.
Senator Barbour. You do not know what he did with the 5 per-
cent, whether it went back to the company or net?
Mr. Spear. I do not know it went back to the company.
The Chairman. I ofi'er as coiranittee " Exhibit No. 27 " the letter of
March 1, 1925, addressed to Mr. Carse by Mr. Zaharoff.
(The letter referred to was marked "Exhibit No. 27" and appears
in the appendix on p. 334.)
The Chairman. In that letter Zaharoff acknowledges receipt of
Mr. Carse's report to him of the state of the American Boat Co.
markets, and he promises that —
on my arrival in Madrid on 12th April I convoke your representatives and
those of the Constructora Naval to state their claims to me.
What do you recollect about that, Mr. Carse?
Mr. Carse. Daniell was our technical representative at the plant
of the Sociedad, that is, the Constnictora Naval, the Spanish concern.
Mr. Spear. I tliink this was it. I do recall at one time Mr. Daniell
said that some of the technical methods used in doing the work did
not fully meet with his approval, and I believe the reference was tliis,
that an arrangement be made so that the Spanish authorities down
in the shipyard would recognize the fact they must make the work
satisfactory to our representatives, because we were responsible for
the technical performance of the boat for speed and other qualities.
The Chairman. I offer as "Exhibit No. 28" a letter dated March
27, 1925, written hj Basil Zaharoff and directed to Mr. Carse.
(The letter referred to was marked "Exhibit No. 28 ", and appears
in the appendix on p. 335.)
The Chairman. In this letter, "Exhibit No. 28 ", Mr. Zaharoff says:
Having attended to the principal part, I now come to the rest of your letter,
and reassure you that on my arrival in Madrid, 2 weeks from now, I will imme-
diately deal with the differences between your good selves and the Constructora
Naval and your Mr. Daniell is already informed of my intention, and will meet
me in Madrid.
It is good to know that Congress has passed a bill in your favour, which I hope
will be very satisfactory to you, and I must congratulate Lieutenant Spear on the
diplomatic way in which he has handled this matter and has obtained such a
result.
Mr. Spear, were you doing some lobbying, or were you active in
supporting some bill back in 1925 or 1924?
50 MUNITIONS INDUSTRY
Mr. Spear. There was a bill then pending for the relief of contrac-
tors.
Senator Clark. For the relief of what?
Mr. Spear. For the relief of contractors. During the war, where
they had received orders from the Navy Department to do certain
things and they had executed those orders, and the Comptroller's
Department held the Navy Department had no authority to give such
orders, the result of that being that the Navy Department inaugurated
a bill and submitted it to Congress in which they sought to have a
commission or body set up to deal with those matters and do equity*
Eventually such a bill was passed, but we never acted under that bill.
We eventually brought our matter into the Court of Claims and
disposed of it there.
Senator Clark. "Where did Zaharoff get the idea you were active
in that matter?
Mr. Spear. I do not know, but I can say this: Sir Basil was the
most polite man I ever saw. I think he ascribed to some young men
qualities they did not have.
The Chairman. I offer in evidence committee's ''Exliibit No. 29",
being a letter written by Mr. Spear to Mr. Zaharoff under date of
May 8, 1925.
(Said letter was marked "Exliibit No. 29" and appears in the
appendix on p. 335.)
The Chairman. The first paragraph of that letter, "Exhibit No.
29", is as follows:
Please accept mj^ thanks for your notes of the 14th, 24th, and 28th ultimo, all
relative to the Spanish business any my congratulations upon the results which
you have secured with respect to the new contract. It goes without saying that
we are all pleased with the outcome and grateful to you for j'our successful inter-
vention in the matter. I note that the new arrangement will not become effective
until after the next Constructora Naval Board meeting which I assume will be
held before very long. In the meantime, I should like to prepare a draft of the
necessary form of agreement between the Constructora Naval on the one hand
and Messrs. Vickers and ourselves on the other as well as of the necessary agree-
ment between Messrs. Vickers and ourselves, and in order to do that I shall
require to know whether or not under the new arrangement we shall continue to
receive and pass to you a certain percentage of the contract price. Perhaps you
will be good enough to let me know about this at your convenience.
Now, what was the miderstanding up to this time?
Mr. Spear. It was that 5 percent of the contract price was passed
to Sir Basil Zaharoff.
Senator Bone. Was any part of that business in which your firm
supplied none of the material?
Mr. Spear. I beg your pardon; I didn't quite understand.
Senator Bone. In other words, were you given any part of the
profits on equipment over there which your firm did not manufacture
under that agreement?
Mr. Spear. Under that agreement the first submarine built in Spain
we supplied from our own plan the engines and certain other parts,
such as electric motors. In the subsequent vessels we did not, but
those were all secured in Europe, mostlj^ in Spain, because they were
trying to build up their industries in Spain, and desired to have the
work done in Spain.
Senator George, Is that Spanish concern entirely a private
concern?
MUNITION'S INDUSTRY 51
Mr. Spear. It is entirely a private concern in a way, but in a way
it is semipublic in character, in that it is a very widespread concern,
and some of the properties they operate belong to the Government,
and they did have a very broad general agreement with the Spanish
Government. It covers not only such things as we are discussing,
but also merchant ships, locomotives, and all sorts of things.
Senator George. The Spanish Government dealt entirely through
this concern?
Mr. Spear. With us?
Senator George. Yes.
Mr. Spear. Yes, sir; the negotiations were always directly between
the Sociedad and the Spanish Government,
Senator Bone. Do you know whether the vSpanish Government
subsidizes in any manner this concern?
Mr. Spear. I believe it does in an indirect way, because I have
seen notices in the Spanish press with regard to the difficulties this
company was in, and the government was coming to its rescue, in
order to maintain employment in its yards.
Senator Bone. In other words, the government abdicates its right
to build its own ships and gives this private yard the privilege of
doing that, and subsidizes it, as you say?
Mr. Spear. I should say that there was an element of subsidy in it
in some way.
Senator Bone. Would you say the subsidy was concealed in some
manner?
Mr. Spear. No, I said these are all public matters as to the arrange-
ment between the company and the government.
Senator Bone. I was wondering if you could enlighten us on that.
Mr. Spear. I do not know of any subsidy, but I do know that when
business got bad in Spain as it did everywhere, there came up the
question of the discharge of a lot of workmen on these different ships,
and when that arose the Government itself intervened and made some
arrangement for ordering some ships, or doing something for the
purpose of preventing unemployment that might arise. In other
words, if these people had been left without employment, they would
have had to very largely reduce their force, and I know the Govern-
ment did take some action to prevent tbat being done. My knowl-
edge of that is entirely from what was published in the Madrid press.
I had no communication about that from the Sociedad.
DIRECTORS AND STOCKHOLDERS
The Chairman. Mr. Carse, is it correct that yourself, Henry R.
Carse, Otto Marx, Stephen Peabody, A. S. Roberts, Charles P.
Hart, Joseph A. Sisto, Henry R. Sutphen, Lawrence Y, Spear, and
Herbert A. G. Taylor constitute the board of directors of the Electric
Boat Co. at this time?
Mr. Carse. Yes, sir.
The Chairman. I find here given the name of A. S. Roberts. Is
that the same Roberts to whom reference was made this morning?
Mr. Carse. Yes, sir.
The Chairman. And whom the Vickers agent was to see over here
on a trip he was making to America?
Mr. Carse. Yes, sir.
52 MUNITIONS INDUSTRY
The Chairman. I think the record should contain the business
connections of all members on the board. As relates to this, Mr.
Carse who is president and director, your address is given as 40 Wall
Street, and it is indicated that you are president and director of the
Duralumin Co.
Mr. Carse. That was a subsidiary of the Electric Boat Co. The
American Duralumin Co., we call it.
The Chairman. How did you pronounce that?
Mr. Carse. D-u-r-a-1-u-m-i-n Co. The British company is called
the Duraluminum Co., and we leave off the one syllable. The
Duralumin Co. was the licensee of some German patents which Mr.
Rice secured sometime back, and the Electric Boat Co. owned all of
the stock, and when I went with the company I became president
and director of all of these little subsidiaries.
The Chairman. That was true of the Electric Dynamo Co.
Mr. Carse. Of the Electro Dynamic, yes.
The Chairman. What is Transmarine?
Mr. Carse. The Transmarine was a subsidiary of the Submarine
Boat Company organized to operate ships which the Submarine Boat
Company had taken over from the Emergency Fleet Corporation.
The Chairman. You are also trustee of the Central Hanover Bank
& Trust Co.?
Mr. Carse. Yes, sir.
The Chairman. You are director of the American Construction
Fire Assurance Co.?
Mr. Carse. That is not the name of it.
The Chairman. Const. Here is the abbreviation.
Mr. Carse. That is the American Home Constitution Co.
The Chairman. The American Constitution Fire Assurance Cor-
poration?
Mr. Carse. Yes.
The Chairman. You are shown also to be a director of the American
Home Fire Insurance Co., are there two of them?
Mr. Carse. They have been consolidated.
The Chairman. And also you are shown to be a director of the
Stuyvesant Insurance Co.
Mr. Carse. Yes.
The Chairman. Has that also been consolidated?
Mr. Carse. No, that is separate.
The Chairman. What is your connection with the Birmingham
Realty Co.?
Mr. Carse. President and director.
The Chairman. Now, as to Otto Marx, whose address is given as
25 Broad Street, New York, another director of the Electric Boat
Co., he is shown to be a director of the Submarine Boat Corporation,
the Atlantic Port Corporation, organizer of the Otto Marx & Co.
engaged in bonds and bonding, organized in 1901.
Mr. Carse. That is in Birmingham, Ala.
The Chairman. He is shown also to be a director of the Trans-
marine Corporation.
Mr. Carse. All of that Submarine and Transmarine are out of
existence.
The Chairman. He is shown to be a director of the Associated
Dry goods Corporation.
MUNITIONS INDUSTRY S3
Mr. Carse. Yes; I believe that is true.
The Chairman. And a director of the American Writing Paper Co.?
Mr. Carse. I beheve so.
The Chairman. He is shown to be a director of the Avondale Mills.
Mr. Carse. I believe so.
The Chairman. Also a director of Hahne & Co.
Mr. Carse. That is a part of Associated Drygoods, and I believe
he is a director.
The Chairman. Also a director of James M. McCreery & Co.
Mr. Carse. Yes.
The Chairman. Also a director of Lord & Taylor.
Mr. Carse. Yes.
Mr. Raushenbush. May I ask a question, Mr. Chairman?
The Chairman. Yes.
Mr. Raushenbush. Is he a director of Ladenburg, Thalmann &
Co.?
Mr. Carse. I do not know.
The Chairman. Stephen Peabody, also a director of Electric Boat
is shown to be a director of Kelly-Springfield Tire Co., a director of
Buffalo Gas Co., a director of Frontier Electric Lighting Co., and also
of the Western & Pennsylvania Traction Co.
Mr. Carse. Everything I know is that he is a director of Kelly-
Springfield, but I do not know about the otiiers.
The Chairman. Now, about Mr. A. S. Roberts, another director
of Electric Boat, do you know of any other business connection
Mr. Roberts may have?
Mr. Carse. Oh yes; he is with the White Rock Co., an officer, but
just the title I do not know.
The Chairman. Is he not also a representative of the Vickers
Co.?
Mr. Carse. No, that ceased some years back.
The Chairman. When?
Mr. Carse. It must be about 3 years, was it not?
Mr. Spear. I think 3 or 4 years ago.
The Chairman. What was his connection with Vickers at that
time?
Mr. Carse. He was the representative in the United States.
The Chairman. Was he not a stockholder?
Mr. Carse. I do not believe he was. I understood that the busi-
ness being done in this country by Vickers did not justify the mainte-
nance of their office here.
The Chairman. Charles P. Hart, who is assistant secertary of the
Electric Boat, is also a director?
Mr. Carse. Yes.
The Chairman. His address is given as 33 Pine Street, New York.
Mr. Carse. That is the same address.
The Chairman. Joseph Sisto is also a director of Electric Boat?
Mr. Carse. J. A. Sisto, yes; and I suppose his first name is Joseph.
The Chairman. He is shown as the president and director of the
Sisto Financial Corporation, of Sisto & Co., Inc., and as a director of
Potrero Sugar Co., the American Composite Shares Corporation, and
president and director of the Ceatral Management, and as director
of Cuneo Press Corporation and of Hygrade Food Corporation.
Mr. Carse. I do not know whether he is or not.
54 MUNITIONS INDUSTRY
The Chairman. Henry R. Siitplien, vice president and director of
Electric Boat and his address is shown as 40 Wall Street. Mr.
Sutphen, if this is not correct, I would like you to inform us, but you
are shown to be vice president and director of the Holland Torpedo
Boat Co.
Mr. Sutphen. One of the old companies, yes.
The Chairman. And president of the National Association of
Engineers and Boat Manufacturers.
Mr. Sutphen. Of Engine and Boat Manufacturers.
The Chairman. Also vice president and director of the Electric
Dynamic Co,
Mr. Sutphen. Electro-dynamic.
The Chairman. That is the company that has been absorbed by
Electric Bont?
Mr. Sutphen. Yes.
The Chairman. Also vice president and director of the American
Duralumin Co.
Mr. Sutphen. That is one of the old companies.
The Chairman. You are shown to be president and director of the
Ratchet Brake Co.
Mr. Sutphen. That was one of these subsidiary companies that
has dissolved.
The Chairman. All of these companies that were dissolved, did
they possess some patent holdings?
Mr. Sutphen. That company did have, until the patent expired,
a patent on the ratchet brake.
The Chairman. You are shown to be a director of the American
Constitution Fire Assurance Co.
Mr. Sutphen. Yes.
The Chairman. And the American Home Fire Assurance Co.?
Mr. SuTFHEN. Yes.
The Chairman. And a trustee of the American Savings Bank?
Mr. Sutphen. Yes.
The Chairman. Mr. Spear, this shows you are vice president and
director of the Electric Boat Co., and you are shown also to be a
director, or were a director of the Submarine Co.?
Mr. Spear. Yes.
The Chairman. And the New England Shipbuilding Co.
Mr. Spear. That has been absorbed by the Electric Boat Co.
The Chairman. You are also shown to be a director of the Bed
Rock Petroleum Co.
Mr. Spear. Yes.
The Chairman. And a director of the Structure Oil Co.
Mr. Spear. Yes.
The Chairman. You are also shown to be a director of the Petrole-
um Extraction Co.
Mr. Spear. Yes.
The Chairman. And also a director of the Tri-State Refining Co.?
Mr. Spear. , That also is out of existence.
The Chairman. Herbert A. G. Tajdor, secretary-treasurer and a
director of the Electric Boat, whose address is 40 Wall Street is shown
to have been secretary and treasurer and director of the Submarine
Boat Corporation.
Mr. Carse. He was until it passed out of existence.
MUNITIONS INDUSTEY 55
The Chairman. And also a director of Electric Dynamic Co.
Mr. Carse. That is Electro Dynamic Co.
The Chairman. He is shown also to be secretary and treasurer and
•director of the Electric Launch Co, Is that still in existence?
Mr. Carse. It is a name we keep, but it is a part of the Electric
Boat Co.
The Chairman. He is shown also to be secretarj'- and treasurer and
a director of the Elco Co.
Mr. Carse. That is also a name for motor boats, that is all.
The Chairman. He is shown to be secretary and treasurer and a
■director of the Holland Torpedo Boat Co.
Mr. Carse. That is a part of Electric Boat.
The Chairman. Also secretary-treasurer and a director of the
Ratchet Brake Co.
Mr. Carse. Yes.
The Chairman. And secretary-treasurer and director of the
American Duralumin Co.
Mr. Carse. Yes.
Senator Clark. Mr. William B. Shearer was formerly a director
of j^our company?
Mr. Carse. No.
Senator Bone. Is the Transmarine Corporation still in existence?
Mr. Carse. No, Submarine and Transmarine went into recei\rer-
ship about the 1st of January 1930, and the}^ are about wound up
now, and they are expected to wind them up in a short time.
Senator Bone. I understand this corporation owned the boats that
had been taken over from the Shipping Board.
Mr. Carse. Yes.
Senator Bone. Did you operate them for a while?
Mr. Carse. Yes, we did.
Senator Bone. Did you have a mail contract with the Govern-
ment?
Mr. Carse. No.
The Chairman. I am offering in evidence now "Exhibit No. 30",
which is a copy of the material used by the committee showing the
list of stockholders in the Electric Boat Co. who are holding over a
hundred shares of stock.
(The document referred to was marked "Exhibit No. 30", and is
on file with the committee.)
Mr. Carse. That list is of date last April, I think.
The Chairman, This was as of when?
Mr. Carse. It was prepared for the annual meeting held in April.
The Chairman, That was held last April?
Mr. Carse. Yes, sir.
The Chairman. We will bother to give concern alone to those
stockholders who show blocks of 2,000 or more shares.
We find there J. S. Bache & Co., of New York City, who have
5,896 shares. Who are they?
Mr. Carse. That is a brokerage house in New York.
The Chairman. Charles D. Barney & Co., New York, holding
3,311 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. John F. Clark & Co., New York City, 3,877
shares; who are they?
56 MUNITIONS INDUSTRY
Mr. Carse. That is a brokerage house.
The Chairman. Is that true as well of Clark Dodge & Co., of
New York City, holding 4,422 shares?
Mr. Carse. That is not rio:ht; it is Clark, Childs & Keech.
The Chairman. Clark, Childs & Keech hold 3.796 shares and Clark
Dodge & Co. hold 4,422 shares.
Mr. Carse. Then, that is a new one to me.
The Chairman. Henry Clews & Co., of New York City, holding
2,060 shares. Is that also a brokerage house?
Mr. Carse. Yes, sir. We have not paid any dividends in so long
that people do not have their stock transferred to their names.
The Chairman. The next is Derb}^ & Co., holding 34,800 shares,
who are they?
Mr. Carse. Derby & Co. is a nominee. You know it has become
the custom in New York for the different institutions instead of
transferring stock to an individual name, because if he dies they have
to transfer it back and forth, that all of the large institutions, trust
companies, banks, and other institutions of that kind create a part-
nership with a number of their clerks, 2, 3, or 4, and have these
stocks transferred to that partnership name so that if any one of the
clerks die there is always a partner to sign the name, and then they
can appoint another clerk to be another partner. Derby & Co. is one
of those partnership names.
The Chairman. Dominick & Dominick, of New York City, holding
3,065 shares, who is that?
Mr. Carse. That is a broker.
The Chairman. Dyer Hudson & Co., New York City, holding
2,920 shares, who is that?
Mr. Carse. That is a broker.
The Chairman. Is that also true of the Empire Securities Co., of
Daytona Beach, Fla., holding 2,386 shares?
Mr. Carse. I do not know that company.
The Chairman. Fenner, Beane & Ungerleider, of New York City,
holding 2,935, who is that?
Mr. Carse. That is a broker.
The Chairman. Goodbody & Co., of New York City, holding 2,934
shares, who is that?
Mr. Carse. That is a broker.
The Chairman. Hallgarten & Co., of New York City, holding
11,830 shares, Vvho is that?
Mr. Carse. That is a brokerage house.
The Chairman. Edward T. Hargrave, of New York City, owning
2,000 shares, who is that?
Mr. Carse. That is an individual.
The Chairman. Harris Upham & Co., New York Citv, holding
2,280 shares, who is that?
Mr. Carse. That is a broker.
The Chairman. Charles P. Hart, New York City, holding 43,269
shares, who is that?
Mr. Carse. I think that is very largely the stock of the company
which they hold in the treasury.
The Chairman. Mr. Hart is an officer of the company?
Mr. Carse. He is our treasurer.
The Chairman. And also a dii-ector?
MUNITIONS INDUSTRY 57
Mr. Carse, Yes; we put it in his name.
Ttie Chairman. Hayden, Stone & Co., of Boston, Mass., holding
11,570 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Joseph J. Himes, of V7ashington, D.C., holding
5,200 shares, who is that?
Mr. Carse. That is an individual.
The Chairman. Hornblower & Weeks, of New York City, holding
10,130 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Homer Huggan, of Ciiestnut Hill, Mass., holding
3,500 shares; can you tell me who that is?
Mr. Carse. That is an individual, but I do not laiow who it is.
The Chairman. Hutchins & Parldnson, of Boston, Mass., holding
19,461 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. E. C. Jameson, of New York City, holding 7,000
shares; who is that?
Mr. Carse. That is an individual.
The Chairman. Is that the same E. C. Jameson who fathered the
campaign that Bishop Cannon undertook some years ago?
Mr. Carse. I do not know anything about any campaign, but I
know he has held that stock for 25 years or more.
The Chairman. It is the same initials, anyhow. Frazier Jelke
& Co., of New York City, holding 3,210 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Ladenburg Thalmann & Co., New York City,
holding 33,550 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Laidlaw & Co., New York City, holding 4,275
shares, who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Edith F. Lowis, of Racine, Wis., holding 3,200
shares; who is that?
Mr. Carse. That name is Lewis. It is an individual.
The Chairman. Livingston & Co., New York City, holding 5,502
shares; who is that?
Mr. Carse. A broker.
The Chairman. McClure, Jones & Co., New York City, holding
2,308 shares; who is that?
Mr. Carse. A broker.
The Chairman. Mabon & Co., New York City, holding 1,900
shares; who is that?
Mr. Carse. That is a broker.
The Chairman. Thomas L. Manson & Co., New York City,
holding 4,000 shares, who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Montgomery, Scott & Co., New York City, hold-
ing 4,715 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Francis P. Murphy, of Nashua, N.H., holding
2,500 shares; who is that?
Mr. Carse. That is an individual.
58 MUNITIONS INDUSTRY
The Chairman. Kenneth Outwater, New York City, holding 11,500
shares; who is that?
Mr. Carse. That is an individual. I do not know whether he is a
nominee or not.
The Chairman. Paine Webber & Co., New York City, holding
20,004 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Pearl & Co., New York City, holding 2,525 shares;
who is that?
Mr. Carse. A broker.
The Chairman. E. A. Pierce & Co., New York City, holding
21,358 shares; who is that?
Mr. Carse. That is a broker.
The Chairman. Pouch. & Co., New York City, holding 26,525
shares; who is that?
Mr. Carse. A broker.
The Chairman. R. W. Pressprich & Co., New York City, holding
2,300 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Theodore Prince & Co., New York City, holding
7,775 shares; who is that?
Mr. Carse. That is a broker.
The Chairman. Rhoades, Williams & Co., New York City, holding
12,140 shares; who is that?
Mr. Carse. That is a broker.
The Chairman. E. P. Ristine & Co., New York City, holding
2,275 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. Albert S. Roberts, Long Island, N.Y.; holding
2,030 shares; who is that?
Mr. Carse. That is Mr. Roberts.
The Chairman. Mr. Roberts who is one of your directors?
Mr. Carse. Yes.
The Chairman. Anna Russo, of Brooldyn, N.Y., holding 2,000
shares; who is that?
Mr. Carse. That is an individual.
The Chairman. Shields & Co., of New York City, holding 2,337
shares; who is tliat?
Mr. Carse. That is a brokerage house.
The Chairman. Siglcr & Co., of New York City, holding 4,498
shares; who is that?
Mr. Carse. I guess that is a nominee.
The Chairman. Edward B. Smith & Co., New York City, holding
3,290 shares; who is that?
Mr. Carse. That is a brokerage house.
The Chairman. L. Y. Spear, Groton, Conn., holding 2,001 shares;
who is that?
Mr. Carse. That is a director.
Tlic Chairman. Another director of the company?
Mr. Carse. Yes, sir.
The Chairman. Thomson & McKinnon, of New York City, hold-
ing 9,234 shares; who is tiiat*^
Mr. Carse. That is a brok^rnge house.
MUNITIONS INDUSTKY 59
The Chairman. Harry Weisburg, New York City, holding 10,000
shares; who is that?
Mr. Carse. I do not know who that is. That is an individual, but
who he represents, I do not know.
The Chairman. C. E. Williams, of New York City, holding 27,150
shares; who is that?
Mr. Carse. That sounds like Chester E. Williams, one of our
young men, and that stock is probably part of the stock which is in
the treasurj^ in the name of one of our clerks.
The Chairman. Very frankly, Mr. Carse, I am surprised to come
down here to the Z's and find that Mr. Zaharoff is not listed as a
stockholder.
Mr. Carse. He never was a stockholder as far as I ever saw or
had any knowledge. Whether he had stock in other people's names,
I do not know.
The Chairman. Do you suspicion that he has done that?
Mr. Carse. It may be possible. The men who handle very large
stock do not put the stock in their names.
The Chairman. He wrote you under date of the 19th of May, 1925^
and said, "I desire no thanks for what I have done, because I am
bound to attend to the interests of my firm of Vickers and of my
friend the Electric Boat Co., in both of which I am a shareholder."
Mr. Carse. I loiow, and he told me that, too, but I never was able
to trace anything, and I tried hard enough.
The Chairman. Why would he not have that sort of thing in his
own name?
Mr. Carse. They never put stock in their own names. If they
should sell it then they would have it floating around the street and
everybody would say "so and so is selling the stock." They do not
do that.
Senator Barbour. What is your stock quoted at now in the Elec-
tric Boat Co.?
Mr. Carse. 5, I think.
Senator Barbour. What was it quoted at, at its highest point?
Mr. Carse. I have seen this Electric Boat Co. stock 20 or 21.
Senator Barbour. ¥/hat is par?
Mr. Carse. There was no par, but we changed it and made it $3
par so as to balance what we marked off on surplus.
Senator Barbour. What does it pay?
Mr. Carse. It does not pay anything and has not paid anything
since about 1920.
Senator Barbour. In other words, then, this stock paid no divi-
dends and it is down to about $5 a share?
Mr. Carse. Yes.
Senator Pope. How many outstanding shares are there?
Mr. Carse. There are authorized 800,000 shares, and there are
in the hands of the public about 750,000. The company has in its
treasury about 50,000 shares, authorized but in the treasury.
The Chairman. Mr. Carse, can you designate any of the nominees
who might be involved in some of these accounts?
Mr. Carse. I have designated as you went along all of those of
whom I had any knowledge.
The Chairman. Do you know who they represent?
Ivlr. Carse. As far as I Jcnow I have told you.
60 MUNITIONS INDUSTRY
Senator Barbour. Of the larger amounts in mentioning these
brokers' names as you came to them, did you know for whose account
they are holding the stock?
Mr. Carse. No, I do not.
The Chairman, Has Mr. Zaharoff ever indicated to you how
extended were his stock holdings in the Electric Boat Co.?
Mr. Carse, No, sir. In that quotation in that letter and in my
talking to him that afternoon he said he was interested in our
company. To what extent or anything of the kind or description
I do not know.
The Chairman. Had he ever been given stock for services to the
company?
Mr. Carse. Not that I know of.
Senator Bone. It would be very easy then for him to cover the
transactions of ownersiiip that way through any of these brokerage
houses?
Mr. Carse. Certainly, anybody can do that. If he had any stock
it probably was in some other person's name.
The Chairman. The letter in which Mr, Zaharoff spoke of being
a shareholder in the Electric Boat Co,, I offer as "Exliibit No, 31".
(The letter referred to was marked "Exhibit No. 31 ", and appears
in the appendix on p. 336.)
The Chairman. In that letter, ''Exliibit No. 31", Mr. Zaharoff had
said:
My long experience has always made me pay great attention to any opposition,
however small or insignificant, and there can be no doubt that the Germans and
Italians are boiling to get the wedge end in, especially as Spain is spending money
on her navy, and the proposals they make to the Spanish Government are care-
fully considered by the junior Spanish naval officers, who (I tell you in the strictest
confidence) are working to persuade the superior officials that the Electric Boat
Company, Vickers, and the Constructora Naval are all old-fashioned, and that
the time has come for a new departure.
That letter was addressed to you, Mr, Spear, What is the meaning
of it all ; tell us what is the meaning of it.
Mr, Spear. There has been a great effort on the part of the Italian
firms, and the French and German firms, to get a share of the Spanish
business, and we are doing our best to keep them from taking any
business away from us.
The Chairman. Evidently these proposals are being considered by
the junior officers of the Spanish Navy, but they are not getting to
the top with any of their proposals.
Mr, Spear. No ; they have not been effective so far.
The Chairman. It is barely possible Sir Basil was holding them
back enough so that they were not receiving consideration of the
officers at the top of the Spanish Navy.
Mr. Spear, Beg pardon, I did not hear what you said.
The Chairman, I drew the conclusion that Sir Basil was serving a
large purpose in preventing the senior officers of the Spanish Navy
from paying any attention at all to the proposals to the Spanish Navy.
Mr. Spear. I hope he is trying to.
Senator Bone. I beheve you said, Mr, Carse, your company had
paid no dividends on your stock since 1920,
Mr, Carse, Yes; I think so.
Senator Bone. Then 1919 would be the last year dividends were
paid?
MUNITIONS INDUSTRY 61
Mr. Carse. About that year, but I am not absolutely positive
of the year.
Mr. Spear. I might add one thing more \vith reference to the
Spanish business. A private shipyard in Spain built a submarine on
their own account, without any order, some 3 years ago, and it is
still on their hands, because it has not commended itself to the
authorities either of Spain or any other country. Outside of that and
an order that was placed some years ago, I think before our contract,
where the Spanish Government had obtained some small submarines
from Italy, I tliink that was all before we made the arrangement with
the Sociedad, there certainly has been a very strong effort on the part
of the Italians, Germans, and French to push us out of the picture in
Spain.
The Chairman. Well, the Germans were becoming quite a factor
in the field of submarine building,
Mr. Spear. They became a great factor after the war. Under the
Versailles Treaty they were not supposed to build submarines, so
what they did was to organize a company in Holland of entirely
German interests, but they set up the head office in Holland, and in
that company they have been very active in sohciting business all
over the world.
RELATIONS WITH UNITED STATES GOVERNMENT DEPARTMENTS
The Chairman. I offer in evidence a letter dated November 3, 1925,
dated at Paris, addressed confidential to Mr. Spear, signed by Mr.
Zaharoff.
(The above letter was marked " Exhibit No. 32.")
The Chairman. This letter, "Exhibit No. 32", addressed to Mr.
Spear by Zaharoff urges your Mr. Spear to get the State Department to
help you against the German competition in Spain. I will read the
letter in full, as follows:
(The chairman thereupon read in full "Exhibit No. 32".)
Exhibit No. 32
[Copy]
Paris, Srd November 1925.
Confidential
Mt Dear Spear: The Germans are moving terribly in Spain, and unless we
all combine against them we may find them installed there one day, and action
is necessary.
The United States Ambassador in Spain is a very clever gentleman, and highly
esteemed, and I think that you should arrange for instructions to be sent to him
from your State Department for him to tell the Spaniards that the United States
Government work very harmoniously with the Electric Boat Company, with
whom they exchange ideas, and that the United States hope that the Spanish
Government is satisfied with the guarantee of the Electric Boat Company, com-
bined with that of Vickers, and will not see any necessity for any other guarantee.
The English Government will be difficult to move in the same direction, but
when you inform me that your Government have given the necessary instruction
to their ambassador in Madrid I will have no difficulty in persuading the British
to do ditto, ditto, ditto.
I hope you are well, and with my homage to Mrs. Spear, and my kind regards
to Mr. Carse for himself and family, I am,
Sincerely yours,
(S.) Basil Zaharoff.
8387e— 2'»_T»T J 5
62 MUNITIONS INDUSTRY
The Chairman. Mr. Spear, did you approach the State Depart-
ment in this connection?
Mr. Spear. I do not remember whetlier I did or not. I am in-
clined to think I did, but I do not remember.
Senator Barbour. In that connection, Mr. Chairman, with
your permission, I will ask this: While the company has made
no money and paid no dividends and with the stock selling around
$5 a share, how many people did you employ?
Mr. Spear. We are employing now at our Groton plant about
1,300 people.
Senator Barbour. Taking it all into account, how much employ-
ment have you given to people.
Mr. Spear. We employ about 1,600 people.
The Chairman. You say you think you did approach the State
Department?
Mr. Spear. I have no real recollection of it. I would not see
anything improper in it, and I probablj^ did, but I do not know.
The Chairman. Then surely there was more than one approach
to the State Department in matters of that kind?
Mr. Spear. You mean on the Spanish matter?
The Chairman. Well, on any matter?
Mr. Spear. Whenever we had a matter where we were negotiating
with a foreign company and we found other foreign competitors were
running in their Embassies and Legations, we endeavored to get the
American Government to do its part to offset what they were doing.
I cannot say, however, that we ever succeeded in obtaining an order
that way.
The Chairman. The contract that was sought in Spain was finally
accomplished, was it not?
Mr. Spear. You mean the contract with the Government?
The Chairman. Yes, sir.
Mr. Spear. Yes. Since that contract has been in force the
Sociedad has built all the submarines that the Spanish Government
has had constructed for it. Not a large number, but all there were.
The Chairman. Do you know whether the English Government
finally took the steps that Sir Basil had suggested might be taken if
the American Government would act in the premises?
Mr. Spear. I do not know, sir; whether they ever did anything or
not. I do not recall ever being advised about it.
The Chairman. Why instead of going to the State Department in
matters of this kind do you not rather approach the representatives
of the Commerce Department?
Mr. Spear. We also do, or we also have.
The Chairman, ^^^lat could the State Department do that the
Commerce Department cannot do?
Mr. Spear. Well, I should say that the Ambassador in these
countries, generally speaking, speaks with a more authoritative voice
than the representative of the Department of Commerce. In other
words, he presumably is listened to to a greater extent than the other
representatives of the Government.
The Chairman. On the other side, there are those who look
upon the State Department as being the one and only Department
of Government that exercises any hand in accomplishing maintenance
of peace and understanding between countries, taking those steps
MUNITIONS INDUSTRY 63
that will prevent war or misunderstandings, taking the leading part
in disarmament conventions and conferences. Is it not at least
strange that the State Department shoidd put its hand in as a helper
or a salesman in selling munitions of war to another country?
Mr. Spear. I do not think so, sir. These are questions of inter-
national competition. If the orders are placed with us, our Govern-
ment at least has definite information, can obtain definite informa-
tion, as to the qualities and characteristics of the vessels built, and
it all gives employment to American labor. If, however, the order is
placed with somebody else, there is no benefit.
Senator Clark. But you have sought the intervention of the
State Department at times when the ships were to be constructed in
Belgium, a foreign country, have you not?
Mr. Spear. We have sought their intervention whenever we
thought it would help.
Senator Clark. That would not give any help to American
labor, would it?
Mr. Spear. No; except we make the plans, which means emplo}-
ment for American labor.
The Chairman. When did Mr. Roberts become connected with
the Electric Boat Co.?
Mr. Carse. At the time that Mr. Sheridan resigned, he sug-
gested that Mr. Roberts would make a good director.
The Chairman. I offer "Exhibit No. 33", being a letter from Za-
haroff to Mr. Carse, under date of February 2, 1926.
(The letter referred to was marked "Exhibit No. 33" and appears
in the appendix on p. 336.)
The Chairman. That letter reads
Senator Bone. May I ask one question with reference to the letter
just introduced. In that letter, "Exhibit No. 32", there is a state-
ment that ideas were exchanged, where he asks you —
to tell the Spaniards that the United States Government works very har-
moniously with the Electric Boat Co., with whom they exchange ideas.
What does that refer to, Mr. Spear?
Mr, Spear. It refers to technical matters.
Mr. Bone. It refers, then, to patents, types of equipment, and the
like?
Mr. Spear. All kinds of technical matters. Senator.
Senator Bone. Does the Navy Department exchange ideas with
you, as this letter indicates?
Mr. Spear. Whenever the Navy Department desires us to have
anything to do with any submarine matter which they are getting
ready to do, we always hold ourselves open to present them any
ideas or information which we have that would be useful.
Senator Bone. So that the United States naval officials are fully
advised at all times of the exact type and patent of the boat you are
buUding?
Mr. Spear. Correct; yes, sir.
Senator Bone. They have the most intimate detailed knowledge
of those boats?
Mr. Spear. They have complete knowledge.
Senator Bone. The reason I asked that question is this: By this
arrangement with the Vickers Co., the Vickers Co. and the Spaniards
64 MUNITIONS INDUSTRY
and most of them have an equal knowledge of these things because
they will use your plans that are bid on and will buy them?
Mr. Spear. No, Senator, the contracts with the United States
Government contain a provision under which it is not permissible for
us to transmit to any government or to any person not authorized by
the Government any information about the ship as such. In other
words, the designs w^hich are built for the United States Government
are a confidential matter between the United States and ourselves.
Senator Bone. Suppose the Spanish Government wanted a sub-
marine of the very latest type, would you withhold from introducing
into that boat the latest designs which you have?
Mr. Spear. Yes, we never supply nowadays to any foreign govern-
ment the design to which we are building for the United States Gov-
ernment.
Senator Bone. Do you think that that attitude is true of American
munitions companies generally?
Mr. Spear. I would not think so, Senator, because I think that
munitions in general are standardized and submarines are not.
Senator Bone. Then when you are selling abroad you work under
the handicap of telling the fellow that it is not possible to furnish him
the latest device?
Mr. SpeaRo That is true, that w^e are not selling wiiat we have
worked on for the United States Government.
Senator Bone. How do you expect to operate in competition with
other companies when you are not giving him the latest devices?
Mr. Spear. We are not having much luck, Senator. The only
thing built abroad now is a boat in Spain with respect to which we are
the technical advisers.
Senator Bone, Would that have any possible connection with the
statement of Sir Basil ZaharofT with respect to the effect this might
have in Spain?
Mr. Spear. I would not see any connection. We give them what
they want. They specify certain tilings they want the boats to do,
and we are responsible for producing the design wliich will do that.
The Chairman. Lieutenant Spear, let us assume that you were
up to this moment a lieutenant in the service, commissioned, and then
you retired, what would the law prevent you doing if the Electric
Boat Co. asked you tomorrow to become a director and to be associ-
ated with them in the manufacture of submarines?
^Ir. Spear. As I understand it, the law is that no retired officer
is permitted to occupy any position or be employed by any companj'
w^hich has contractual relations with the United States Government.
The Chairman. You could not even be employed, after you di-
vorced yourself from your relations with the Government, to represent
your company in the foreign field?
Mr. Spear. When you are retired, you are not divorced from the
United States Government, but you are at the call of the United
States Government.
The Chairman. Do you think that the law would prevent you
from being tied up in any way with the Electric Boat Co. for a given
period of time?
Mr. Spear. It is my understanding of the facts that it is wholly
illegal for any officer on the retired list to be employed by any
corporation.
MUNITIONS INDUSTKY 65
The Chairman. Now, supposing there were some little technicality
there so that you feel that, strictly speaking, under the law 3'ou could
accept a position viiih the Electric Boat Co., but that position must
find you divorced at all times and having no connections with the
United States Government or with any contracts running between
the Government and the Electric Boat Co. At least you would not
feel morally sound in that position, would you?
Mr. Spear. No; I think the only way you can feel morally sound
and obey the law, and the spirit of the law, is to resign completely
from the Navy. I believe that if there were a corporation which had
Government business and separate commercial business, I think 3^ou
might morally connect yourself with the commercial end, but I do
not think you could legally.
The Chairman. Supposing j^ou were retired today by the Arinv or
the Navy, would you feel that tomorrow jou could accept employ-
ment with the Electric Boat Co.?
Mr. Spear. No, sir; I think it is absolutely illegal. You must
resign. You must completely sever your relations.
The Chairman. You said that Mr. Roberts became connected
with the Electric Boat Co. when?
Mr. Carse. When Mr. Sheridan ceased to be a representative of
Vickers and Mr. Roberts was appointed in his place.
The Chairman. Mr. Roberts was connected with the Electric
Boat Co. in 1926 anyway?
Mr. Carse. I think probably so.
relations with zahaeoff
The Chairman. "Exhibit No. 33" is a letter from Zaharoff to Mr.
Carse dated February 2, 1926.
The Chairman. "Exhibit No. 33" reads in part as follows:
The Duchess and I were pleased to have good news of you from Mr. Albert
Roberts, who was here with us for a week and is now returning home to the
United States.
Mr. Roberts also spoke well of the Electric Boat Co.'s position, which he thinks
will soon declare itself.
Will you please tell Lieut. Spear that it is not advisable for j^our Paris office to
know anything whatever of your Spanish business, and will Mr. Spear give the
necessary instructions on this point to your Mr. Daniell who is in Spain.
Mr. Carse, why could not your own Paris office know what you
were doing in Spain?
Mr. Carse. Because Sir Basil Zaharoff did not like Koster.
The Chairman. Are Zaharoff's connections so large that he could
dictate what your representatives abroad were to do or were not to do?
Mr. Carse. In regard to the Spanish business. He did not w^ant
Koster interfering down there.
The Chairman. He did not like your representative in Paris, did
he?
Mr. Carse. No, sir.
The Chairman. He did not feel he was a proper man?
Mr. Carse. No, sir.
The Chairman. T^^iat was the Paris man's name?
Mr. Carse. Koster.
66 MUNITIONS INDUSTRY
The Chairman. Is it in a degree fair to say in this business of
selhno; submarines abroad that it is not always well to let your right
hand know what your left hand is doing, or does not that apply here?
Mr. Carse. No; I do not think that is the pointy but when you have
one man handling a business it is not wise to have another man butt
in and try to do something different. You are apt to confuse the
thing and fall down between two horses. It is the same in any busi-
ness. If you wanted to sell a building in Washington, it would not be
wise to give it to two or three agents.
The Chairman. I offer in evidence " Exhibit No. 34 ", being a letter
dated August 14, 1926, addressed to Mr. Carse by Mr. Zaharoff.
(The letter referred to was marked "Exhibit No. 34" and appears
in the appendix on p. 337.)
The Chairman. In ** Exhibit No. 34 ", Sir Basil Zaharoff in part says
as follows:
I had a very important Spanish official here the week before last, and from our
conversations there can be no doubt that good business will continue for you and
all of us in Spain, and we need not fear Krupp nor anybody else for a long time
to come.
Had you been given any word as to what had happened there to
m.ake the situation seem as secure as Sir Basil had it appearing at
that time, Mr. Spear?
Mr. Spear. No, sir.
The Chairman. Or you, Mr. Carse?
Mr. Carse. No, sir.
The Chairman. Mr. Zaharoff continued:
Referring to what you say about the Argentine Government, j-ou know of
course that they have been negotiating for some considerable time with the
Constructora Naval for naval and war material, in which the King of Spain
himself takes a great interest, and is using all his endeavours for Argentine
business to go to Spain.
I believe that the Constructora Naval has a fair — though not a big — chance,
because foreign officers prefer living in Paris or London to being isolated in
Spain, and consequently they generally put spokes in the wheels of the Spanish,
much to the detriment of their country's interests.
Lieutenant Spear is embarking for Europe while I am dictating this letter, and
3'ou know that I will always be at his disposal, and support any valid ideas he
may put forward. ■
Mr. Spear, in your contact in Spain, did you get to know the King?
Mr. Spear. No, sir.
The Chairman. Did you get to know, Mr. Spear, how direct or
active may have been his interest in the Constructora Naval?
Mr. Spear. No.
The Chairman. Do you know whether or not he did have any
direct personal holding there?
Mr. Spear. Not to my knowledge.
Senator Bone. Mr. Spear, who was the United States Minister or
Ambassador to Spain at the time?
Mr. Spear. At the time of my visit there, Mr. Moore.
The Chairman. That was in 1925?
Mr. Spear. I do not remember. I could not tell without looking
it up. ,
The Chairman. I offer as " Exhibit No. 35 ", a letter dated June 17, f j
1927, marked "Personal and Confidential. " That letter is addressed
by Mr. Zaharoff to Mr. Carse.
' (The letter referred to was marked "Exhibit No. 35.")
MUNITIONS INDUSTKY 67
The Chairman. It appears that in 1927 Mr. Zaharoff was very
much alarmed about letting your Paris office know too much of what
was going on in Spain. He stated as follows, and I think it would
be well to read this entire letter [reading]:
June 17, 1927.
Exhibit No. 35
(Personal and confidential)
Dear Mr. Carse: I regret to have to trouble you with a disagreeable matter,
which is the following:
The Paris representative of the Electric Boat Co. has written to Don Pablo
Ruiz, commander of submarine B-6, built by us in Spain, inviting him to come
to Paris, when he would give him all the latest information regarding submarine
boats. Commander Ruiz, who is a good friend of the Sociedad Espanola de
Construccion Naval, informed our Spanish company of this confidentially, but
naturally thought it his duty to communicate your Paris agent's invitation to his
superiors at the Ministry of Marine in Madrid, and there is now a regular mess.
The Spanish authorities say that we have always pressed them not to look at
any other submarine proposals but ours, and have always assured them that
we were giving them the very best that exists; yet the Electric Boat Co.'s agent
in Paris must certainly be in possession of improvements which we were keeping
back from the Spanish authorities.
Our Spanish friends tell me that this question has become very serious, and will
open the door to competitors, and that if the Electric Boat Co. desire to bring
improvements to the notice of the Spanish Government, it was the duty of the
Electric Boat Co. to communicate these improvements to the Constructors
Naval, for them to submit them to their naval authorities.
Our Spanish company are very much disturbed, because they fear their Gov-
ernment may suspect their good faith, and they tell me that it has always been an
exceedingly difficult and delicate problem to create a monopoly for the Electric
Boat Co., products, and that this unusual intervention has already caused serious
friction.
I have repeatedly gone out of my way in warning you, my friend Lieutenant
Spear, and Mr. Daniel, and also Mr. Roberts, to be exceedingly careful of your
Paris agent, of whom I have a very bad experience, and consequently have no
confidence in him, yet none of you have paid the least attention to my warning,
and I will add that 1 have especially cautioned you all against Captain Koster's
intervention in Spain, or even his ever mentioning Spain.
Is Captain Koster of so inuch value and importance to you all that my warnings
have been in vain? Or is this person protected by all or some of you?
I have gone further, and told you all that I did not think it to the dignity of
your company that you should be so represented in Paris.
I have for some long time given up all active exertions with Vickers, but as I
am the sole founder of the Constructora Naval, it is my pet baby, and I continue
watching it, helping it, keeping it out of trouble, and cherishing it, but if you
people continue as you are now doing, I am afraid I will have to let you deal
direct with our Spanish friends without my intervention.
Will you kindly present my homage to Mrs. Carse, and with a bonjour to
your little boy, I am, dear Mr. Carse,
Cordially yours,
Basil Zaharoff.
Addressed as tliis was to you, Mr. Carse, what did you do as soon
as you got that letter?
Mr. Carse. It seemed that too many cooks would spoil the broth,
so I cabled to Mr. Koster that a repetition of his interfering in
Spanish business would require us to ask for his resignation. Mr.
Spear and myself had both told Koster to mind his own business,
and his business had nothing to do with Spain.
The Chairman. Perhaps this question has already been asked and
answered, but I must ask you again: Who was Koster? What was
his background?
Mr. Carse. Mr. Spear can tell better.
68 MUNITIONS INDUSTRY
Mr. Spear. He was a Hollander by birth and was in tbe Dutch
Navy.
The Chairman. I recall.
Mr. Spear. And was the first ofRcer in the Dutch Navy to be
connected with submarines.
The Chairman. When he is referred to as Captain Koster that
does not mean that he ever had any connection with the American
Army or Navy?
Mr. Spear. No, sir. Later on he retired from active interest and
some years after liis retirement he was employed by us.
The Chairman. Koster's connection there was soon terminated,
was it not?
Mr. Carse. No; several years later, I think.
The Chairman. Tliis was in 1927.
Mr. Carse. He went up to about 1930 or 1931.
Senator Clark. Even as late as this year you have had negotia-
tions with Koster about representing you in Europe on some other
armaments?
Mr. Spear. Not the Electric Boat Co. I have. It had nothing
to do with the Electric Boat Co.
Mr. Carse. He wrote to Mr. Spear and he did not write to us.
Koster means well enough, but he has the peculiar quality of allowing
himself to have quarrels or differences with important people, or his
customers, and does not get any business.
Senator Clark. You heard rumors that Koster was known all
over Europe as an international spy?
Mr. Carse. I heard someone said that, but I did not believe it.
Senator Clark. You mentioned that to Mr. Spear as one reason
when you were fixing to "bounce" Koster, did you not?
Mr. Carse. For instance, in France I was told that was his repu-
tation. Of course that prevented him from ever doing anything in
France. We never saw any evidences of that in any way.
The Chairman. The fault or trouble that really caused Zaharoff's
anger toward Koster seems to me that Koster revealed to the Spanish
authorities that they were not getting from the Electric Boat Co. or
from Vickers, or from Constructora Naval the last word in submarine
building.
Mr. Carse. That is the way they apparently construed it down
there in Spain. WTiat did Koster mean by that? (Addressing asso-
ciate.)
Mr. Spear. I do not know what he meant. I suppose he meant
he would give him all the information he had about what submarine
building was going oa in Europe, but the other construction would be
ridiculous because Koster was aot in possession of the information.
We did not send Koster word every time we thought of a new develop-
ment or a way of improving a submarine. He did not have any
such information.
Mr. Carse. He just butted in where he did not belong. That is all.
Senator Clark. Based on Mr. Spear's answer to Senator Bone a
few minutes ago with respect to giving such information to the
Spaniards, I was wondering how you would give them the latest
development in submarines.
MUNITIONS INDUSTRY 69
Mr. Carse. We had not given them any development of submarines
that we had been working on for the United States Government.
Mr. Clark. So the assumption of the Spaniards was not a very-
violent one, was it?
Senator Barbour. You would not give it to any government?
Mr. Carse. We would not give it to any government. We are
honor bound.
Senator Bone, Mr. Spear or Mr. Carse, if you had got an order for
a submarine from Spain, would you guarantee it was entirely up to
date and an efficient submarine?
Mr. Spear. We guarantee it as a submarine of the type which they
want, which will go so deep, and has a certain range, and will carr}^
so many torpedoes and torpedo tubes.
Senator Bone. As an expert in this particular field, would you say
that the submarine that they called for is a late or efficient type?
Mr. Spear. No; I think that the type they called for is not in
accordance with the latest type they have asked for; is not in accord
with our ideas of a good design.
Senator Bone. Would it differ in speed?
Mr. Spear. It differs quite materially in speed.
Senator Bone. And method of operation?
Mr. Spear. It differs in a great many respects. It is a highly
technical question. It is not a design which we ourselves would
recomm.end to somebody.
Senator Bone. I understand, but that would be largely different
in the technical viewpoint of the man, would it not? In other words,
the Spaniard would think that was tlie very last word in submarines?
Mr. Spear. They would think that was what they wanted, but, as
a matter of fact, I think they make up their minds very largely by
seeing somebody has got a submarine which has this thing, and some-
body else has one with that on it, and they M^ould like to have one with
all those qualities. You cannot make a sound design out of those
qualities, and, therefore, the attempt to do it is in our technical judg-
ment not a reasonable one.
Senator Barbour. They pay you for getting a submarine, which in
their judgment is what they want, and if they did not get it from you
they would get it from somebody else?
Mr. Spear. They would get it from somebody who would give it to
them. They ask for certain things, and we endeavor to give them
what they ask for.
The Chairman. We have been wondering all day, Mr. Spear,
just what Mr. Zaharoff's interest in Constructora Naval might be.
In this letter of June 17th, 1927, he says that the Constructora Naval
is his "pet baby", and he continues watching it very closely.
Mr. Eaushenbush. And he is the sole founder.
The Chairman. And declares that he was the sole founder. Are
we to gather that he is the sole owner?
Mr. Spear. No, sir.
The Chairman. What do you know about that? How extensive
is his interest?
^ Mr. Spear. I imagine it is rather small. I imagine that at one
time he owned a considerable part of it. From what I hear — it is
70 MUNITIONS INDUSTRY
hearsay and I cannot swear to it — I understand his actual holding^
in the company is very moderate or small at the present time; not as
big as it was.
Mr. Raushenbush. At one time, later on in the history of that
company, Vickers took a very much larger interest, did it not, than
at first?'
Mr. Spear. I do not know whether they ever added to their interest
or not.
Mr. Raushenbush. What I am trying to get at is this — was Zaha-
rojff getting out of the company in a big way replaced by Vickers
coming in, the selling of stock from one to the other?
Mr. Spear. That might have happened, but I have no knowledge
of it. I do not know whether that is the case or not.
The Chairman. Mr. Spear, what in the world can be the advantage
of having an agent in Europe, as Zaharoff is for Electric Boat, who has
nterests such as he has in the Constructora Naval, which is doing the
same thing that you folks are doing?
Mr. Spear. That was the only w^ay we could do any business with
Spain, that is, to make arrangements to have the greater part of the
work done in Spain because that is the poHcy of the Spanish Govern-
ment.
The Chairman. That is aside from, my question. I stated that the
Constructora Naval w^as Zaharoff's pet bab}'-, and how could he be a
conscientious agent for jt^ou or how could he be the most conscientious
agent for you that you could hope for?
Mr. Spear. We felt that we would Hke to make this arrangement
with the Constructora Naval because it was the leading industrial
company in Spain and Sir Basil was at that time very influential in
that company, and so we used his good offices to bring about this con-
tract that we made with them. Knowing him and knowing that he
was intimately connected with it, we naturall}^ used his good offices
to persuade them that this would be a good thing to do.
The Chairman. All right. We must move on. Wliile evidently
you were considering this complaint of Zaharoff regarding your Paris
agent, he wrote you under date of July 12, 1927, a letter which is
offered as ''Exhibit No. 36."
(The letter referred to was marked "Exhibit No. 36" and ap-
pears in the appendix on p. 337.)
The Chairman. Mr. Zaharoff in the letter of July 12, 1927, " Exhibit
No. 36", stated in part as follows:
It has just occurred to me that Monsieur Michel Clemenceau, son of the great
Clemenceau, and who represents the Vickers Company on the European Conti-
nent, and also keeps in touch with all the South American Naval and Military
Commissions in Paris, might be useful to your company under my supervision.
Have you ever utilized the services of Clemenceau?
Mr. Spear. That is a letter to Mr. Carse.
The Chairman. I beg your pardon. Mr. Carse.
Mr. Carse. No, sir; we never have.
The Chairman. Have you considered it?
Mr. Carse. No.
The Chairman. Do you know whether Mr. Zaharoff has used his
services in any connection?
Mr. Carse. I have no knowledge that he used anything because
we have not had any European business outside of Spain.
MUNITIONS INDUSTRY 71
X
The Chairman. Outside of Spain you have had no European busi-
ness since 1927? '
Mr. Carse. No.
The Chairman. On August 27, 1928, in a letter which will be
marked "Exhibit No. 37," you wrote Mr. Zaharoff, IMr. Carse, about
your Japanese business.
(The letter referred to was marked "Exhibit No. 37" and appears
in the appendix on p. 338.)
The Chairman. Was Zaharoff particularly interested in the Japa-
nese business?
Mr. Carse. No; he was not, except that I was tellins: him. He had
said that he was a stockholder and I thought that would interest him,
to know that we were negotiating with them, and at that time we
thought we were negotiating with some degree of success, but nothing
has ever developed.
The Chairman. Would your business in Japan -paj Zaharoff any
commission?
Mr. Carse. No.
The Chairman. You say in this letter of August 27, 1928:
As you no doubt are aware, considerable friction developed between our staff
and the officials of the Navy Department in Washington some 6 or 7 years ago,
and the officials endeavored in every way to make it as difficult for the company
as possible. I am glad to say that we have apparently eliminated that animosity,
and I have reason to believe that the design of the Department at Washington
of submarines has proven unsuccessful.
Is the committee to gather, Mr. Carse, that the Navy Depart-
ment's ignoring of what you have called more recent plans for sub-
marine building had led them into difficulties and that it had not
proved itself able to stand up?
Mr. Carse. No; it had not proven to be as successful as it might
have been.
The Chairman. The letter goes on to state:
At present our relations are such that we have been invited to present our idea
of the proper type and design of submarine to be built by the United States Navy
Department, and the plans and specifications we have submitted have been
approved and accepted, and the expectation is that we will in the future divide
with the Navy Department the building of submarine boats for this Government
Has there been reasonable division since that time?
Mr. Carse. During the last 3 years. What date was that?
The Chairman. August 27, 1928.
Mt. Carse. We were not as successful, as soon as we thought at
that time that we would be, but we since then, about 3 j^ears ago, have
been given the Cuttlefish and the Shark and the Tarpon and now they
have awarded us three of the nev/ submarine boats.
We have an organization that has existed for over 30 years. Alany
men have been there that time and they have concentrated entirely
on the designing and building of submarine boats. We have taken
out very many patents, which we have filed in all the countries cf the
world. Our men are concentrating on that work. In the Navy De-
partment they shift from the bureaus to service and back again, so
that a_ naval officer has manj' other things on his mind besides the
designing of submarines. Thej^ also work on battleships and cruisers
and destroyers. So that there cannot be the extent of concentration
upon the single item that our organization can and does give, and it is
72 MUNITIONS INDUSTRY
a very difficult piece of work to do up to the highest efficiency. That
is what is meant by that. There is no slur on anybody intended.
It is simply a private letter. I did not publish that in the paper or
anything.
Senator Bone. Whose plans were used in building the Govern-
ment submarines in later years; that is, where the Government
built its own submarines?
Mr. Cause. Mr. Spear can tell you about that better than I.
Mr. Spear. How far back do vou want to go?
Senator Bone. This letter isolated in 1928. Go back to 1928.
Do you know who supplied the plans to the Government for building
submarines?
Mr. Spear. The Government supplied its own plans for the first
two submarines after that. They supplied the general design for the
first three, and those that w-ere ordered last year to be built by us
were designed hj us, and those which were ordered this year to be
built by us were designed by us.
wSenator Bone. Mr. Spear, in the last 10 years, how many sub-
marines would you say that the Government has built in its own
yards, has constructed, as contrasted with those built in private
yards?
Mr. Spear. There has been very little building in the last 10 years.
I am talking about the date of starting the work and I cannot go to
the date of completion because I do not carry that in my mind.
Senator Bone. Roughly, approximately how many?
Mr. Spear. There have been 10 submarines ordered, all told, by
the United States Government. So that the United States Govern-
ment has ordered 3 from us and has ordered 7 to be built in the
navy yards.
Senator Bone, In Government navy yards?
Mr. Spear. In Government navy yards.
Senator Bone. There is one other question which I have in mind,
which is provoked by tliis letter. Can you tell us where ZaharofI
gets into the Japanese picture?
Mr. Carse. He does not get into it at all.
Senator Bone. Has he any connection with Mitsui or Mitsubishi
outfit?
Mr. Carse. No.
Senator Bone. Does Vickers have a plant over there?
Mr. Carse. They have some connection with the Mitsubishi
people.
wSenator Bone. Does Vickers have a plant over there?
ISIr. Carse. I do not think they have any plant.
Senator Bone. The}?^ maintain an office there?
Mr. Carse. In the Mitsubishi office.
Senator Bone. They are stockholders in one of the large Japanese
plants, theliVickers?
Mr. Carse. I do not know whether they own any stock or not.
I doubt it.
Mr. Spear. I think it is a license arrangement. I think Mit-
subishi has a license from Vickers for engines, and so forth.
Senator Bone. Under that license, do they use Vickers' patents?
Mr. Spear. Yes, sir; whenever they build anything under that, if
Vickers has a patent.
MUNITIONS INDUSTRY 73
Senator Bone. In other words, they use the Vickers' patents
whenever they choose?
Mr. Spear. Of that sort, but they do a lot of business of their
own outside of the hcense with Vickers.
Senator Bone. Of course through the Vickers' contracts Zaharoff
would have an interest in Japanese business.
Mr. Spear. He would not have any interest in our business.
Senator Bone. I understand, but in the Japanese business Zaharofi
would cut into it through his connection with Vickers?
Mr. Spear. I should suppose so. I would assume that was his
only interest.
The Chairman. I offer in evidence " Exhibit No. 38 ", being a letter
from Mr. Zaharoff to Mr. Spear, dated September 11, 1927.
(The letter referred to was marked "Exhibit No. 38", and ap-
pears in the appendix on p. 339.)
The Chairman. It appears, Mr. Spear, that Zaharoff cannot
interfere in your Argentine business for what he states are "social
reasons". What do you understand those "social reasons" to have
been?
Mr. Spear. I do not know, sir.
The Chairman. Was it his relationship to Alfonso, whom we were
told in the previous correspondence was very jealousl}^ interested in
the welfare of the Spanish manufacturing concerns?
Mr. Spear. I could not tell vou what he meant, Mr. Chairman.
I have no knowledge of what his reference to "social reasons" was
about.
Mr. Carse. We did not get the Argentine business. The Italians
took that.
The Chairman. You did not get any Argentine business?
Mr. Carse. No, sir; the Italians took it. The competition in
building submarine boats is far from being a monopoly. It is the
fiercest competition imaginable.
The Chairman. Speaking of such "social reasons" that might
stand in the way of his interesting himself in your behalf in Argen-
tine, does not the same hold true in France as well? Would not he
have "social reasons" there which would prevent it?
Mr. Carse. I do not think so.
Mr. Spear. I think he refers to it.
The Chairman (reading from Exhibit No. 38):
* * * and also for my personal standing in France, v/hich obliges me to be
absolutely neutral.
Where in the world has Zaharoff been neutral?
Mr. Carse. I have never considered that we have any possibility of
doing any business with the French Government because the French
Government is the most self-contained of any Government in the
world, and they keep everythmg for their home labor and we have
never been able to do anything with them at all.
Senator Barbour. Did he mean that liis connections with the
Spanish were such that while he was helpful in that quarter, he could
not be helpful in another quarter and that it might militate against
him?
Mr. Carse. It might. I do not know what it means. He is a very
polite man and it is sometimes bard to say just what he does mean.
74 MUNITIONS INDUSTRY
The Chairman. I offer in evidence as "Exhibit No. 39", a letter
from Mr. Zaharoff to Mr. Carse, in which Zaharoff again criticizes your
European set-up, Mr. Carse.
(The letter referred to was marked "Exhibit No. 39", and appears
in the appendix on p. 339.)
The Chairman. In that letter marked "Exhibit No. 39," under
date of September 13, 1927, Zaharoff says in part:
I entirely approve of what you say regarding the difficulties of obtaining busi-
ness from foreign countries by your representatives in Europe, and I must frankly
tell you that I have never approved of your heavy expenditure in Europe for a
useless purpose, but on the contrary I believe that this rather cheapens your
position, whereas, if people want to communicate with you, you can always send
a special representative to meet them, in which case the expenditure would be
moderate.
I will continue keeping Monsieur Michel Clemenceau in view, and we might
utilize him in case of need, without our going to any expense.
You have said that you have no recollection that Clemenceau was
ever utilized?
Mr. Carse. Never was to my knowledge. We maintained Koster
there because we beheved that he loiew more about submarine-boat
construction and operation than any man in Europe, and while there
were certain qualities about him that we did not absolutely approve
of, yet he did keep in touch with the technical aspects as developed
in Europe and kept Mr. Spear advised. Then, as I mentioned this
morning with relation to our claim against the Germans for infringing
our patents during the war, Koster did some very good service in
obtaining the evidence that finally forced the Germans to produce
some draAvings of the boats that had been constructed, and also the
Germans raised some defenses in relation to aspects of German law,
and Koster secured the opinion of a German counsellor of standing
and weight that controverted the opinion that had been advanced in
the German defense.
So, as you will perhaps note in one of those letters which I wrote to
Sir Basil, we could not dispense with Koster 's service pending the
settlement of tliis German claim.
The Chairman. I offer in evidence "Exhibit No. 40". This, Mr.
Carse, is a letter written to you by Basil Zaharoff, and dated
November 12, 1927, from Paris.
(The letter referred to was marked "Exhibit No. 40" and appears
in the appendix on p. 339.)
RELATIONS WITH SOUTH AMERICAN COUNTRIES
The Chairman. Zaharoff makes reference in the first paragraph
of that letter, " Exhibit No. 40 ", to Senor Luiz Aubry. Who is Aubry?
Mr. Carse. Luiz Aubry was our agent in South America. He
was naval attach^ for Peru at Washington, and after resigning from
there he took up our agency in South America and secured orders for
some submarine boats in Peru and w^ent to Brazil and Argentina
endeavoring to procure business there.
Back at the time of that letter he resigned from our employ and
went to Paris as the naval attach^ of the Peruvian Government in
Paris, and called on Sir Basil Zaharoff. I guess perhaps 1 gave him
a letter. I am not certain. But he called on Sir Basil Zaharoff' and
Sir Basil Zaharoff' was very much pleased with his acquaintance and
MUNITIONS INDUSTEY 75
arranged to have him go to Madrid and he was received very cordially-
down there.
The Chairman. You spoke of his having later resigned from the
Electric Boat Companies' employ?
Mr. Carse. Yes; at the time he went to Paris.
The Chairman. But he came back into your employ later on?
Mr. Carse. After he resigned as naval attache in Paris. He was
never in the employ of both his Government and ourselves at the
same time.
The Chairman. During the time he was out of your employ —
was that in 1927 and 1928?
Mr. Carse. Yes, sir.
The Chairman. In 1927 you are shown as paying him a salary of
$5,400, and no salary paid in 1928.
Mr. Carse. When was that?
The Chairman. I offer for the record "Exhibit No. 41 ", being a
record of the receipts of salaries, commissions, and expenses from
the Electric Boat Co. of Capt. Luiz Aubry.
(The statement referred to was marked "Exhibit No. 41", and
appears in the appendix on p. 340.)
Mr. Carse. I am not certain on these dates and the dates are more
or less blended in my mind.
The Chairman. The date of this letter, referring to Aubry not hav-
ing yet arrived at the Peruvian Legation in Paris is November 12,
1927.
Air. Carse. There were 11 months in 1927 besides that.
The Chairman. In 1926 he drew a salary of $7,200, and in 1927 a
salary of $5,400, which would indicate that he had drawn salary only
for a part of the year?
Mr. Carse. Yes, sir.
The Chairman. And in 1928 he drew no salary at all.
Mr. Carse. That is right.
The Chairman. But in 1928 he did receive from you a commission
of $18,720. What was that for?
Mr. Carse. That was for his commission on orders where we had
built Peruvian submarine boats, where we paid him a commission as
we received the money from the Peruvian Government.
The Chairman. "Exhibit No. 41 ", shows a total salary starting in
1922 and running down and including 1932 showing $37,800 paid to
Mr. Aubry and commissions starting in 1924 and running down
through the 15tli of August of this year totaling $253,674.04; and
expenses starting in 1920 running down to and including August 15,
1934, in the total amount of $34,727.85, or a total of salary and com-
missions and expenses paid to him during that period of $326,201.89.
Mr. Carse. That is about 5 percent on the business which he
secured for us.
The Chairman. About 5 percent on the business which he secured
for you?
Mr. Carse. Yes, sir.
The Chairman. About the same commission which you were
paying to Zaharoff?
Air. Carse. That is it. It seems a moderate commission. That
covered all expenses, traveling expenses, office expenses, and every-
thing else.
76 MUNITIONS INDUSTRY
The Chairman. I offer in evidence " Exhibit No. 42 ", being a letter
dated November 23, 1927, addressed to "My dear Sir Basil" and
signed b}^ Mr. Carse.
(The letter referred to was marked "Exhibit No. 42", and appears
in the appendix on p. 340.)
The Chairman. The third paragraph of "Exliibit No. 42" being
the letter from Mr. Carse to Sir Basil reads as follows:
In regard to our negotiations with Japan, I would have written you fully if
there had been any definite contract. We have been working very closely on
this subject for practically two years, and our representative, who has shown
very clearly that his relations with Hayashi, Saito, and other leading men of
Japan, are verj' close, advises us that he has complete assurances that the business
will come to us, but during the last year, as you know, many matters have hap-
pened in Japan to delay the closing of such negotiations.
Who was your representative?
Mr. Carse. Our vice president, Sterling Joyner.
The Chairman. When did he become vice president?
Mr. Spear. It was 1929 or 1930, according to my recollection.
He came with us in 1927.
Mr. Carse. He v/as not an officer at that time. He was simply
taking an agency to secure an order from Japan.
Senator Pope. Was he in Japan at that time?
Mr. Carse. He was there twice. I think we engaged him in 1925.
The Chairman. Mr. Carse, Mr. Joyner was to have been here.
We have certain affidavits revealing the inability of Mr. Joyner to
be here. I am going to suggest that Mr. Raushenbush make them
a matter of record at this time,
Mr. Carse. He is a very sick man.
Mr. Raushenbush. Mr. Chairman, we have received a statement
from Dr. Robert Scott Lamb, dated yesterday, saying:
This is to certify that Sterling J. Joyner is ill and under my professional care,
suffering from an acute laceration of an old heart lesion and must not leave his
room for the present if he is to avoid serious consequences.
Dr. Lamb is a Washington physician.
W^e also have a statement from Dr. Burt D. Harrington, of Brook-
lyn, describing the previous treatment Mr. Joyner has received at
his hands and stating —
He is under treatment at the present time and from my examination today —
That is, August 31 —
I feel that he is in grave danger of a complete collapse unless he follows my
advice and takes a rest as I have advised. It might be desirable if he be hos-
pitalized so that he can be closely watched.
For your information, Mr. Chairman, I have asked Mr. Spear
whether, in spite of Mr. Joyner's illness, it would not be possible to
secure from Mr. Joyner the correspondence which he was asked to
produce in his subpena, and Mr. Spear has informed me that he
will discuss that matter with Mr. Joyner tonight and try to secure
it, if it is at all available.
The Chairman. Continuing with the letter of November 23, 1927,
to Mr. Basil, written by you, Mr. Carse, you say:
There have been manj^ rumors, and our Government has endeavored to ob-
ta n details from us, and the British Government recently has been endeavoring
to get information from us through our friends Vickers, but all discussions on
MUNITIONS INDUSTRY 77
the project under negotiation are fraught with danger and we have endeavored
to keep the matter absolutely confidential * * *
This refers to your dealings with Japan, which Mr. Joyner was in-
teresting liimself in. Are we to understand that you were not giving
to the United States Government, even though it was making inquiry,
the facts that the Government wanted respecting these rumers of
Japanese submarine building, Mr. Carse?
Mr. Carse. They had some rumors somewhere that we had re-
ceived a contract in Japan for a large number of submarine boats,
and one of the Reserve officers, I believe of the O.N. I., came down to
see me at my office. He was connected with some brokerage office in
New York and he said that O.N.I, in Washington had directed him to
come and get the particulars from me about the contract with
Japan. I said, "We have not any contract with Japan." He did not
believe it and was very indignant that I would not tell him about the
contract with Japan. I said, "We have not any contract with Japan.
I do not know of any contract with Japan." I said: "We have had a
man over there talking to them, but what lias been accomplished, I do
not know." He and a good many other people thought that by say-
ing that that I was trjnng to hide something.
Then I think we had other inquiries from Washington, and my an-
swer was the same all the time, that we had no contract from Japan.
We did not have and never have had. Simply because I could not
give the answer they wanted is no reason why I should be condemned.
Sir Trevor Dawson wrote asking me if we could let him Icnow what
we were doing, and I simply had to tell him there was nothing tangible.
We had heard a lot of talk about promises, and we had submitted pre-
liminary sketches, not only for submarines, but for other vessels.
Senator Pope. Wliere was Mr. Joyner when the Government was
inquiring of you about this matter?
Mr. Carse. He had not arrived here yet. He was on his way
east, I think somewhere betv/een Honolulu and New York.
Senator Pope. On his way to the United States?
Mr. Carse. On his way back; yes, sir. They had evidently gotten
some flash from Japan. I thought we were going to get the thing
because gossip came to me from around the street that we were going
to get a big order from Japan for building vessels, not only submarines,
but other vessels, and one piece of gossip which came in was that some-
bod}'' said they knew it because they knew where the money was.
The money was already in New York to pay us, but we never saw it.
It would have been a very nice piece of business for the United States
if we could have landed it, and all those things, if possible to be ar-
ranged, are beneficial to the United States, not only for labor but for
the knowledge that the United States has of what is going on.
The Chairman. But the United States does not get that knowl-
edge until what is going on has happened, does it?
Mr. Carse. Don't it?
The Chairman. When the United States Government made inquiry
of you, then, in this matter, you gave them all the information that
was available?
Mr. Carse. I gave them all the information which I had, which was
nothing.
83876 — 34— PT 1 6
78 MUNITIONS INDUSTRY
The Chairman. I offer in evidence as " Exhibit No. 43 " a copy of a
letter addressed to Mr. Carse by Mr. Zaharoff under date of August 14,
1928.
(The letter referred to was marked "Exhibit No. 43" and appears
in the appendix on p. 341.)
The Chairman. I will quote this very brief paragraph from "Exhibit
No. 43":
I feel confident about your business in Spain, and believe that still bigger
things are being cooked, though matters in that country take long to materialize.
He has told you in this letter about seeing Alfonso going down in a
submarine and quoting the newspaper account of that.
I offer in evidence "Exhibit No. 44," being a letter dated September 2,
1928, from Basil Zaharoff to Mr. Spear, in which the writer gives a
lesson on how to get along with the authorities.
I read from this letter dated the 2d of September 1928.
I have your letter of 20th ultimo, with one from Mr. Daniell, about the Spanish
Navy accepting the Echevarrieta offer to import all parts of a submarine boat
to be assembled at Cadiz, and should tell you that we have for years past strongly
opposed all offers made to the Spanish Government, but we were advised by
good naval friends not to interfere in this case, because they did not want the
authorities to think that they had got into a monopoly with us re submarines.
We are advised that the clique that have been opposing our boats will now
keep quiet, and the proof of this is that we are just negotiating most satisfactorily
for a new lot of your submarines, and hope to conclude shortly.
The letter is offered as "Exhibit No. 44".
(The letter referred to was thereupon marked "Exhibit No. 44."
and appears in the appendix on p. 341.)
The Chairman. I offer as "Exhibit No. 45" a letter dated September
10, 1928, addressed to Mr. Carse by Sir Basil Zaharoff where he again
gives a recipe evidentl}^ this time on how to maintain a monopoly.
He says:
Exhibit No. 45
September 10, 1928.
My Dear Mr. Carse: Many thanks for your chatty letter of 27th ultimo,
which I have read with much interest, and regret that there has not been har-
mony between your naval authorities and your good selves.
Government representatives are often difficult to deal with, but my 50 years'
experience with them tells me that tact goes a very long way, and whenever my
firm has got into misunderstandings with the authorities, I have always changed
the person who has been negotiating, and utilized somebody else, and went on
doing this until I had somebody who was sympathetic to the authorities.
The Spanish naval programme is going on all right, and I expect final news
during this autumn, and in one way am not sorry that Mr. Daniell is leaving, for,
although he has now and then rubbed people the wrong way, without any in-
tention of doing so.
I trust that your news from Japan will continue improving, and that the
business will come off to your satisfaction, and with my homage to Mrs. Carse,
and love to your boy, I am, my dear Mr. Carse,
Always cordially yours,
Basil Zaharoff.
(The letter above referred to was thereupon marked "Exhibit No.
45.")
The Chairman. I offer as "Exhibit No. 46" a letter dated November
16, 1929, containing a request by Mr. Carse of Sir Basil for his help
in behalf of one of the Electric Boat Companies' friends in the Navy
Department. I read as follows:
One of our friends in the Navy Department, Rear Admiral Andrew T. Long,
has been nominated by President Hoover as Director of the International Hydro-
MUNITIONS INDUSTRY 79
graphic Bureau, located at Monaco, a position formerly held by the American
Admiral A. P. Niblack. Admiral Long has been promised the support of a
number of the countries lepresented in the League of Nations, and in talking over
the matter with him the names of Spain and Greece have been mentioned, and,
■without making statements to him, it has occurred to me that it might possibly
be agreeable to you to recommend to your friends in Spain and Greece, if they
have no other candidate for the position, to support the nomination of Admiral
Long, who, you will no dou!)t remember, has been naval attache at Brussels and
at Paris and commanded the European fleet of the American Navy, and was one
of the members at the different Geneva conferences. You have probably met
Admiral Long and have formed your own judgment as to his capacity and ability.
(This letter was marked "Exhibit No. 46" and appears in the ap-
pendix on p. 342.)
The Chairman. I ask, Mr. Carse, did you know Admiral Long
very well?
Mr. Carse. No.
Mr. Spear. I do.
Mr. Carse. Mr. Spear does.
The Chairman. Did you know him well?
Mr. Spear. I had known him since my days in Annapolis.
The Chairman. What was his part in the Geneva Conference or
Conferences?
Mr. Spear. He attended one of the conferences as one of the
technical advisors to our delegation. That was one of the early con-
ferences, in Geneva, as I remember.
The Chairman. Further on in the letter by Air. Carse to Sir Basil
he says:
In Washington we have been making substantial progress. Our design of new
submarine has been accepted by the Department and we are promised an order
for two out of a present program of three submarine boats, but I should say in the
abstract that such order could hardly be given to us pending the London Confer-
ence to be held in January. As, however, it is generally conceded that no adverse
action will be taken in connection with submarines at that conference, we expect
to receive this order as soon as it can be properly given.
Who, Mr. Carse, conceded or promised an order for these boats?
Mr. Carse. Well, I do not Ivnow that anybody promised, but in the
talking that was taking place at that time, it was spoken of that we
would get an order for two boats. As it was, we did not, because
thej went to Portsmouth.
The Chairman. You were promised these boats?
Mr. Carse. They had our designs. Our designs had been accepted
and were considered very favorably, and so forth. I do not know that
we were promised ; they did not promise me, but I was told that the
general tenor down there was that the two boats would be allotted to
us on the design that we had submitted.
Senator Clark. WTio conducted the negotiations in the Navy
Department?
Mr. Spear. I did in large part. What happened was this: At
that time they were considering submarines of a certain size and they
wanted to get certain qualities. We got up a design to give them those
qualities and then I held conferences with the technical bureau as to
the features of those designs wliich for one reason or another they
either wanted or did not want. It was finally settled with all the
technical bureaus and we amended the design to suit their wishes.
They felt it was a satisfactory design and the indications were that
they thought that as long as they had not given us an order for 10 or
80 MUNITIONS INDUSTRY
12 years, it was time that we did receive an order; and the indications
to me were that their intention was to place that order. As a matter
of fact, the}^ were never built; those boats were never built at all.
Later they decided to reduce the size and they built two smaller
boats. We got an order for one and the other was built at a navy
yard. So the hopes that we entertained were never realized.
Senator Pope. Upon what did you base your statement here,
"It is generally conceded that no adverse action mil be taken in
connection with submarines at that conference", referring to the
London Conference?
Mr. Carse. I tliink that is very simple to explain. France was
so absolutely and definitely opposed to the abolishment of submarines,
that no agreement could be arrived at. The only nation that was
strongly in favor of the abolition of submarine boats was Great
Britain, because she knew that she could never engage in a war wdth
a major power as long as submarine boats were in existence. They
could blockade Great Britain a good deal better than they did the
last time.
Senator Pope. It was not based on any conference with our own
Navy Department?
Mr. Carse. No; not at all.
Senator Bone. Mr. Carse, leaving the Government navy yard out
of the picture of submarine building, is there any competitive factor
in this country? Is there any other outfit building submarines?
Mr. Spear. No other outfit is building them. Another outfit has
bid upon them, or upon the last two lots and up to about 10 or 15
years ago there was another company in the business, but they have
since retired. The Navy did not give out any orders to private
industry between 1918 and 1931. We did not receive any orders.
In 1931 they asked for bids. We bid and one other concern bid.
We were the low bidder, so we got the contract. Last year they
also asked for bids; we bid, and another concern bid, and we were
again the low bidders and received the contract.
Senator Bone. Can you tell us the name of the concern that bid?
Mr. Spear. In 1931 it was the New York Shipbuilding Corpora-
tion.
Senator Bone. They build battleships and cruisers and the like?
Mr. Spear. They build all kin^s of things; Atlantic liners, de-
stroyers, and anything that they are able to get.
Senator Clark. Did not Bethlehem trj'- to chisel in on this business
at one stage of the game?
Mr. Spear. They never bid, but at one stage of the game, before
we had a hull department of our own, we subcontracted to Bethlehem
Shipyard the hulls on some of these boats.
Senator Clark. Did not Bethlehem threaten to bid on some of
these boats that you bid on?
Mr. Spear. I heard rumors that they were going to, but they never
did.
Senator Barbour. In connection udth these commissions that
have been mentioned, it would help me better to visualize what|they
were if you were to tell the approximate price of a submarine of the
usual size.
Mr. Spear. In the United States or abroad?
Senator Barbour. No; in the United States.
MUNITIONS INDUSTRY 81
Mr. Spear. Well, since the increase in costs and also the great
■complexity in design in submarines, they have been built in navy
yards for an average of around $2,900 to $3,000 a ton. Our prices
on them are somewhat less. But that is about the prevailing price.
It would depend on how many were built at one time and the design;
that is, there is not a definite price per ton that applies to every bid.
Senator Barbour, I understand that, but I was wondering, ap-
proximately, looking at it from a layman's point of view, how much
a submarine would cost.
Mr. Spear. Well, I will tell you. The hulls v/ithout the machinery
on the last two submarines cost a little under $2,400,000 apiece.
Mr. Carse. That is on the last three.
Mr. Spear. Yes; on the last three. That is the hull and the
armament. That is all of it except the engines and the generators
and the motors and the gears.
Senator Barbour. Those are expensive. So that it would run to
about over $2,500,000 complete.
Mr. Spear. I should say that machinery — they have not received
bids on machinerj^ yet — but the last bid that they had on machinery
was a little less than a million dollars. I should say that the ma-
chinery is worth somewhere between $800,000 to a million dollars.
Senator Barbour. So we may say approximately $3,000,000.
Mr. Spear. I should say for that size boat about $3,250,000,
between $3,000^000 and $3,500,000.
Mr. Carse. If it had not been for these foreign royalties that v>^e
received from Europe on this foreign business, there would not be
anj" such organization as the Electric Boat Co. with this trained,
skilled crew^ of men, because that is the only thing that has kept us
alive.
The Chairman. Coming back to the case of Admiral Long and
this letter which was marked ''Exhibit No. 46-A" (and appears in
the appendix on p. 343), Mr. Carse on January 22, 1930, wrote Mr.
Zarahoff as follows:
My Dear Sir Basil; Your letter of November 29 was duly received and I
communicated to Admiral Long that part concerning him and understand he
has written to you, word coming to me that he has been promised 65 votes out
of 69 necessary to elect.
Do you know whether or not Admiral Long won the appointment
at that time?
Mr. Carse. He did.
The Chairman. He did get it.
Mr. Carse. Yes.
The Chairman. Why did he come to you for help?
Mr. Carse. He did not come to me. Some of our people spoke to
me about it and I said, "Well, I \vill write Sir Basil and see if he
cannot do something. "
The Chairman. You communicated to Admiral Long?
Mr. Carse. Yes.
The Chairman. And told him what?
Mr. Carse. Wliat Sir Basil had said.
The Chairman. I offer in evidence as "Exhibit No. 47", a letter
dated September 20, 1930, to Mr. Spear by Mr. Zaharoff.
(The letter referred to was marked "Exhibit No. 47", and appears
in the appendix on p. 344.)
82 MUNITIONS INDUSTRY
The Chairman. In this letter, marked "Exhibit No. 47", Mr.
Zaharoff says:
I quite agree with j^ou that everything should be and must be done to keep
out the Germans, French, and Italians, and with j^our tact and that of Colonel
Fuster and Cervera, I believe that the matter will be quietly piloted our way.
Just what does that mean?
Mr. Spear. That meant that we thought we would be successful
in maintaining our position in preventing our European competitors
from taking any of the business away from us.
The Chairman. Zaharoff said in that same letter:
The Spanish officers, like many others, endeavor naturally to show that they
are inventing, and we should always seem to encourage such ideas while we are
sticking to real safetJ^
That means that you were not accepting all of their thoughts?
Mr. Spear. No; they present some thoughts to us. We consider
that they are unsound or unsafe and we would not agree to incorpo-
rate them in the designs for which we would be responsible. Some
of them sometimes have ideas about what they think might be an
improvement that from lack of real information on the subject would
be wrong. We would not take the responsibility of accepting their
ideas.
Mr. Carse. You have to be careful that you do not offend them.
The Chairman. I offer as "Exhibit No. 48" a letter dated August
11, 1930, from Mr. Zaharoff to Mr. Spear.
(The letter referred to was thereupon marked "Exhibit No. 48"
and appears in the appendix on p. 344.)
The Chairman. I find in this letter, "Exhibit No. 48 ", the following:
You know that the Germans are using every imaginable trick to get a footing
in Spain, also the Italians and French, but we are keeping our vigilant eye open,
yet they may one day get hold of an interested official, and thus cause us much
trouble.
Just what was Sir Basil worried about there? What might they
do to an interested official?
Mr. Spear. I suppose they thought they might get some important
official favoring their cause and advocating it which would cause us
trouble.
The Chairman. You don't think that he felt that Spanish officials
might be susceptible to considerations that were not altogether con-
fined to the merits of the case?
Mr. Spear. I would not like to say what might be in Su' Basil's
mind.
The Chairman. I offer as " Exhibit No. 49 " a copy of a letter dated
October 25, 1930, to Mr. Spear signed Zedzed.
Mr. Carse. That is his cable address, his cable name.
The Chairman. That is Zaharoff"'s cable name?
Mr. Carse. Yes; Zedzed, Paris.
(The letter referred to was thereupon marked "Exhibit No. 49"^
and appears in the appendix on p. 344.)
The Chairman. In the closing paragraph of this last letter Mr.
Zaharoff says:
It is a very long time since I have seen Mrs. Spear and yourself, and I trust
you are both well. I had the pleasure of entertaining here Mr. Sutphen, with
some directors of General Motors.
MUNITIONS INDUSTRY 83
Mr. Siitphen, who were these dn-ectors in General Motors?
;Mr. SuTPHEN. Mr. C. S. Kettering, vice president of General
Motors and Mr. Codrington, who was president of the Winton
Engine Co.
The Chairman. Docs your company, the Electric Boat Co., have
any coiniection at all with General Motors?
Mr. Sutphen. No.
The Chairman. None whatsoever?
Mr. Sutphen. None whatever.
The Chairman. Does General Motors hold any stock that you
know of in the Electric Boat Co.?
Mr. Sutphen. No.
The Chairman. I offer as "Exhibit No. 50 " a letter dated Novem-
ber 22, 1930, to Sir Basil Zaharoff by Henry R. Sutphen.
(The letter referred to was thereupon marked "Exhibit No. 50"
and appears in the appendix on p. 345.)
The Chairman. I shall not offer the whole letter in evidence, as it
seems to go into details concerning the visitation of Mr. Sutphen
and the two General Motors officials in plants in Europe during your
visit there. But in the second paragraph there is this language:
Knowing of your interest in the Chase National Bank, upon my return I called
upon Mr. Wiggin and told him of the very pleasant visit I had with you in Paris,
and he was very sorry to learn of your illness.
What is it you knew of Mr. Zaharoff 's interest in the Chase National
Bank.
Air. Sutphen. At the time that I visited with Sir Basil in_ Paris
he asked me about Mr. Wiggin as he had heard that Mr, Wiggin had
been in Europe that summer, but had not called on him. He men-
tioned to me at the time that he was interested in the Chase National
Bank and regretted that he had not had a chance to confer with Mr.
Wiggin.
Senator Clark. Mr. Carse, a while ago I asked you if Mr. W. B.
Shearer had formerly been a member of your board and you said no.
Had he had any other connection with the Electric Boat Co.?
A'Ir. Carse. No.
Senator Clark. Do you recall a conversation that you had some-
time shortly prior to September 29, 1932, with Mr. N. E. Bates, Jr.,
of the duPont Co. in regard to some Peruvian business?
Air. Carse. I remember Bates ; yes.
Senator Clark. He came and talked to you about Peru?
Air. Carse. Yes.
Senator Clark. At that time you had a claim against Peru for an
unpaid bill and you made an attempt to complete a scheme by which
Peru would give you a guano concession; you were to apply that on
your indebtedness and also get them some arms. Is that correct?
Mr. Carse. No; that is not correct. Aubry was down in Peru
representing us and trying to make some arrangement by which there
would be a resumption of payments of our notes. He suggested that
they might secure from the Peruvian Government an agreement that
we would take guano to supply the Pacific coast on a certain basis.
That was the Pacific coast only — California. The Atlantic coast had
been given to some airplane manufacturer and the European market
had long since been taken care of.
84 MUNITIONS USTDLTSTEY
Well, I made an examination, made a study of it, and I got in
touch with William R. Grace & Co. who had handled the guano ex-
ports from Peru for many years and found that the market in Cali-
fornia was very meager and also that the Peruvian Government had
already given the rights to some Peruvians down there. So that fell
through entirely. So that did not amount to anything at all. It was
such a small amount of guano.
Senator Clark. That has very little to do with what I wanted to
ask you at this time. I am now reading from a memorandum of a
report from N. E. Bates, Jr., of the duPont Co., to Maj. K. K. V.
Casey, director, dated December 29, 1932, which will be properly
identified and put in evidence at the proper time. I am now reading
simply for the purpose of refreshing your memory and getting your
statement as to whether or not this memorandum correctly reports
your conservation. After introducing the subject of Captain Aubry,
Mr. Bates goes on:
The plan as outlined by Aubry is that the Peruvian Congress would levy taxes
on telegrams, cocoa, tobacco, etc.; the proceeds from which would be dedicated
entirely to the payment of the $1,500,000 they expect to raise for the purchase
of war materials. In the act will also be included a provision ceding to the
Electric Boat Co., a concession to sell guano exclusively in the Atlantic coast of
the United States; the guano to come from deposits now controlled by the
Peruvian Government.
Mr. Carse. That is wrong. There was not even any talk of the
Atlantic coast. It was only the Pacific coast.
Senator Clark. Continuing with tliis report:
Mr. Carse figures that the revenue from the guano concession would amount
to approximately $36,000 j^early. A similar concession is expected to be given
to the United Aircraft Co. to whom the Peruvian Government owes $700,000.
for the sale of guano on the Pacific Coast of the United States.
Mr. Carse. It was just the reverse.
Senator Clark (continuing reading):
Mr. Carse thought we were manufacturers of arms and ammunition and there-
fore, would be interested in supplying machine guns and ammunition to the Peru-
vian Governm.ent with a possibility of giving the Government credit under the
tax-levy plan suggested by Captain Aubry and which, of course, would mean that
payment would depend upon collection of the proposed levies.
Then there are certain other paragraphs not material to what I
want to ask you at this time. Then there is a paragraph as follows:
Carse informed me that the famous Mr. Shearer was formerly a member of his
board of directors. Captain Aubry formerly represented Vickers in Peru, but
Carse understands he is no longer connected with that British concern.
Did 3'ou make any such statements as that to Mr. Bates?
Mr. Carse. Never, never, never.
Senator Clark. Was Shearer's name discussed between you?
Mr. Carse. Never. I don't know why I should.
Senator Clark. I do not know why you should, either. I am just
asking you because Mr. Bates, in his report to his superior in the
duPont Co., says that you did.
Mr. Carse. There is absolutely nothing to it. I have only seen
Mr. Shearer once in my life.
Senator Clark. It is your contention that Mr, Bates just gra-
tuitously included that misstatement in his report to his superior?
MUNITIONS INDUSTRY 85
Mr. Carse. I do not know where he got it from. There is no
reason why I should discuss that with him. I only met him once in
my life and that was many years ago.
RELATIONS WITH PERU
Senator Clark, Now, Mr. Carse, I want to direct your attention
to the company's business in Peru. When did you first know Com-
mander Aubry? When did he first come in contact with your
company?
Mr. Spear. While he was still in active service as naval attache in
Washington.
Senator Clark. He was at that time naval attache at the Peruvian
Embassy in Washington?
Mr. Spear. Yes.
Senator Clark. And he was on the active list of the Peruvian
Navy?
Mr. Spear. Yes. He approached us with certain inquiries as to
technical matters and various things he wanted to know.
Senator Clark. On whose behalf did he approach you — on behalf
of the Peruvian Government?
Mr. Spear. The Peruvian Government.
Senator Clark. When did you first employ Commander Aubry as
your Peruvian agent?
Mr. Carse. It was after he resigned. It must have been about
1923.
Mr. Spear. I think 1923 or 1924. The records would show it.
Senator Clark. Was he on the active list of the Peruvian Navy at
the time he was representing you as your representative either in
Peru or in other South American countries?
Mr. Spear. He was not.
Mr. Carse. He was not; never.
Senator Clark. Back in 1919 you heard through former President
Leguia that he was interested in submarines; and you also had infor-
mation at that time that Leguia would be back in power within 3 or
4 months, did you not?
Mr. Carse. I cannot recall.
Senator Clark. I call your attention to a letter written by your-
self to Mr. Spear which I will ask to have marked at this time for
purposes of identification "Exhibit No. 51".
(The letter referred to thereupon was marked for identification
"Exhibit No. 51.")
Senator Clark. Your letter reads as follows:
Exhibit No. 51
March 29, 1919.
Mr. L. Y. Spear,
Vice President, Electric Boat Co., Groton, Conn.
Dear Mr. Spear: Referring to your letter of March 24 to Captain Buenano,
the captain would like some definite explanation as to thie difference between the
double-hull and the single-hull submarine, and would also like sketches of them or
some general plan so that he could send full information to his people.
Will you kindly have it sent forward as soon as possible and oblige,
Yours very trulv,
(Signed) (?) Carse.
P.S. — Captain Buenano states that President Leguia will be returned to the
Presidency in 3 or 4 months and it is he who is asking for the data on
submarines, as the sentiment throughout the whole country is to secure land
86 MUNITIONS INDUSTRY
and naval armaments to protect themselves from Chile. If you have any
photographs or pictures of any sort in relation to submarines or their machinery,
the captain would like very much to have it so that he could send everything
possible to Peru.
Does that refresh your memory as to what information you had
received that President Leguia would be returned to power in a few
months?
Mr. Carse. Well, that was 15 years ago, 1919.
Senator Clark. How long had you known President Leguia?
Mr. Carse. I did not know him at all.
Senator Clark. How long had President Leguia been in communi-
cation with your company, doing business with your company?
Mr. Carse. That was back before I came into the company. Mr.
Spear would know.
Senator Clark. Did you not have some relation with President
Leguia when he was in power before?
Mr. Spear. Yes, sir. When President Leguia was in before he
made with us — that was before Mr. Carse came into the company — a
contract for I think six submarines, as I recall it. After he made the
contract, he changed his mind as to the desirability of acquiring these
vessels and that is where I first met Mr. Buenano. He sent Captain
Buenano up to see us and asked us if we would not abrogate the
contract and return the notes.
Mr. Carse. I think there were $252,000 of treasury certificates.
Mr. Spear. The first payment had been given us in notes and we
decided that if the President did not want what he thought he wanted,
it was not good business to try to hold him to a contract and we agreed
and returned the notes. After that President Leguia was deposed
and was in Europe for a good many years. Personally, I never met
him and all of that negotiation was conducted by an American agent
that we sent down there v/ho knew Lima pretty well and knew the
President. He brought the matter to us and the negotiations, the
original negotations "were all conducted through that agent, a man
by the name of Chester.
Senator Clark. As a matter of fact, at this time to which the
letter I have just read refers, what you were actually doing was
negotiating with a party of revolutionists who were fixing to over-
throw the government.
Mr. Spear. We were not negotiating with anybody.
Senator Clark. You were furnishing plans for submarines to be
used by Leguia who was at that time attempting to overthrow the
Government b}'' revolution.
Mr. Spear. He came back at that time and got elected.
Senator Clark. Do you know what was the situation between the
Peruvians and the Chileans.
Mr. Spear. There had been ill-feeling there for years over the
settlement of a boundary. In fact there was to be a plebescite to
decide wlio owned the country, but it never had been held, and it
was an open sore between the two countries. In fact our country
sent a commission down to try to mediate the differences.
Senator Clark. As a matter of fact, at this particular time, 1919-20
Chile had bought some war vessels.
Mr. Spear. The Peruvians knew the Chileans had more arms than
they had, and they w^oiild not trust them.
MuisriTioisrs industry 87
Senator Clark. Was it not a common rumor at that time that
Chile had purchased some warships through Vickers.
Mr. Spear. I could not tell you what was the rumor at that time.
That might be, but I do not know.
Senator Clark. Now, in 1920 jon were trying to sell the Peruvians
some destroyers, were you not?
Mr. Spear. Yes.
Senator Clark. At $100,000 apiece?
Mr. Spear. I do not recall the price. I would hardly want to say
the prices from memory.
Senator Clark. I offer in evidence a letter dated March 24, 1920,
from !Mr. Spear to the Peruvian Ambassador.
Signor Pezet was Ambassador at that time.
Mr. Spear. I think so.
Senator Clark. I offer as "Exhibit No. 52", this letter.
(The letter referred to was marked as "Exhibit No. 52" and
appears in the appendix on p. 346.)
Senator Clark. I read from this letter, " Exhibit No. 52 " as follows:
Referring to the negotiations inaugurated by you with respect to the sale to
your Government of the four torpedo boat destroyers which we have on hand
for prompt delivery, we take pleasure in advising you as follows: ¥/hile we have
a number of inquiries for these vessels, we shall be glad, as an accommodation
to you, to hold them at your disposal until June 1, 1920.
Were those vessels sold?
Mr. Spear. No; they were not.
Senator Clark. At the same time you were quoting them on
submarines?
Mr. Spear. I would not trust my m.emory whether we were
quoting them at that time on submarines or not, but I do not think
so. Those destroyers were discarded vessels that had been sold by
the United States Government for scrap. We purchased them and
the Ambassador knew we owned them, and he approached us to get
a price on them.
Senator Clark. You asked $100,000 for the destroyers and $130,-
000 to arm them?
Mr. Spear. Something of that sort. We had bought them at a
scrap sale from the United States Government.
Senator Clark. The quotations are stated in this letter of April
1, 1920, which I offer in evidence as committee's "Exhibit No 53."
(The letter referred to was marked "Exliibit No. 53", and appears
in the appendix on p. 346.)
Senator Clark. I call your attention to this letter dated April 1,
in which you wrote Mr. Chapin — he was at that time your Wash-
ington representative, was he not?
Mr. Spear. Yes; he was.
Senator Clark. You wrote him this letter I have referred to
giving quotations for submarines for Peru.
Mr. Spear. Yes.
Senator Clark. At that time, Mr. Spear, the Peruvians were
attempting to buy some submarines from the United States Gov-
ernment, were they not?
Mr. Spear. I understand the}^ did.
Senator Clark. You were informed by Mr. Chapin that the
Navy would not sell any submarines to Peru or Chile on the score
88 MUNITIONS INDUSTRY
this might be encouraging an outbreak of war between Chile and
Peru.
Mr. Spear. I do not recall the detail of what the reasons were,
but I recall that approach was made by the Peruvians to the Gov-
ernment, and it was declined later.
Senator Clark. I offer "Exhibit No. 54", being a letter dated June 1 ,
1920, from L. Y. Spear to H. R. Carse.
(The letter referred to was marked "Exhibit No. 54", and appears
in the appendix on p. 347.)
Senator Clark. In that letter, "Exhibit No. 54", Mr. Spear says:
The Ambassador is cabling the Government tnat the United States has defi-
nitely decided as a matter of policy not to supply anythi.ig either to them or to
Chile on the score that this might be encouraging an outbreak of war between
them. It is reported on good authority that tlie British Government is going
to help the Chileans out, and if this is so or believed to be so by the other govern-
ment, it ought to influence them io favor of our proposals.
Now, it did not make any difference to you whether it was true or
believed to be true by the Peruvian Government that Chile was
arming?
Mr. Spear. Not a bit.
Senator Clark. Neither one would help you to sell submarines to
Chile.
Mr. Spear. It would bring them into the market for them if it was
true or not
Senator Clark. Did you take any steps to keep the United States
Government from selling submarines to the Peruvian Government?
Mr. Spear. None whatever.
Senator Clark. If the United States Government refused to sell
submarines to Cliile or Peru on the ground that it might be encourag-
ing an outbreak of war between Peru and Chile, it indicated a very
strong opinion on the part of the authorities in the United States that
the sale of submarines would foment a war down there, did it not?
Mr. Spear. Not that I know of.
Senator Clark, Would not that be your deduction from the lan-
guage in this letter?
Mr. Spear. My deduction would be that any government would
be very chary of it supplying to either side in that dispute something
that might be used in the event of an outbreak of hostilities.
Senator Clark. The delivery of submarines to either of those
countries on the verge of war would be calculated to promote a war?
Mr. Spear. I would not say it would be that, but I would say it
was calculated to stop it.
Senator Clark. That has not been the experience of mankind
throughout the history of the world.
Mr. Spear. My judgment would be that if one side was equipped
to defend itself and the other was not, it would not promote a war.
Senator Clark. Now, when you put out the report that the British
Government was arming Chile, you were to that extent using the
British Government to help you sell submarines.
Mr. Spear. I was not using anything. I was writing a letter^ to
Mr. Carse telling him such information as I had. It was advising
Mr. Carse of what I had heard.
Senator Clark. And now, when did the Bethlehem Steel Co. come
into the picture as a competitor?
MUNITIONS INDUSTRY 89
Mr. Spear. I do not know. You will have to refresli my memory.
Senator Clark. I offer "Exhibit No. 55", being a letter from F. E.
Chapin, dated June 3, 1920, addressed to Mr. Spear.
(The letter referred to was marked "Exhibit No. 55", and appears
in the appendix on page 347.)
Senator Clark. In this letter, "Exhibit No. 55", Mr. Chapin says
on page 2:
I am enclosing copy of a letter which I sent yesterday to Commander Azevedo
after I had talked with Mr. Carse about the activities of Bethlehem. My con-
versation over the telephone with Mr. Carse was inspired by the activities of
Mr. Smith, a vice president of the Bethlehem, who tried to see Commander
Azevedo in New York last Thursday, and I think succeeded. Mr. Smith was
most persistent, and called the commander up two or three times by telephone,
saying they could build submarines and that they had an agent in Rio and they
had been building submarines for many years. Of course, I told Commander
Azevedo that they were our subcontractors and only built the hulls and some
minor parts, but everything was under the direction and supervision of the
Electric Boat Company. It v/ould seem to me that Bethlehem is not proceeding
in what I would call an ethical manner by trying to butt into our province as
builders of submarine boats, and it looks to me as if there might be rather stiff
competition if they pursue this course.
Mr. Carse. That is Brazil.
Senator Clark. What I asked was when the Bethlehem Steel
tried to "butt" into the building of submarine boats.
Mr. Spear. This letter appears to be dated June 3, 1920.
Senator Bone. Do they still try to build hulls for the United
States Government?
Mr. Spear. No.
Senator Bone. Is their equipment capable of doing that?
Mr. Spear. It is capable; yes.
Senator Bone. You have stated at that time they were building
hulls?
Mr. Spear. Yes.
Senator Bone. You had confidence in the abilitv of the corporation
to build hulls?
Air. Spear. Under our supervision; j^es, sir.
Senator Bone. What I mean is, they have the equipment there?
Mr. Spear. Yes; they have the equipment there, and properly
mimaged they could build a hull.
Mr. Carse. They had no right to make that offer in 1920, because
their contract with us was they would not build submarines until
after a couple of years after they finished our work.
Senator Clark. You afterwards made up "v^dth the Bethlehem, and
paid half of the expenses of a representative in South America.
Mr. Spear. I do not know that we did, but it may be we did.
Senator Clark. I \\dll come to that in a few minutes, at the proper
time, when I come to that correspondence; but right now I will ask
this: As far back as 1920, Mr. Carse, your representative in Washing-
ton, Mr. Chapin, recognizes the significance of what you submarine
companies were doing in South America in promoting war.
Mr. Carse. I do not know.
Senator Clark. I should have asked Mr. Spear that question. He
advised j^ou, Mr. Spear.
Mr. Spear. I do not know whether he did or not.
90 MUNITIONS INDUSTRY
Senator Clark. I call attention to a letter from Chapin to you,
dated June 3, 1920, which I offer as " Exhibit No. 56 ".
(The letter above referred to was marked "Exhibit No. 56", and
appears in the appendix on p. 348.)
Senator Clark. Mr. Spear, at the time of the writing of that
letter Mr. Chapin had been endeavoring to get the United States
Government to send several submaiines around South America as a
sort of an exhibit of their efficiency, had he not?
Mr. Spear. I do not understand the Senator's question as to
promoting war?
Senator Clark. I will come to that later. I say, at that time Mr.
Chapin as your representative had been endeavoring to get the
United States Government to send a fleet of submarines around the
South American coast as a sort of show case of your wares? Is that
not correct?
Mr. Spear. He says here that he had talked about that subject.
Senator Clark. I will read that paragraph of the letter, as follows:
Dear Larry: I have just left Admiral Niblack; talked with him about send-
ing a fleet of submarines to South America to visit Rio, the Argentine, through
the Straits and up the west coast. He has given directions to Captain Gal-
braith to agitate this subject and see if it cannot be consummated.
Who was Admiral Niblack?
Mr. Spear. I think at that time Admiral Niblack was head of the
Naval Intelligence.
Senator Bone. Of the United States, you mean?
Senator Clark. Yes.
Mr. Spear. I think so.
Senator Clark. Then this letter continues as follows:
He believes in it. I brought the topic up by asking if the Department had
under consideration the sending of a fleet; if it did, why it could not send a
submarine.
He said the Department was opposed to sending a fleet, for the reason the ships
were not in good condition and it would take them away from service in the
Atlantic or Pacific, but they had thought of sending a division of four ships.
Nevertheless, he has taken up the question of sending submarines independently.
He tells me that the whole balance of power has been destroyed by Chile
getting six submarines and two warships from England, and that it has caused a
good deal of uneasiness on the part of the Argentine, while Peru is absolutely help-
less. He said in this connection the Department had recommended that six
destroyers be released by the Department, but the Cabinet had sat down most
emphatically on the proposition, so there is no chance of that being done at the
present time. He said that in his talk with Pezet he told the Ambassador that
it had occurred to him it was now a matter of Peru going into the market and
buying outright not only with respect to destroyers, but also as to submarines.
That is the Chief of Naval Intelligence advising the Peruvian
Ambassador as to what he should do.
Mr. Carse. It was Chapin advising him.
Senator Clark. No; he says:
The admiral said that possibly the Department could be of assistance by
releasing one of the submarines novv- building and substituting therefor another
to be built by the contractor later on. This would insure quick delivery, but I
do not favor tlie plan very materially because I think the price named by the
Navy would be niucli lower than the one we have quoted to the Peruvian Govern-
ment. And perhaps even this proposed act on the part of the Department in
releasing one of the submarines now under construction would be objected to
quite as vigorously by the Cabinet as the proposition to release destroyers.
MUNITIONS INDUSTRY 91
So it was the position of your company if the Navy was to sell any
of these vessels to Peru, that it would sell them at a lower price than
you had quoted and therefore would be breaking the market on
submarines.
Mr. Cause. No; that was Chapin's cliitchat.
Senator Clark. He was your representative; was he not?
Mr. Carse. He was expressing his view. We never coincided with
it.
Senator Clark. Did you want the Navy Department to sell these
submarines to Peru?
Mr. Carse. What difference did it make, if they bought another
one from us?
Senator Clark. If who bought another one?
Mr. Carse, The United States Navy.
Senator Clark, Did you have any assurance the United States
Navy would buy another one from you?
!Mr. Carse, No; it was just cliitchat. The United States would
not do what he was talking about.
Senator Clark, If the United States Government would buy six
submarines from you and turn around and sell them to Peru, what
was your assurance of that?
IMr, Carse. They were not talking about buying six submarines.
They were talking about buying one boat.
Senator Clark. This letter said they were talking about selling
six submarines.
Mr. Carse. The British Government sold six, the United States
Government did not.
Senator Bone. Does the United States Navy listen to suggestions
that tliey send the Navy or a part of the Navy around the world on
a sales expedition for a private corporation?
Mr. Carse. It was not a sales expedition.
Senator Bone. I am taking tliis letter as it reads.
Mr, Spear. So far as I know that proposition was never put up to
them.
Senator Bone. It was seriously suggested that the Navy at the
expense of the taxpayers, send a fleet down there to promote the sale
of wares of a private company. Was that actually done or actually
seriously suggested?
Mr. Spear. I do not know that it was ever done.
Senator Clark, It was suggested by your representative to the
Department, was it not?
Mr, Spear. I do not know.
Senator Clark. You were informed by your representative that
that had been done.
Mr. Spear. All of the information I have is what is there.
Senator Clark. He says that he had suggested to Admiral Niblack,
and that he was in favor of it and had instructed one of his subordi-
nates to agitate it.
Mr. Spear. I believe it was advocating sending four ships down
there. That is my understanding.
Senator Bone, Is the Navy trying to promote the creation of
larger armaments among these nations?
Mr, Spear, Not that I know of.
92 MUNITIONS INDUSTRY
Senator Bone. And then we carry on peace conferences at Geneva,
at the same time?
Mr. Spear. I would not think so.
Senator Clark. What was the occasion of your company having
the submarines sent down there, was it not as a showcase?
Mr. Carse. I never heard of it.
Senator Clark. You may not have heard of it, Mr. Carse. I am
not examining you. I ask Mr. Spear now whether you heard of it
or not, and your corporation has assented to it as a statement of
your representative.
Mr. Carse. It was chitchat so far as I know.
Senator Clark. It is not chitchat when a representative of your
company goes to the Navy Department and makes a proposition of
this character and he writes about it to your responsible vice president.
Do you recall that?
Mr. Spear. I do not recall it now, but I no do^ubt did at that time
know of it. I had no recollection of it until you brought it back to
my mind.
Mr. Carse. Your representatives very often bring before you many
propositions which you are obliged to turn down.
Senator Clark. Mr. Carse, if you will read this letter you will see
he was not bringing any proposition to Mr. Spear, but that he was
reporting that he had taken official action on behalf of your company.
It was a report of something he had done as your representative.
Mr. Carse. It was a question of whether he had the power as a
representative.
Senator Clark. Do you know of any action ever taken to reprove
him for the action he reported?
Mr. Carse. I do not know about it.
Senator Clark. Mr. Spear, do you know of any action taken to
reprove him?
Mr. Spear. I do not know anything about it.
Senator Clark. So that Mr. Chapin's action did stand as the
action of the company?
Mr. Spear. I do not know whether it did or not. I recall nothing
about it.
Mr. Carse. It never was done, anyhow.
Senator Clark. Now, Mr. Spear, in 1920, Commander Aubry who
was your representative in Peru was instructed by the Peruvian Gov-
ernment to come to Washington to get a loan, was he not?
I call your attention to a letter dated July 16, 1920, which I offer
as "Exhibit No. 57".
(The letter referred to was marked "Exhibit No. 57", and appears
in the appendix on p. 348.)
Mr. Spear. Let me see that to refresh my mind. In 1920 he was
not our representative. He was Naval Attach^ here, and he was act-
ing for the Peruvian Government at that time.
Senator Clark. That was before Commander Aubry made his
arrangement for you?
Mr. Spear. Yes; that was in 1920, and he was naval attache here
at that time, I believe.
Senator Clark. He was the same man who later became connected
with you?
MUNITIONS INDUSTRY 93
Mr. Spear. The same man who, when he retired from active service,
entered our employ.
Senator Clark. When did he begin to be your representative?
Mr. Spear. I have just testified that my best recollection is that
it was 1923, but I have not looked it up.
Senator Clark. I know that in 1921 you paid him $4,000 for ex-
penses in 1920.
Mr, Spear. That was for a book that he wrote.
Senator Clark. It is enumerated here in "Exhibit No. 41" as
"Expenses".
Mr. Spear. That is what it was, it was a book that he wrote. He
delivered some lectures and made up a book, which we thought was
very useful to us.
Senator Clark. That book was sometime later, was it not?
Mr. Spear. I have not the exhibit right before me to refresh my
memory. The book consisted of a print of a lecture which he had
delivered with films in a theater in Lima to demonstrate the superior-
ity of the electric boat over all otheis.
Mr. Carse. That v/as before we paid him. It was in Spanish, and
we circulated it all over the Spanish countries.
Senator Clark. Anyway, Commander Aubry was sent up here for
the purpose of floating a loan of $15,000,000 in this country, and that
loan was to be used chiefxy for the purpose of arm.am.ent. Is that not
correct, Mr. Spear?
Mr. Spear. I could not tell you v/hat it was to be used for. It
does not appear to shj here.
Senator Clark. Now, Mr. Spear, on the question of whether or
not this man was your agent at this time, I refer you to page 3 of the
letter which you have in your hand, this being a letter from Mr.
Chapin to your firm. It says:
When you meet Captain Aubry, he may tell you something about the lecture he
made in one of the largest theatres in Lima about the merits of the electric boat
as compared with other submarine boats. The captain tells me that he had an
audience of about three thousand people. His lectures were illustrated by pic-
tures and films which you had furnished him. The President, the Minister of
Marine, and other members of the cabinet were present, as well as the members
of the Pro- Marine which is a society composed of citizens who are deeply interested
in the welfare of the country but more particularly with relation to naval affairs.
It appears that Captain Aubry arrived in Lima at a most opportune time. The
Minister from Italy had been active with the Society of the Pro-Marine, and a
contract had been prepared and was ready for signature, calling for the purchase
of three of the Laurenti boats. If the contract had been signed it would undoubt-
edly have committed the country to that particular type of boat, but owing to the
representations made by Captain Aubry the contract was not signed and I judge a
good deal of hornet's nest was started which resulted ultimately in the action of
the President and his Cabinet determining to order four submarine boats from the
Electric Boat Company-
Would you not draw from that, that Captain Aubry was your
representative in Peru at that time?
Mr. Spear. He was not. He was in the active service of the
Peruvian Government. He considered the submarines we built
were much better adapted to the Peruvian conditions than the others,
and he was acting in his official capacity for the Peruvian Govern-
ment. He was in no way an agent of ours.
83876— 34— PT 1 7
94 MUNITIONS INDUSTRY
Senator Clark. So at this time you would have the committee
behove that Captain Aubry, a patriotic Peruvian, was going out hiring
a hall and giving this lecture with films without any compensation
from your company, and just as a coincident shortly thereafter he
became your agent, not only in Peru, but in the whole of South
America?
Mr. Spear. That is what he did, but as I recall it, we defrayed the
expenses of publishing that book.
Senator Clark. You bought some copies?
Mr. Carse. Quite some time afterwards.
Mr. Spear. I think we eventually bought it and published it, and
circulated it throughout the Spanish-speaking countries, because it
was printed in Spanish.
The Chairman. Senator Clark being willing, the committee will
recess until 10 o'clock tomorrow morning. Let it be understood
tomorrow morning, as the committee will meet at 10 o'clock, it will
undertake to go through until 1 o'clock and break up the day at that
hour rather than earlier.
Until 10 o'clock the committee stands in recess.
(Thereupon the committee recessed until 10 a.m., Wednesday,
Sept. 5, 1934.)
INVESTIGATION OF MUNITIONS INDUSTEY
WEDNESDAY, SEPTEMBEU 5, 1934
United States Senate,
Special Committee to Investigate
THE Munitions Industry,
Washington^ D.G.
The hearing was resumed at 10 a.m., in the caucus room, Senate
Office Building, Senator Gerald P. Nye presiding.
Present: Senators Nye (chairman), George, Clark, Bone, Pope,
and Barbour.
Present also : Stephen Raushenbush, secretary ; and Robert Wohl-
forth, assistant to chief investigator.
The Chairman. Let the committee be in order. Senator Clark,
you may proceed v^ith the witness.
TESTIMONY OF HENEY R. CARSE, LAWRENCE Y. SPEAR, AND
HENRY R. SUTPHEN— Resumed
RELATIONS WITH PERU
Senator Clark. Mr. Spear, I believe when the hearing adjourned
yesterday j^ou had testified that at the time when Commander Aubry,
of the Peruvian Navy, had hired a theater in Lima and addressed
an audience of some 3,000 people including the President of Peru
and the Minister of Marine, in a lecture illustrated by some 50
slides, illustrating the superiority of the products of the Electric
Boat Co. over all other submarines, and had later had this lecture
published in book form which he circulated at his own expense
to some extent, and at no cost whatever to your company.
Mr. Spear. That is my understanding.
Senator Clark. How long after this lecture was it that this
beautiful exhibition of friendship was rewarded by your company
giving him a contract?
Mr. Spear. I am not sure of the date.
Senator Clark. About how long? I do not mean to be exact.
Mr. Spear. You mean when he sent the first contract ?
Senator Clark. No; when you made the first contract with Com-
mander Aubry, when he became your representative?
Mr. Spear. I think it was 1923. The record will show, and I may
be wrong, but I think the record will show it was July 1923.
Senator Clark. I am not asking for the exact date. As I under-
stand, the commander had published these books on his own ac-
count and you paid him for 2,000 of them at, roughly speaking,
$2 apiece.
Mr. Spear. That is my general understanding.
95
96 MUNITIONS INDUSTRY
Senator Clark. That was on the suggestion of Mr. Chapin?
Mr. Spear. Yes.
Senator Clark, In addition to that Commander Aubry sent out
several hundred copies of the book containing the lecture, on his
own account?
Mr. Spear. That I do not know anything about. I did not recall
anything about it offhand until you reminded me.
Senator Clark. You knew at the time?
Mr. Spear. Probably I did ; but I do not remember now.
Senator Clark. To refresh your memory on that, I call your
attention to a letter from Mr. Chapin to yourself dated September
21, 1920, which I will ask to have marked '' Exhibit No. 58."
(The said letter referred to was marked " Exhibit No. 58 ", and
appears in the appendix on p. 350.)
Senator Clark. I read from this letter, " Exhibit No. 58 ", as
follows :
I saw Commander Aubrj' this morning. He is very much pleased that Mr.
Carse, as well as your self, approves the proposed purchase of his article at $2
per copy. He tells me that by October 20, and perhaps earlier, he will deliver
to you 1.000 copies, and by November 10, S40 copies additional. Perhaps these
deliveries can be made earlier, but in the meantime he would like to have you
send him a check for $2,000 so thsit he can remit to the printers in Lima. The
remaining $2,000 may be forthcoming when the final copies are delivered.
The Conimander tells me that he left instructions in Lima for the distribu-
tion to the Memliers of Congress and Government officials of possibly 1,000
copies. In addition to that number he sent several hundred copies to his
friends in Buenos Aires.
Of course, he is not making any charge for those copies.
If I understand, he was doing that as an act of charity to the
Electric Boat Co.
Mr. Spear. All I know about it is what is in this letter.
Senator Clark. And now, I want to recur for just a moment to
the letter of June 3. which we had here yesterday, the letter in which
Mr. Chapin describes his interview with Admiral Niblack.
Mr. Spear. Can I get that again ?
Senator Clark. I can read enough to refresh your memory. This
is Cha])in speaking, and he says :
He (Admiral Niblack) tells me that the wlaole balance of power has been
rlestroved bv Chile getting 6 submarines and 2 warships from England, and it
has caused a. gieat deal of uneasiness on the part of the Argentine, while Peru
is absolutely helpless.
Are you familiar with the fact in connection with the submarines
which Chile got from England?
Mr. Spear. I think that was a piece of misinformation myself. I
do not think they did get them.
Senator Clark. Is it not a fact that what Chile got was manu-
factured in the United States?
Mr. Spear. No; I do not know that.
Senator Clark. Is it not a fact that in the early days of the war
Chile was having a warship constructed in England, and when the
war started the British Government seized this Chilean warship and
used it for their own purposes in the war; and that after the war.
in compensation for the seizure of that warship, the British Govern-
ment did arrange to have certain submarines made for Chile, and
they were made in this country ?
MUNITIOXS INDUSTRY 97
. Mr. Spear. Not after the war.
Senator Clark. When was it done?
Mr. Spear. That was done during the war, when the United States
entered the war. The British Government ordered from us and the
Bethlehem Co. some submarines, and we built 10 of them in the
United States.
Senator Clark. Did jou build those ships for the Chilean Gov-
ernment ?
Mr. Spear. No; for the British Government. If you will permit
I will tell you this about it. We being at war, of course, the ships
could not be delivered and when they were finished they were taken
to the Boston Navy Yard and immuned by the United States Gov-
ernment, and wdien the United States entered the war the British
Government and the Chilean Government made some kind of a
trade, and the Chilean Government then acquired 5 or 6 subma-
rines. But this has nothing to do with the statement of Admiral
Niblack, because that occurred in 1917.
Senator Clark. You stated you thought this information that
Chile had received these warships was erroneous ?
Mr. Spear. Yes; I was under the impression we were talking
about something that had not happened 3 years before. My impres-
sion was that was an erroneous impression of Admiral Niblack. I
did not recall that Chile acquired any ships for some years after
that.
Senator Clark. So that this whole occasion of arming Peru, and
of the revolution in Bolivia on the basis of the arming against Chile
was based on an erroneous rumor?
Mr. Spear. That is m}^ impression. I do not say that is a state-
ment of fact, Chile had the ships we had just referred to, and it is
possible, of course, that is what Admiral Niblack had in mind.
Senator Clark. This order from Peru j'ou were negotiating in
1920 was expected to be a fairlj^ large order, was it not? You re-
ferred in one of your letters to it probably running between eleven
and twelve million dollars.
Mr. Spear. My impression is that we were talking at that time,
if I am right about this, about 6 or 8 boats in a program.
Senator Clark. How many boats would eleven or twelve million
dollars pay for?
Mr. Spear. That would depend on the size entirely.
Senator Clark. I refer you to a letter dated July 20, 1920, which
I will ask to have marked " Exhibit No. 59 ", the letter being from
yourself to Mr. Carse.
(The letter referred to was marked " Exhibit No. 59 ", and appears
in the appendix on p. 350.)
Senator Clark. This letter, " Exhibit No. 59 ", reads as follows :
Commander Aubry s])ent yesterday with me liere, accompanied by Com-
manders Freyer and Causey of the United States Navy. The latter two
gentlemen are ffoing to Pern probably next week to practically take charge of
the Peruvian Navy.
That was the American Naval Commission to Peru by which the
American Government allowed certain officers of the United States
Navy to enter into contracts with Peru and other South American
governments for jDractically taking charge of their Navies for the
98 MUNITIONS INDUSTRY
purpose of administration and training, and these two referred to
were to be members of the American commission to Peru.
Mr, Spear. They were to be on that commission ; yes.
Senator Clark. Proceeding with the letter, it says :
Commander Aubry seems to have made a great success of his visit. The
Goverument has decided to order from us four 900-ton submarines and one
submarine tender of about 3,i;00 tons disphicenient. Tiieir Minister of Marine
plans to be here in September to sign tbe contracts. I understand they have
some tinancing to do, but they seem perfectly confident of being able to take
care of that, so that we will not be called upon to extend any credit.
They want as soon as possible tinal and fixed prices fur this construction,
including guns, ammunition, torpedoes, and everything else that goes with the
ships.
Owing to the presence of the United States officers during our conference
here, I was unable to get details as to the situation with regard to the de-
stroyers, but I expect to secure these tomorrow when I shall meet Commander
Aubry again iu New York.
Now, Mr. Spear, why was it you felt freer to deal directly with
the representatives of tlie Peruvian Government than you did in the
presence of the United States Naval Commission who were just
setting out for Peru?
Mr. Spear. That was a matter for the Peruvians at the time.
Senator Clark. If the United States Navy were to take charge
of the Peruvian Navy, they were entitled to know everything that
went on ?
Mr. Spear. They would know everything that went on.
Senator Clark. But you did not feel free to discuss it in their
presence ?
Mr. Spear. No; I was under the impression they would not ap-
prove of the idea — I do not know whether this is so — but what I
thought was that they would not approve of the idea of taking these
old boats that had been sold for scrap, and having them recondi-
tioned by us. That is probably it.
Senator Clark. Then that letter goes on :
My understanding is that the U. S. Navy Department gummed this game by
making a written offer to supply four modern oil-burning destroyers with
complete armament at $100,000 each.
That was considerably under the price you were quoting to the
Peruvians ?
Mr. Spear. I think that is what we did quote without armament.
Senator Clark. Eeading further, this says:
Subsequent to this foolish proceeding, I understand that the Cabinet took
the matter under consideration and revoked this action.
By that you mean the Peruvians?
Mr. Spear. I presume so.
Senator Clark. Reading further:
Our friends, however, were not officially informed of this Cabinet action
and so, of course, the offer served to prevent a deal with us on our boats. As
I understand it, Aubry now proposes to get official confirmation as to Cabinet
action and hopes then to be able to push tiiis deal through by cable.
Mr. Raushenbush. In the last paragraph it is mentioned that the
total order should run from 10 to 12 million dollars.
Senator Clark. Yes. In the last paragraph you say :
I am ari'anging to meet the Newark Bay people in New York tomorrow to
go into the question of the cost of the tender. Present indications are that
MUNITIONS INDUSTRY 99
the price for this will be somewhere between two and a half and three million,
so that the total order should run between eleven and twelve million dollars.
Is that correct?
Mr. Spear. Yes.
Senator Clark. Now, to pay for all of this armament procure-
ment, Peru was at that time, through Commander Aubry, endeavor-
ing to float a loan in this country through the sale of its securities?
Mr. Spear. I think so.
Senator Clark. Mr. Sutphen, you handled the negotiations with
Commander Aubry, did you not?
Mr. Sutphen. No,
Senator Clark. I call your attention to a letter dated July 29,
1920, which I asked to be marked " Exhibit No. 60."
(The letter referred to was marked " Exhibit No. 60 ", and appears
in the appendix on p. 351.)
In that letter, " Exhibit No. 60 ", you say, Mr. Sutphen :
Dear Speab: Fred Chapin, Commander Aubry, and the Peruvian Ambassador
called at the office this morning and we had a long talk and took lunch together.
I conferred with Mr. Cochran after lunchecm regarding the loan situation
and he turned me over to a Mr. Monroe who is secretary of the South American
banking group here in New York, of which the Morgan firm acts as chairman,
and which includes the City Bank, the First National Bank, and Kuhn &
Company, etc., etc.
Mr. Monroe did not give me any encouragement whatever. He said some-
time ago Peru had made a similar request of the City Bank, he thinks within a
month or two. At that time they intended to buy some of the American war
vessels such as destroyers, submarines, etc., and the City Bank turned it down,
as they were not interested in the matter, due to Peru's poor financial position.
Its national debt is approximately $34,000,000, and as Mr. Monroe explained,
to add 50% to the national debt to purchase war vessels would be considered
very inconsistent, considering the financial position of Peru and how she has
hocked almost everything she owns.
Do 3^ou recall that now?
Mr. Sutphen. I do recall it now, but that was 14 years ago and
I did not recall it at first.
Senator Clark. Reading further this says:
I got the impression from the Ambassador at the beginning of our conver-
sation that we would not receive much encouragement from the New York
group of bankers, and his deductions were certainly correct.
As you are going to see Chapin tomorrow, I think you ought to tell him
that in the opinion of the American bankers it is not a very opportune moment
to present the matter and that unless something unexpected turns up I think it
would be better not to go further with this banking group. Upon Mr. Carse's
return we can all talk it over and see if we have any new plan to suggest. lu
the meantime I do not think we should present the matter further to the bank-
ers. Mr. Monroe will report to Mr. Cochran and I in turn will have a talk with
Mr. Cochran the first of the week.
It appears there has been quite an agitation in Bolivia, as you know, and a
revolution occurred there recently and in the opinion of the bankers it has been
instigated largely by Peru to have Bolivia join with her in opposition to
Chili.
So that this unfounded rumor of armament on the part of Chile
not only caused Chile to seek to add 50 percent to its national debt
for the purchase of armament but also caused the revolution in
Bolivia for the purpose of forcing Bolivia into the alliance. Is
that not correct? That is the statement in your letter.
Mr. Sutphen. Apparently I had that information at that time.
100 MUNITIONS INDUSTRY
Senator Clark. Keading further from this letter it says :
So far I cau only report that the banking situation dees not look at all
promising to float a loan for Peru of $18,UU0,U00 in the United States for the
purcliase of submarines.
Mr. Cochran personally would like to see anytliing accomplished that would
help us along, but from what Mr. Monroe said it appears to me that Peru's
financial position is not an attractive one to the banking houses in New York.
Fred might report to the Ambassador when he sees him in Washington that
we are working on the case and will know something more definite when Mr.
Carse returns.
I will be very glad to do anything further that you can suggest.
So that it was not only part of your business to sell armament, Mr.
Sutphen, but also your business to finance those South American
securities by sale to the public so that they might purchase arma-
ment ?
Mr. Sutphen. I do not think that is quite the case. The signifi-
cance of that was to ascertain if we had any suggestions as to the
matter of a loan Peru might make in the United States. We natu-
rally thought of our banking friends who could be approached on
such a subject, but we have never taken a prime position in obtain-
ing a loan for Peru.
Senator Clakk. Your company pursued the matter further after
the first negotiations to see what could be done.
Mr. SuTiPiiEN. In an entirely friendly way, because we were not
bankers.
Senator Clakk. I call attention to a letter from Chapin to Carse,
dated August 7, 1920, which I ask may be marked in evidence.
(The letter referred to was marked "Exhibit No. 60-A", and
appears in the appendix on p. 352.)
Senator Clark. I will ask Mr. Carse to read this and see if this
does not show the further trend of negotiations. I will read only
the last paragraph myself.
On page 2, Mr. Chapin says to you, Mr. Carse :
I believe we should do everything we possibly can to encourage and aid the
am'bassador, and should keep him advised from time to time of the progress
made and the nature of the objections raised, so that he may see that we are
dealing fairly and openly with him.
I shall take occasion to see the ambassador at the earliest possible moment.
I think he ought to be told your viewpoint as to the attitude of the bankers
and the reasons which probably control them, also the influence which W, R.
Grace & Co. may exert.
Now, what was that answer, Mr. Carse — do you recall?
Mr. Carse. Did I answer this?
Senator Clark. We haven't got your answer to it, or at least I
have not. Did it have anything to do with oil concessions in Peru ?
Mr. Carse. Why, anybody's salespeople or agent or wliateyer you
may call them, are constantly putting forward to the executives all
sorts of plans and propositions. They seem to feel they have to do
something to justify tlieir existence, and they do not seem to bother
very much whether the offer they have received is strong, or has any
assurance, so these suggestions and propositions come forward from
agents like Chapin was. He was not an agent; he was simply a man
down at Washington here to keep us in touch v^^ith different mutters
to save us traveling back and fortli from New York to Washington.
Now, his letters as you have read them here are filled with a lot of
MUNITIONS INDUSTRY 101
suggestions about this, that, and the other thing, as though they were
settled facts, when they are only suggestions of tilings that might be
accomplished.
Senator Clark. Now, Mr. Carse, that may all be true, but he
refers in this letter, in the extract which I have just read, to a view-
point expressed by you with reference to W. R. Grace & Co. Let
me read it again :
I think he ou.t:ht to be told your viewpoint as to tlie attitude of tlie bankers
and tlie ronsons wluth pi'obably coiitrcl them, also the influence wbicli W. R.
Grace & Co. may exert
I can readily understand from what you liave written that W. R. Grace &
Co. would fail to exert their present influence were they controlled by biased
or partisan motives.
That, Mr. Carse, is something you passed on to him. [Reading :]
At the interview which I hope to have with the Ambassador very soon I
shall scund him out with regard to the possibility of American companies
obtaining oil concessions, and as to whether the revenues arising from such
concessions could not be devoted to the purposes of our impending contract.
Did that suggestion come from you in this letter?
Mr. Carse. I do not think it came from me, because I do not know
anything about any oil concessions; who would care to have them or
anything else. I do not know anything about the oil business. I
have not the slightest comprehension of it. I do not know where
that idea could have come from.
Senator Bone. W. R. Grace is a British line, is it not?
Mr. C-ARPE. No, sir; they are a New York house.
Senator Bone. Are they located in New York?
Mr. Carse. New York City; yes, sir. They have very heavy in-
terests all down the west coast of South America, in Peru and
Chile, and run lines of steamships, and they have manufacturing
concerns and farming concerns and everything practically.
Senator Bone. They run a big intercoastal line, I know.
Mr. Carse. Yes; and also down the west coast of South America.
Senator Pope. Do they have oil concessions?
Mr. Carse. I do not know. I do not know anything about the
details of their business at all.
Senator Bone. They have connections which supply a good deal
of freight to their boats, do they not?
Mr. Carse. Yes, sir; they do.
Senator Bone. So that they originate a greal deal of their own
?
Mr. Carse. Yes, sir; they originate a great deal of their own
freight.
Senator Clark. Mr. Carse, just for the purpose of refreshing your
memory as to who was the originator of this matter of oil conces-
sions, I call your attention to a letter dated August 6, 1920.
Mr. Carse. I asked if you had that letter and you said " no."
Senator Clark, I have the exhibits misnumbered, Mr. Carse. Of
course, the letter dated August 6, 1920, precedes the last exhibit by
1 day.
Mr. Carse. That is right. It is 14 years ago.
Senator Clark. I will ask to have this marked " Exhibit No. 61."
(The letter referred to was marked " Exhibit No. 61 ", and appears
in the appendix on p. 352.)
cargo
102 MUNITIONS INDUSTRY
Senator Clark. In that letter of August 6, 1920, Mr. Carse, which
is from you to Mr. Chapin, you said:
There is one thing that occurs to my mind, and that is the oil in Peru
Mr. Carse. That second paragraph, how about that? Would j^ou
mind reading that first ?
Senator Clark. I will come to that in just a moment. I now desire
to go to the question of who originated the suggesti(m about the oil
concessions. The- last paragraph on page 2 of the letter from you
reads as follows :
There is one thing that occurs to my mind, and that is the oil in Peru and
whether some arrangement could be worked out with some of the large oil
companies in this country for concessions in Peru, for which they would be
willing to advance money. If you could find out from your friends the status
of the oil lands I would be glad to broach this point to some people here who
might be interested.
So that, so far as that is concerned, the suggestion came from you
and did not originate with Mr. Chapin ?
Mr. Carse. That is your supposition.
Senator Clark. You certainly mentioned it, did you not, in your
letter of August 6, 1920?
Mr. Carse. That is right.
Senator Clark. It was not simply a fly-by-night proposition, sub-
mitted by one of your agents, but was mentioned to him by the
president of the company, who is the responsible head of the
company.
Mr. Carse. Yes ; that is simply a suggestion, if anything like that
be done.
Senator Clark. It was simply a suggestion that you inveigle some
of the oil companies to supply funds for the purchase of arma-
ments ?
Mr. Carse. Senator, I do not like the word " inveigle ", because
you do not " inveigle " the large oil companies into anything.
Senator Clark. I think that is probably a fair criticism, Mr.
Carse. In other words, you wanted to interest the large oil com-
panies in financing an armament program for South America?
Mr. Carse. I was willing to present anj^ proposition the govern-
ment might approve with regard to any oil companies which might
be interested.
Senator Clark. And you were willing to have Mr. Chapin sug-
gest to the Peruvian Government that that might be done, because
that is what you suggest in this letter?
Mr. Carse, If they wanted to borrow money or put up assets for
borrowing money. The second paragraph of that letter I think is
pertinent. Senator.
Senator Clark. I was coming to tliat in just a moment, Mr.
Carse. You are discussing the difficulties here of floating this loan
througli the bankers.
Mr. Carse. I knew it could not be done.
Senator Clark. Yes.
Mr. Carse. I had tried it back in 1910.
Senator Clark. You say :
Whenever a borrower is not able to secure the funds he wishes he is apt
to ascribe his non-success to adverse interests, but while undoubtedly any
MUNITIONS INDUSTRY 103
group of bankers approached in relation to a loan on the West Coast of South
America would consult the members of W. R. Grace & Co., and w^uld un-
doubtedly be influenced by their opinion, if W. R. Grace & Co. did not give an
unbiased business opinion that could be substantiated by facts they would very
quickly lose their status in the business and banking world. Undoubtedly
that organization is better acquainted with affairs on the west of South
America than any other organization in this country, and while they have
tJieir own interests to protect there is no question that their minds are open
to take on any new business that indicates a safe return.
The difficulty here as pointed out by Mr. Monroe to Mr. Sutphen is the
lending of a large sum of money to a comparatively weak country to pre-
pare for conflict with a much stronger country, and the armament, which this
money could purchase would not insure victory as the other nation has much
stronger armament and would tend more to bring conflict to a point than if
they did to purchase the armament.
Apparently you disagreed at that time, Mr. Carse, with the view
expressed yesterday by Mr. Spear, that the purchase of armaments
in Peru would tend to prevent hostilities rather than bring them
about.
Mr. Carse. I did not believe there was any large opportunity of
making any sale to Peru. In our business we have followed up, very,
very many clues or channels, some of which led to business and some
of which did not.
Senator Clark. Mr. Carse, in this letter which I have just read,
you expressed the flat view that the purchase of these armaments
by Peru was more likely to bring about hostilities than to prevent
them, did you not?
Mr. Carse. That would seem so.
Senator Clark. Which is at direct variance Avith the view ex-
pressed by your associate, Mr. Spear, yesterday, and tliat the pur-
chase of those armaments would tend to prevent hostilities.
Mr. Carse. I think that was expressing the belief of the bankers.
Senator Clark. Did you agree with that point of view?
Mr. Carse. Well, I really do not think — I do not know what I
did 15 years ago — but I do not think that that is a sound point of
view, because if one country has quite a navy and another country has
none at all, the second fellow cannot be very " sassy " about any-
thing that happens. And, as it developed in Peru, President Leguia,
when he came in, had always the idea of a navy, and when he came
back he planned in course of time to get six submarine boats.
Senator Clark. As a matter of fact, he planned to get 10 ulti-
mately, did he not ?
Mr. Spear. It finally came down to six.
Mr. Carse. It finally got down to wdiere his program was for six
boats of this size, which he did build, but that occurred some time
later. We built them two boats, and then we built them two more
boats, and vv-e gave them good iDoats. They are still running, and
they have made record trips of 10,000 miles, and these are considered
not only by Peruvians but United States submarine officers
Senator Clark. I think Mr. Carse, the qualities of the boats are
really beside the point which we are getting at now. You were
looking at that matter from purely a material standpoint ?
Mr. Carse. Of course.
Senator Clark. You say further in this letter, " Exhibit No. 61 " :
Naturally, if Peru were badly defeated the persons who advanced them money
for the armament could not expect any great liberality from the victor.
104 MUNITIONS INDUSTRY
Mr. Carse. Tliat is the bankers' view.
Senator Clark (reading) :
Onr business of course is to sell armament, Init we have to look at the other
«ifle of the question as well.
Mr. Cause. Of course, why should you want to sell some stuff and
not get paid for it?
The whole Government is urging in every way the extension of
foreign commerce and yet you criticize us for trying to sell things
to foreign governments.
Senator Clark. I do not desire to enter into an argument with you
at this point, Mr. Carse, but it might be said very briefly that there
is a contention in this country that some of the efforts of armament
salesmen to sell arms are undesirable and may in the future cost the
United States Government in taxes to support a war, and in lives
of its citizens, a great deal more than can possibly be gained by the
small profit which you would make in extending the commerce of
the United States.
Now, Mr. Carse, I will direct your attention to a letter dated Octo-
ber 25, 1920, which I will ask to have marked " Exhibit No. 62."
(The letter referred to was marked " Exhibit No. 02 " and appears
in the appendix on p. 353.)
TERUVIAN LOAN
Senator Bone. Mr. Chairman, before the Senator goes to " Exhibit
No. 62 ", may I digress for just a moment so that I ma}^ ask a question
of the witness?
If my memory serves me correctly, the Peruvian Government,
subsequent to this time, did float a very large loan through New
York bankers in this country, did it not? This is just so much
history, but just for the sake of the record. It has nothing to do
with this inquiry.
Mr. Carse. We had nothing whatever to do with it.
Senator Bone. I am well aware of that. I mean the Peruvian
Government did subsequently float a large loan in this country, and
as I recall it, those Peruvian bonds were under consideration in the
recent Senate inquiry, which showed that they were absolutely no
good and proved to be " duds" and are now in default, so far as the
interest is concerned. That is correct?
Mr. Spear. That is correct.
Senator Bone. I do not know the extent of that default, but is
was a very sizeable one, in any event.
Mr. Carse. That had nothing whatever to do with our transaction.
Senator Bone. I am Vv^ell aware of that. That was a subsequent
transaction, but it has to do with conditions discussed here as to
Peruvian finances.
Senator Clark. Mr. Carse, this letter dated October 25, 1920,
from Mr. Chapin to yourself had further to do with the floating of
this loan in the last paragraph.
By the way, do you know anything about the transactions to which
Mr. Chapin refers, by which the United States Shipping Board paid
$1,100,000 in cash and a further payment of $900,000 for the pur-
chase of some Peruvian ships ?
MUNITIONS INDUSTKY 105
Mr. Carse. I do not know anything about it, except I have heard
that Peru held up some German shij^s that Avere at Port of Callou
at the beginning of the Avar.
Senator Clark. You do not know why the United States Sliip-
ping Board was buying ships at the time tliey were ghitted with
ships in tliis country?
]\rr. Spear. This was during the war.
Senator Clark. They took over ships during the war'^
]Mr. Spear. It was a subsequent settlement for ships they wanted..
Senator Clark. What do you understand by this last paragraph,
Mr. Carse, in Mr. Chapin's letter, in which he says :
I think the Ambassador has in mind that this deposit could be placed witli
some New York bank, wliich might become insLi'iimental in floating the loan
needed for the carrying out of the naval program.
Mr. Carse. I suppose he thought that if he had $2,000,000 de-
posited in a bank, it might make that bank regard the credit of
Peru stronger.
Senator Clark. Sort of " rigging " the market for bonds, in other
words ?
Mr. Carse. They floated two or three loans before they floated
this big loan to which Senator Bone referred. They floated a couple
of loans, 7, 8 or 10 million dollars through some bond house, I think.
We had nothing whatever to do with that. We did not get any of
that money. Our money came from certain specific taxes.
Senator Bone. I guess the bankers got most of that money, did
they not?
Mr. Carse. I do not know. They spent a great deal down there
on public works, so I am told. I have never been there.
The Chairman. What makes the Senator think that the bankers
have got most of it?
Senator Bone. Some of my friends bought some of this beautiful
paper from Peru and have kept it for souvenirs.
Mr. Carse. The bankers turned the money over to the Peruvian
Government.
Senator Clark. Part of it. They got a very substantial commis-
sion.
The Chairman. I understand the bankers did not hang on to
many of the bonds but sold them to the public.
Senator Bone. The folks were urged to consult their bankers
as to investments, and when they consulted with their bankers, that
ended everything, their savings and everything they had managed to
accumulate.
Mr. Carse. I am not acquainted with that.
Senator Bone. You have heard about that, have you not?
Mr. Carse. I certainly have.
Senator Bone. There have been intimations concerning that in
this country.
Mr. Carse. I think all of us have known something personally
about similar things.
Senator Clark. Mr. Carse, it is not particularly important, but
3^ou had a communication from time to time, either directly or
through your agents, with the American Naval Mission to Peru?
Mr. Carse. I do not think I had directly.
106 MUNITIONS INDUSTRY
Senator Clark. I mean your company.
Mr. Carse. I think probably Mr. Spear could answer that.
Senator Clark. Do you recall a letter dated November 16, 1921,
which I will ask to have marked " Exhibit No. 63," from Charles
Gordon Davy, commander. United States Naval Mission to Peru,
and Commandante Director of the Peruvian Naval College, solicit-
ing an advertisement from you for a magazine published by the
Peruvian Naval College?
Mr. Spear. I did not recall it until I saw this [examining paper].
(The letter referred to was marked " Exhibit No. 63 " and appears
in the appendix on p. 354.)
Senator Claek. This letter, " Exhibit No. 63 ", will refresh your
memory on that, Mr. Spear, will it not ?
Mr. Spear. I do not remember it.
Senator Clark. In which it was made a matter of national pride
to print this advertisement in the Peruvian naval magazine. I
direct your attention to the last paragraph of that letter, which
reads as follows :
I have talked this matter over with our commercial attache in Peru and with
my other American friends, and they assure me that we are going to hear from
you. American prestige demands.
Did you respond to that appeal from our diplomatic service that
American prestige demanded that you insert an advertisement in this
Peruvian magazine?
Mr. Carse. Yes ; we had an advertisement in that magazine " Re-
vista de Marina." We put it in. I am not certain what size it was.
Senator Barbour. Do you remember if other people advertised in
the same magazine?
Mr. Carse. Yes, sir ; quite a number of other people, a number of
different shipbuilding concerns. I have not seen it for some time,
and I guess we have stopped it.
Senator Bone. I gather from this correspondence that the New
York bankers were well aware of the financial condition in Peru at
that time and were dubious about their ability to float a loan. Is not
that true?
Mr. SuTPHEN. That is correct, Senator,
Senator Bone. They were fearful of the inability of Peru to pay
any bonded debt of that character at that time ?
Mr. SuTPHEN. I do not know what they were afraid of, but they
were not interested.
Senator Bone. It must have been due to the financial condition in
Peru.
Mr. SuTPHEN. Probably.
Senator Bone. The bankers were doubtless aware of that when
they floated their big loan in the United States, which we have been
discussing.
Mr. SuTPHEN. That was in 1930.
Senator Clark. Mr. Sutphen, the National City Bank floated a
loan of $18,000,000 for Peru in 1922, did it not?
Mr. Sutphen. Mr. Carse referred to the earlier loans. I do not
remember the amount, Senator. The National City Bank did not.
Senator Clark. Who did float the loan in 1922?
MUNITIONS INDUSTRY 107
Mr. Caese. White-AVeld & Co., I think, brought out the loan.
Senator Clark. The Seligman Co. did not float the first
$18,000,000.
Mr. Cakse. No, sir; I think it was White-Wells, with a group (»f
other bond houses. I do not know the amount. I think there were
two. I think it was 8-percent or a 7i/2-percent loan.
Senator Clark. That aggregated 18 million dollars, or about that,
Mr. Carse?
Mr. Carse. I should think about that.
Senator Clark. And those securities were, of course, sold to the
peojDle in the United States?
ivlr. Carse. Yes, sir.
Senator Clark. Shortly after that you received the first payment
in 1924, to be exact, did you not? That is, you received your first
payment on your contract with Peru for 2 submarines, 24 torpedoes,
and a submarine base ?
Mr. Carse. Yes ; but it did not come out of that money, the bonds.
That came out of a fund, that is the first payment, came out of a
popular subscription fund in Peru that had been made up for the
purpose of securing some naval vessels, some submarine fund, or
something of that nature.
Senator Bone. Had a great deal of sentiment for naval defense
been generated there in the meantime ?
Mr. Carse. It had been going for submarines and this fund had
accumulated in that way. They were going to use it at one time —
and I think it was shown here — for the buj'ing of some submarine
boats from Italy.
Senator Pope. Was this United States naval mission down there
at that time ?
Mr. Carse. When did they go ? They were there when we got the
order.
Senator Clark. They went there in 1920 or 1921, did they not,
Mr. Carse?
Mr. SuTPHEN. About that time.
Mr. Carse. Sometime around that time, because they passed upon
all the details of our contract specifications and so forth. Is not
that so?
Mr. Spear. Yes, sir.
Senator Pope. You were in very close touch with them all the
time?
Mr. Carse. We were not.
Senator Pope. Your agents?
Mr. Spear. They were responsible to the Government to see that
they got proper material, and they were the people to scrutinize
the specifications and the contract and to take care of it for the
Peruvian Government.
Mr. Carse. The Peruvian Government did not give the contract
until after the American mission had approved the plans and speci-
fications.
Senator Clark. The first paj^ment was $461,254.15, was it not?
Mr. Carse. I think so.
108 MUNITIONS INDUSTEY
Senator Clark. I offer in evidence as " Exhibit No. 64 " on that
point a letter signed by Mr. Spear, addressed to the Minister of
Marine at Lima, Peru.
(The letter referred to was marked " Exhibit No. 64", and appears
in the appendix on p. 355.)
Senator Clakk. Mr. Carse, without going into the details of
Peruvian finance, and out of v,diich particular fund the loans were
paid for, the fact remains that you sold them submarines and got
I^aid for them and the American people bought Peruvian bonds and
got " stuck." Is not that the result?
Mr. Carse. I do not see any connection at all.
Senator Clark. Perhaps not, but that fact remains, does it not?
Mr. Carse. We have not got paid yet.
Senator Clark. I understand you have not been paid completely
for some of your later orders.
Senator Boke. I am puzzled a little about one thing, INIr. Carse.
There was testimony in this record to the effect that when j'^ou sup-
plied plans to foreign governments for submarines, and equipment
of that character, you did not supply them with what you con-
sidered the latest type and model, because you have an under-
standing with this Government that you will not supply to a foreign
government anything of that kind.
Mr. Carse. That was not said. Senator. What Mr. Spear said
Senator Bone. Perhaps I overstated it, but that was my impres-
sion.
Mr. Carse. That we did not furnish them the copies of plans and
designs that we were building for the United States Navy.
Senator Bone. Here we have a picture of this Government send-
ing a naval mission down to little Peru and telling the people down
there how to build up-to-date submarines.
Mr. Carse. They could not build them there.
Senator Bone. Or telling them what sojt of plans and specifica-
tions to prepare for submarines. Now they were handing ther^e
Peruvians antiquated plans?
Mr. Carse. No.
Senator Bone. Manifestly they were not going to suggest to Peru
that they have the latest type of submarine that this country had.
Mr. Carse. The United States Government did not furnish the
plans.
Senator Bone. I have a note here that the American naval officials
approved the plans.
Mr. Carse. Yes; certainly.
Senator Bone. They must have approved a set of ]:»lans then which
were not wliat they would consider up-to-date for this Govern-
ment. Were they "slipping" the Peruvians something? That is a
vulgarism, but were they " slipping " the fellows down there some-
thing?
Mr. Spear. Let me answer. That is a teclmical question.
Senator Bone. It is hardly fair to give a technical answer to a
lawyer about a thing as to which he is not wholly familiar.
Mr. Spear. I think I can make it clear.
Senator Bone. You can give a by-and-large answer on it.
Mr. Spear. The conditions under which the United States con-
sidered that they wanted to use submarines affects the designs of the
MUNITIONS INDUSTKY 109
vessels. It has to be of certain quality for their work. The work
which the Peruvian submarines were designed to do, from a mili-
tary standpoint, is different from the latest United States boats.
So that the two things are not parallel at all. You see, if the United
States had said to us, " We want a boat for this purpose, to do so-
and-so ", at that time, and had said, " What are your suggestions ",
the suggestions would have been the same as we made to the Peru-
vians in general, except that we would have put in the particular
things which the United States Government always wants. But the
uses of the two things are entirel}^ different and therefore their qual-
ities are different and the designs are different.
Does that answer your question. Senator?
Senator Bone. In a way, 3^es; but I still am unable to understand
why the United States Government sends a naval commission around
telling foreign powers how to build good submarines.
Mr. Spear. They did not do anything of the sort. They considered
them very fine submarines for the purpose.
Senator Bone. Is that also in the interest of promoting trade ?
Mr. Speak. Ko.
Senator Bone. Why does our Government go to the expense of
sending naval officers around the world on ventures of that char-
acter? Can 3''ou tell us? Is that part of our national program?
We might as well let the countrv know about these things.
Mr. Spear. There was a time, and I do not think it now exists. I
think they have stopped it.
Senator Bone. I doubt if the great majority of the people are
aware of that.
Senator Clark. It is a fact that the Secretary of the Navy stated
at the time Congress passed the act to authorize the naval mission
to various South American countries that one of the purposes of it
was to sell armaments and to induce them to install American
equipment.
Mr. Spear. I was about to say that part of the policy at that time
was close connection with South America, and if we got into trouble
they wanted to have things which they knew about and could use,
and thought were all right. That was a part of their policy and
I was about to say in answer to Senator Bone that that was true,
when you brought it out. That was the answer that I was going to
give you. That vv^as a known fact.
Mr. Carse. This Government paid the expenses of the missions, the
salaries of the men.
Senator Clark. As a matter of fact, they drew salaries from the
American Government at the same time, and in the case of Peru they
were uaid $8,000 a year apiece while they were down there?
Mr. Carse. Something of that nature. I do not know.
Senator Clark. So that it was really a very nice thing for the
American navnl officers who were sent down there?
Mr. Carse. Surely.
Senator Bone. The fact that the Peruvian Government wanted to
do something did not relieve the taxpayers of this country from
I):iying the expense at the same time.
IVIr. Carse. I do not know what arrangement they made.
83876— 34— PT 1 8
110 MUNITIONS INDUSTRY
Senator Bone. The thing which I am getting at is : We are using
the Navy as a sales agency. And that is the interesting feature of
this thing, and I am rather inclined to think, since this is a private
venture, it might be the part of wisdom for the Government to
refrain from that expenditure, at least if it is going into the thing
as a public policy, and that the people should be advised, so that
the people will know about it. The people have the right to know
about the policies and weigh the value and merits of the adminis-
tration on what it is doing.
Mr. Carse. It seemed to me it was more a gesture of good will
to the South American countries.
Senator Bone. It could hardly be said to be a gesture of good
will — building submarines, battleships, and shipping TNT into the
country — could it?
Senator Clark. The American Naval Mission got thrown out
about the time Leguia was thrown out, did it not?
Mr. Carse. I guess everybody was.
Senator Bone. In connection with this activity, we are sending
men to Geneva and assuring the world that we are trying to promote
peace and bring about disarmament. That is what I am trying to
get at. On the one hand we are using a Government agency to
promote the sale of battleships, munitions of war, and so forth, and
with the other hand we are making a gesture of peace at Geneva.
Mr. Carse. Senator, we have always considered that the subma-
rine boat was the greatest means of doing away with war that ever
existed.
Senator Bone. Well, a submarine blew the Lusitanm out of the
water, and I do not think that promoted peace, do you ?
Mr. Carse. No ; but that was done by the Germans, who stole our
patents.
Senator Bone. But that is beside the point. A submarine was
actually the thing that immediately brought about war.
Mr. Carse. We have never built a submarine boat that was not
used for defense.
Senator Bone. And that submarine may have been built with the
use of an American patent.
Mr. Carse. It was a patent which they stole.
Senator Clark. I will ask you to look at a letter dated October
27, 1924, which I will ask to have marked " Exhibit No. 65 ", from
Commander Aubry at Lima, to Mr. Spear.
(The letter referred to was thereupon marked " Exhibit No. 65 ",
and appears in the appendix on p. 355.)
Senator Clark. Mr. Spear, I will ask you to look at the top of
page 2, paragraphs 6, 7, and 8, in which Commander Aubry says :
Now, I must inform you that Ackerson wired to Admiral Woodward
Admiral Woodward at that time was head of the American naval
mission to Peru, was he not?
Mr. Spear. He was.
Senator Clark. I will repeat that.
Now, I must inform you that Ackerson wired to A(hniral Woodward on tlie
21st saying that Mr. Harriman was willing to reopen negotiations for a loan
based on national-defense taxes and for naval construction. In his wire
MUNITIONS INDUSTRY HI
Ackerson requests Admiral Woodward to communicate to the President in order
to have his personal opinion, and in case he should approve, he will come by
first steamer.
Do you know who Harriman was?
Mr. Spear. Yes.
Senator Clark. Who was Harriman and what was the proposi-
tion, if you can tell us briefly, Mr. Spear ?
Mr. Spear. Mr. Harriman was Mr. W. A. Harriman, who, for a
number of years, interested himself very actively in all kinds of
shipping and shipbuilding matters. He has since retired, I believe,
after some sad experiences, from that branch of the business.
Mr. Ackerson, to whom he refers, was one of Mr. Harriman 's men,
assistants, whom he had sent on a trip to South America to see if
he could find any enterprises in which Mr. Harriman might be
interested ; in other words, to see if he could drum up any business
cf any kind in these various things in which Mr. Harriman was
interested.
Senator Clark. Do you know what the proposition was that Har-
riman wanted to submit to President Leguia?
Mr. Spear. No; I do not know anything about it. I may have
heard something about it later, Senator.
Senator Clark. This letter does not disclose entirely what the
proposition was.
Mr. Spear. I think it was on the theory that Mr. Harriman might
be interested in some kind of proposition, if it was based on special
taxes and not based upon the general credit of the Peruvian Gov-
ernment. That is the impression that I get from the paragraph
you just read.
Senator Clark. And he was using an American admiral as a go-
between for the purpose of negotiating a loan which would be used
by Peru for armament purposes ; at least, that is Commander Aubry's
statement, is it not?
Mr. Carse. He was trying to.
Senator Clark. That is what I said.
Mr. Spear. Yes ; he was advising the admiral.
Senator Clark. He did use the admiral as a go-between.
Mr. Carse. You do not know whether Admiral Woodward did
what he requested or not.
Senator Clark. The next paragraph clears that up. [Reading:]
President Leguia's answer, communicated by Admiral Woodward to Acker-
son, was to the effect that President Leguia was willing to reopen the negotia-
tions with a view of obtaining a loan up to $12,0{X),000, to carry on half of
the proposed naval scheme.
8. We are expecting Ackerson to come any moment, and I think this time
something will be done in regard to the loan. The sad point is that if the
scheme is carried through and Harriman provides the money, they will be
the ones to get the largest share of the $10,000,000 which will be allotted to
the Navy, * * *.
What did he mean by that?
Mr. Spear. I think Mr. Harriman at that time owned a shipyard
or controlled a shipyard, the old Bristol Yard which was created
during the war to build merchant ships. I think he was interested
in getting business for that.
112 MUNITIONS INDUSTKY
Senator CLArac. And, of course, if he put up the money, he would
expect them to buy ships from him instead of from you; is that it?
Mr. Si'EAR. Certainly.
Senator Clakk. Continuing with this paragraph :
The sad point is that if the scheme is ci'.rried through and Harriman pro-
vides the money, they will be the ones to get the largest share of the
$10,000,000 which will be allotted to the Navy, getting, therefore, his three
destroyers, leaving only a margin for us, if we fight well, for one more sub-
marine ; because the remaining money will have to be taken for more subma-
rine; because the remaining money will have to be taken for the completion of
the payment of the two submarines, bai e and also mines and aeroplanes that
Woodward wanted. I am looking forward for a pretty good scrap, and at
least if the worst come, I must get 1 submarine and 50 torpedoes.
As a matter of fact, there had been a considerable controversy
going on for some time in Peru, had there not, Mr. Spear, as t&
whether or not this money that they were going to spend for arma-
ments should be spent for destroyers or for submarines?
Mr. Spear. There had been.
Senator Clark. And that was part of the backstage politics that
went on in connection with these contracts, was it not?
Mr. Spear. There was undoubtedly a difference of opinion. Some
people thought one would be better, and some thought the other.
Senator Clark. And the fellows who sold destroyers had their
representatives dov/n there assuring the public of Peru and the
naval officers of Peru that what they had to have in order to keep
out of the clutches of Chile was destroyers, and you had your rep-
resentative down there assuring them that what they had to have was
submarines ; is that correct ?
Mr. Spear. Everybody was trying to promote their own business.
Senator Clark. Everybody was trying to sell their own product;
yes. Now, in that same letter, Mr. Spear, Commander Aubry pro-
posed to you, did he not, that he get himself appointed the Peruvian
representative to the Geneva Disarmament Conference? I direct
3'^our attention to paragraph 11.
Mr. Spear. Where cloes that appear. Senator?
Senator Clark. The paragraph no. 11, at the bottom of page 2.
]Mr. Spear. I see it.
Senator Clark (reading:)
It is very important that y<m should let me know the date at which you are
going to launch the subs for many reasons, the main one being that Admiral
Woc'dward is very much interested for obvious reasons; either myself or my
wife will have to take the sponsors to the States; and then I am planning to
be appointed by the Government, if you permit, delegate for Peru in the dis-
armament conference that is going to take place in Geneva in .June 1925. I
feel that I can do something good for Peru there, as well as for the cause
for the submarines in South America. My flag will be "No quotas in sub-
marines" construction in South America, and classify it as a "defensive
weapon."
At that time, of course, Mr. Spear, Commander Aubry was your
paid representative in South America, was he not?
Mr. Spear. Yes.
Senator Clark. And he was really presenting a proposition to you
for vou to pay his expenses to this disarmament conference, was he
not?
MUNITIONS INDUSTRY 113
Mr. Carse. If he had gone, he would have had to resign as our
I'epresentative, or else his Government would not have given him an
official appointment.
Senator Clark. Well, he says in the next paragraph :
In this respect, not only do I require your opinion but also your authoriza-
tion I request in th.is respect as soon as possible, because I will have to make
some initial work here outlining a plan fur the Government in case I decide
to go ; which, otherwise, 1 will net have to make.
Evidently he expected you to pay his expenses, did he not, Mr.
Carse ?
Mr. Carse. His expectations were not realized.
Senator Clark. I understand, but you took it that he was putting
a proposition up to you to pay his expenses, did you not ?
Mr. Carse. I do not know.
Senator Clark. In the next letter, from Mr. Carse to yourself,
Mr. Spear, dated November 19, 1924, there is an indication that Mr.
Carse was perfectly willing for Commander Aubry to act as a dele-
gate to the disarmament conference for ail purposes of disarmament
except the submarines, but was not willing to pay for it. I offer
that letter as '' Exhibit No. 66."
(The letter referred to was marked " Exhibit No. 66 ", and appears
in the appendix on p. 357.)
Senator Clark. The letter reads as follows:
DfiAR Mr. Spear : Your favor of the 17th instant to hand in regard to
Peruvian business, and I can see no objection on our part to Aubry serving
as delegate to the Disarmament Conference, only I hardly think we should
pay his traveling expenses, plus $15 per diem.
Mr. Carse. Well
Senator Clark. Now, Mr. Carse, do you know whether Comman-
der Aubry actually served as the Peruvian delegate to the Disarma-
ment Conference?
Mr. Carse. I do not think he did ; not so far as I know. I never
heard of what went on over there.
Senator Clark. In other words, when you would not pay his ex-
penses and $15 per day, he did not want to go?
Mr. Carse. We were not taking any part in attempting to in-
fluence a world conference. We have not got quite that amount of
conceit.
Senator Clark. Mr. Spear, you had some controversy, did you
not, as to whether these submarines for which you received con-
tracts from Peru should be built in this country or in England, did
you not?
Mr. Spear. In connection with the hulls.
Senator Clark. And there was some objection on the part of
the
Mr. Spear (interposing). Not a controversy. Senator.
Senator Clark. Well, there was objection on the part of the
American Naval Commission to your having the hulls built in tlie
yards of Vickers & Co. in England ?
Mr. Spear. That is my recollection.
Senator Clark. They raised some objection, and Aubry had a
very difficult time in obtaining a very grudging and reluctant con-
sent.
114 MUNITIONS INDUSTRY
Mr. Spear. I do not know about that ; it may be so.
Senator Clark. Just to refresh your memory, Mr. Spear, I should
like to refer to a letter to you from IMr. Aubry.
Mr. Spear. I cannot remember those details. Senator, as you can
with the letter in front of you.
Senator Clark. I understand that, of course. I am just trying
to refresh your memory on these points, Mr. Spear. I am now go-
ing to refer to a letter from Mr. Aubry to yourself, dated at Lima
on the 22d of March, 1924, which I will ask to have marked " Ex-
hibit No. 67."
(The letter referred to was thereupon marked " Exhibit No. 67 "
and appears in the appendix on p. 357.)
Senator Clark. I refer you particularly to page 3, of that letter,
the first paragraph which reads :
Now that I have your long ctible of the 19th accepting the proimsal as per
iny detailed cable message of the 14th, I feel quite at etise. Nevertheless,
there has been for Woodward a very sore point and that is the one re-
garding the partial construction in England to which the President agrees
entirely ; * * *
By the President he means Leguia, does he not?
Mr. Spear. Yes, sir.
Senator Clark (continuing reading) :
but that Woodward did not look upon with sympathy, because — as I explained
in niy prpvious letters — ho wanted to have all done in the States. You can
suppose that I did not consult with Woodward as to this point, but in his
presence I told the President that for the financing aspect of the matter we
would have to make the hulls at our associates' yards in Barrow, of course,
very much to the surprise of Woodward. * * *
By "associates" there he meant Vickers, did he. not?
Mr. Spear. Yes.
Senator Clark (reading) :
So when Woodward wrote with his own hand the cable that I sent j'ou on
the 14th inst., he put " partial construction in England permitted but not pre-
ferred."' Of course, that is all we needed. I have to do my best to give him
the chance of getting even, because he has been of great lielp altogether.
In other words, having outwitted Admiral Woodward at one
point, he wanted Admiral Woodward to have an opportunity to beat
him in some matter to even up. Is not that what you gather from
the language of that paragraph?
Mr. Spear. No. I would not use the word " outwitted ", Senator.
Senator Clark. He talks here how he had used Admiral Wood-
ward, how he had outwitted Admiral Woodward; he did not com-
municate this fact to him until it was too late for Admiral Woodward
to stop what was done. What do you understand he meant when
he said, " I have to do my best to give him a chance to get even,
because he has been a great help altogether "?
Mr. Spear. I think it is very clear. The admiral did not like
that idea and Commander Aubry had sense enough not to put the
question up to him, when he knew that he did not like it.
Senator Clark. What did he mean by saying that he was going
to let Admiral Woodward get even ?
Mr. Spear. He meant that Admiral Woodward would have the
final say about it and dictate what the final message should be on
the subject. I think that is what he meant.
MUNITIONS INDUSTRY 115
Senator Clark. That is not what he said. He said :
So when Woodward wrote with his own hand the cable that I sent you on
the 14th instant, he put " partial construction in England permitted but not
preferred." Of course, that is all we needed.
Then he goes on to say that he would give Admiral Woodward a
chance to get even, because he had been of a considerable help in the
matter.
Mr. Speak. The whole question arose in this way. May I elucidate
it a little ?
Senator Clark. I should be glad to have you do so.
Mr. Spear. It arose in this way. There always was the question
of the ability of the Peruvian Government to pay for what they
wanted to order and that meant first that prices had to be kept as
low as we could keep them; and second the financial consideration
might enter into it. At this time, before we took that order, our
plant did not have a hull yard. We built the engines and the tor-
pedoes and the machinery of various kinds and prepared the plans
but we had to get our hulls at that time subcontracted for. Owing to
the cheapness of construction in England, we could subcontract for
that hull there a good deal cheaper than we could in the United
States.
Senator Clark. That is what Aubry meant when he made his
reference to the financial aspects?
Mr. Spear, Not entirely. Senator, I was going to finish. This,
I believe, I am correct in saying. At that time the question of how
they were going to do all this was not quite settled in our mind, as
to whether they were' able to or not. We felt that the Vickers firm
could be called upon, if they got a contract with hulls, to assume
their share of any financing that had to be done.
Senator Clark. Are you through, Mr. Spear?
Mr. Spear. I am through for the moment, Senator.
Senator Clark. So far as labor was concerned, in fact so far as
gross outlay was concerned, the hulls were the principal parts of the
cost of the submarine, were they not?
Mr. Spear. Not the hull proper. That is not the principal part.
Senator Clark. I thought you said yesterday that the cost of the
hull was something over $2,000,000.
Mr. Spear. " Hulls " is a very large term. That means all kinds
of equipment that goes into the ship, which was not contemplated in
this case.
Senator Clark. What part of the ship were you having manu-
factured by Vickers?
Mr. Spear. We were suggesting that they manufacture just the
bare hull.
Senator Clark, Did you actually have those hulls made in
England ?
Mr. Spear, No ; it did not turn out that way. We constructed the
ships entirely ourselves in our own yard.
Senator Clark. This Admiral Woodward to whom we have been
referriniv is Admiral Clark B. Woodward, is not that his name?
Mr. Spear. Yes,
Senator Clark. At that time the head of the Peruvian mission?
Mr. Spear. He was at that time chief of the Peruvian mission.
116 MUNITIONS INDUSTRY
Senator Clark. He was also of service to 3^011 at that time, was he
not, in connection with a proposition Avhich was advanced for pur-
chase by Peru of certain vessels from the Swedish Government?
Mr. SrEAR. I do not remember that.
Senator Clark. That is in that same letter that is before you,
Mr. Spear.
Mr. Spear. What page is that on, Senator ?
Senator Clark. It begins at the bottom of page 1. The language
is as follows :
We were, for a few days, iudirectly associated with tlieni for all intents and
purposes and, tlierefore, in a very bad position which was considerably aggra-
vated by the offer made by the Sweden firm named '" Kcckus " of 6 submarines
complete — 2 of 800 tons and 4 of 530 tons — built for the Germans during the
war and which are at pre.^ent in the Swedish yards of Maol. They have been
offered by the cliarge d'affaires of the Swedish Government here on the name of
his Government for the sum of £g.l,000,000, paynjeut.s to be made in any way
the Government would choose. Of course, I felt a good deal excited then about
this, and that is the reason of my cablegram of the 8th inst., as the President
had told me — on my explaining to him thiit that was very unfair and bad for
Peru due to the fact that we did sign the Treaty of Versailles — that he vrould
buy those units because Peru needs to have some submarines and he could not
obtain them advantageously in the States nor in England. Of course, such a
purchase could not have eventually been consunmiated because I would have
planned the same methods that we did plan in Argentine, and Woodward, who
had been very nice throughout all these proceedings, would have stopped it; but,
anyhow, it did come in a very unfortunate moment, as the President was quite
upset due to the interference of the guarantee trust in all his schemes.
Now, Mr. Spear, I will ask you to refer to the bottom of page 4,
where it says :
The only thing that I cannot attend, or better * arrange at all as you
desire is that relating to the local commissions * * *
What does he mean by those local commissions?
Mr. Spear. I know nothing about it, except what is in the letter.
I presume he felt there were people there he had to have employed.
Senator Clark. He had not communicated to you before about
those local commissions?
Mr. Spear. I do not think so, not that I know of.
Senator Clark. What does he mean by the language —
The only thing that I cannot attend, or better arrange at all as you desire
is that relating to the local commissions. I have not dared to propose it to
the interested parties because I am sure that this would be even dangerous
at this special stage of the negotiations. I have to give commission to three
persons, and two of them, whom I have consulted with, have accepted as a
great concession to receive the commissions distributed in three equal parts:
The first from the first payment, the second from payment no. 6, and the third
from tlie last payment. As I think this perfectly fair, I am going to wire to
you accordingly. The commissions that I have distributed according to your
authorization are $15,000 per boat, that is to say after you receive your first
payment of $400,000 you will please send me $10,000 to attend to this.
What were those special commissions, Mr. Spear ?
Mr. Spear. I do not know.
Senator Clark. You authorized them, did you not?
Mr. Spear. We authorized the amount, $15,000.
Senator Clark. AVhat did you understand was to be done with the
-$15,000?
MUNITIONS INDUSTEY 117
Mr. Spear. I understand that Aubry considered it necessary to
carry through the business, to pa}'^ some commissions to some asso-
ciates. The details of this, I do not know, Senator.
Senator Clark. As a matter of fact, Mr. Spear, those special
commissions represented bribery, did thej^ not?
Mr. Spear. Not that I know of.
Senator Clark. In other words, you know that bribery ig an ele-
ment on which all of your South American business is based, do
you not?
Mr. Spear. I would not say that. But I will say that there is
a general impression that what we would call bribery and which
they do not is pretty general practice in most South American
countries. That has been my information and experience.
Senator Clark. It was your opinion, was it not, that bribery was
the basis of ail South American armament selling, was it not?
Mr. Spear. I would not call it bribery. But it was my opinion
that you could not do business with South America without paying
a good many commission^. I do not know whether it was bribery
or not. I have heard of some cases of direct bribery.
Senator Clark. Mr. Carse, what did you understand was to be
done with these special commissions that were paid for this Peruvian
business to which the commander referred?
Mr. Carse. I do not know what he was going to do with it.
Senator Clark. You simply authorized it without making any
effort to find out the necessity for it or what was to be done with it ?
Mr. Carse. Yes ; it was a moderate commission.
Senator Clark. Did you know what was to be done with this
money, Mr. Sutphen?
Mr. Sutphen. I do not know.
Senator Clark. What did you understand he meant when he said
that these people had to be paid in order to get the business ?
Mr. Spear. I understood just what he said, that the business would
be interfered with, or something, if the commissions were not paid.
The Chairman. Was this commission referred to here included in
the record, in the evidence that was offered for the record as reveal-
ing the total of the commissions paid ?
Mr. Spear. Of all the commissions paid
The Chairman (interposing). Through Mr. Aubry?
Mr. Spear. Of all commissions paid. They were all included in
the record, yes.
Senator Clark. You mean the special commissions that Aubry
informed you he was to pay out, were included on your books?
Mr. Spear. Everything we paid to Aubry was included in that
statement, yes.
Senator Clark. Mr. Spear, I will ask you to look at a letter from
you to Commander C. W. Craven, managing director of Vickers
Limited, Barrow-in-Furness, dated March 3, 1927, which I will
offer in the record at this point.
(The letter referred to was thereupon marked " Exhibit No. 68.")
Senator Clark. You were on more or less confidential terms with
Commander Craven, were you not?
118 MUNITIONS INDUSTRY
Mr, Spear. Yes: I have known him quite welL
Senator Clark. Paragraph 3 of that letter, dated March 3, 1927,
is as follows :
This is an appropriate time for me to tell you that none of us here have
ever met our Chilean representative and consequently we cannot in any way
vouch for his reliability.
This was at a time when you were in association with Vickers on
Chilean business, was it not?
Mr. Spear. At a time when some business was pending in Chile
which we were discussing.
Senator Clark. I wnll read the whole letter and perhaps it would
clear that up. [Reading:]
March 3d, 1927.
Exhibit No. 68
Commander C. W. Craven,
Vickers Limited,
BaiTotv-in-Fuiyiess, England.
My Dear Craven : 1. Referring to the cables exchanged between us on Feb.
21st and Feb. 22nd with regard to the possible sale of two " L " type boats for
quick delivery, I have .iust cabled you as follows :
"Reference cables Feb. 21st and Feb. 22nd relative L type suggest prepare
estimate immediately. Writing."
2. The country in question is Chile and the business in its present aspect
started with a cable from our representative there asking if we could furnish
two boats for immediate delivery larger than 900 tons and stating that the
boats could be second-hand provided that the design was modern. For reasons
with which you are already familiar, and I think that as the cards now lie,
it will be best, for the time being at least, to continue to talk of nothing but
British construction, hence my cable to you of Feb. 21st with reference to the
possibility of making quick delivery of two " L " boats.
Why was it better for an American boat company to continue to
talk only of British construction, and steaming up a sale for British
boats, instead of American boats, Mr. Spear?
Mr. Spear. We were at that time still building two boats for Peru.
That was when the feelings between these two countries were rather
exasperated. They had not composed their differences up to that
time and we did not think it would look very well for us to be
dealing with the Chileans the same time that we were dealing with
the Peruvians. That was the main reason. In addition to that,
we had had some experience with the Chileans in years before that
had not been so happy and that had left rather an unpleasant im-
pression in my mind. I was not so very keen about going through
again the experience that I had had with them before.
Senator Clark. So that you preferred to tell the Chileans that
the best deal they could make would be with your associates, Vick-
ers, out of whom you would get a conunission?
Mr. Spear. Yes; we had no boats that would meet the conditions.
Senator Clark. Continuing with this letter:
^te
As soon as I received yours of the 22nd of Feb., I cabled our agent as follows :
" Nothing available immediate delivery. Best delivery new construction
England thirteen months using available machinery parts already insi)ected by
British Admiralty. Cost probably about £300,000 each. If funds available and
inquiry really serious will arrange formal proposal by our British licensee
Vickers i)rovided your commission acceptable. Cable commission required."
to which I am just now in receipt of the following reply :
" Offer both to Chilean Commission and Legation London offering forward
delivery with premium. Advise me when bid made size price so that work here
for immediate decision. Commission 5."
I
MUNITIOlSrS INDUSTRY 119
3. This is an appropriate time for me to tell you that none of us here have
ever met our Chilean representative and consequently we cannot in any way
vouch for his reliability. We all know, however, that the real foundation of
all South American business is graft and it may very well be tliat he knows the
proper people to pay in Santiago. At any rate, I am passing the thing along
to you for such action as you may think it proper to take, having in view
jour own separate negotiations. If you should decide to submit a tender now
for two " L " boats, with premium for early delivery, you will, of course, have
to reserve our 5 percent royalty as well as the 5 percent commission referred to
in the cable ; on the other hand, if your decision is in the negative, you will
have to be careful in the futui'e if you should, on your own account, offer the
■" L " type, since under such circumstances our Santiago man might very well
come forward with a claim for commission.
Senator Pope. Who wrote that letter, Senator?
Senator Clark. Mr. Spear, to the head of the Vickers Co. [Con-
tinuing reading:]
4. Please cable me your decision and action so that I can advise Santiago. In
conclusion, I would like to add a little unsolicited and perhaps superfluous
advice which is that I would not be too modest about the price and would
cover into it a substantial amount in excess of the 10 percent above referred
to, my own experience being that at the last minute something extra is always
needed to grease the ways.
Now, by " Greasing the ways " you meant such things as these
special commissions which were referred to in Commander Aubry's
letter, did you not?
Mr. Spear. Yes; that is what I meant. I meant special expenses
that always crop up.
Senator Clark. " Special expenses." In other words, graft and
bribery to officials of those countries?
Mr. Spear. Not necessarily to officials, Senator. They have a cus-
tom down there of taking care of their friends.
Senator Clark. "An old Spanish custom? "
Mr. Spear. An old Spanish custom, yes: of taking care of
their friends through Government business. You will always find
a certain number of people that they say you must employ, and so
forth. That is the way.
Senator Clark. Such as the son of the President of Peru, for
instance ?
Mr. Spear. Well, it might be anybody, you know, whoever their
political friends are, they take care of them by asking people to
employ them, or people who are going to do business with the
Government.
Senator Clark. I will just finish this letter by reading the post-
script.
P.S. — "While as indicated above, I do not tliink that price is the main con-
sideration, in this job, if the amount of commission asked should for any
reason be the controlling element, I will of course, pass along to Santiago any
counter-proposal you might elect to put forward.
Senator Clark. I will get back to this Chilean matter later.
Now, referring to this sale of submarines to Peru, Mr. Spear, you
had come difficulty in getting by the American Naval Mission on your
plans and specifications, did you not?
Mr. Spear. I do not recall any great amount of difficulty. I think
there were some changes they wanted made, as I remember it.
Senator Clark. Did not the Commission complain you had re-
duced the capacity of the boat without reducing the price? For
120 MUNITIONS INDUSTRY
instance, I will refer you to a letter from Commander Aubry, dated
March 31, 1024, which letter I will ask be marked '' Kxhibit No. 09."
(The letter referred to was marked " Exhibit No. 69 ", and appears
in the apjiendix on p. 360.)
Senator Clark. At the bottom of the first page of this letter, " Ex-
hibit No. 69 ", it says :
The reduction of the submarines speed to a uiininium of 8% miles also is a
pore point because Woodward told mo tliat he could not understand improving
the quulities of the boats by reducing the main features.
Mr. Spear. I won't be sure about this. Senator, but I think this is
the situation, I tliink, as I recall it, that the specifications were
accepted of the design and quality of the boat, and I think that was
9 knots submerged. When we get to a contract we always keep
something up our sleeve to be sure we can meet the contract require-
ments.
Senator Clark. Woodward complained about reducing the general
capacity of the boat without any reduction of price.
Mr. Spear. As I see here the question he is referring to is whether
the submerged speed should be 9 knots or 8%. Do you see anything
else — I think the boat actually did finally make 9, as we thought
it would, but we did not want to guarantee that.
Senator Clark. You also had some controversy with Woodward
on the question of whether these boats were to be delivered in Eng-
land or in the States. Tliat is in paragrai)h 1 of the letter. Appar-
ently you had been making an effort to deliver the boats in England,
which would mean an additional cost of about $50,000 on the Peru-
vian Government to bring the boats across.
Mr. Spear. That is probably correct.
Senator Clark. This letter sliows Woodwnrd had been endeavoring
to accept delivery in England and tlie Government declined to do
that.
Mr. Spear. I do not recall that.
Senator Clark. Then there was some discussion about a certain
type of gun, the Davis submarine gun.
Mr. Spear. I think I proposed some special type of gun and they
did not want it.
Senator Clark. On whicli Woodward hnd not made up his mind.
Mr. Spear. He eventually made up his mind he did not want it.
Senator Clark. Aubry promised you he would be able to mana^^e,
and you would not have to furnish the gun included in your price
of the boat.
Mr. Spear. I do not think we ever proposed to furnish the gun in
that price.
Senator Clark. What does he mean by saying, " Therefore I think
T shall be able to arrange so as to have the gun not included in the
price."
Mr. Spear. That is Avhat he means.
Senator Clark. It meant you would not have to ])ay for the gun.
Mr. Spear. Thnt is the idea, we would not supply the gun. It was
a separate matter and if they wanted it they could order it from us
and we could buy it and put it on the ship.
Senator Clark. Now, this letter indicates tliat your representative.
Commander Aubry, thoroughly realized that he was selling arma-
ment to countries where he was busy drumming up hostilities.
MUNITIONS INDUSTRY 121
Mr. Spear. I could not tell that ; I do not know.
Senator Clark. I read from the letter at the bottom of page 2, the
following :
Tlie fiict that if I bring with mo tlie contracts for Peru, as T expect I will,
it would be a great blunder going to Argentine, for ins^tance, via Chile (in this
l»usincs.s we have to be taclfnl and a little diploniiitic) ; and so in regard
to Bnizil as well as to the Argentine now that the affairs are going to take place
at the same time. I will have to be very careful concerning my activities with
any one of these countries respecting the others.
What he meant, he was trying to sell to all of these countries which
might be in hostilities with each other at any time, and he was trying
to keep each one from finding out ho was dealing with the other. Is
that not what you find that ])aragraph to mean?
Mr. Spear. I think it perfectly natural, sir, where these people
are perhaps not on the best of terms with each other, if he went to one
then to the other, and dealt with them simultaneously, he would get
a bad reception.
Senator Clark. Yes, he could not sail Brazil when he was dealing
with Argentine and vice versa.
Mr. Spear. I do not think he would wish them to know it, natur-
ally, as a matter of ordinary business prudence.
Senator Clark. Now, in 1924, in ccmnection with this order you
became very much dissatisfied with the price of hulls which was
quoted you both by Bethlehem and Vickers, did you not, and con-
sidered the possibility of establishing a phtnt of your own to -build
hulls?
Mr. Spear. Yes, sir.
Senator Clark. I refer you to a letter dated July 29, 1924, to Mr.
Carse, which we will have marked " Exhibit No. 70."
(The letter referred to was marked " Exhibit No. 70 ", and appears
in the appendix on p. 362.)
Senator Clark. What do you mean by saying on the second page
of that letter you want to keep Bethlehem in line? In paragraph 5
you say the following :
Of course, in the face of the above figures, there is only one answer so far
as this particular job is concerned.
That was to have them manufactured by England?
Mr. Spear. Yes.
Senator Clark. Continuing, the letter, it says:
Insofar as future competition from Bethlehem is concerned, T have been
treating tliom in this matter with the greatest foi'sidoraticm and there would
be no po'^sible excuse for hard feelings if they do not get the job, and certainly
they would be less disturbed by our doing it than if we gave it to some other
American yard. Moreover, with this equijiment in hand, I v.-ould not fear
their competition in the future and, if necessary, I think we could keep them
in line by arrajiging to give them any excess of Atlantic coast work over our
own capacity as well as all Pacific coast work.
"Wliy was it necessary to keep Bethlehem in line?
Mr. Spear. Because they had ambitions then to enter into the
submarine business.
Senator Clark. In other words, you wanted to keep them out of
competition ?
Mr. Spear. Yes.
Senator Clark. Now, about a year later Bethlehem was bidding
against you for guns?
122 MUNITIONS INDUSTRY
Mr. Spear. For Peru?
Senator Clark. Yes.
Mr. Spear. I think they did.
Senator Clark. You were bidding on guns and ammunition as
well as submarines?
Mr. Spear. I believe these w^ere guns to go on the boats.
Senator Clark. You not only furnished boats, but you furnished
armament for the boats whenever you could get the order ?
Mr. Spear. As I remember, it was a separate order.
Senator Clark. I am calling your attention to a letter dated
October 19, 1925, from Commander Aubry to yourself, which I ask
to be marked " Exhibit No. 71."
(The letter referred to was marked "Exhibit No. 71 ", and appears
in the appendix on p. 363.)
Senator Clark. In this letter he says:
In this respect, I may state to you that the Bethlehem proposal by wire to
the Minister of Marine for the same guns and ammunition was $67,000. I
have the cable in my hands, so the figures that they have given to you, as per
your letter of Sept. 17th, para. 2, differs very much from the ones they quoted
to the Government.
In other words, Bethlehem told him they were going to submit
one bid and actually submitted another?
Mr. Spear. Either that or it may have been otherwise, I will
have to look it up, but it may have been the figure they referred to
Bethlehem was the price to us. We were not building guns, but only
just getting what the Peruvian Government wanted, and we had to
buy from somebody who made them. It may have been that, but I
don't know which it was, the letter will explain it.
Senator Clark. Then Aubry goes on and says :
The $3,000 local commission authorized by you were necessary in order to do
away with some sore feeling of some political friends of the Department that
are trying to introduce Bethlehem into our small Peruvian market.
That is the same sort of commission we were discussing a while
ago, and people were trying to bring Bethlehem in to bid, and you
concluded it was cheaper to buy off, than to fight them ?
Mr. Spear. We did not want anyone of these political people
working for somebody else.
Senator Clark. I also call your attention to paragraph 6 on page
2 of the same letter, which reads as follows :
Now, regarding your letter of the 22nd Sept., to Admiral Woodward, the
admiral sent a wire immediately to the Navy Department asking if lie could
obtain an expert for the mission. He has not yet received any reply, but the
admiral autliorized me, today, to wire you asking for tlie nam-.'s you mention
at Para. 3, in order that, as soon as he has a reply from the Department, he
will reciuest by cable the expert whom you will recommend. For your guid-
ance, the admiral is intent to have that expert as the real inspectoi- : that is to
say, his technical authority will be above the one of Commander Monge.
Now that meant Admiral Woodward was willing to recommend
to the Department any submarine expert you recommended to him?
Mr. Spear. I think so.
Senator Clark. And that expert you placed with the Americam
Naval Mission to operate would actually be the inspector of the sub-
marines which you sold to the Peruvian Government?.
Mr. Spear. That was the intention; yes.
MUNITIONS INDUSTRY 12S
Senator Clark. That was the intention for you to appoint the
man to inspect the submarines you sold to Peru '{
Mr. Spear. Yes; we wanted a competent man.
Senator Clark. That was your only reason?
Mr. Spear. I have had some disastrous experience with incompe-
tent inspectors that did not know anything about it, and it is an
exceedingly difficult matter.
Senator "^ Clark. It always makes for harmony if the concern
which is furnishing the goods also names the inspector to inspect
the goods, does it not ?
Mr. Spear. Good relations between the two were very essential
and proper.
Senator Clark. If the man doing the inspection is in the employ
of the man making the goods, he is apt to make a good report.
Mr. Carse. The goods speak for themselves.
Mr. Spear. I think it is important to have people experienced in
their business as inspectors. If you do not you will have all sorts
of difficulties.
Senator Clark. You said you made your contract with Aubry
about the middle of 1924?
Mr. Spear. That is my recollection.
Senator Clark. It was renewed when?
Mr. Spear. My recollection is he served us some time, then he
went back into the active service. After resigning our service he
went back into the active service which is permissible under the law,
and went to Paris as naval attache. And when that was over he
came back to our employ. That is a fact, isn't it?
]VIr. Carse. He resigned his office with the Government and came
back to us.
Senator Clark. I have a memorandum agreement for services
that Commander Aubry entered into the 14th day of October 1925.
That was evidently from correspondence, not his original contract,
but a renewal.
Mr. Spear. I could not say without looking it up.
Senator Clark. Correspondence in the record indicates he had
been your representative for several years prior to 1925.
Mr. Spear. I think he was.
Senator Clark. So this was evidently a renewal contract in 1925,
or a new contract, and what I was trying to get at is whether this
memorandum agreement is in general terms the same as the original
agreement, or involves a modification. This paper is the power of
attorney, and is not what I thought it was. What I thought I was
handing you was the memorandum agreement, and I will now
show you this memorandum contract dated January 24, 1929, and
will say briefly this memorandum provides for a salary of $6,000
a year plus $1,000 a year for office expenses and for traveling ex-
penses, and for commissions that might be agreed upon, and for 3
percent on submarines, torpedoes, and ammunition. Was that sub-
stantially the original contract, or did that involve a modification?
Mr. Spear. AVithout looking at the original contract I could not
tell you, but my impression would be that at first Commander
Aubry represented us only in Peru, and later on that was extended
to all South America; and it is quite possible a modification may
have been made in our arrangemciit.
124 MUNITIONS INDUSTRY
Senator Clark, What compensation did he originally get, do you
recall ?
Mr. Spear. I do not recall.
Senator Clark. Do you recall, Mr. Carse?
Mr. Spear. Wouldn't it show in one of those exhibits ?
Senator Clark. I do not believe it does in any exhibit I have.
Mr. Carse. It was only on a commission basis, at first.
Senator Clark. You did not pay him a salary at first?
Mr. Spear. I do not remember whether we did or not. I think
it does show in that statement everything paid to him.
Senator Clark. I offer this power of attorney as " Exhibit No. 72."
(The document referred to was marked " Exhibit No. 72 ", and
appears in the appendix on p. 365.)
Senator Clark. I offer the memorandum agreement as " Exhibit
No. 73."
(The document referred to was marked " Exhibit No. 73 ", and
appears in the appendix on p. 366.)
Senator Clark. Now, Mr. Spear, I direct your attention to a
letter from Battle Creek, Mich., from Commander Aubry dated July
10, 1926, which I offer as " Exhibit No. 74."
(The letter referred to was marked " Exhibit No. 74 ", and appears
in the appendix on p. 366.)
Senator Clark. In the first paragraph of this letter, " Exhibit No.
74 ", and in a question with a regard to which I desire to ask you, it
happens to deal with a Brazilian question. I mention it because a
part of the letter also deals with Peru. Commander Aubry mentions
the fact you were making bids for the construction of Brazilian ves-
sels to be constructed in Belgium.
Mr. Speai?. Where is that?
Senator Clark. It is in paragraph one. It says you could prob-
ably meet them in London, and offers to give you letters of intro-
duction to the Brazilian Commission in London.
Mr. Carse. That is Argentine.
Senator Clark. Yes, pardon me. That is Argentine. It says,
" I think your idea of tendering for building in Cockerill, Belgium,
is a very good idea."
Mr. Spear. Yes ; that is right.
Senator Clark. Why was it necessary to build these vessels in
Belgium instead of the United States ?
Mr. Spear. It was a matter of pi-ice. We were told the price
had to be very low, and it was impossible to construct what they
wanted if we constructed the vessels here. So we proposed to con-
struct the vessels there with parts constructed in our own plant
here, because it was the only way in which it could be done.
Senator Clark. You had a standing contract with Cockerill in
Belgium ?
Mr. Spear. At that time Cockerill was our licensee ; yes, sir.
Senator Clark. You had a regular contract with Cockerill as to
the division of the overhead and other matters?
Mr. Spear. We had a contract governing the whole matter of
how the cost was to be paid and how it was to be determined and
what our responsibilities were and what theirs were — a contract to
permit such construction if it became necessary or desirable, there.
MUNITIONS INDUSTRY 125
Senator Clark. At this time you were trying to float further Peru-
vian loans through the Chase National Bank?
Mr. Spear. This has nothing to do with the Peruvian situation,
this is the Argentine.
Senator Clark. I understand, but it mentions Argentine and Peru-
vian both in the same letter. When he comes to paragraph 3, he takes
up the Peruvian matter when he says :
Now regarding the most interesting part, in my opinion, of your letter, I
am very glad that you are pushing this question of financing the new Peruvian
orders with the assistance of the Chase Bank.
So, I say you were negotiating at that time a further loan for the
Peruvian Government with the Chase Bank?
Mr. Spear. I presume so.
Mr. Carse. I took Mr. Aubry over to the Chase Bank and intro-
duced him and stated he would like to discuss with them the possi-
bility of some kind of a Peruvian loan, and they took it up and
referred it to their department.
Senator Clark. So that at this time, Mr. Carse, in 1926 you were
attempting to float this loan?
Mr. Carse. I think it must have been at this time.
Senator Clark. Was Aubry representing at that time the Peruvian
Government or the Electric Boat Co.? This letter clearly indicates
he was the representative of the Boat Co. at that time, and was he
also, in addition to being your representative, trying to negotiate
loans on behalf of the Peruvian Government?
Mr. Carse. He was trying to find out whether he could take back
to the Government some possibility of borrowing money here.
Senator Clark. Did he have any authority to represent the
Peruvian Government in such negotiations?
Mr. Carse. No; he was just asking them if thej^ would consider it,
and they turned it down.
Senator Clark. Do you mean as your representative Commander
Aubry went to the Chase National Bank and asked them if they
would loan money to the Government of Peru ?
Mr. Carse. Yes; I would not say he was our representative, but
I think it was in his own personal capacity.
Senator Clark. He was your representative at that time,
wasn't he?
Mr. Carse. Yes ; but he also still had his personal capacity. He
was a person, we did not own him body, boots, and breeches.
Senator Clark. There seems some doubt about that from this
letter. In what capacity did he go to the Chase National Bank?
Mr. Carse. He went there to see whether they would be interested ^
in considering making the loan to Peru.
Senator Clark. You say at that time he had no authority to ask
for a loan to the Government of Peru ?
Mr. Carse. Not at all. They turned it down anyway.
Senator Clark. Now, on October 11, 1926, Mr. Spear or Mr. Carse,
you received a cablegram from Mr. Aubry at Lima, in code, and
which, decoded, I offer as " Exhibit No. 75."
(The cablegram referred to was marked " Exhibit No. 75 " and
appears in the appendix on p. 368.)
83876— 34— PT 1 0
126 • MUNITIONS INDUSTRY
Senator Clakk. This cablegram, Exhibit No. 75, decoded, reads
as follows :
Sisniecl today financial contrnr-t for two more submarine aurl I will sijiii
IStli October consiruction contract for tbe same. I will communicate details on
Weduesday evenint;. Indispensable that Ihe company remit us by cable
12,000 dnliars of which lO.OOO referred to in our telegram 14th September
and your rei)ly ISth September and 2,000 for expense incurred in contracts.
Signed Aubry.
What did that $12,000 represent, Mr. Spear?
Mr. Spear, I don't think I can tell you. Possibly we may find
some record of it.
Senator Clark. You cabled that $12,000?
Mr. Spear, I don't know.
Senator Clark. There is a notation on the bottom of this cable-
gram taken from your files, " $12,000 remitted Aubry, Oct. 14th."
Mr. Spear. I don't know that.
Senator Clark, That was another way of greasing the wa}'' to
get the contract.
Mr. Spear, I have no recollection of that.
Senator Clark, You have no recollection of what you cabled that
$12,000 to Aubry for ?
Mr. Spear. No ; I didn't handle it.
Senator Clark. Did you handle it, Mr. Carse?
Mr. Carse, It was handled in our office.
Senator Clark, Do you know what it was for?
Mr, Carse, No; it was one of those special commissions, I don't
know what it was.
Senator Clark, As a matter of fact you would prefer not to
know what it was ?
Mr, Carse, Certainly.
Senator Clark, Do you know what it was for, Mr, Sutphen?
Mr. Sutphen, No, sir,
Mr, Spear. There were some legal fees, some lawyer's fees we had
to pay down there in drawing the contract that were paid out of
that. " Just how much they were I could not tell you, but he em-
ployed counsel to guide him in making these contracts and those
fees were paid.
Mr, Raushenbusii, Are you pretty sure that was not handled
separately?
Mr. Spear, I am not sure. It may have been handled entirelj-
separate but I do not recall.
Senator Bone, May we digress at the moment to ask if the Amer-
ican Naval Commission went to Argentine?
, Mr, Spear, I don't think so.
Senator Bone. To what countries did this Commission or these
various commissions go?
Mr. Spear. To Brazil and Peru.
Senator Clark. They were separate commissions in each case?
Mr. Spear. Yes, sir.
Senator Bone. My reason for asking is this: What reaction was
there, if you can tell us, on the part of other South American coun-
tries at this* very open and obvious aid. comfort, and assistance this
Government was giving those two South American countries?
^
MUNITIONS INDUSTRY 127
Mr. Spear. I could not answer it. I am under the impression —
I may be wrong — but I am under the impression that simultaneously
the Chilean had an English commission, and what their reaction
was to the appointment of those two American commissions, I do
not know.
Senator Bone. Were all of the major powers engaging in attempt-
ing to stimulate the building of greater navies in South America.
Mr. Spear. I do not know.
Senator Bone. And to tire their imagination and stimulate them
to the building of greater navies?
Mr. Spear. I do not know what that was but what I think it was,
was to have what they were buying, bought in this country.
Senator Bone. Where was the sudden stimulus to get these people
to buy battleships and submarines?
Mr. Speak. I do not know that there was a stimulus.
Senator Bone. It seems to have been inspired by the builders ?
Mr. Spear. No; I do not think so.
Senator Bone. The Government was not selling their own ships?
Mr. Spear. No ; my understanding is the Navy asked the Govern-
ment to appoint the commission.
Senator Bone. There must have been some agitation down there.
Mr. Spear. I naturally suppose they must have given some con-
sideration to their political situation and their defensive situation,
but it does not necessarily follow that somebody led them into
doing it.
Senator Bone. Do you think the agents of your firm and other
tirms manufacturing munitions and battleships and the like had
anything to do with stimulating this agitation?
Mr. Spear. Not to my knowledge. We hope to negotiate business
if we can get it, but I have no knowledge as to what may have
taken place in an attempt to influence public opinion.
Senator Pope. Weren't these missions very favorable to your get-
ting the business of those countries?
Mr. Spear. I do not know that they were. I should think they
were not, because I think they knew a great deal more than our Nav}^
people did down there and were able to protect their governments
against anybody who wanted to ask an unfair price or sell an in-
ferior article.
Senator Clark. Senator Bone and others who may be interested
in this, we have a study in course of preparation covering the entire
activity of the naval missions to South America which I will later
on offer, and we can go into that in more detail.
Mr. Spear. This ig a matter on which we have not direct knowl-
edge, and it is only indirectly that we know the details of it. We had
some contact with them in connection with negotiations and that is
all of the contact we have had in the matter.
The Chairman. Mr. Spear, speaking generally now, how far could
the Electric Boat Co. have gotten as respects business in South
America without guch aid as came from the State Department, the
Navy Department, and your activities with money which you do not
pretend to know definitely how it was spent — how far could you
have gotten without resort to those influences?
128 MUNITIONS INDUSTRY
Mr. Speak. The only orders we did succeed in getting were the
Peruvian orders. We competed for the Argentine orders and we
competed for the Brazilian orders. In Brazil they had this angle
that has been mentioned, and of course we had our diplomatic repre-
sentative, and so forth. We were naturally trying to get all of the
help from anybody who might help us, but we did not succeed. So
it boils down to whether or not the interest the United States Govern-
ment toolv in it was of a decided effect in the Peruvian order. That
is what your question really boils down to.
The Chairman, Are you wanting to say you might have gotten
further if our State and Navy and Commerce authorities had not
exercised any influence?
Mr. Spear. No ; I think they were helpful, but I do not think they
were the deciding factor.
Senator Bone. One may aalsume, Mr. Spear, that the activi-
ties of these major powers, England, the United States, Italy, and
other countries that were exercising a political influence in South
America to secure orders for their companies had a tendency to make
South America one great armed camp. That would be the result,
would it not, when they were each attempting to stimulate the pur-
chase of munition^ of war.
Mr. Spear. It would naturally result in more armament if they
were interested in it, but whether you should call it an armed camp
or not, I could not say.
Senator Bone. AVeil, we have Bolivia and Paraguay giving an
exhibition now which more or less resembles war, have we not?
Mr. Spear. Yes ; very closely. I do not know that I could qualify
as an expert in answering your question. Senator.
Senator Clark. Mr. Carse, on this second order of submarines
you were compelled to take Peruvian notes as part of your compen-
sation in the amount of $1,000,000; were you not?
Mr. Carse. The plan was to provide that we take notes payable
so much a month, extending over a period of years.
Senator Clark. And you made an arrangement by which you
issued your company notes with these Peruvian notes as collateral?
Mr. Carse. We did for a short period of time when we were
waiting to collect some other money.
Senator Clark. And those notes were sold to smaller banks
throughout the country, were they not?
Mr. Carse. I do not know. I sold them to Becker & Co. of
Chicago.
Senator Clark. I direct your attention to a letter from you,
marked " Confidential ", longhand note, dated April 21, 1920, ad-
dressed to Mr. Pedro Larranaga, at Lima, Peru. He was Com-
mander Aubry's uncle, was he not?
Mr. Carse. Yes.
Senator Clark. And he was connected with some of these special
missions from time to time.
(The letter referred to was marked " Exhibit No. 76 ", and appears
in the appendix on p. 368.)
Senator Clark. In the thir"! paragraph of the letter of April 21,
1927, " Exhibit No. 76 ", you stated :
We have finally arranged with a very reliable firm here, Messrs. A. G.
Beckpr & Co. of Chicago, for a loan to this company for one year of one
MUNITIONS INDUSTRY 129
million dollars secured as collateral by $1,300,000 of the Peruvian notes in
our possession, and their lawyers drew up very elaborate papers, trust deeds,
etc., in connection therewith, and they wished a lawyer's opinion as to the
legality of all the steps taken in relation to the loan and tlie aspect of the
notes.
You had previously asked him about a lawyer, Dr. Calderon?
Mr. Carse. Yes, sir.
Senator Clark (continuing reading) :
We had our counsel give his opinion, which the bankers accepted with the
understanding however that we had cabled you and that we would receive the
lawyer's opinion and file it with them, so that they would be able, in selling
our notes to small bankers throughout the country, to say that they had this
legal opinion, which seems necessary in connection with all bond and note
issues. The commission we paid to the bankers was fairly substantial, some-
wliat more than the interest which the notes carry within themselves, but we
considered it well to develop the market for these so that in the future such
obligations might be more readily disposed of.
In other words, you were willing to suffer some loss at that time
in order to develop a market for Peruvian securities in this country ?
Mr. Carse. No, because we needed the money
Senator Clark. What did you mean by the last sentence which
I have just read, which reads as follows : " But we considered it
well to develop the market for these so that in the future such
obligations might be more readily disposed of? "
That was accepting a loss on your part to develop the Peruvian
market?
Mr. Carse. We were willing to pay a little bit to start the com-
mercial paper, but those things are all paid off. The notes paid
themselves off. The}^ matured so much a month. Nobody lost
anything from those notes.
Senator Clark. Somebody may have lost something by develop-
ing a market in this country for Peruvian securities, might they
not? A good deal of money was lost in this country by the pur-
chase of Peruvian obligations, was it not ?
Mr. Carse. Not on our undertaking.
Senator Clark. You state that one of the purposes was to de-
velop the Peruvian market?
Mr. Carse. Was to develop a market.
Senator Clark. For such obligations?
Mr. Carse. Yes, sir. For our paper
Senator Clark. Secured by Peruvian notes?
Mr. Carse. Such obligations, meaning obligations of any govern-
ment for the same purpose.
Senator Clark. Mr. Spear, I will direct your attention to a
letter
Mr. Carse. There were all sorts of propositions as to credit.
Senator Clark. I will direct your attention to a letter from Com-
mander Aubry, dated at Lima, Peru, May 12, 1927, which I will ask
to have marked " Exhibit No. 77."
(The letter referred to was marked " Exhibit No. 77 " and appears
in the appendix on p. 369.)
Senator Clark. " Exhibit No. 77 " first refers to Argentine business.
It says :
'J '
We will have the order for three submarines to be built in France * *
130 MUNITIONS INDUSTRY
Whv Avas it iiecossarv to build thoS3 submarines in France, Mr.
Sprar?
jSfr. Spear. The same reason as when we were talking about build-
m(r in Belo;iuni, plus a prefereiice expressed by somebody in the
Ar^rentine government that they would rather see them constructed
in France, if it was possible. Somebody expressed that preference.
I do not know who.
Senator Cl.aek. It was immaterial to 3'ou where you manufactured
them as long as you got the profit? ' ' '
Mr. Spear. I could not get it at all unless I built them in that
country.
Senator Clark. Who got the business?
Mr. Carse. The Italians got the business.
Senator Clark. So far as the labor interests were concerned there
was really a conflict between French labor and Italian labor?
Mr. Spear. Yes, sir.
Senator Clark. American labor had no interest in it at all?
Mr. Spear. Only to some extent, because we made the plans and
some of the machinery and shipped it over there, but the hull work
was done there.
Senator Clark. On page 2 of that letter, Mr. Spear, we come
directly to Peru. I will read the heading. [Reading:]
No. 2. Peruvian Business. I acknowledge the receipt of yours of the 12tli,
14th, iSth, 19th, 21st, and 2f7th April.
Regarding yours of April the 12th, about .Juan Leguia's visit to you and
the construcfon of the larger boats for Peru, I spoke last night, at length,
with the president
Juan Leguia was the son of President Leguia of Peru, was he not,
Mr. Spear?
Mr. Spear. He was.
Senator Clark. He had been a commander in the Peruvian Navy,
had he not?
Mr. Spear. He Avns in the flying corps.
Senator Clark. He is referred to here as a commander.
Mr. Spear. I think he Avas an admiral, but he got that title.
Senator Clark (continuing reading) :
* * * and he told me that he has not instructed, commissioned, or re-
quested his son Juan Leguia to act in any capacity whatever in regard to
this and whatever he might do will be entirely in harmony with what he
promised me in October last; that is, to increase the national defense funds
and buy armaments for the army, which are required very badly, and order
two more "R" boats. He promised me tbat at the end of .lune next he will
be entirely prepared to discuss the matter thoroughly with me, as he expects
to have by that time the financial scheme accomplished, wliich will very likely
permit the withdrawal of the bonds issued by the National Defense Act (that
is our bonds), and then contract two more boats on a capitalized cash basis.
What had been the conference between you and Juan Leguia on
which yon advised Mr. Aubry on April 12th? Do you recall?
Mr. Spear, All I remember about it is that young Leguia came to
see me with the suggestion that somebody had told him that they
ought to have bigger submarines for Peru. I remember that part
of it, but whatever else he had in his mind or talked about, I could
not tell you, because I do not remember, Senator.
Senator Clark. Did he talk to you about a special commission?
Mr. Spear. No; he did not.
MUNITIONS INDUSTRY 131
Senator Clark. Did you not arrange to pay Juan Leguia a special
commission ?
Mr. Spear. I never arranged to pay Juan Leguia a special com-
mission.
Senator Clark. Did you, Mr. Carse?
Mr. Carse. No; but I gave hira a retainer on the understanding
that he go to Venezuela and endeavor to secure some business for us
in Venezuela. He claimed Gomez was so close to his family he
could get some business in Venezuela.
Senator Clark. Did you not arrange to pay Juan Leguia $20,000
on the Peruvian boats ?
Mr. Carse. No, sir.
Senator Clark. Your company did not?
Mr. Carse. No, sir.
Senator Clark. We will come to that in a moment.
Then Mr. Aubry goes on in this letter of May 12, 1927, " Exhibit
No. 77 ", as follows [reading] :
He told me that he has not discussed the matter over with Admiral
Howe * * *
Admiral Howe had at that time become head of the American
Naval Mission, had he not?
Mr. Spear. Yes, sir ; head of the American Naval Mission.
Senator Clark (reading) :
He told me that he had not discussed the matter over with Admiral Hovv'e
because he was perfectly aware that the Admiral did not want any more subs,
but destroyers, and he added, smiling :
" But you and I, we do not want any destroyers but subs, and, therefore, why
should we discuss the matter with Howe when we have the opinion of his
predecessor which is in line with ours."
In other words, the Peruvian Government was paying these
American naval officers to come down and supervise the building of
a navy, and then you were arranging to go around the head of the
American Naval Mission because you knew he was favorable more
to destroyers than to submarines?
Mr. Spear. We were adhering to that because his predecessor
liked submarines.
Senator Clark. You did not want to take a chance on the head of
the American Naval Mission reversing that view ?
Mr. Spear. We did not want it reversed and did not discuss it
with him.
Senator Clark. This was an arrangement between President
Leguia and your predecessor, Mr. Aubry?
Mr. Spear. Does it say that?
Senator Clark. He refers to a private conference between him
and President Leguia and goes on with a remark
Mr. Spear. You are correct. That is what the letter says.
Senator Clark. He says :
My opinion, my dear Mr. Spear, is that I shall be able to do something
here, probably in July, that is I shall be able to obtain, I think, an order for
2 more " R " boats ; now what I re<iuest is that you should send me a price
on cash basis, that is an independent contract entirely from the last one,
including 50 torpedoes and ammunitions, guns, etc. You can quote a price
only a little lower than the last ones, and I will, also try, as we are speaking
132 MUNITIONS INDUSTRY
about available casli, that the first payment should be very large, say 40%
of the total contract price.
You have also to consider the usual commissions plus the one for J. L,
Does not he mean Juan Leguia by " J. L." ?
Mr. Spear. If he means Juan Leguia, he must have had some
arrangement with Juan. I did not have any arrangement with Juan.
Senator Clark. You apparently had another matter on with the
Peruvian Government at that time because in paragraph 3 of this
letter Mr. Aubry says :
Regarding your enquiry about the Callao Port improvements, before having
a talk with the President upon my arrival I went through the different
departments of the Government and obtained all tlie data concerning the past
and present projects of improvements, but I stopped this activity as soon
as I spoke with the President, last night. He told me that this matter is
already committed with a gentleman named Mr. Clark, in which our old
friend Chester has a hand to accomplish such an undertaking ; and, therefore,
he could not promise anything at all in this respect. In other words, my
dear Mr. Spear, there is nothing to do in regard to this matter. Somebody
else will have the job, whatever Mr. Juan Leguia may have told you.
What did that refer to?
Mr. Spear. Mr. Juan Leguia tried to interest us in taking up this
port construction, and I told the fact to Aubry.
Senator Clark. Do you also construct ports as well as manufacture
submarines ?
Mr. Spear. We did not. We never have done that kind of work
at all. It would have been a matter of getting some engineering
firm who was familiar with it to do it.
Senator Clark. You would simply have acted as a broker in the
matter and gotten a commission?
Mr. Spear. That would have been the size of it, if we had taken
it on.
Senator Clark. Who is " our friend Chester ", to whom Mr. Aubry
referred ?
Mr. Spear. He is the gentleman I told you about yesterday who
negotiated the old contract, years ago, with President Leguia,
during his first incumbency in office, which was subsequently can-
celed and was never issued.
Senator Clark. Now, Mr. Cnrse, a loan for Peru was floated
through J. & W. Seligman & Co. on December 16, 1927, was it not?
Mr. Carse. I think about that time.
Senator Clark. That happens to be the date. And on December
21, 1927, a loan was floated bv them for $50,000,000 and on October
24, 1928. a loan for $25,000,000 was floated by them and the National
City Bank?
Mr. Carse. Yes, sir.
Senator Bone, What were the totals of those loans ?
Mr. Carse, That was $75,000,000.
Senator Clark. $90,000,000,
Mr. Eaushenbush. Some of that I think was refunded.
Senator Clark. I think part of that loan was to refund the first
loan.
Senator Bone. Wliat was the net of the new indebtedness?
Mr. Carse, Part of that was sold in Europe, I am not certain.
There was first, as I understand it or recall it, a sale of $50,000,000
of bonds, and then there was a sale of $25,000,000, and then there
MUNITIONS INDUSTRY 133
was a sale of $10,000,000, I think, or $15,000,000, in Europe, a sepa-
rate part. The contract of Seligman and the City Bank with the
Peruvian Government was to take a loan of $100,000,000, a 6-per-
cent loan, vv-hich was not secured by any taxes, of any kind, but
simply on the faith of the Government. All the other obligations
of the Peruvian Government were secured by specific duties or taxes,
and the idea of this $100,000,000 loan was to be in part a refunding
loan, to retire all of the outstanding bonds, to retire all of the notes
which we held, which were specitically secured by definite taxes,
so that there would only be this one loan of $100,000,000 outstanding.
They figured that the annual interest charge and amortization would
not be much more or any more than the existing yearly payments,
and they would have a difference of about $15,000,000 to spend on
public improvements.
Senator Clark. Juan Leguia was here in 1928? lie was ne-
gotiating the sale of these notes with the City Bank, v^'as he not?
Mr. Carse. I believe he was ; yes, sir.
Senator Clark. At that time a proposition was taken up to repay
the notes which you held under these loans?
Mr. Carse. The act of Congress of Peru authorizing this
$100,000,000 bond issue specifically stated the things that were to be
redeemed, and our notes were specifically stated in this act of
Congress, but they were not taken up.
Senator Clark. You accepted the plan, and for their own reasons
it fell through. Is not that what happened ? You told them that if
the Peruvian Government wanted to do it, it was perfectly agreeable
to you?
Mr. Carse. Oh, yes. I went down to see the bankers to ask them
when they expected to take up the notes, so that we could make a
calculation of interest, and I was simply told that this issue which
they were bringing out — I was told so in both cases — I was told that
the head of the treasury of Peru had not included our notes in the
obligations which were to be redeemed, and that apparently we would
have to wait until the balance of the loan was negotiated, which
never occurred.
Senator Clark. I offer as " Exhibit No. 78 " a letter from Mr.
Henry R. Carse to Commander Aubry, being dated February 6, 1928.
(The letter referred to was marked " Exhibit No. 78 " and appears
in the appendix on p. 371.)
Senator Clark. Now, Mr. Carse, I direct your attention to a
letter from Mr., Larranaga, which I v^^ill ask to have marked as
"' Exhibit No. 79 ", addressed from Lima, Peru, to the Electric Boat
Co.
(The letter referred to was marked '' Exhibit No. 79 *' an<l appears
in the appendix on p. 372.)
Senator Clark. '' Exhibit No. 79 "' announced the arrival of R-3
and i?-4 submarines and says that he has already started on the work
of getting 2 additional boats ordered. He says ;
I had an interview with Commander Juan Leguia lately, and he told me to
inform you that his father had assured him repeatedly that not only would an
order be placed for two more submarines, but for several additional units by
and by, since the Government's scheme is eventually to complete a flotilla of ten
submarines.
134 MUNITIONS INDUSTRY
This scheme of building 10 submarines down there really took form
after they got all this American money in their pockets, did it not?
Mr. Carse. Apparently it did.
Senator Pope. Who was the writer of that letter?
Senator Clakk. This was from Commander Aubry's uncle, who
was also an agent for the Electric Boat Co., was he not?
Mr. Spear. He was taking care of it.
Senator Clark. It is from Carlos Lopez Larranaga.
Mr. Spear. While Mr. Aubry was naval attache for Peru in Paris.
Mr. Kaushenbush. Was not he connected with the treasury down
there ?
Mr. Spear. Not this Larranaga.
Mr. Raushenbusii. There were two Larranagas?
Mr. Carse. He was not connected with the treasury.
Senator Clark. I direct your attention to a letter from you to Mr.
Larranaga, dated December 11, 1928, which I will ask to have marked
" Exhibit No. 80 ", in connection with these additional submarines
to be filled.
(The letter referred to was marked " Exhibit No. 80 " and appears
in the appendix on p. 373.)
Senator Clark. In the letter mai'ked " Exhibit No. 80 " you claim
some credit for having extended the credit of Peru in this country
in banking circles, because of the fact that jour notes, secured by
Peruvian notes, had been sold to some of the smaller bankers
throughout the country, do you not?
Mr. Carse. Yes, sir.
Senator Clark. I direct your attention to the next to the last para-
graph on page 1.
Mr. Carse. That is right.
Senator Clark. It reads:
We believe that we have done a great deal to extend the credit of Peru in
banking circles in the United States, because the notes, which we issued and
secured by the deposit of a portion of the Peruvian notes in one of the trust
companies in New York City, were in different denominations, so that they
were sold not only to large institutions in cities like Chicago, St. Louis, New
York, and Boston, but also to some of the small banks throughout the country.
To do til is, however, has cost us more than the interest which was included
in the notes.
Mr. Carse. Those were our notes.
Senator Cl.\rk. I understand that, but j'^ou claim some credit with
Peru for having extended their Peruvian credit in this country by
your sale to small banks, do you not?
Mr. Carse. You know we usually claim quite a lot of credit.
Senator Clark. Yes, sir. I am not blaming you, Mr. Carse, but
to that extent you were instrumental in " palming " off these later
Peruvian bonds in the United States?
Mr. Carse. I doubt it very much.
Senator Clark. That was one of the incidents of the armament
trade ?
Mr. Carse. I doubt it very much. Those notes were for a period,
running along and maturing so much a month, regular commercial
paper. They were all met at maturity and that was the end of it.
We got our money from the Navj^^ Department.
Senator Bone. Those notes being met at maturity would rather
tend to satisfy the average buyer of that type of security that Peru's
MUNITIONS INDUSTRY 135
credit was good, would it not. Mr. Carse? Would it not tend to lull
the American people, the buyer, into the belief that that type of
security was safe and sound?
Mr. "Carse. I think it was more on our security, our obligation.
Senator Bone. You were not underwriting those bonds, were you,
the Electric Boat Co.?
Mr. Carse. Certainly.
Senator Bone. You did not guarantee payment of them ?
Mr. Carse. We did not guarantee payment of them, but we issued
our obligations and attached and deposited with the trust company
as a general security for our notes, those Peruvian notes, but the only
thing that the buyer had was our notes. He did not see any Peru-
vian stuff, but our notes were sold on the basis of our financial
statement.
Senator Clark, What did you mean by saying in this letter, which
I just read, Mr. Carse, that you had done a great deal to extend the
credit of Peru in banking circles?
Mr. Carre. Perhaps I was claiming a little undue credit.
Senator Clark. I will read that again, Mr. Carse, in view of your
last statement that the buyer did not know anything about Peruvian
credit.
Mr. Carse. No.
Senator Clark (reading) :
We believe that we have done a great deal to extend the credit of Peru in
banking circles in the United States, because the notes, which we issued and
secured by the deposit of a portion of the Peruvian notes in one of the trust
companies in New York City, were in different denominations, so that they
were sold not only to large institutions in cities like Chicago, St. Louis, New
York, and Boston, but also to some of tlie small banks throughout the country.
To do this, however, has cost us more than the interest which was included in
the notes.
Mr. Carse. Some of our notes in different denominations and not
the others. They were secured by collateral. We described it on
the notes.
Mr. Spear. The buyer who bought knew what the collateral was.
Mr. Carse. It was described on our note that they were secured by
certain Peruvian notes.
Senator Clark. That naturally extended Peruvian credit in this
countrj'.
Mr. Carse. It may be.
Senator Clark. Mr. Carse, I understand you and Mr. Spear and
Mr. Sutphin said a moment ago that you did not know anything
about any payment to Juan Leguia. I w^ill ask you to refer again
to that memorandum or contract with Commander Aubry, dated
January 24, 1929, which has heretofore been marked " Exhibit No.
73." Paragraph 4 of this contract with Commander Aubry, dated
January 24, 1929, provides:
Commander Aubry's personal commission on Peruvian business in submarines,
toniedoes, and ammunition shall be three per cent (3%). Commissions on the
other business in Peru as may be agreed upon in advance in each case. On
Peruvinn submarines R-5 and R-6 the company had accepted and now confirms
the following additional .commissions (payable through Commander Aubry)
based on a price of One million two hundred fifty thousand dollars — ($1,250,000)
per boat, viz:
Twenty thousand dollars per boat to J. L,
Five thousand dollars per boat to Senor Larranaga.
f
13G MUNITIONS INDUSTRY
Five thousand dollars per boat to a certain third person agreed to with
Mr. Spear.
Who was" J. L."?
Mr. Carse. Juan Leguia.
Senator Clark. This contract was entered into by your company,
was it not?
Mr. Carse. No ; it never was.
Senator Clark. What is this contract?
Mr. Spear. That order was never received, Senator. We never
received that order.
Senator Clark. Yon stated a moment ago, Mr, Carse, that you
had never arranged to pay Mr. Juan Leguia any commission on
Peruvian business.
Mr. Spear. I think he said he never did pay him any.
Senator Clark. He said he had no negotiations with Juan Leguia
and never arranged to pay Juan Leguia any commissions on any
Peruvian business.
Mr. Carse. This is not signed.
Senator Clark. Was it signed?
Mr, Carse. I do not know. I do not recall it.
Senator Clark. Was not that the contract which was entered into
with Commander Aubry in 1929?
Mr, Carse, It is a draft of a contract. Whether it was signed or
not, I do not know.
Senator Clark. $20,000 per boat would be $40,000 on the order.
This draft also states that $5,000 per boat was to be paid to a cer-
tain third person agreed to with Mr. Spear. Mr. Spear, who was
that third person ?
Mr. Spear. I do not remember.
Senator Clark. You have no recollection of the third party with
whom you had agreed with Commander Aubry to pay $5,000 per
boat?
Mr. Spear. No, sir; absolutely no recollection of who the person
was.
Senator Clark. Are you in the habit of making payments of that
sort, of that magnitude, without any recollection whatever of it?
Mr. Spear. A matter of recollection is one thing. In all those
commission matters we simply took the position that Aubry was
handling this business and we did not deal with anybody but Aubry,
I have no doubt
Senator Clark. You knew at that time who the certain third
party was?
Mr. Spear. I imagine I did but I could not state.
Senator Clark, It states it was agreed to with you.
Mr. Speak. Yes ; agreed to the amount, but I do not know whether
I agreed to the person. I really do not remember. Senator. If I
knew, I would tell you.
Senator Clark. Do you have any recollection about agreeing to
the commission of $40,000 on two boats for Juan Leguia?
Mr, Spear, I do not remember it, I cannot remember those things.
Senator Clark, At that time also, Mr, Spear, you arranged that
Aubry should also represent Vickers-Armstrong in Peru, as far as
it did not conflict with your business?
MUNITIONS INDUSTRY 137
Mr. Speak. We agreed to it. He wanted to do it and get more
income, and we agreed as long as it did not conflict with us that
lie could.
Senator Clark. In this contract the payments contemplated
would involve a paj^ment to Aubry of $75,000 on a 21/2 million dollar
order and you express in the contract a willingness to pay $70,000
more if necessary to get the business.
Mr. SpEriR. Whatever the figures are.
Senator Clark. Yes.
Mr. SuTPHE.Y. And we never got the business.
i\Ir. Spear. That is correct; we never got the business.
Senator Clark. The only thing was that you did not get the
order; you could not get it. But these were things you were per-
fectly willing to do if you could get the order.
Mr. Spear. Yes; we were willing to pay that amount of money
to get the order.
Senator Clark. Mr. Carse, in 1931 you were expressing the great-
est confidence in the stability and good faith of the Peruvian Gov-
ernment so far as finances Avere concerned, were you not?
Mr. Carse. Well, I believed in them then.
Senator Clark. I offer as " Exhibit No. 81 " a letter from Mr.
Carse to Mr. Aubry dated March 14, 1930.
(The letter referred to was marked " Exhibit No. 81 ", and appears
in the appendix on p. 374.)
Senator Clark. In " Exhibit No. 81 " Mr. Carse says in the second
paragraph :
We have heard rumors of a new loan to be made by your Government but
have not been able to trace it down as to whom the principals here might be.
It however, is and will be entirely agreeable to us to hold the notes we have and
accept payment on their respective due dates rather than to have them caslied
at a discount, because we have full faith in the stability, the good faith and
integrity of the Peruvian Government.
That was jT^our attitude at that time, was it not ?
Mr. Carse, I wanted to keep a stiff upper lip. I think the sug-
gestion was probably made that we could get our notes caslied at
some substantial discount. I did not want to show too much eager-
ness to accept a heavy discount. That is the basis of that letter.
This is simply to Aubry. This is not a public statement.
Senator Clark. Yes, sir; but in August 1930 your friend Leguia.
was forced out by the Peruvians, was he not?
^Ir. Carse. Yes. Well, that happened over night.
Mr. Spear. I do not remember the dates.
Senator Clark. It was in 1930. The file indicates that it was
August 1930.
Mr. Carse. You will note what I say in this letter :
We have also received from the Contabilidad a copy of the budget of the
Peruvian Government for 1930 in which the amount to be paid to us on the
notes is included, * * *
Senator Clark. And shortly after that, about a year after that,
you took up through Mr. Joyner, who by that time had become your
Washington representative, with the State Department, the matter
of Peru running behind with their debts, did you not ?
Mr. Spear. Yes ; I think it was discussed.
138 MUNITIONS INDUSTRY
Senator Clark. And you were informed by the State Department
tlirouo;h Mr. Joyner that Peru was running behind about $2,000,000
a month at that time, according to the information.
Mr. Spear. I do not recall ; whatever the amount was.
Senator Clark. I offer as an exhibit a letter from Mr. Joyner to
Mr. Carse, which I will ask to have marked " Exhibit No. 82."
(The letter referred to was thereupon marked " Exhibit No. 82 ",
and appears in the appendix on p. 374.)
Senator Bone. Do you know whether other South American coun-
tries, Mr. Spear, were at that time going behind in their efforts to
balance the budget?
]Mr. Spear. I do not know.
Mr. Carse. I do not know the particulars of their finances.
Mr. Spear. I think that they all went to pot at about the same
time.
Mr. Carse. Chilean bonds had always been very high credit in
the United States and all over the world. Bolivia had an issue of
8-percent bonds that had been selling around 110. Brazilian bonds
had never defaulted. Different issues sold all over the world. Thej^
had a great market all over, in London and in Paris. In fact, Eu-
rope has always been the market for South American loans. Argen-
tine bonds, for instance, were the soundest credit in South America.
They all slumped very badly when this depression came.
Senator Bone. Do you associate this armament race in South
America with the collapse of the Government credit there?
Mr. Carse. I do not think so. The armament race down there, the
armament purchases here in South America have not amounted to
anj^thing in particular.
Senator Bone. Well, they led to a great many refinancing opera-
tions.
Senator Clark. Where did Bolivia and Paraguay get the arma-
ments with which they are carrying on the war now?
Mr. Carse. I do not know. That is powder and shell. I am
referring more to boats. Boats are really property.
Senator Bone. Bolivia and Paraguay are both engaged in a war-
fare that must be frightfully expensive to countries of that type.
Mr. Carse. I suppose that is correct.
Senator Bone. And I think we may all assume that it would
naturally constitute an almost impossible burden on those countries.
Mr. Carse. Yes. I think Bolivian bonds are selling at prac-
tically nothing. I do not know whether Paraguay has any bonds
outstanding, or not. They may have some in Europe. I never
heard of them.
Senator Bone. They probably will issue bonds, as a result of this
war, if they can find anyone to buy them.
Mr. Carse. If they can sell them; yes. But naval vessels are not
wasted like shells and explosives and such things.
Senator Bone. That may be true, but j^ou never heard of a naval
vessel producing $1 of revenue for any country in the world, did
you, Mr. Carse?
Mr. Carse. Well, you have to have police.
Senator Bone. I am Avell aware of that. What I am getting at is
that a big navy is a very expensive thing.
I
MUNITIONS INDUSTRY 139
Mr. Carse. a big navy is.
Senator Bone. Any kind of a navy.
Mr. Carse. But take submarine boats for the smaller nations;
they are certainly the only defense they have.
Senator Clark. That seems to be at variance with the opinion of
Admiral Howe, the head of the American naval mission in Peru,
as disclosed in the letter which was read a few minutes ago.
Mr. Carse. Yes ; but those four submarines that Peru has came in
might handy during that Tacna Arica dispute.
Senator Bone. Did they utilize them in warfare?
Mr. Carse. No; but they were there to defend their harbor.
Senator Bone. But suppose none of those countries had had any
large armaments. What position would they have been in?
Mr. Carse. The only country that really had large armaments
was Chile.
Senator Bone. If one nation had no battleships at all and another
nation with whom they were in controversy had no battleships, they
would be in precisely the same position as though each one of them
had 50 battleships, all things being equal.
Mr. Carse. Yes.
Senator Bone. That is what I am getting at. This race for arma-
ments, continually adding and adding more armaments, means that
the one that has more battleships than the other will have an ad-
vantage. There is always an incentive on the part of the smaller
nation to add to its navy. Where is this thing going to end? Per-
haps you could enlighten us before you leave the committee room
just where this is going to lead us if it continues. Manifestly, if
your agents go to South America and say to Peru, '' Chile has 2
more submarines and 2 more battleships than you have and you
should add to your navy so that you will have 2 more than they
have ", the siime argument could be made to Chile, that they should
increase their navy to a point where it is larger than the navy of
Peru. We are not doing violence to logic in discussing it in that
fashion. That is true, is it not?
Mr. Carse. Senator, I do not think that Captain Aubry was the
man who put the iden into the mind of Peru to have submarine
boats. President Leguia was about to go back into office in the
coming election. He was a man who had had a world-wide ac-
quaintance. He had lived in England, iind all that sort of thing.
He considers — not Aubry — but he considers that the Peruvian Gov-
ernment for its safety should have some submarine boats. How to
get them was the problem.
Back in 1910 they made a contract with the Electric Boat Co.
to build some submarine boats and they gave them as a first pay-
ment $250,000 of Peruvian Government gold notes to start the work.
Then there was a change in the administration and some other fellow
was elected. They stopped it. A representative of the Peruvian
Government came up to see the company. That was before I was
connected with the company, but I was acquainted with what was
going on because I had been looking into the matter of finances.
He said that the Government had decided not to build these sub-
marine boats which they had ordered, and wanted to know on what
140 MUNITIONS INDUSTRY
terms and conditicins the company would return to them the $250,000
of treasury gohl notes whicli they hekl.
The corupaiiy studied the matter over and estimated that their
expenses up to that time in sending a man down there, drawing
plans, and so forth, would amount to $25,000. So on payment by
the Peruvian Government to the Electric Boat Co. of $25,000, they
surrendered the $250,000 of Treasury notes.
That led to a very kindly disposed feeling in the minds of the
Peruvians toward us, and in the course of time, when President
Leguia came buck into oflice by election, not by revolution, he fav-
ored in everything, of course, the Electric Boat Co.
In addition. President Leguia was strongly pro-American, pro-
United States. So that when offers came from other sources, he
would not give them consideration. He was very strongly in favor
of everything built in the United States. He was a very strong
friend of the United States.
All of these letters which have been read here from Aubrey — why,
as I said before, salesmen try to sell things and in trying to sell
them they will bring forward all kinds of florid propositions and
make florid statements. So that you just have to sprinkle a little
salt on them sometimes and not take them entirely too seriously.
We were in business rightfully, because we were the origmal
designers and patentees of the things absolutely necessary to con-
struct a submarine boat.
The United States Government is usually veiy slow in taking up
new inventions. Mr. Rice went over to Europe and took up with
Vickers this matter and they presented it to the British Admiralty
and the British Admiralty thought they saw a future in it and
gave Vickers an order for 5 or 6 boats to start with.
So, in the course of years, it has developed until it is really a
very complete machine at the present time.
But we have always considered and have always preached that
for small countries it was a means of defense from aggression by
large countries.
I think if you will check it out, you will find that to be the histor37-
of submarine boats. There is not a submarine boat that we have
built or that has been built on our licenses, that has not been used
for defensive purposes.
It is true tliat the Gei'mans, a little late in the war started build-
ing submarine boats, simply taking all our plans and patents out
of the Patent Office where we had filed them. Some of the patents
had been allowed and some had been rejected. But the informa-
tion got to the German builders, and they built boats which they
did use for offensive purposes.
Senator Clark. Mr. Carsc, after a submarine has been constructed
and has gone into the hands of any nation, it can be used for
defensive or offensive ])iirp()ses as they nuiy choose.
Mr. Carse. Yes; but
Senator Clark (inter})osing). You have no control over how a
submarine may be used after you have sold it.
]\Ir. Spear. It de[)ends on the type of submarine it is.
Senator Clark. I understand that some types cannot be readily
used for offensive purposes?
MUNITIQXS INDUSTRY 141
Mr. Spear. The smaller ones cannot be used for that purpose.
You have to get right next door to the fellow almost before it can
be used for anything but defensive purposes. These great big ones
that they used to build 10 years ago, those could be used for offensive
purposes.
Senator Clark. This correspondence shows that you always tried
to sell the largest ones that you could?
Mr. Spear. No ; I think not. We were trying to give the customer
what he thought he wanted.
Mr. Raushexbusii. Mr. Carse, at the beginning of your reply to
Senator Bone's question, which dealt with the matter of who started
and kept going the armament race in South America, in that connec-
tion I want again to call your attention to an exhibit put in yesterday
in which your representative, Chapin, reports Admiral Niblack, who
was head of the naval intelligence, on that subject. I am quoting
again from Exhibit 56. He says :
He tells me that the wliole balance of powei- has beeu destroyed by Chile
getting six submarines and two warships from England, and that It has caused
a good deal of uneasiness on the part of the Argentine, while Peru is abso-
lutely helpless.
Then, after that, according to this letter. Admiral Niblack, in talking with
the Peruvian Ambassador told the Ambassador, that it had occurred to him
it was now a matter of Peru going into the market and buying outright not
only with respect to destroyers, but also as to submarines.
We brought out later in the testimony, I believe, that these were
the submarines that Chile got which started this whole armament
race going and they were built originally for the British Government,
although built up here in the United States. So it Avas the submarines
built by your company which really started this armament race.
Then Peru had to build up and Argentine had to build up and the
whole race got going as a result of this unbalancing of power. Is not
that true, according to Admiral Niblack, anyway?
Mr. Spear. According to Admiral Niblack ; yes.
Senator Bone. Mr. Spear, power in South America is not balanced
now, is it?
Mr. Spear. No; it is very unequal.
Senator Bone. Well, will they ever be able to get it in balance
with all of these commissions going down there and with every pri-
vate munitions outfit in the world trying to unbalance it just as
rapidly as possible? How in the world are we ever going to have
any sort of international comity and peace with not only private
munitions concerns, but the governments of the world, the naval
powers that ought to have more sense than to do a thin.o; like that,
going down there urging these countries in South America to each
outrun the other in this race to be in a commanding position.
If Peru, for instance, should get more submarines than Chile, then
Admiral Niblack might very well say, " Well, the balance of power
no longer exists and we have got to see that Chile gets more sub-
marines." That is right, is it not? There is nothing wrong with
that logic, is there?
:Mr. Spear. No.
Senator Bone. I think we can all agree on that. But where is
this going to end? Every peace conference blows up because we
83876 — 34 — PT 1 1 V.
142 MUNITIONS IITDUSTRY
have gentlemen like Mr. Shearer and other interested parties over
there, seeing that it does blow up.
Where are we to finally get when our peace conferences are
thwarted and made a mere futility ?
Is the world to end with that 'sort of a picture? Today prac-
tically every organized government, every civilized government in
the world is wondering what is going to happen.
Mr. Spear. I think so far as naval matters are concerned, they
have made quite a little progress toward the idea of not having
these oj^en races, as you describe. We have made a good deal of
progress by fixing limits in treaties, such as now governs this
country.
Senator Bone. Today the world is almost an armed camp. The
great nations of the world today are maintaining greater armies
than ever before and spending more money on them.
The Chairman. There never has been as much money spent by all
the powers as is being spent now for that purpose.
Senator Bone. President Hoover pointed that out in 1928 in his
appeal for international understanding and peace and after 6 years
we are in a worse position than when President Hoover made his
appeal.
Mr. Spear. It is a very unfortunate state of affairs, unfortunate
to m}^ mind, but it dates back to these enmities and animosities that
have existed so long. There are political questions in Europe on
which they cannot agree, do not seem to be able to agree. I think
it is a political question.
Senator Bone. Mr. Chairman, I have one other question that I
think is very pertinent, that I should like to ask at this time. How
do business men, the men who are really dominating the economic
life of this country and of other countries, expect to have any se-
curit}^ for themselves and their property if this condition con-
tinues ? Because the world today is in no shape to stand very much
more of this frightful expense. It becomes a practical matter, not
a political question. It is not a question for curbstone oratory or
anything of tliat sort. It is a question that involves the very
financial integrity of all of the countries of the world.
How can you, as a business man, feel secure in your person and
property if this sort of program continues? I would like to have
an expression from you. I think the country would like to know
how you business men feel.
Mr. Spear. I should say, Senator, if the present armament outlook
continues in the world, until they get the whole world embroiled
in a war, assuming that to be possible again — I do not know enough
about it, but assuming it to be so — I should say that the answer to
that would be that everybody's security, everybody's property all
over the world would be injuriously affected.
Senator Bone. It would be destroyed, would it not ?
Mr. Spear. It would be, very nearly.
Senator Bone. It is conceivable that our civilizations would crash
and carry with them everything that we consider worth while.
Mr. Spear. I do not myself believe, Senator, that in the present
condition of the world, with the results of the war and this unfor-
tunate false boom tliat occurred in this country after the war — I
MUNITIONS INDUSTRY 143
do not believe myself that the world could reasonably survive at this
time another o:reat war, I think it might crash everything that
exists, as we know it, in the western countries.
Senator Bone. It would engulf and destroy possibly all our west-
ern civilization.
Mr. Spear. I should say that is not an exaggerated statement.
That is my personal opinion, Senator.
Senator Bone. I think you share that with all thoughtful people,
Mr. Spear, that this would not only jeopardize and endanger, but
possibly destroy, our western civilization.
Senator Clakk. With the development of poison gas and other
types of offensive armament, it would almost certainly mean that
another great war would be very much more disastrous and de-
structive than the last one; would it not?
]\Ir. Spear. They are all the time, Senator, endeavoring to improve
both the offensive and defensive weapons. As to gas, I do not agree
with you, because the experts all say that that is a question of people
feeling about a thing in a way not justified by the facts. In fact,
the statistics show that of the casualties in the war due to gas that
reached the hospital only 3 percent died, whereas of the casualties
that reached the hospital on account of gunshot wounds and shell
fragments, something like 25 percent died.
Senator Clark. I heard before the conclusion of the armistice
the head of the American Chemical Warfare Service addressing the
General Staff College stated that they had developed a gas which
would obliterate a great civilian population back of the line, if they
desired to use it for that purpose.
Mr, Spear, Perhaps they have ; I do not know anything about it.
I do not know anything about it particularly, but I do know some
of the people have talked to some of the people in the Army who
do, as a matter of general interest. I find that their opinion is that
the gas danger has been very largely exaggerated. Also, the idea
that it is inhuman, that it is not humane as compared with these
missile weapons is a mistaken one, in their judgment. They say that
what they want to do is to put the other man out of business. They
do not necessarily want to kill him. They would like to put him
out of business and make it necessary for one of his own fellows to
take him back in a train and hospitalize him and have to take care
of him. They do not want to kill, but they want to put them out
of business so that they cannot account for any resistance to them
for the time being.
Senator Barbour. Mr. Spear, I think that the thing in which the
committee is interested, certainly as far as I am concerned, with
respect to the activities of yourself that have been traced hj Sen-
ator Clark through this correspondence is, whether that was an effort
to get business that was going to be let by Peru and the other coun-
tries, or whether you stimulated additional armament business.
Perhaps that may not be a fair question?
Mr. Spear. It certainly did not stimulate any additional business,
I mean, we wanted to get business, but we understood the situation
in Peru that the President wanted these things and naturally we did
not discourage him. The inception of this was not with us.
Senator Clark. What did one of these gentlemen mean when he
wrote that Juan Leguia told him that his father had promised him
144 MUNITIONS INDUSTRY
that he was .<2;oin<:^ to biiihl a flotilhi of 10 submarines? What did
Aiibry mean when he said that Lef^uia liad promised him — they use
the term '' promise " again and again — promised him that as soon as
lie could get some cash in there he was going to buy a lot of
submarines ?
Mr. Spear. That is a natural word for Aubry to use. But, answer-
ing Senator Barbour's question, we certainlj^ did not inaugurate the
idea. We did not put it in President Leguia's mind that Peru
needed submarines. He arrived at his own conclusion. The ap-
proach originally came from Peru, directly from tliem. We had
nobody down there whatever, no connections with them. I think
that answers Senator Barbour's question.
Mr. Raushenbusii. But he arrived at his conclusion after Chile
had gotten this fleet; is not that so?
Mr. Spear. It dated back in his mind, I think, to 1910. Chile at
that time had no submarines.
Senator Clark. Was not this scheme for sending a fleet of sub-
marines from the United States Navy down one South American
coast and up the other for the purpose of encouraging the use of
submarines, making South America submarine minded?
Mr. Spear. I could not say what was in the minds of the Navy
Department.
Senator Ceark. I am not referring to the mind of the Navy De-
partment. I am speaking about what was in the mind of your rep-
resentative when he proposed that to the Navy Department.
Mr. Spear. Well, the poor man is dead now and I cannot tell you.
I should assume that he thought it would be a good advertisement
and that if they had anj^ plans they would consider us. I would not
attempt to say what was in Mr. Chapin's mind when he did this
thing.
The Chairman. Lieutenant, did your Electric Boat Co. have any
representative observing or present at the conference in Montevideo
last winter?
Mr. Spear. No, sir.
The Chairman. Did you have any reports upon it at all ?
Mr. Spear. I never saw one that I remember.
Mr. Carse. No, sir; nothing at all.
The Chairman. There is pretty good authority, that may or may
not be developed, indicating that while statesmen were at work on
one side of the curtain trying to accomplish understanding and peace
and to get together in those South American countries, on the other
side of the same curtain at work were representatives of munitions
makers writing orders that were occasioned by such fear and suspi-
cion as they were able to build up in the minds of neighboring
countries doAvn there. Have you had any information of that at all ?
Mr. Spear. I have never had any information of that, Mr. Chair-
man. Certainly, we did not. We had nobody there and had no
reports from anybody.
Mr. Cakse. We have never had anybody representing us in any
shape or form at any armament conference, anywhere in the world.
The Chairman. You were not then a party to the "Ante " that sup-
ported Mr. Shearer and others at the Geneva conference ?
Mr. Carse. We were not.
MUNITIONS INDUSTRY 145
The Chairman. Senator Bone raised an interesting point that
we might develop for a moment or two. He asked you, as a busi-
ness man, what your reaction was to goin^ to war, what you felt
would be the security of your property; not only of your lives, but
of your property. You responded that you did not think it would
be very secure.
Is there any assurance at all that in time of war any industry re-
lated in any degree to the manufacture of munitions would be spared
the injury that might be heaped upon other business?
Mr. Spear. I think during the period of the war it would be
natural to assume that whatever plants there were that could pro-
duce what the Government wanted would be kept busy as long as
the war lasted.
The Chairman. That is not what I meant.
Mr. Spear. I am sorry ; I did not get your point.
The Chairman. Did you have any assurance that your plant at
Groton, for example, would not be the target of any foe that might
be ours in that war?
Mr. Spear. We have no such assurance.
The Chairman. Are you aware of the alleged agreement that ex-
isted between the munitions makers of Germany and of France that
their plants should not be the target of opposing armies?
Mr. Spear. I have heard of some such thing or saw some such
thing in the paper.
The Chairman. Do you know of any munitions plant in either
country that was destroyed or damaged during the 4 years of the
WorlcfWar?
Mr. Spear. I do recall that the French bombed the Krupp plant
when they got big enough bombers. They also bombed some at
Dusseldorf. This is just from memory of what happened as I read
it during the war. So that I think there were occasions when such
plants were attacked.
The Chairman. As a concern manufacturing submarines or ma-
chinery that would enter into the making of war, you have no se-
curity at all that your plant would not be as subject to attack as
any other piece of property?
Mr. Spear. No; I should assume that it would be more so. That
is, if the enemy were able to reach it. I mean, if I were the enemy
I would like to destroy anything in my enemy's country that I
thought could produce weapons.
While we are on this topic, Mr. Chairman, I would like to add that
we touched here on the question of these international conventions.
Not only have we never sent anybody there, but people have offered
to go and represent us there and we have declined to have them
at all.
Senator Clark. Were you ever invited to kick in on Shearer's
expenses ?
Mr, Spear. We were never invited to pay him. But we were in-
directly approached, as I recall, to see whether we would agree to
employ Mr. Shearer and we said we would not.
Senator Clark. Who approached you?
Mr. Spear. I do no^ recall.
146 MUNITIONS INDUSTRY
Senator Clark. Do you remember, Mr. Carse?
Mr. Carse. They did not approach me.
Mr. Spear. It was an indirect approach. It was not Shearer and
it was not any of the people that did employ him. Somebody spoke
to me and said, " I understand this man is going over there. Would
it interest you?" And we said it would not. We did not want to
have anything to do with it.
Mr. Carse. They did not approach me.
Mr. Spear. They approached me, but it was not Shearer or any
of the firms that eventually were foolish enough to employ him. It
was some intermediary who asked if we would be interested, and
I said we would not.
Senator Bone. What in your opinion blew up that conference and
made it a futility ?
Mr. Spear, The Geneva Conference?
Senator Bone. Yes ; at which Mr. Shearer appeared ?
Mr. Spear. I do not think Mr. Shearer had any more to do with
it than I did.
Senator Bone. There were some very smart long-headed business
men who hired him.
The Chairman. He feels that he did.
Mr. Spear. I know he does, but I do not think so. The Senator
asked ni}^ opinion, which I am perfectly willing to give. I have
studied this pretty closely, because I have been interested in it, but
my judgment is that it blew up because of the inability of the Ameri-
can Government and the British Government to reconcile their differ-
ences as to cruiser construction, the two countries having a different
conception of v.hat they needed cruisers for. Each one was con-
vinced that if it took the other's viewpoint, it would be doing the
wrong thing. In the end, I think that did it.
Another reason was that the Europeans did not believe that no
matter what they did there, the United States Government Avould
go ahead and do anything in the cruiser line.
I prophesied that when that happened, as soon as Congress author-
ized some cruisers, we would have our British friends sitting on the
front door step and asking for another conference. You will recall
that Congress did authorize eighteen 10,000-ton cruisers.
The Chairman. When was that, 1928 ?
Mr. Speah. No ; it was earlier tlian that. It was before the London
conference. Whether it was a coincidence or not, before these ships
were built, but so long as Congress had declared it to be the policy
of the country to build a cruiser fleet, immediately another conference
was held. Our European friends decided, "Well, perhaps those
people will do something; we had better get a conference and get
an agreement rather than stand off on the theory that they will not."
So I think the sequence of that, in my judgment, was this: that
they did not agree on the technical conditions, and the fuilher fact
that the British and the Europeans were convinced that the United
States did not propose in any case to go ahead and build any ships.
But what we were after was to get them to stop, which was true,
so far as that is concerned ; we wanted to get them to stop.
Those two things, I believe, Avere responsible for the failure of
the Geneva Conference. I am fortified in that conclusion bv the
MUNITIONS INDUSTRY 147
fact that as soon as the United States Government moved, there
was immediately a wiHingness on their part to hold another confer-
ence, which they finally did agree upon, for these other classes of
ships. You will recall that the Washington Conference touched only
battleships and airplane carriers.
Senator Bone. One of the distressing things in this is the addi-
tion of armaments and the building of ships.
Mr. Spear. Like everything else in the world it has its good and
bad sides. Thev all knew the armaments and what thev are entitled
to.
The Chairman. And what they have got.
Mr. Spear. And what they have got; yes.
And then they get into these arguments that creep out into the
papers and stir up some unfortunate ill feeling that had not existed
before they sat down at the table.
The Chairman. It is now 1 o'clock and we will take a recess
until 2 o'clock, for lunch.
(Thereupon a recess was taken until 2 p.m.)
after recess
The hearing was resumed at 2 p.m., pursuant to taking of recess.
The Chairman. The committee will be in order. Senator Clark,
do you want to proceed ?
Senator Clark. If I may.
Mr. Spear, Senator Bone was asking questions when we adjourned,
and I will now proceed.
Senator Bone. If I may, I would like to ask one question. Mr
Spear, there was one question I wanted to ask this morning, and
forgot, in connection with these military and naval South American
commissions. Can you advise the committee what other countries, if
any, that is the major powers, sent military or naval missions to the
South American countries of the same character as ours?
Mr. Spear. My recollection about that, Senator, is that the British
had a naval mission in Chile; the French had a military commis-
sion, but whether that Avas in Peru, I don't recall. I am not certain
about this> either, but I think the Italians also had a commission in
one of the countries.
Senator Clark. When Chile had the general training of the
Columbian Army?
Mr. Spear. I do not know who was responsible for that. I think
they had a German general. I think I have seen in the paper they
had a retired German general in charge of the Army.
Senator Bone. It would appear then that it has been a common
practice for the major powers to do that?
Mr. Carse. They were existing before the United States appointed
their commission to Peru.
Senator Bone Then we merely followed suit?
Mr. Spear. I think that was so, Senator.
Senator Clark. Mr. Carse, in 1932, Peru endeavored to sell four
of the boats they had purchased from you to China, did they not?
Mr. Carse. No; they had stopped payment on our notes, and the
suggestion was made that we might be willing to take back some of
148 MUNITIONS INDUSTRY
those boats and give tliem the notes in payment. That suggestion
was made, I think, by Captain Aubry, and the idea was we might
possibly sell them to China. But when Aubry took it up with the
Peruvian Government to see if they would approve, he was very
nearly mobbed by his naval associates for even dreaming of ever
disposing of any of the submarine boats of Peru, so that ended it.
Senator Clark. You went far enough to have your representative,
Mr. Joyner, take it up with the State Department?
Mr. Cakse. I may have.
Senator Clark. And found that the State Department viewed it
unfavorably.
Mr. Carse. That may be true, but the Peruvians would not even
dream of it.
Senator Clark. I read from a memorandum from the State De-
partment files which will be properly identified at tlie proper time,
this being a memorandum of S. J. HornbecL:, as follows :
Mr. Grummon, State, brought in Mr. .loyner, vice presiflent, Electric Boat, to
see Mr. Hamilton and subsequently Mr. Hornbeck.
Joyner reported that iiis company had a lien or about 20% of t'.je purchase
price on 4 destroyers sold to Peru, and now in use. Electric Boat now in-
formed that Pern prcposed to sell the destroyers to Chinese Government and
so pay off the lien.
Mr. Joyner stated that he personally did not favor the tran-saction for
fear of possible complications between the United States and Japan or between
Peru and Japan. He inquired whether this Department cared to express
any view in the matter.
* * * Mr. Hornbeck said to Mr. Joyner that the Department was not in
a position to express ofScially either approval or disapproval but that, expross-
inj? a personal view, a sale of such vessels to China would seem to him very
much like a sale to a child of something useless to it and that, speaking unoffi-
cially, he would hope that such a transaction would not be consummated. Mr.
Joyner said that he thought it would not lie.
Was that the end of that matter so far as you were concerned?
Mr. Carse. That was the end of it.
Senator Clark. Now, Mr. Carse, in 1933, you advised the board of
directors of your company that there was an understanding that
Aubry would be agent for Remington Arms, Colts, and Eico, as
well as your company, and at that time there was an arrangement
of some sort between your company and Colts, Remington, and
Elco, was there not, as to the sale of munitions?
Mr. Carse. There vfas not any arrangement.
Senator Clark. There was an understanding, I believe your min-
utes say — let me read from the minutes from a meeting of January
17, 1933, which copy of minutes I offer as " Exhibit No. 83 ".
(The copy of the minutes referred to above was marked " Exhibit
No. 83 ", and appears in the appendix on p. 374.)
Senator Clark. Reading from this " Exhibit No. 83 ", being the
minutes of tlic l)oard of directors of the Electric Boat Co. of date
January 17, 1933, it says that after the president advised that certain
things having to do with the credit to Peru, as follows :
And also reciting understanding with the Remington Arms Company, Inc.,
the Colt's Patent Fire Arms Mfg. Co.. and the Elco Works of Electric Baat
Compan.v, for certain materials to be furnished, the payment for which is to be
made with part of the above mentioned 7% bonds.
What was that understanding and with what munitions did that
have to do?
MUNITIONS INDUSTRY 149
Mr. Carse. Our payments on our notes had been stopped for some
time and Captain Aiibry in Peru had been very active in endeavor-
ing to secure resumption of those payments. About that time, I
think, this trouble arose between Peru and Colombia about Loreto,
and the Peruvians, because of the action of the Colombians wished
to secure armaments of different kind. They wanted to secure, I
think, a supply of rifles. Their army was very inadequately fur-
nished with arms, and they discussed the question of whether we
could arrange to secure them arms, but we could not see any way
we wanted to advance more money when they were not paying what
they owed us, so they appointed one of their senators, Senator
Badani who came from Iquitos.
Senator Clark. Came from what?
Mr. Carse. He came from that place that is on the upper Amazon.
He came to New York accompanied by Captain Aubry, because
Badani did not speak English very well.
Senator Clark. Was Aubry acting at that time for you or for the
Peruvian Government?
Mr. Carse. Acting for us. He acted as inteq^reter. They had in
mind securing a certain number of rifles and a certain number of
machine guns and they also thought they would hke to have some
shallow launches for use on the upper Amazon; and that is where
the Elco comes in. Of course we did not know anything about arms
or ammunition, so we immediately got in touch with the Remington
Arms people, and they brought in the duPonts. We did not know
it. but it seems that duPont does not make ammunition, it only
makes the powder, and the Remington Arms make the guns, and
somebody else, or they, make the cartridges. We got into this con-
ference, and the question arose as to how the thing was to be paid
for and they had proposed that they would increase the taxes ap-
plicable to our notes and apply that on the other thing, but no one
wished to take anything but cash. So I thing we were just at a plain
standstill. Then some member of either duPont or Remington
brought forward the idea that they, for the part they were to fur-
nish would accept notes running over a number of years, if the
Peruvian Government would deposit in escrow from their gold hold-
ings an amount sufficient to pay those notes if they were not redeemed
immediately from current revenues, as provided.
This money was to be deposited in some large bank which was
not named, and we did not even discuss it with the bank to see
whether they were willing to accept such a trusteeship; and it was
to be held in escrow until all of the notes or bonds or whatever they
might be termed, were paid. That seemed to Senator Badani some-
thing that would meet the approval of the Peruvian Government, so
we said if it was accomplished in that way we would be willing to
exchange notes that we held for some of these new obligations secured
by the deposit of gold. Then that memorandum proposition was
drawn up and given to Senator Badani. What was the date of that
memorandum?
Senator Clark. This minute of your meeting of directors is
dated January 17, 1933.
Mr. Carse. Then, I think he sailed among the last days of Decem-
ber prior to that, and we never heard any more from it.
150 MUNITIONS INDUSTRY
Senator Clark. Mr. Carse, was the Electric Boat Co. to receive a
commission on the armament purchases from Colt and Remington,
and of course you controlled Elco?
Mr. Carse. Yes; Elco is ours.
Senator Clark. Were you to receive a commission on the other
arms purchased from Colt and Remington?
Mr. Carse. No; we were not getting anything. I could not say
just now offhand whether there was a commission, but it was not
going to us.
Senator Clark. There was a commission to Aubry, which, accord-
ing to the minutes, you were to pay out of the funds received by
you, but he was also to represent Colt, Remington, and Elco?
Mr. Carse. Well, he did, and I suppose he would get a commis-
sion, because the Remington people at that time appointed him
their agent in Peru. He went down and got no orders, and they
canceled it.
Senator Clark. I am just trying to get at what the arrangement
was and not the final upshot of it. It would appear from those
minutes as I read them, that Aubry was to represent Remington,
Colt Fire Arms Co., and Elco, and yourself, and was to receive as
compensation a commission on all of the business sold, which you
were to pay, and you were not paying the commission of companies
who sold other than yourself, such as Remington and Colt, without
some arrangement with them?
Mr. Carse. That would simply pass through us. We would not
make anything on it.
Senator Clark. Who was Jose Virello Obregez?
Mr. Carse. He was a lawyer down there who was Aubry's lawyer.
Senator Clark. During the disturbance of 1933 down in Peru,
your company asked the State Department to make inquiry for the
safety of Captain Aubry, to see if he had been killed in any of these
troubles.
Mr. Carse. We had not heard from him in some time, and we
were worried.
Senator Clark. You got the State Department to do that, and
they did it?
Mr. Carse. Oh, that is done every day in the week.
Senator Clark. Did your company ever try to induce the State
Department to interfere for you in the matter of nn international
loan in Peru, which threatened to weaken your financial position in
that country?
Mr. Carse. I don't know of any international loan ; I do not re-
call anything of that.
Senator Clark. Did you ever hear of Mr. Joyner doing that?
Mr. Carse. I could not say. If j'ou will let me know just what
you have in mind, I might know of any international loan that was
proposed. There has been a lot of talk off' and on about a new
loan and getting some oil companies to go down there and make
them a big loan and clean up everything, but it was just gossip.
I hear so many of those things ; I do not pay any attention to them.
The Chairman. Mr. Sutphen, yesterday you inserted in the rec-
ord a statement revealing your connection with certain oil com-
panies. Have your companies had any interest in South America?
I
MUNITIONS INDUSTRY 151
Mr. SrEAE, I think you are mistaken, Senator: it was myself.
The Chairman. Yes; I believe you were a director in the oil
companies, Mr. Spear.
Mr. SpEi\R. Yes, sir. These are small companies that operate a
few wells out in eastern Kentucky. They are not big enough fry
to go to South American countries. I wish they were.
The Chairman. You would be glad to go down there?
Mr. Spear. No ; I wish these companies I own some some stock in
had something of more value than they have got.
Senator Clark. Mr. Carse, I again refer to the State Department's
document to which I referred a moment ago where it says:
June 14, 1933. Copy of letter, Henry R. Carse, president Electric B^at, to
S. J. Joyner, quoting from cable and letter from Aubrey in Lima.
Aubrey's cable, June 13, 1933 : " Indispensible now tbat ambassador should
be instiucted to act."
Aubrey's letter, June 9. 1933, says in part:
The Congress pjissed last night in secret sess'ou a law voting 30 million
sol (about six million dollars United Slates currency) for nnti.'>nal defense.
The money will be provided by the National Reserve Bank and Congress has
given authority to use as a guaranty any of the taxes in existence, therefore,
they might mortgage internally for this loan these taxes which have already
been pledged to us that are embodied in the national defense funds.
It is desirable therefore for you to obtain support from the State Depart-
ment at Washington in instructions by cable to the ambassador at T.ima
for him to make a prerepresentation to the Government as to the fairness of
the full payment of their debt to us. This is the right moment to act and
the ambassador and myself are entirely in agreement with my friends. We
can obtain full payment or at least one-half in cash and the other half in
a Treasury draft — the national defense funds which have been pledged in
payment of our notes to be liberated in exchange. This is the best proposi-
tion and I believe only needs the push that the ambassador can give, as I
have powerful friends who are in favor of this adjustment.
You were trying at that time to get the State Department to
interfere to help collect your debts from Peru?
Mr. Carse. No; that is not what I did.
Senator Clark. Did Mr. Joyner act under your instructions?
Mr. Carse. What did Joyner do?
Senator Clark. This memorandum states :
Joyner showed Gnmimen tb.e above letter and asked Stnle to instruct the
ambassador. He "hinted " at the possibility of a sale of another submarine and
further armaments, but said this would have to be for cash. Promises to send
full information.
Before he left I asked Mr. Joyner whether he was familiar with the De-
partment's policy announced early in the year that " in case of the possible
armed conflict between two States it is the policy of this Govermnent to refrain
from placing its facilities at the disposal of either country." He said that he
had not heard of the policy and was glad to learn of it. I told him that I
feared that representations such as his company desired would conflict with
that policy.
Even after receipt of full information in the premises it would seem diffli-ult
in the circumstances for the Department to authorize representations on behalf
of these creditors of the Peruvian Government, who have been supplying
it with armaments, when it has taken no such action on behalf of other
creditors.
That is what the proposal transmitted through Joyner amounted
to. that you wanted the Government of the United States to use its
influence to collect a debt for armament, beyond what it was doing
for other citizen^ of the United States.
152 MUNITIONS INDUSTRY
Mr. Carse. No; we didn't do that. Aubry, of course, was using
every effort he could in every way to collect the amount due us.
Senator Clark. Yes; and Joyner was cooperating with him.
Mr. Carse. As soon as he sent us from Lima a cablegram telling
me there was such a state of affairs, and if our State Department
will do so and so why so and so will be accomplished, I sent that
thing to Joyner and told him to take it around to the State Depart-
ment to see what they had to say about it, not considering myself,
that the State Department was going to do anything at all.
Senator Clark. You just tried them out to see how far you could
get them to go ?
Mr. Carse. "vVhy shouldn't I do that. Supposing I turned Aubry
down and did not do it, and he would say I had it all fixed, if
you had done so and so you would have gotten the money, now
where is ni}' commission. I had that to send out, but there was not
really in my mind any idea it would be successful.
Senator Clark. You just sent Joyner over to see how far he could
get, and the State Department let the matter drop.
Mr. Carse, They are going to the State Department all of the
time with things like that.
Senator Barbour. There is one thing that occurs to me from the
evidence here, that it is a difficult thing for your company to sell
submarines to a South American Republic?
Mr. Carse. Yes; we only succeeded in Peru, because of the United
States' attitude.
Senator Barbour. Now, that presupposes that somebody else is
trying to sell submarines to them?
Mr. Carse. They have. The Italians have sold to Brazil.
Senator Barbour. But you would not have any difficulty if you
were the only people who could do it? If you did not have to exert
the effort which has been described to us of late, as far as America is
concerned, you would not get that business?
Mr. Carse. No, sir; not at all.
Senator Bakbour. It would go to somebody else ?
Mr. Carse. Surely.
Senator Clark. Approximately at the same time, Mr. Carse, you
were asking the State Department to help you through the am-
bassador to send certain river gunboats to Peru, were you not?
Mr. Carse. I do not think so.
Senator Clark. I quote from a telegram from the State Depart-
ment, also contained in this memorandum to which I have referred
from the State Department, signed by Mr. Phillips, who is now
Under Secretary of State, to the Ambassador to Peru, dated June 30,
1933 :
Joyner * * * rf(|npstpd that wo iiistnu!t yon to suppovt the company's
efforts to obtain contract for construction of new gunboat. He was informed
that the Department could not appropriately tak(^ such action. He was in-
formed that if he should submit in writing to the Department this latter phase
of rlic question, i.e. Mllcged infriugeiuent of rights, the Department would give
appropriate consideration to it.
Do you have any recollection of Joyner being given instructions
to make such a request of the State Department?
Mr. Carse. I do not know. He might have gone around to see
what the State Department thought about it.
fc-
MUNITIONS INDUSTRY 153
Senator Clark. Did you ever notify Aubry that the State De-
partment had also objected to the ambassador intervening in this
matter ?
Mr. Carse. I do not think so, sir.
Senator Clark. Here is a communication under date of July 5,
1933, from the ambassador to the State Department, which reads
as follows :
Please cable whether I may speak orally and informally to the President,
whom I expect to see on husiness very soon, in the sense last part my dispatch
number 2869 (June 12th having to do with this matter). Aubry understands
from his principals department has no objection to informal inquiry regard-
ing settlement of old debt.
Did you instruct Aubry to that effect?
Mr. Carse. I must have.
Senator Clark. You have no recollection?
Mv. Carse. I have no recollection. England uses its ambassadors
all around the world to help collect debts due its people, and other
governments do. You take a Peruvian down in Lima and he thinks
that all we, for instance, would have to do would be to ask our
State Department and our State Department would advise our
ambassador, the same as the British.
Senator Clark. He thinks all the American ambassador has to do
is to act as a collecting agency for armament companies?
Mr. Carse. The same as the others. He sees the British ambassa-
dor going around collecting, which he has done during the last year
or two, right down in Peru, and he cannot see why our ambassador
cannot do the same. Of course I understand differently. I under-
stand that our State Department will not take any action toward col-
lecting any obligations.
Senator Barhour. Who were the other manufacturers of sub-
marines?
Mr. Carse. Vickers have built submarines for Chile and the Ital-
ians for Argentine and Brazil.
Senator Clark. You built some submarines for Chile, too, during
the war?
Mr. Spear. They were built for England.
Senator Clark. I know they were built for England, but did you
not; promote them ?
Mr. Spear. They finally got into Chilean hands.
Senator Barbour. I want to ask you a question in connection with
the point of view as to which I think the committee is anxious
to know, which is whether you are promoting the use of submarines
which you make, or whether you are trying to get submarine busi-
ness which is going to be placed either with you or somebody else?
Mr. Spear. That is the situation. We try to get the business
which develops.
Senator Barbour. That means that there must be somebody else
who will get it if you do not?
Mr. Spear. Yes, sir ; there are four or five European concerns who
specialize in this. In fact, they have made a great many more for
South America than we have had and have been more successful than
we have in obtaining contracts.
154 MUNITIONS INDUSTRY
Senator Clark. Mr, Carse, finally in October 1933, last year,
voii did enter into a contract for two river gunboats for Peru at
1450,000 each, did you not i
Mr. Carse. Yes, sir.
Senator Clark. Did Vickers profit on that?
Mr. Cakse. Not that I know of.
Senator Clark. Do j^ou know, Mr. Spear?
]Nir. Spear. Not to my knowlcdoe. I think not.
Senator Clark. That was just about a month after the commission
of the League of Nations had taken over policing Leticia, was it
not?
Mr. Carse. I could not tell the date.
Senator Clark. Shortly after?
Mr. Carse. I know they wanted some boats there, and their first
inquiry was to see whether we could buy for them some second-
hand yachts similar to those vessels which Colombia had bought
up in this market, and we had some yacht brokei's canvass the market
and found that there were very few^, if any, which would suit their
requirements. Most of them had 12- to 15-foot draft, and what they
wanted was something from 3- to 5-foot draft. It was absoluteh''
impossible to find anything with 3- or 5-foot draft in the market
that could make the voyage from here to the Amazon River. So
that we made some sketches and so forth and sent them down and
came to a sort of general understanding and Aubry came up, ac-
companied by a representative of the Peruvian Government, Com-
mander Ontaneda.
Senator Pope. For how many of those South American countries
have you done business?
Mr. Carse. Peru.
Senator Pope. Alone?
Mr. Carse. That is all. We have tried to do business with others.
We did way back in 1911 or 1912. We built a boat for Chile, which
Chile rejected and demanded the money back, which had been paid
on account. That was up in Puget Sound. While they were demand-
ing their money back people up in British Columbia, just before the
declaration of war, thought they would like to buy it, and so we sold
it to them and got the money and paid Chile back the money they
had advanced.
Senator Barbour. Mr. Spear, do you know how many South
American republics have su,bmarines?
Mr. Spear. Yes, sir; Peru, Chile, Argentina, and Brazil.
Senator Barbour. And so far as your company is concerned, you
have only sold to Peru?
Mr. Spear. That is all. The British have sold not so very long
ago, in recent times, some rather large boats to Chile, built especially
for them, and Argentina has purchased boats from Italian builders,
and so has Brazil.
Senator Clark. Those Chilean boats were the ones you got 10,000
pounds apiece for, were they not?
Mr. Spear. I do not remember what we got. We got our license
fee on them, whatever was agreed to.
Mr. Carse. So that they came up and we entered into a contract
with this representative of the Peruvian Government to build these
MUNITIOXS INDUSTRY 155
two boats. They were built of steel, with a 4-foot draft. They drew
4 feet of water because they wanted to use them on the upper waters
of the Amazon, and they were finished on time and delivered and
accepted and sailed.
Senator Clark. When were they delivered? Do you know?
These boats were built at Groton, were they not?
Mr. Spear. Yes, sir. My recollection is early in June, Senator.
Senator Clark. One was launched April 5 and another April 12,
were they not ^
Mr. Spear. Yes ; I think they were delivered about June 9.
Senator Clark. My notes show they sailed some time in May,
but that is immaterial. That was after a state of hostilities had
developed between Peru and Colombia, was it not, Mr. Carse?
Mr. Carse. There was not any fixed state of hostilities.
Senator Clark. There was a state of hostilities existing, a Imown
state of hostilities existing at that time, was there not?
Mr. Carse. No, sir, it was quiet.
Mr. Spear. I think they had all agreed to a truce. There was
no state of hostilities, for otherwise those boats could not have
sailed.
Mr. Carse. The boats are at Iquitos now.
Senator Clark. Was not there a boundary dispute between Peru
and Colombia over Leticia ?
Mr. Spear. Yes, sir. Over a treaty which was made between the
two countries with regard to the upper Amazon River belonging to
Peru, which was ceded to Colombia, but it was inhabited by Peru-
vians. These people on their own account, not in connection with
the Colombian Government, arose and drove the Colombians out of
Leticia and they raised a terrible issue because the Colombians did
not want to go back on their native sons and yet they knew the legal
situation was not favorable to Peru.
Senator Clark. Do you know whether that uprising was before
or after the so-called Leticia incident, in which the American Naval
Mission to Peru was involved?
Mr. Spear. I did not know they had been.
Senator Clark. You are familiar with that incident, are you not?
Mr. Spear. No, sir.
Senator Clark. By which the American Naval Mission to Peru
worked out a war problem involving this town of Leticia, which
could not possibly involve anything except conflict between Peru
and Colombia, and protests were made by the Colombian Govern-
ment and a very serious international incident Avas created by that
action of the American Naval Mission.
Mr. Spear. That is all news to me, Senator. I never have heard
that.
Senator Clark. There is repeated reference to that Leticia in-
cident in the correspondence from Commander Aubrj to you.
Mr. Spear. Yes, sir; of course.
Senator Clark. I took it that you were familiar with it.
Mr. Spear. Not that.
Senatf^r Clark. Tlie actual mission was the Leticia incident, was
it not ?
156 MUNITIONS INDUSTRY
Mr. Spear. The situation was just as I explained it to you. The
inhabitants of Leticia, who were Peruvians by birth and had pre-
viously been Peruvians, decided they did not want to be under the
sovereignty of Colombia any more, and rose up by themselves and
rejected the Colombian authorities.
Senator Clark. The Leticia incident is frequently referred to in
the correspondence between the Naval Mission and the ambassador
and the State Department as being connected with the war map
problem with regard to Leticia.
Mr. Spear. There was no question about Leticia until that incident
occurred.
Mr. Carse. Only two or three hundred people there.
Senator Clark. That Leticia incident has to do with the war
problem.
Mr. Spear. That must have been worked out after it arose. I have
never heard of it before.
Senator Bone. Did your firm ever have any negotiations with
Colombia?
Mr. Carse. We have never. They tried to have negotiations with
us, but we would not answer the letters.
Senator Bone. At or about the time of this incident which Senator
Clark speaks about, was not the United States undertaking to help
Colombia and giving them some friendly naval advice^
Mr. Carse. I do not know. We had inquiries especially about
the river boats which we were building for Peru, but we did not
respond. I have never thought it was necessary to try to carry water
on both shoulders.
Senator Clark, You also at the same time you sold these gun-
boats sold them 1.200 rounds of 3-inch ammunition, did vou not.
Mr. Carse, for $50,000?
Mr. Carse. Yes, sir.
Senator Clark. That was suitable on either gunboats or sub-
marines ?
JNIr. Carse. Yes, sir.
Senator Clark. Did Vickers supply part of that ammunition?
Mr. Carse. Yes, sir; they did; they supplied it all.
Senator Clark. They shipped it to Para in Brazil, did they not?
Mr. Spear. They finalh'^ took delivery of it at a West Indian port.
Final delivery was made to the Peruvian Government at a West
Indian port.
Senator Clark. Why was a West Indian port selected? Do you
know? Except to evade violation of the neutrality laws?
Mr. Spear. There was no question of the neutrality laws. No
state of war existed. These ships could not have left this country
if there were hostilities.
Senator Clark. I understand they could not under the law. That
is what I am trying to get at.
Mr. Spear. They could not any way. It would have been illegal.
Senator Clark. A great many things appearing in this file were
done in violation of neutrality. I am trying to find out if this
was one of them.
Mr. Spear. It had nothing to do with neutrality. It was a
matter of convenience for this shipment from England to be picked
MUNITIONS INDUSTRY 157
up by a Peruvian ship, which was to connect with it. The first
intention was to have the river boats pick it up on the way down,
and they found out that did not work out with their program
and any shipment applicable from England, and they changed it
and delivered it to another ship at one of the West Indian ports.
I have forgotten which one now.
Senator Clark. It was originally intended to have been delivered
at Para?
Mr. Spear. At the start is was to have been in the West Indies and
was shifted to Para and then they got back to the West Indies.
Senator Clark. Mr. Carse, I draw your attention to a letter from
you to Mr. Spear, dated January 15, 1934, which I will ask to
have marked " Exhibit No. 84."
(The letter referred to was marked " Exhibit No. 84 " and appears
in the appendix on p. 375.)
Senator Clark. That letter, " Exhibit No. 84 ", reads in part as
follows :
Dear Me. Speae : In the January issue of " Marine Progress " Gerish Smith
in an article on page 20 makes reference to " 2 river boats " for Peruvian
owners' * * *
Those are the two river boats which we have been talking about,
Mr. Carse?
Mr. Carse. Yes, sir.
Senator Clark (reading) :
* * * and on page 21 refers to " 2 145-foot River Boats Electric Boat
Company for Peruvian owners."
I understand It wa§ our intention to camouflage this transaction so as to
avoid any complaints being raised in Washington by the Colombian authorities,
which might prevent delivery of the vessels.
What did you mean by that, and why did you want to " camou-
flage"?
Mr. Carse. We do not believe in telling every Tom, Dick, and
Harry of what we are doing for customers. Our business is with
nations.
Senator Clark, Yes; but conceding that your business is with
nations, if you were doing an entirely legal thing, why did you feel
that a complaint from the Colombian Government to the State
Department would prevent deliA^ery of those boats?
Mr. Carse. The State Department knew that we were doing it,
but we did not particularly care for some representative of the
Colombian Government to be advised of the particulars, so that he
could go to the State Department with some definite complaint,
which the State Department might feel they had to act upon.
Senator Clark. The only definite complaint that would have
justified the State Department in interfering would have been the
existence of a state of war between Peru and Colombia, would it
not?
Mr. Carse. I do not know.
Senator Clark. Wliy did you want to "camouflage" it? You
used that term yourself.
Mr. Carse. It is nobody's business.
8.'}876 — 34— PT 1 11
158 MUNITIONS INDUSTRY
Senator Clark. It was the State Department's business, was it
not?
Mr. Carse. The State Department knew about it.
Senator Clark. Then if the State Department knew about it, why
were you fearful of the Colombian representative making a repre-
sentation against it? It was either legal or illegal, was it not?
Mr. Carse. I objected to Mr. Smith butting in on our business
and publishing it. If we wanted to publish what we were doing,
it was for us.
Senator Ci^\rk. I am not concerned with Mr. Smith, Mr. Carse.
What I want to find out is what you mean by saying :
I understaud it was our intention to camouflage this transaction so as to
avoid any complaints being raised in Washington by the Colombian authori-
ties, which might prevent delivery of the vessels.
Mr. Carse. Yes, sir.
Senator Clark. Thej^ could not prevent delivery of the vessels
unless a state of war existed between Peru and Colombia.
Mr. Carse. I do not know what might happen. I might tell you
an ancient-history story. During the war, when we were building
some submarine chasers, motor boats up in Canada for the British
Government, the German ambassador filed complaint with the State
Department that they understood that the Electric Boat Co. was
doing so-and-so and so-and-so and so-and-so, and wished it stopped.
The State Department just transmitted that letter to me and I
simply gave them the categorical reply that " In reply thereto, we
would say that we are not doing so-and-so and so-and'-so and
so-and-so" because the Germans did not have it right. We did
not tell them that we were not doing what the Germans wished to
complain about, but told them that we were not doing w^hat the
Germans actually had said, and that satisfied the State Department
and everybodj^ else.
Senator Clark. Now to come back to this Peruvian transaction,
Mr. Carse, it is not necessary for you to camouflage a legal action
or to keep the State Department from finding out and interfering
in it and preventing delivery of it, when the transaction is legal.
Mr. Carse. To prevent other people from finding out what we
do; the Colombian people might have had somebody get in there
and have done some sabotage on those boats.
Senator Clark. You did not express a fear about sabotage in your
letter, but you expressed a fear on the part of the Colombian au-
thorities that it would prevent delivery of the vessels.
Mr. Carse. Yes, sir.
Senator Clark. You did not express any fear of sabotage.
Mr. Carse. When we are doing something like that, we do it.
We had inquiries from newspapers and all around trying to get
information about them, and we never gave them any information.
Senator Clark. I think the reason for your desires in that regard
appears in the letter.
Mr. Carse, I direct your attention to a letter dated March 5, 1934,
from Commander Aubrj^, at Lima, Peru, to you.
(The letter referred to was marked " Exhibit No. 85 " and appears
in the appendix on p. 375.)
Munitions industry 159
Senator Clark. In that letter of March 5, 1934, Commander Aubry
says:
Commander Ontaneda has written to the Minister and to me in regard to
appointing a sponsor and having a ceremony for the launching of the boats.
Kindly tell him that nothing of such a nature is wanted. Those boats do not
require a ceremony to alarm the Quakers in tlie States.
What did you understand he meant by that ?
Mr. Carse. I suppose he means the pacifists.
Senator Clark. Have you been having any trouble from Quakers ?
Mr. Cakse. You must not hold me responsible for the words and
phrasing of everybody who happens to write me a letter.
Senator Clark. There seems to have been a pretty close meeting
of the minds between you and Mr. Aubry throughout these affairs,
Mr. Carse, and I w^as wondering what your reaction was to this
matter.
Mr. Carse. I could not tell what point of view the Colombians
might have, although I learned afterward — I do not know, by the
way, exactly how — that the Colombian authorities had made com-
plaint to the State Department and the State Department told them
that the thing did not come within their province.
Senator Clark. Mr. Aubry goes on to state :
They are so small they can easily leave the United States without any press
news and the wise thing should be to arrange that the guns will be stored in
the holds.
What guns were they?
Mr. Carse. They would be stored in the holds anyhow, because they
were too heavy to be put on the deck of a 4-foot-draft boat, because
the boat would turn upside down. They were 3-inch guns on those
boats. They had to be put in the holds, so that that was superfluous.
Senator Clark. How much money cloes Peru owe you now, Mr.
Carse ?
Mr. Carse. I think with accrued interest about $1,000,000.
Senator Clark. Do you know how much, Mr. Spear ?
Mr. Spear. No. Mr. Carse could answer it better than I could.
That would be my impression.
Senator Clark. Are they making you any payments from time to
time?
Mr. Carse. No.
Senator Clark. Did they pay you for the river boats?
Mr. Carse. Yes, sir ; we got that in advance.
Senator Clark. You got that cash on the barrel head before they
delivered the boats ?
Mr. Carse. We had it on a letter of credit, irrevocable.
Senator Clark. Referring again to this American Naval Mission
to Peru, Mr. Carse, how did you happen to be paying for the passage
to Europe of the wife and son of Admiral Howe, the head of the
American Naval Mission?
Mr. Carse. Did we do that? How long ago was that?
Senator Clark. First let me put in the last letter.
I quote from a letter dated February 28, 1928, from yourself to
Mr. Spear, which will be offered as " Exhibit No. 86."
(The letter referred to was marked " Exhibit No. 86 " and appears
in the appendix on p. 376.)
160 MUNITIONS INDUSTRY
Senator Clark. " Exhibit No. 86 " reads in part as follows :
We have today paid for the cahiii accommodation for Mrs. Howe and sou
on the " Leviathan ", and note that the other outlay will not be called for until
next month. Is the money we have just paid a part of the agreed outlay or
is that something extra?
Mr. Spear. Have you got the answer to that ?
Senator Clark. No; I have not.
Mr. Spear. I would want an answer to that. Is that letter to me?
Senator Clark. Yes, sir.
Mr. Spear. I do not recall it. There must be an answer to that
letter. I think the answer to that letter would probably give the
facts, whatever they were. I do not recall it. I have an impression
about it, but I would not want to testify to an impression. I do not
know whether that was an accommodation we paid, or what it was,
but I will make a note of that letter, Senator, and try to turn up an
answer.
Senator Clark. If you find out anything about it at any time,
Mr. Spear, I would be very glad to have you write a letter to the
committee and it can be put in the record.
Mr. Spear. Anything I can find in the records I would be glad to
let you have. Senator.
Mr. Raushenbush. That was an accomplished transaction. That
was all over.
Mr. Spear. I do not know that at all.
Mr. Raushenbush. It seems to have been an accomplished trans-
action because Mr. Carse asks how it should be charged.
Mr. Spear. I do not know. I cannot remember it, but there should
be some record of what it was all about. It might have been noth-
ing but an adA^ance of an accommodation to this lady, which was
repaid, but I do not know.
Senator Clark. Mr. Carse, you had no interest in the securing of
torpedo business for American companies against French companies,
did you ? You are perfectly willing that the French sell torpedoes,
provided you get a commission on them ?
Mr. Carse. We never did any business with a French company
that I know of.
Senator Clark. I call your attention to a letter dated May 17,
1927, from you to Mr. Spear, which I will ask to have marked
" Exhibit No. 87."
(The letter referred to was marked " Exhibit No. 87 " and appears
in the a]:)pendix on p. 376.)
Senator Clark. I will read in part from " Exhibit No. 87."
Di<i\R Mr. Spear: Referring to yours of Miiy 16, enclosing copy of letter from
Koster rognrdin.ir torpodoi's for Peru, as the torpedoes we furnished in con-
nection with R-1 and R-2, were made by Bliss.
Bliss was an American concern ?
Mr. Spear. Bliss was an American concern.
Senator Clark (continuing reading) :
I had understood that that type would be standard in Peru, but if the French
company can make a torpedo that would be satisfactory to tlie Peruvian Gov-
ernment we have no special interest, as I understand it, in BTi.ss, especially
considering the way in which they acted regarding the last shipment.
(At this point Senator Clark read the last paragraph of " Exhibit
No. 87.")
MUNITIONS INDUSTRY 161
Mr. Carse. That is right.
Senator Clark. That is your attitude?
Mr. Carse. Yes ; surely. We have no interest. If the}' wanted to
do it, I suppose the French could sell it cheaper than the other
fellow would. On the last shipment Bliss insisted, although he
knew we were taking the thing on a deferred payment, he insisted
upon full payment before he would even load the torpedoes.
Senator Clark. Mr. Carse, along about 1930, Mr. Joyner was
worried about the report that Juan Leguia had made, confessing to
all of his international deals, was he not, and so advised you?
Mr. Carse. He sent me a little chit-chat letter of gossip around
Washington.
Senator Clark. Yes, sir. I call your attention to a memorandum
from Mr. Joyner to you, under date of August 28, 1930, which I will
ask to have marked " Exhibit No. 88."
That letter reads as follows:
EsT'EEMED Friend : Confidential — private.
A lot of gossip is flying about- — probably to be all discounted — however —
confidentially for what it is worth.
There is a story that J. L.
That was Juan Leguia, was it not?
Mr. Carse. Yes, sir.
Senator Clark (continuing reading) :
has confessed all his deals in the United States, his participations, and etc.,
and is to be tried. That he confessed to save his life and his father's life.
They say he was specific in his compensations, etc., and through who and
how. That the rest L. set up was a false step and that the Government of
the South found it out and caused the recall of the cruiser. That the Lima
set-up was to let L. get away to Panama: That Ponce was in on that move
and that he set up the Government on L.'s arrangement.
That all foreign contracts financial will be accepted. That the match and
one or two other concessions are canceled — that a lot contracts will be ended.
That most of the American Naval Mission are on the cruiser — and etc., etc.^ etc.
That a new cabinet will furnish a new Government plan to all foreign
governments.
That all is turmoil, etc. Up to this hour this Government has not recognized
the new set-up and may not do eo.
That cabling is unwise.
With much affection,
I am.
Yours truly,
S. J. JOYNES.
That was sent to you in pen and ink, was it not ?
Mr. Carse. That was just gossip.
Senator Clark. Mr. Carse, at one time Vickers undertook to in-
duce you to let them in on the Peruvian business, did thej'^ not?
Mr. Carse. In what way?
Senator Clark. It does not appear in this letter, but I call your
attention to a letter from you to Sir Trevor Dawson who was the
managing director of Vickers, was he not?
Mr. Carse. Yes, sir.
Senator Clark. It is dated January 16, 1921, and I will ask to
have it marked as " Exhibit No. 89."
(The letter referred to was thereupon marked " Exhibit No. 89 "
and appears in the appendix on p. 377.)
162 MUNITIONS INDUSTRY
Senator Clark. And the letter reads as follows :
January 16, 1924.
Peruvian Business.
Sir Tue\()e Dawson,
Vickers Limited,
Vickcrs Jloftifte,
Broiuhcay, Westminster, London.
Dear Sir Trevor: 1. I beg to acknowledge with tlianks the receii)t of yours
of December 12th enclosing extract of a letter to you from (Jai)tain Deane
and as I am now also in receipt of a full report from Commander Auhry
dated December lOlh : we are now, I think, in a position to arr;.nge a policy
for the condutt of the Peruvian submarine negotiations.
2. Our present position in Peru, which is a very special and sti-ou-r one. is
the result of many years of effort. In fact, it dates back to the first i)residency
of the present President, Seiior Leguia, who then entered into a eontr.ict with
us for submarines, which was dishonored by his successor. Conmuinder Aubry,
who is a Peruvian naval officer, was intimately connected with the restora-
tion of President Leguia to power in Peru and prior to his retirement from
active service, was entrusted by President Leguia with many important mis-
sions, among which was the arrangement with the United States Government
under which the American Naval Mission was sent to Peru. Under these
circumstances, he is naturally on the best of terms not only with the Adminis-
tration but with the American Naval Mii^sion."
So that the American Naval Mission was originally sent to Peru
as a result of the negotiations by Captain Aubry, acting at that
time for the Peruvian Government and the Navy Department of
the United States.
Mr. Carse. Yes.
Senator Clark. How long was that before he became your repre-
sentative down there, Mr. Spear?
Mr. Spear. I do not recall, Senator, but it was before that.
Senator Clark. Commander Aubry has changed his relationship
so often, I am just trying to find out what he Avas doing at that
time. The letter continues [reading] :
It seems clear to me from Captain Deane's letter
Just who was Captain Deane?
Mr. Spear. I think that letter was written by me, w^as it not?
Senator Clark. It is signed by you, that is right; I beg your
pardon.
Mr. Spear. Captain Deane was a traveling agent of Vickers, one
of their agents in South America.
Senator Clark (reading) :
It seems clear to me from Captain Deane's letter that he did not fully
understand the actual situation, since he speaks of the propinquity of the
American Naval ]\Iission as a difficulty confronting us. My impression is
strengthened by the conception v/hich he appears to have formed with regard
to the Pro Marina Fund. The balance of this fund, which is fl66,(K)0 and
not £300,000 is now by decision of the Supreme Court of Peru at the direct
disposal of the Government without obligation to the Italians. The commit-
ments of the private management of the Pro Marina to an Italian firm did,
in the past, ccmstitute a very serious obstacle which our friends finally suc-
ceeded in removing as indicated above.
Then this letter goes on, in paragraph 5 :
5. Under the special circumstances of this case, we feel that we cannot at
the present time include Peru in the list of countries where our policy will
be friendly competition with compensation to the loser. * * *
MUNITIONS INDUSTRY 163
That was the general arrangement that you had in South America
with Vickers, was it not, Mr. Spear, by which Vickers and Electric
Boat Co. would ostensibly bid against each other, but the company
which got the contract would pay compensation to the company
which did not get the contract?
Mr. Spear. Just a minute. Senator, you have not expressed it
exactly right.
Senator Cl.^rk. Will you express it exactly right for us ?
Mr. Spear. We brought out the facts yesterday in this agreement
with Vickers. They were our licensees and under that agreement
we set aside certain territory in the United States into which they
could not come.
Then we specified certain other countries, as you will recall in
the agreement, where they could come without a special arrangement
with us.
In other words, they were not allowed, as our licensees to come in
there unless we thought it was to our interest. We left certain
other sections of territory where we were free to compete with each
other and if those Governments wanted British construction, it would
go to Great Britain. But as they were our licensees, we insisted
on their paying us.
Senator Clark. But you were not their licensees were you?
Mr. Spear. No, sir.
Senator Clark. Did you not have arrangements that in certain
countries if you were to get the business you were to pay Vickers?
Mr. Spear. We did.
Senator Clark. What would you call that? That was not in the
nature of a license fee?
Mr. Spear. No.
Senator Clark. What was that arrangement by which in coun-
tries where you got the business you were to pay Vickers some com-
pensation ?
Mr. Spear. We thought that was good business.
Senator Clark, In what countries did you have such an arrange-
ment as that, do you recall ?
Mr. Spear. We would have to look at that document that was
placed in the files yesterday.
Mr. Carse. It was not Peru.
Senator Clark. I understand that it was not in Peru, but you did
have it in some countries. And in this letter you say that you could
not include Peru in that category.
Mr. Spear. That is correct. What we did was to specify the coun-
tries where special conditions existed and where we would not let
them come in unless the conditions changed. Then we left the rest
of the world free to competition.
Senator Clark. Paragraph 5 of this letter says :
Under the special circumstances of this case, we feel that we cannot at the
prei^ent time include Peru in the list of countries where our policy will be
friendly competition with compensation to the loser and I must, therefore, ask
you not to make any submarine proposals to the Peruvian Government direct
•or indirect except as may be agreed to in advance by us.
Mr. Spear. That is perfectly correct.
164 MUNITIONS INDUSTRY
Senator Clark (continuing reading) :
We do not feel that the i)osition which we ai-e ohliged to take in this matter
will necessarily result in excluding you from participation in this business and,
in fact, we are endeavoring to arrange the matter so that the hulls can be con-
structed at Barrow to our design.
Mr. Spear. That was the point that we covered this morning.
Mr. SuTPHEN. Intense friendly competition.
RELATIONS WITH BRAZIL
Senator Clark. And now, Mr. Carse, turning for a few minutes
to BraziL Mr. Carse, right after the war, 1920, when you were be-
ginning to go after Brazilian business, you got the report the Bra-
zilian Government, through Bethlehem, was tied up with Vickers
and Armstrong, did you not?
Mr. Carse. Well, I do not recall.
Senator Clark. Just to refresh vour memory, I have here a letter
dated September 13, 1920, which iVill offer as " Exhibit No. 90 " to
Mr. Carse from Mr. Spear.
(The letter referred to was marked " Exhibit No. 90 ", and appears
in the appendix on p. 378.)
Senator Clark. The letter reads :
Dear Mr. Caese : On my last visit to Washington I had a talk with Captain
Azevedo, the Brazilian Naval Attache, and found him considerably disturbed
about the activities of Bethlehem, both here and in Rio. He seems to think
that they have formed some kind of a combination with Vickers and Armstrong
to go after everything in sight in Brazil, and in any case they have approached
him here and he understands that the Rio agent has been endeavoring to dis-
cuss submarines with the Minister of Marine.
Do you recall the circumstances, Mr. Spear, that came up?
Mr. Spear. Just what is in the letter. Captain Azevedo was the
Brazilian naval attache here. I met him here in Washington and
discussed the situation down there. This is evidently what he told
me, which I reported to Mr. Carse.
Senator Clark. Did j^ou pursue the matter any further with
Bethlehem?
Mr. Spear. I do not recall. Later on, I think we did. To my
best recollection we did later on.
Senator Clark. You finally made an arrangement by which Beth-
lehem paid part of the expenses of Aubry in South America?
Mr. Spear. I think so, with the understanding that if we received
an order at that time — we did not at that time have the hull depart-
ment in the yard — and my recollection of this is that it was with
the understanding that if we received any order we would give them
subcontracts for the hulls.
Senator Clark. Did that understanding include an understanding
that Bethlehem would stay out of your business
Mr. Spear. So far as Brazil was concerned?
Senator Clark. That is what I mean.
Mr. Spear. I considered that they had no right there, anyway,
under their contractual relations with us.
Senator Clark. In other words, you had a contract with them.
Mr. Spear. That had not expired.
MUNITIONS INDUSTRY 165
Senator Clark. In 1921, Mr. Carse, you cabled Vickers and pro-
tested that they were bidding too low on the Brazilian business,
did you not?
Mr. Carse. I do not remember those things.
Senator Clark. I have here a letter dated December 22, 1921,
to Sir Trevor Dawson from vou, which I will offer as " Exhibit No.
91."
(The letter referred to was marked " Exhibit No. 91 " and appears
in the appendix on p. 378.)
Senator Clark. " Exhibit No. 91 " reads :
Dkab, Sib Teevob: Referring to the cables which have passed between us in
relation to bickling fur subuiavmes tor the Brazilian Government, we today
cabled you as follows : " Considered matter thoroughly, but still believe Bra-
zilian quotations too low. Unwilling to approve except upon allowance 40 per-
cent of profit with guarantee of not less than 20 pounds per surface ton com-
pensation for us."
Mr. Carse. Yes; we were interested in their profits.
Senator Clark. What this means is that you were using your
power as the holder of the patents to compel Vickers to raise their
bids to South America?
Mr. Carse. Or else they could pay us that sum, if they wanted to
take less. But we considered that the price that they were quoting
would not leave any profit to divide with us.
Senator Clark. You say here in the last paragraph of that letter
on the first page :
As we have been working on this matter ourselves and believe that any
builder of submarine boats in the future should figure on obtaiuing a reason-
able profit we do not believe it would be for the best of the business to quote
very low figures, and the figures indicated by you are lower than we could see
our way to quote for boats built in the United States, and have thought that
perhaps your people might have been anxious to secure work to maintain the
operation of your plant and have not been very greatly concerned about any
profit that might inure, and it was for that reason that we indicated that while
we wish to help you in every possible way, if you wished to put in the price
quoted we should be guaranteed something approaching what would ordinarily
come to us on the usual division, that is to say, 40 percent of the profit whichi
you might make, with the guarantee that such profit would not be less than
£20 per surface ton for any or all vessels built by you for the Brazilian
Government.
Mr. Carse. That is right.
Senator Clark. You finally got together with Bethlehem on bid-
ding for this work and at the same time you authorized Vickers to
submit a bid for the work to be done in England at prices " which
they submitted to us and which we approved."
That was, in effect, rigging up a fake bid on behalf of Vickers,
was it not?
Mr. Spear. No.
Mr. Carse. No.
Senator Clark. If you were bidding for the work and refused to
let Vickers put in a bid except at a figure that you approved, it
naturally meant that Vickers' bid could not be a bona fide bid ; is not
that correct?
Mr. Spear. No. If Vickers put in a bid at a price which we
thought was reasonable and it afforded us reasonable profit and they
166 MUNITIONS INDUSTRY
g;ot the work all right. That does not necessarily mean that Vick-
ers' price was higher than ours.
Senator Clark. You controlled the bids both of your own com-
pany and the bid from Vickers.
Mr. Caese. As a matter of fact, neither one of us got the business.
Senator Clark. And you refused to license a French company to
submit a bid because that would be a real competitor, a real com-
petitive bid,
Mr. Carse. a French company?
Senator Clark. I am referring now to a letter dated December 28,
1921 to Captain Paul Koster by Mr. Carse, which I will offer as
" Exhibit No. 92."
(The letter referred to was thereui)on marked " Exhibit No. 92 "
and appears in the appendix on p. 379.)
Senator Clark. After saying in this letter, " we propose to submit
a tender ourselves in conjunction with the Bethlehem Steel Corpora-
tion, and have authorized Vickers to submit a tender for the work to
be done in England at prices which they submitted to us and which
we approved ", you say :
We do not see how we could go further and grant licenses to a French yard
to put in another competitive price.
Mr. Carse. I do not see why we should grant a license to a French
yard on one order when they had for years declined to take any
license from us. Why should we allow a French company to use our
patents and designs for one boat? It was absurd. It was one of
Koster's^ absurd propositions. The French company would not take
a licensing agreement with us, the same as the English and the
Spanish and the Dutch and the Norwegians and the Danish.
Senator Clark. What you say in this letter, Mr. Carse, is that you
had permitted the Vickers Co. to submit a bid at a price to be
approved by you for submission, but you would not let the French
company put in a competitive bid.
Mr. Carse. No; we did not see how we could grant licenses to a
French yard to put in a bid of any kind. Why should we? We had
no interest in the French company who had always declined to do
business with us and probably would have cheated us out of anything
that they owed us, anyhow, the same as the Italians did.
Senator Clark. You took the trouble to notify the Brazilian
Government that Bethlehem was tied up, so that they were not in a
position to bid on any submarines, did you not?
In that connection, I am referring to a letter dated September 13,
1920, to Capt. Marquis Azevedo, naval attache of the Brazilian
Embassy, which I offer in evidence as "Exhibit No. 98."
(The letter referred to was thereupon marked " Exhibit No. 93 "
and appears in the appendix on p. 380.)
Senator Clark. This letter says in the third paragraph:
In addition to the above, our contract arrangements with them, which are
still in force, specifically prohibits them from constructing submarines for any
one except ourselves, and possibly the United States Government.
Mr. Carse, That is true. We had an agreement with them by
which they had constructed our hulls ancl it provided that they
should not put in bids for the construction of submarine boats within
a certain period of time after the expiration of our contract.
MUNITIOISrS INDUSTRY 167
Senator Clark. But at the same time that you were notifyins, or
shortly after you had been notifying the Brazilian Government,
warning them against dealing with Bethlehem, you wrote Mr. Grace,
the president of Bethlehem a letter, in which you said that you v/ere
practically partners and that one partner ought not to indicate any
lack of confidence in the other; that is correct, is it not?
Mr. Carse. I do not know.
Senator Clark. X call your attention to a letter dated January 26.
1922, to E. G. Grace, president Bethlehem Steel Corporation, from
Mr. Carse, which I will offer in evidence as " Exhibit No. 94."
(The letter referred to was marked " Exhibit No. 94 '' and appears
in the appendix on p. 380.)
Senator Clark. This letter says,
The Bethlehem and Electric Boat companies are in many respects practically
partners and are so looked upon by the Navy Department in relation to sub-
marine-boat construction, and I think you will agree with me that it is not
advisable that either partner act in a manner to indicate any want of confi-
dence in the other partner.
IMr. Carse. These letters are 16 months apart, are they not ?
Senator Clark. From September 1920 to Januarv 1922.
Mr. Carse. That is 16 months, you know. We might change our
views, in a small matter like that, anyhow.
This is based apparently upon some word I received from Wash-
ington about some action of the Bethlehem representative. I do
not think it has any reference to the Brazilian business ; probably
something else.
Senator Clark, It does not speak of the Bethlehem representa-
tive. It says :
I enclose a letter from our representative at Washington, * * *
Mr. Carse. Yes. They must have told us something about some
action of some Bethlehem representative. Well, the business went
to the Italians — the Brazilian business.
Senator Clark. Mr. Carse. do you know of any other munitions
firm or armament firms that are hooked up in such a way as the
Electric Boat Co. and the Bethlehem Co., who you say were prac-
tically partners.
Mr. Carse. Well, we were not at that time exactly partners.
We took a partnership with the butter all on one side of the bread.
We took contracts with submarine boats on a straight-price basis
and what Bethlehem did was on a cost-plus basis. We took all the
risks and they simply did their work on a cost-plus basis with no risk
or anything of the kind.
Senator Clark. Mr. Carse, in a letter to Sir Trevor Dawson dated
June 19, 1922. speaking of this Brazilian business, you say as fol-
lows— and before reading the letter, I will offer it as " Exhibit
No. 95."
(The letter referred to was marked " Exhibit No. 95 ", and appears
in the appendix on p. 380.)
Senator Clark. You say in this letter that —
Italian competition special nature not related to price or type, but believe
not successful as Government will insist upon best product obtainable.
168 MUNITIONS INDUSTRY
A little later on you say that —
The Italians base tlieir efforts more upon the securing of personal influence
to award the contract rather than to any superiority of workmanship or de-
sign, and alter they once accomplish the purpose tiiey have in view of secur-
ing influence they will agree to any form of contract providing for any trial
qualities desired and for delivery in any space of time, no matter how short,
with the idea that the peculiar influence which they have secured will enable
them to- change and modify the contract from time to time to suit them.
With those expressions, Mr. Carse, you simply meant that the
Italians bribed the officials doAvn there?"
Mr. Carse. No; I did not.
Senator Clark. What did you mean by that " peculiar influence
which they have secured " ?
Mr. Carse. They are of a Latin race, the same as the other peo])le
and are entirely different in their points of view from the Anglo.
The Italians have many connections in South America, especially
in the Arj^entine vvhere there are a great many Italians. Then there
is traffic back and forth and they make connections Avith people
there and they influence a modification of the contracts and every-
thing of that nature.
I do not know specifically of anything, except that they did put
in prices for the construction of submarines, boats which we knew
would not pay for the boats as called for in the specifications. We
did not know how they would really handle it. The boats we have
been advised, have proven very unsatisfactory for the Government.
Senator Clark. Well, v>e are not concerned about the actual boats
that the Italian company sold to Brazil. What I want to find out
is what you meant by referring to the peculiar influence which the
Italians had secured, saying that they based their hopes of getting it
on the personal influence — the hopes of getting the award.
Mr. Carse. Well, that is just personal influence; just who, or why,
or how, I do not know.
Senator Clark. Did you ever discuss your Brazilian business with
your representative, Mr. Chapin, after he returned from Brazil?
You sent him down to Brazil to try and get this business.
Mr. Carse. I think we talked about it. He came back and the
agent representing the Italian Government told him that he was
wasting his time, because he had it alread}'^ arranged.
Mr. Spear. That was away back? AVas not that the previous
negotiation ?
Senator Clark. I am referring to the one in 1922,
Mr. Spear. I think what Mr. Carse is talking about is a previous
negotiation when Mr. Chapin did go down.
Senator Clark. Mr. Chapin had just returned from Brazil in No-
vember 1922. That is what I am referring to.
Ml'. Carse. Yes; that is the time.
Senator Clark. I refer you to a letter dated November 28, 1922,
from Mr. Chapin to His Excellency Edwin A. Morgan, Amliassador
to Brazil, which I will ask to have marked " Exhibit No. 96."
(Tlie letter referred to Avas marked " Exhibit No. 96 ", and appears
in the appendix on p. 381.)
Senator Clark. In this letter, " Exhibit No. 96 ", Mr. Chapin
speaks at some length about his disgust with the integrity of the
Brazilian officials and uses this language :
MUNITIONS INDUSTRY 169
I * * * returned to this country with a most disappointed impression of
the steadfastness and integrity of tlie Brazilian officials.
Do you know what Mr. Chapin was referring to there? Did he
ever refer to his impression of the integrity of Brazilian officials to
you?
Mr. Carse. No; he never went into any particular.
Senator Clark. Did he ever discuss the matter with you, Mr.
Spear?
Mr. Spear. Yes ; I talked with him.
Senator Clark. What did he have to say about their integrity?
Mr. Spear. I cannot tell you exactly.
Senator Clark. What does he base that remark on, if you know ?
Mr. Spear. I can tell you broadly what he said, so far as I can
remember it. I cannot give you the details. He said that when he
got down there, while the understanding from the technical people
was that our proposal suited them better, and so forth and so on, he
could make no progress and everywhere he turned he found an of-
ficial apparently under the influence of the Italians; that he could
get nowhere with the things and he thought his trip had been use-
less. I know what you want to know, whether he told me that he
had any knowledge of anybodj'^ buying a Brazilian official.
Senator Clark. What I am trying to find out is what he meant
by that remark in his letter to the Ambassador.
Mr. Spear. He never told me that, but I think he had a suspicion
of the whole situation; I mean, he felt that there was an influence
there that he could not combat in any ordinary American way.
Senator Clark. He is trjdng to interest the Ambassador in the
proposition that this contract with the Italians, if it were made,
could be upset by the American naval mission to Brazil when they
arrived. In that connection, let me call your attention to this letter.
He says, on page 2 :
It is my hope that if the contract for submarine boats has not yet been
awarded, you will be able to use your good offices to have it deferred until
the naval mission arrives, so that the opinion of that mission may be obtained.
It is my belief that the naval authorities in Rio will not be precipitate in
entering into a contract for a naval project which has not been passed upon
by the mission which it has invited to advise them in this respect.
Did Mr. Chapin say anything to you about that hope ?
Mr. Spear. I do not recall.
Mr. Carse. He may, it was a long while ago.
Senator Clark. He tried to enlist the aid of the American Am-
bassador in selling these boats for the Electric Boat Co., did he not?
Mr. Spear. Yes. He was endeavoring to get all the help that he
could from the Ambassador.
Senator Clark. And the Ambassador replied that he had been
active for 3 months in trying to sell those boats for the Electric Boat
Co., did he not?
Mr. Spear. That I do not know. Did he ?
Senator Clark. Well, I refer you to a letter dated December 22.
1922, which I will ask to have marked " Exhibit No. 97."
(The letter referred to was marked " Exhibit No. 97 ", and appearg
in the appendix on p. 383.)
170 MUNITIONS INDUSTRY
Senator Clauk. This letter is directed to Mr. Chapin and is from
Edwin A. Morgan, the American Ambassador to Brazil. He says:
I received today your letter of November 2Sth, relating to future orders for
submarine boats for the Brazilian Navy. For the last three mouths or more,
I have been in conference with Commander Aubry and took steps with the
late President to check the signature of a contract for boats of Italian manu-
facture. Before Commander Aubry returned to Montevideo at the beginning
of November, it was evident that no order would be placed at once.
Now, Mr. Spear, a very short time after Mr. Chapin had been ex-
pressing his disgust of the integrity of the Brazilian officials, so far
as their dealings with Italy were concerned, your own South Ameri-
can agent. Commander Aubry, reported that he had been held up
for $80,000 for nine submarines, amounting to something over
$180,000, did he not ?
Mr. Spear. I do not know whether he did or not.
Mr. Carse. He was not held up ; he did not get it.
Mr. Spear. He was approached, apparently.
Senator Clark. I refer you to a letter from Mr. Aubry to Mr.
Spear, dated March 11, 1923, which I ask to have marked " Exhibit
No. 98."
(The letter referred to was marked " Exhibit No, 98 ", and appears
in the appendix on p. 383.)
Senator Clark. This letter says in the second paragraph :
Last Thursday I had a long interview with the Minister of Marine, Almirante
Alejandriuo. I went to see him because Boettcher
Boettcher was another one of your agents, was he not?
Mr. Spear. Yes.
Senator Clark, (continuing reading) :
togetlier with the crowd that is around him, most intimately gave me warning
to go there in the morning at his residence. The Minister started out by
telling me that if we could arrange a loan in the States to cover the price
for the submarines he will give us the order at once without delay, providing
Admiral Vogelgesang will give his O.K. as to the technical aspect of the
thing. Of course, I answered the Minister that I would have to cable you
(I had already before uie by that time your letter of Feb. 8th) with the
precise data and therefore it was essential that I should know the amount of
money ri.'quired, that is to say the number of units decided upon and the
models ; also what guarantees will be given by the Government for the loan.
I suggested to him that the most suitable guarantee for a loan will be tlie
Brazilian consular fees in the U.S. (I understand that they amount to $2,500,-
000 per annum and they are collectible in the States.)
The people around Almirante Alejandrino came to see me that very same
afternoon and told me that they will expect from me live letters obligating
myself, if the business was done, to pay 2,500 contos for the nine submarines;
that comes to about $30,000 per submarine, a sum that will have to be added
to the price. Of course, I told them that I was not authorized to do this
but that I would write to my people about it. They then asked me to cable, and
1 told tlum I would as soon as I received the memoranda relating to the
data, and they agreed to that. Ever since then I know that they are with-
holding the memoranda up to today because they have tried again, and again
that I should give them sort of a promise that I would do it. I do not
want 10 ask you to do this yet until I find that it is strictly indispen-
sable, * * *.
In other words, as I understand it Aubry did not want to pay the
commission if he did not have to, but was willing to if he did have
to?
Mr. Spear. Yes.
MUNITIONS INDUSTRY 171
Senator Clark (reading further) :
I am afraid that it does not matter how much would be to our credit in
regard to the essentials of our tenders and the difte;ent factors that we
have on our side ; there will always be someone that will profit on the trans-
action by increasing the agreed price. I am expecting the memoranda tomor-
row, or the day after, and then I will be in position to wire you the exact
data.
Do you remember what your attitude was about that proposition ?
Mr. Spear, I do not remember now what happened with regard
to that. I presume the record will show that.
Mr. Carse. I know we did not pay it.
Senator Clark. You did not get the contract?
Mr. Carse. No,
Senator Clark. Did you agree to pay it if you did get the
contract ?
Mr. Spear, I do not recall that.
Senator Clark, You do not recall whether you did agree to pay
it if you got the contract?
Mr, Spear, No.
Senator Clark, All you know you did not get the contract and
therefore you did not pay it?
Mr, Carse, Yes,
Senator Clark. On page 2 of this letter, " Exhibit No. 98 ", Mr.
Aubry continues as follows :
Regarding this question, I liave already told you that Dr. Machado Coelho,
our agent here, is well related and has a good position, but his influence with
the present administration is nil, and the Minister of Marine, I have discovered,
does not like him at ail. Dr. Machado has many other interests to attend to
besides ours ; he is a director in several companies, and he therefore cannot
devote his attention to our interests in proportion to the benefit he is going
to reap therefrom. On the other hand, there are many people who are helping
us in this business, and Dr. Machado always tried to evade the engagement of
the obligations that I want to take with tlie riglit ones for the proper distribu-
tion of the SY2 percent commission that is allocated to the agency. In other
words, he takes the attitude that this business is sure ; that it will be done
in two, four, six months, or a year, and it is foolish for him to give away money
that he already considers as in his own pockets. My attitude is utterly difCerent.
I believe that the money shall be obtained by the people that earn it and help
in the matter, and I also strongly believe that vre will obtain the order quicker
by having allies that can really help us.
NoM^, about that time, to be exact, May 16, 1923, this letter was
written, which I offer as " Exhibit No. 99."
(The letter referred to, dated May 16, 1923, was marked " Exhibit
No. 99 ", and appears in the appendix on p. 385.)
Senator Clark. You offered Vickers an interest in this Brazilian
business if they would withdraw their bid, and a much larger inter-
est if they could float a loan in London to handle this business, did
you not, Mr. Carse ?
Mr. Carse. Wliat is that?
Senator Clark. This is a letter dated Ma}' 16, 1923, from your.self
to Aubry.
Mr. Carse. I should not be surprised we did that.
Senator Clark. Perhaps I can save time by directing your atten-
tion to the part of the letter I have in mind. In the third paragraph
you say that :
Naturally we considered this very important and that it was our duty at
once to make such investigation as was necessary as to the possibility of
172 MUNITIONS INDUSTRY
handling a Brazilian loan. Our first effort in this direction was in cabling to
Vit'kers. We offered them a certain interest if they would v/ithdraw their bid
and cooperate with us in securing the business and a much larger sum if they
could arrange to flout a loan or finance the order in London. They replied it
was imiKJSsible to finance in London a piece of business to be done in the United
States.
Mr. Carse. That is right ; we knev/ we could not finance it in New
York. It is different in London ; the London bankers take the obliga-
tions received by their manufacturers and advance money against
them. It is not done to that extent in the United States by any
means.
Senator Clark. When you say in this letter, Mr. Carse, the
following :
The fact that they spoke to me on the telephone, even though I denied it,
^ave them a chance of using my name in their statement. The reporter from
the United Press, having cable correspondents all through Soutii America,
copied this message from the papers and forwarded it without consultation
with me, but the following day he came in to see me and after talking the
subject over he stated he would send a message quoting me as denying the
report, but said then that the first newspaper statement had caused considerable
commotion in South America.
Will you explain that ?
Mr. Carse. That was the reporter of the New York Mail.
Senator Clark. The first part of the paragraph reads :
A reporter of the New York Mail called me on the telephone one afternoon
and asked me about the order for Brazil, which I denied, but he published the
statement about the same and the other papers copied him.
What did you mean by that entire paragraph ?
Mr. Carse. I think they were holding one of those conferences
about naval affairs.
Senator Clark. And the mere fact j^ou were negotiating with
Brazil had an effect on that conference, did it ?
Mr. Carse. No; the fact that this paper published that we had
received an order from Brazil was what had an effect. Since then
I do not even talk on the telephone to a reporter.
Senator Clark. Now you say further :
We have the assurance from Viekers that they will cooperate with us in
every way possible in Brazil, and I do not think that ultimately It will be
necessary to have the order pass through that channel. We have a number of
subsidiary companies, and any of the names could be used in closing the con-
tract if necessary, although the Electric Boat Company is the logical company
to do that work, the Submarine Boat Corporation itself never appearing in
connection with any submarine boat work, it simply being the holding company
of the Electric Boat Company stock.
Why would it have been necessary to have a subsidiary company
make that contract, Mr. Carse ?
Mr. Carse. Because this newspaper article caused Brazil to deny
they had given that order to the Electric Boat Co., so if the thing
should have been revived, I suggested it would be better to use some
other name.
Senator Clark. In that same letter in the last paragraph on page 1,
you say :
No announcement or any information was given out, from this office, as we
appreciate 'and thoroughly understand the necessity of secrecy in all negotiations
with governmental bodies. The fact that we successfully carried through the
construction of submarines for Japan during the Russo-Japanese War ; the con-
MUNITIONS INDUSTRY 173
struction of submarine boats and submarine chasers for Great Britain, France,
and Italj' during the last war without interference from Washington officials,
and despite the constant surveillance of German spies, indicates that this office
appreciates the necessity of secrecy in relation to all governmental transactions.
Weren't those all violations of the American laws of neutrality,
Mr. Carse?
Mr. Cakse. No; I don't think so. I will take the Japanese first.
At the time of the Russian-Japanese War, we built submarine boats,
knocked them down and shipped them as freight across the continent,
and shipped them over to Japan just as material — that is, all plates,
and so forth, and our crew went over there to Japan and helped
assemble them.
Senator Clark. Did the State Department rule that was not a
violation of our laws of neutrality?
Mr. Spear. No, sir; the law of neutrality was that no arms shal\
leave the country under its own bottom, but anything shipped on a
vessel could be seized, the theory being if it goes on its own bottom
it is a vessel of that countr3^ That was the law but they would not
permit us to do it. They said it was the law, but we do not want
you to do it. That has happened to us since.
Senator Clark. A^-liat was the fact about the manufacture of sub-
marine boats and chasers for Great Britain and Italy ?
Mr. Carse. We built them in Canada, in Montreal and Quebec.
Mr. Spear. As far as that is concerned, the British Government,
on the first Government order was carried out just as the Japanese
order was — that is, it was to be carried out in that manner, the parts
and material to be shipped to England and put together there, and
Mr. Bryan who was then Secretary of State said, while that is accord-
ing to international law and is legal, we would prefer as a matter of
policy that you do not do that, because it makes trouble. The
German Ambassador worries us, and it is our policy for you not to
do that, so we abandoned that idea and had the vessels built in
Canada, except 10 of them were built here, and stayed here until we
went in the war.
Senator Clark. Mr. Carse, if these transactions were entirely legal,
why did you feel it necessary in this letter to Mr. Aubry to boast you
have been able to do that without interference from Government
officials, as a tribute to your own discretion in the matter ?
Mr. Carse. I told you a few minutes ago about this German Am-
bassador, and they had their spies around trying to check up. We
found a fellow in Bayonne had taken a house where he could look
over our plant with a telescope so that he could advise the Embassy
at Washington what we were doing. We were not doing anything
and he did not see anything, because we were doing it up in Canada.
Senator Clark. At this time you knew that Commander Aubry
was representing Bliss torpedoes in South America?
jMr. Spear. Yes.
Senator Clark. And you ImeAV his emploj^ment had been on the
advice of the office of intelligence in Washington ?
Mr. Spear. I do not know on whose advice.
Senator Clark. I offer as " Exhibit No. 100 " a letter from E. W.
Bliss Co. to Commander Aubry.
(The letter referred to was marked " Exhibit No. 100 ", and appears
in the appendix on p. 386.)
83876— 34— PT 1- 12
174 MUNITIONS INDUSTRY
Senator Clark. In this letter, " Exhibit No. 100 ", the writer states
to Commander Aubry that his appointment was at the suggestion of
the Office of Naval Intelligence at Washington.
Mr. Carse. a United States naval attache.
Senator Clark. It states as follows:
At the suggestion of the Office of Naval Intelligence at Washington, we
cabled you to know if you would be willing to represent us in the matter of
making a tender for our Bliss-Leavitt torpedoes for the Brazilian Goveniment,
and we are very gratified that we liave been able to come to an arrangement
with you and liope that the arrangement will be beneficial both to you as
well as to ourselves.
Mr. Spear. They wanted a representative and probably asked who
was a good man. You did not get this from our files, you must
have gotten it from Bliss.
Senator Clark. It was in your files. Germano Boettcher was
another agent?
Mr. Spear. Yes.
Senator Clark. He was a sort of subagent to Aubry?
Mr. Spear. I think he went there before Aubry went there.
Mr. Carse. That didn't amount to anything.
Senator Clark. He wrote you a letter in 1924 reporting that
Rothschild was financing Brazil and therefore the English would get
the submarine business.
Mr. Carse. I do not know, and I did not pay much attention to it.
Senator Clark. I offer in evidence this letter from Germano
Boettcher to the Electric Boat Co., dated May 23, 1924, as " Exhibit
No. 101."
(The letter referred to was marked " Exhibit No. 101 ", and ap-
pears in the appendix on p. 387.)
Senator Clark. It did not make any difference whether you got
ihis business or Vickers got it, it was about as broad as long, from
3' our standpoint?
Mr. Carse. Yes ; that is right.
Senator Clark, Now, I direct your attention to a report submitted
to you by Mr. McNeir, dated Mtiy 7, 1923, and I offer this as " Ex-
hibit Noi; 102."
(The document referred to was marked " Exhibit No. 102 ", and
ap])ears in the appendix on p. 389.)
Senator Clark. This report, " Exhibit No. 102 ", says :
I was given the opportunity today of reading a report on the Brazilian
matter from an official source wluch I nm not at liberty to state in writing,
but wldch Mr. Spear I believe, will readily recognize.
Mr. Spear, what was the source of that report, do you recall?
Mr. Spear. I could not tell you now.
Senator Clark. Mr. McNeir at that time was your Washington
representative, Mr. Spear?
Mr. Spear. Yes.
Senator Clark. He succeeded Joyner on his death, and preceded
Cliapin?
Mr. Spear. I do not think he preceded Mr. Chapin. but Mr.
Chapin had attended to one thing and Mr. McNeir had attended
to another kind of thing.
MUNITIONS INDUSTRY 175
Senator Clark. You do not know what the source of this report
was, whether the State Department, the Navy Department, or
where ?
Mr. Spear. I do not recall.
Senator Clark. Do you recall in that report, Mr. Carse, Mr.
McNeir reported that Rear Admiral de Silva of the Brazilian Navy
was described as being in the pay of the British naval constructors,
and specified the amount of pay he was receiving from these sources ?
Mr. Carse. No; I do not know anything about de Silva.
Senator Clark. It speaks of him having a great influence over
the Minister of Marine.
Mr. Carse. Yes.
Senator Clark. And Admiral de Silva was at that time a member
of the Commission to the Pan-American Conference at San Diego?
Mr. Carse. I do not know anything about it at all.
Senator Clark. Do you recall anything about that report at all,
Mr. Spear?
Mr. Spear. No; I don't remember that, but I remember there was
a Brazilian officer of the name of de Silva. I assume that report
originated with one of the American officials in Rio. Whether it
was the Navy Department or the State Department, I do not recall.
The report must have come from a United States Government
official in Rio.
Senator Clark. The report states that Admiral de Silva was re-
ceiving $110 per month from British constructors. You don't know
whether that was Vickers paying de Silva ?
Mr. Spear. No ; I do not know anything about it.
Senator Clark. In other words that is something Vickers did not
notify you about?
Mr. Spear. If they were doing it, they did not tell me.
Senator Clark. Who was doing the building of the two large
naval vessels for Brazil at this time?
Mr. Spear. Armstrong, not Vickers.
Senator Clark. That is part of Vickers now, it has been merged
with Vickers?
Mr. Spear. Not entirely. Armstrong went bankrupt and when
it was sold Vickers bought some of that.
Senator Clark. Vickers is now known as Vickers-Armstrong?
Mr. SPEiVR. Yes; but they did not buy all of the assets. They
had several shipj^ards and locomotives, cranes, and so on, and was
one of the big engineering firms of England.
Senator Clark. This report also says that Argentina would look
with disfavor on any increase in the Brazilian Navy. That did
not influence you against going ahead and trying to sell Brazil
all of the ships you could?
Mr. Carse. No, sir.
Senator Clark. You asked Mr. McNeir in 1923 to take up with
the State Department a question raised by bankers as to what would
be the State Department's attitude toward a loan to Brazil floated
in this country to buy submarines?
Mr. Carse. I mav have done that.
176 MUNITIONS INDUSTRY
Senator Clark. Do you recall what the answer of the State De-
partment was?
Mr. Carse. No.
Senator Clark. I offer " Exhibit No. 103 ", being a letter from
Carse to McNeir.
(The letter referred to was marked " Exhibit No. 103 ", and ap-
pears in the appendix on p. 390.)
Senator Clark. You say you do not know what the answer of the
State Department was to this question?
Mr. Carse. I do not know what the answer was, but nothing
came of it.
Senator Clark. It was true Brazil was trying to get the United
States to lend them money with which to buy submarines?
Mr. Carse. They wanted us to build them on credit, that is, to give
them a specific loan to pay for those boats. It was really for us to
take their obligations and raise the money if we could.
Senator Clark. Your agent reported to you on March 4, 1923,.
that —
The Minister of Marine tells me if I can provide the money, a loan of
$15,000,000, he will sign the contract with me in 24 hours.
Is that what Commander Aubry reported to you?
Mr. Carse. There are often conditions made when you do not
want to go through with the trade.
Senator Clark. I offer this letter from Aubry to Spear dated
March 4, 1933, as " Exhibit No. 104."
(The letter referred to was marked "Exhibit No. 104", and ap-
pears in the appendix on p. 390.)
Senator Clark. In this letter, " Exhibit No. 104 ", the statement is
made to which I have just referred, and now in 1933 the Brazilian
matter again came up and Vickers approached y.ou as to what the
terms of their bid would be.
Mr. Spear. I think so.
Senator Clark. I offer as " Exhibit No. 105 " letter of Commander
Craven to Mr. Spear, asking the attitude of Electric Boat with
regard to their bid.
(The letter referred to was marked " Exhibit No. 105 ", and ap-
pears in the appendix on p. 392.)
Senator Clark. At that time a Japanese company was trying to
get in on the Brazilian business, was it not?
Mr. Spear. As far as I know everybody that knew how to build
them was trying to get in on it.
Senator Clark. You objected strenuously to Japan being allowed
to bid ?
Mr. Spear. I did not want anybody to bid.
Senator Clark. I offer as " Exhibit No. 106 " a letter from Carsc'
to Craven.
(The said letter was marked " Exhibit No. 106 ", and appears in
the appendix on p. 393.)
(" Exhibit No. 107 " was marked in evidence, and appears in the
appendix on p. 393.)
Senator Clark. In part, this letter, " Exhibit No. 106 ", reads as
follows :
I have seen your letter of November 6th to Mr. Spear regarding the Brazilian
naval program and note that you say : " I am told that Japan is going all out
MUNITIONS INDUSTEY 177
for fhp whole programme, and therefore I think it reasonable to suppose
that pressure may be brought on me to put forward an attractive offer.'"
Do you know what he meant by that, Mr. Carse, who was going to
put pressure to bear on him to put up an attractive offer?
Mr. Carse. Either Brazil or his own people, if they wanted to get
the business.
Senator Clark. The letter reads further :
I do not understand how Japan has secured the right to bid on building
submarine boats for other countries, for in the agreement which I signed
for the Electric Boat Company on November 15, 1916, and sent to Vickers
on November 17, 1916. after cable correspondence between us, for them to
have executed by the Mitsubishi peojile. the right for a period of twenty years
was given only to build boats for the Government of Japan, and while that
agreement apparently was never executed but without any notice to us re-
placed by your agreement of September 22, 1917, with Mitsubishi for a period
of twelve years, which limited their right to build vessels for the Government
of Japan, and also China and Siam, I do not now question the agreement
made in the name of Vickers because on October 25, 1923. I accepted your
action in the premises. The matter, however, of the Japanese entering into
a world competition in the construction of submarine boats for other countries
might be very important to both Vickers and ourselves in the future because
of the low cost of wages and material in Japan, and. therefore, the right of the
Japanese firm to do this business I think should be carefully scrutinized.
We have not yet received the full details in regard to the Brazilian propo-
sition, but as soon as we have an opportunity to study the matter wo will
be very glad to take it up with you further, as the question of the Brazilian
Government expending the amount necessary for such a great naval program
at a time when they are not paying the interest on their foreign obligations
may cause some action by other governments in regard to their subjects taking
the business on the conditions indicated.
What was the up-shot of the Japanese negotiations?
Mr. Spear. Nothing.
Senator Clark. Did Vickers do anything to keep Japan from
beinjT in a position to bid?
Mr. Spear. I have not heard anything about it, but nothing has
been done.
Senator Clark. Did Craven make any reply to this communica-
tion of yours on the subject of Japanese competition ?
Mr. Spear. I do not recall.
Senator Clark. Did he make any reply, so far as you know, Mr.
Carse?
Mr. Carse. I do not recall that he did. The Brazilian proposi-
tion was so ambitious it was absurd. They were asking people to
bid on a complete navy, and where could they get the money when
they were not paying interest on their debts, so I considered it a
joke myself. We have not gone in and spent any money trying to
make proposals to them.
Senator Clark. There was no way in which the Japanese could
bid on this Brazilian business without ignoring your patents ?
Mr. Carse. No.
Mr. Spear. Let me correct that, if I may, because Mr. Carse is not
as well informed as I am.
Senator Clark. Go ahead, Mr. Spear.
Mr. Spear. There are several yards in Japan that have been en-
trusted with business by the Government, and with those yards no-
body had any agreement with them that they would not violate a
patent.
178 MUNITIONS INDUSTRY
Senator Clark. That is what I asked Mr. Carse, if they would
not have to disregard your patents?
Mr. Spear. If there were any patented designs in the boat that
we had.
Senator Clark. I was basing my question on Mr, Carse's state-
ment of yesterday that it Avas impossible to build a submarine with-
out infringing your patents?
Mr. Carse. But how are you going to tell if they infringe patents
unless they let you look into the boat?
Mr. Spear. Some years ago when we had what we considered the
basic patents, that would be correct, but those patents have expired.
We have a number of detail patents, but the basic original patents
are no longer in force in any country. When you come to a detail,
we have patented the best way of doing it, but a man can do it some
other way if he wants to. The point I wanted to bring out there
were no contractual relations with these Japanese shipyards that
would prevent them from building a boat if they wanted to.
Senator Clark. I was speaking of your patents, Mr. Spear.
Mr. Spear. I misunderstood you.
Senator Clark. Commander Craven wrote you on December 16
a letter, Mr. Carse, which I offer as " Exhibit No. 108."
(The letter referred to w^as marked " Exhibit No. 108 ", and ap-
pears in the appendix on p. 393.)
Senator Clark. In this letter, " Exhibit No. 108 ", Commander
Craven says :
With regard to your first letter, you will realize, of course, tliat I am not
thinking only of the Mitsubishi people as competitors. I am told that the
Japanesie Ambassador has definitely stated that the Japanese shipbuilding in-
dustry will put forward offers which will be better than anything that can
come from other countries, and, of course, It may pay the Japanese Government
to give some veiled subsidy to their shipyards in order to have a small navy
building in Japan in case an emergency arose.
Do you know anything about that?
Mr. Carse. Except this letter, that is all I know. We have no
information from Japan.
Senator Clark. Now, Mr. Spear, on January 30, 1934, you w^rote
Mr. Carse about the plans proposed by Mr, Bardo of the New York
Shipbuilding Co. in connection with Brazilian business. I offer that
letter as " Exhibit No. 109."
(The letter referred to was marked " Exhibit No. 109 ", and ap-
pears in the appendix on p. 394.)
Senator Clark. What was that letter about, Mr. Spear?
Mr. Spear. That was this, as Mr. Carse has said this Brazilian
business was practically a whole nav}'', including all kinds of shipfa.
The New York Shipbuilding Co. is a large shipbuilding company in
Camden, and they thought they would like to make a tender, or they
wanted to make a tender where they could tell the Brazilian Gov-
ernment they could take all of the elements of their program. Foi
this reason Mr. Bardo approached me to see if we would be willing,
if they got the order, to build the submarines, and I said, " Yes, if
we get the money for it and not nuts ", because there was a good
deal of talk about bartering at that time. So I gave Mr. Bardo a
letter which he could show, that if he was entrusted with this
contract, and if conditions were satisfactory, that we could take
MUNITIONS INDUSTRY 179
care of the submarine program. I also wrote a letter to the Minister
of Marine in Brazil indicating we did not care to submit any bid on
this work, but if when he came to the submarine item he cared then
to negotiate with us we would be glad to take the matter up with
him. That is the last I ever heard of it. I do not think they have
placed any orders with anybody.
Senator Clark. You recommended to Mr. Carse, at that time, did
you not, if 3'ou were going in with anybody on such a deal, that it
would be to "your advantage to go in with Vickers, and have the work
done in Vickers' yard in preference to having the work done in the
New York shipyard.
Mr. Spear. I do not recall it, but if you have the letter, that is so.
Senator Clark. You say in the middle of the third paragraph of
that letter that —
If, therefore, we wish to submit any tender at all, the only practical way
to do it would be to bid lor construction by Vickers.
Mr. Spear. That was the question of our submitting a tender of
our designs and having the order executed in England.
Senator Clark. Mr. Spear, how close to capacity have your plants
been operating.
Mr. Spear. At what time?
Senator Clark. At January 30, 1934, this year.
Mr. Spear. That depends on what you call capacity.
Senator Clark. I asked that question, Mr. Spear, because in this
letter you say:
There is a distinct limit to our ultimate capacity
Mr. Spear. Yes, sir.
Senator Clark (continuing quotation) :
and it looks to me as if we are likely to reach that limit before very long
without any Brazilian business.
Mr. Spear. Yes, sir; because we anticipated business from the
United States Government and also some other government which
would j)retty well fill us up.
Senator Clark. Mr. Spear, I call your attention to a letter dated
December 26, 1925, from you to Commander Aubry, who was at that
time in Argentina. I will introduce that as " Exhibit No. 110."
(The letter referred to was marked " Exhibit No. 110 " and ap-
pears in the appendix on p. 395.)
Senator Clark. In that letter you state as follows :
Deub Commandek Axibry : 1. I am in receipt this morning of your cable of
the 24th in reply to my no. 8 and after further consideration of the matter
of Brazilian commissions, I am today authorizing Mr. Sloat to add to the net
prices as follows, viz, "7i/^% for special commission."
What is that, Mr. Spear? Do you know?
Mr. Spear. I do not know to whom it was to go. It was some
kind of a special commission.
Senator Clark. He did not tell you who he was going to pay ?
Mr. Spear. I do not think so. I have no recollection of it.
Senator Clark (reading) :
" 2% for you."
180 MUNITIONS INDUSTRY
That was Aubry ?
Mr. Spear. Yes, sir.
Senator Clark (reading) :
" 3% for him."
Whom did you mean by " him " ?
Mr. SrEAR. Mr. Sloat, I presume.
Senator Clark. Who was Mr. Sloat?
Mr. Spear. Sloat was the local agent.
Senator Clark. And you continue:
* * * and, if necessary, local commissions up to 2i^% making the niaxi
mum 15%.
Was not that a heavy commission, Mr. Spear, in selling sub-
marines?
Mr. Spear, Yes, sir; I think that was the heaviest one we ever
agreed to.
Senator Clark. But you did not get the business and it did not
cost you anything?
Mr. Spear. We did not get the business and it did not mean
anything.
relations — ARGENTINE REPUBLIC
Senator Clark. Now, Mr. Carse, after the war, when you went
after South American business and got into the Argentine situation,
you found that there was competition there from Germany and
from Sweden, did you not?
Mr. Carse. There was competition from all over.
Senator Clark. You were particularly sensitive about the Swedish
competition, were you not?
Mr. Carse. I think some Swedish firm had some submarine boats,
old boats, which they were trying to sell, or something of the kind.
Senator Clark. I direct your attention to a letter from Mr.
Chapin, your Washington representative, to the Secretary of State,
dated February 15, 1922, which I will offer as " Exhibit No. Ill ", in
which he asked the State Department to examine into the situation
and protest against Swedish competition in this matter, did he not?
Mr. Carse. I do not know whether he did or not.
(The letter referred to was marked " Exhibit No. Ill " and ap-
pears in the appendix on p. 395.)
Senator Clark. Do you know whether you directed him or au-
thorized him to do that?
Mr. Carse. I do not think I directed him to.
Senator Clark. I will read the letter in part.
Mr. Carse. Mr. Chapin was a lawyer and had a lot of ideas.
Senator Clark. This is the last paragraph of the letter, Mr. Carse :
An answer to this cable is expected within a few days, and in the meantime
it is respectfully requested the Department will exercise its good offices to
ascertain from its legation in Sweden or its representatives in Germany the
actual state of affairs and, if proper, make protest to the Powers concerned
against conducting an enterprise which is so palpably contrary to the intent
of the Treaty of Versailles.
Do you remember anything about that?
Mr. Carse. That means that Germany, who had been prohibited
by the Treaty of Versailles from doing anything in relation to sub-
MUNITIONS INDUSTRY 181
marine boats, had established yards iii. Holland and in Sweden, and
from those places they were offering to build submarine boats all
around the world, and it was a clear transgression of the terms of
the Versailles Treaty, and that is the reason that Chapin presented
that to the State Department.
Senator Clark. Your agent in South America, Mr. Aubry, on
whose report this protest was brought, had been the Peruvian dele-
gate to the Reparations Commission shortly after the war, had he
not?
Mr. SuTPHEN. Yes, he went there.
Senator Clark. He mentions that in one of his letters. Tliat is
where I got the information.
Mr. Carse. It was in connection with those German boats that
were interned and sold, which you had up a little while ago, I think.
Senator Clark. When you started into the Argentine, Mr. Carse,
you realized that the matter of selling submarines in Argentina
depended entirely on the attitude of the bankers in floating loans, did
you not, and approached the bankers to find out what was going on?
Mr. Carse. Did I? I thought Argentina was good.
Senator Clark. Here is a letter from Mr. Spear to you, under
date of January 13, 1922, which I will offer as " Exhibit No. 112."
(The letter referred to was marked "Exhibit No. 112", and ap-
pears in the appendix on p. 397.)
Senator Clark. Mr. Spear states in that letter in part:
The morning papers refer to negotiations now going on in New Yoric with
regard to additional loans to the Argentine. In my judgment the financial
aspect of the matter will ultimately control the placing of tlie order and I
therefore think that it is of vital importance that we should get in touch with
the banking people who are negotiating this loan. I passed the same thought
on to Bethlehem but do not think that it would be well to rely wholly on
them.
Mr. Carse. The loans made by European countries to South Amer-
ican countries, and countries in other parts of the world, for many
years have been largely based upon the amount of the loan being
spent in that country that advanced the money, so that the European
manufacturers always had that definite advantage over the Ameri-
can manufacturers.
We came in touch with it quite some years ago, and I talked with
different banking houses in New York Cit}^ who were taking such
loans as the Argentine loan and the Brazilian loan, and so forth,
as to their takine: the same attitude in relation to these foreign loans
as the European bankers did, but it never appealed to them to make
that provision. I explained to them that I thought it was the custom
of the European bankers, because of their close connections with the
manufacturers. In Germany, for instance, they very largely own
the manufacturers. But they could not see it.
So that this thought of Mr. Spear — and a good many people had
that — was that I ought to talk to the bankers and get them to offer
to lend money to these different countries on the basis that they
were spending money here, which I knew was impossible of accom-
plishment.
Senator Clark. Did you talk with the bankers?
Mr. Carse. I talked in a general way, and they always said that
they were not interested in that phase of the business. All they
182 MUNITIONS INDUSTRY
considered was whether the obligation was a good one, so far as
the}^ could ascertain, and whether it could be sold. They did not
care to follow on and be responsible for the application of the money.
Senator Clark. Mr. Spear, about this time, that is to say, about
in 1922, you made an arrangement with Bethlehem to defray one-
half of the expenses of Commander Aubry's agency in South
America, did you not?
Mr. Spear. I think with respect to Brazil. I do not remember
exactly.
Senator Clark. In that connection I will offer a letter dated May
25, 1922. from Mr. L. Y. Spear to Mr. H. jR. Carse as " Exhibit
No. 113."
(The letter referred to was marked " Exhibit No. 113 " and
appears in the appendix on p. 397.)
Senator Clark. " Exhibit No. 113 ", in part, reads as follows :
I have made definite arrangements with Bethlehem under which they as-
sume one half of this expense which should be accordingly charged against
them. I expect to make definite arrangements with Bethlehem, under which
so long as we are working with them, they will carry one half of the expense
involved by special representation in South America, and if that goes through
they will be charged one-half of our future payments to Commander Aubry.
Did you make such an arrangement covering all of South America,
Mr. Spear?
Mr. Spear. We apparently did.
Senator Clark. This said you made an arrangement with regard
to the Bethlehem venture and that you intended to make one cover-
ing all of South America.
Mr. Spear. I do not recall, but to the best of my recollection it
never went beyond this, but I would not be certain. I feel fairly
sure that is where it stopped.
Mr. Carse. I do not recall having received any remittances from
Bethlehem. If there had been any such as to Bethlehem, they would
have come to our office.
Senator Clark. They did definitely make an arrangement to as-
sume one-half of the Brazil solicitation, according to Mr. Spear's
letter.
Mr. Spear. Yes, sir.
Mr. Clark. And he states he is charging against them, but I
do not know what that means.
Now, Mr. Spear, on September 2, 1923, you got a letter from Mr.
Aubry in which he explained the situation in the Argentine and the
delay on their part in ordering any munitions or armaments in terms
of competition. I will offer that as " Exhibit No. 114."
(The letter referred to was marked '' Exhibit No. 114 ", and
appears in the appendix on p. 398.)
Senator Clark. Mr. Aubry in that letter says in part as follows:
The news that I have from the Argentine from very reliable sources has
been always the same, that is, that the Government is developing a plan there
which consists in presenting to Congress bills for armament so exaggerated
that they know cannot be parsed and, at the critical moment if they see Brazil
building anything, they will agree to a logical reduction and then also build.
In other words, they are blufiing because they think in that way they will pre-
vent Brazil from building anything. Here they have absolutely ignored these
tactics, and if they have not ordered what they so badly need it is because they
cannot do it for the reasons I have already explained.
MUTTITIOXS INDUSTRY 183
In other words, it was Mr. Aubry's opinion that Argentina did not
want to build ships and would only do it if they were compelled to
do it by construction by Brazil.
Mr. Speak. That was the advice apparently which we had from
Aubry.
Senator Clark. Nevertheless, Mr, Aubry, as your representative
was actively engaged in trying to induce both Brazil and Argentina
to enter on a building program, was he not?
Mr. Spear. He was engaged in trying to get business in both
countries.
Senator Clark. Knowing that if you sold to Brazil, it would start
Argentina building and would start a building program?
Mr. Spear. He says that it was so reported to him.
Senator Clark. You were trying to sell both countries at that
time ?
Mr. Spear. Trying to sell whatever market existed.
Senator Clark. At that particular time you were trying to sell
both Argentina and Brazil?
Mr. Spear. I think they were both reasonably active at that time.
Senator Clark. In this same letter there is a suggestion from Mr.
Aubry to you that you could secure information from your friends
in the American mission. Who were those friends?
Mr. Spear. If Admiral Vogelgesang was still there, he was a class-
mate of mine at Annapolis, and a life-long friend and acquaintance,
and I knew personally, and had for a number of years one other
member, perhaps two other members of the mission.
Senator Clark. In 1923 you were engaged in fixing up matters,
not only with Vickers but with the Italian builders, were you not,
or trying to?
Mr. Spear. Yes, sir; we had some dealings with Italian builders.
Senator Clark. I offer " Exhibit No. 115 ", being a letter from you,
Mr. Spear, to Mr. Carse, under date of September 20, 1923.
(The letter referred to was marked "Exhibit No. 115". and
appears in the appendix on p. 399.)
Senator Clark. I will read in part from " Exhibit No. 115."
[Reading :]
As Dawson has agreed in pi-inciple —
I assume that is Sir Trevor Dawson —
I propose to communicate now with Passano.
Passano was one of your European representatives ?
Mr. Spear". Yes, sir."
Senator Clark. He was a marquis, was he not?
Mr. Carse. Marquis de Passano.
Senator Clark. Where did he live?
Mr. Spear. He was an Italian. In the last years of his life he
lived in Paris, and in the early years of his life in St. Petersburg.
Senator Clark. I Avill read that quotation again:
As Dawson has agreed in principle, I propose to communicate now with
Passano with a view of ascertaining whether our Italian friends want to go
into the matter and if so, whether they are in a position to do the needful
with regard to Italian diplomatic support.
184 MUNITIONS INDUSTRY
What did he mean by " to do the needful with regard to Italian
di])lomatic support " ?
Mr. JbPEAR. The Italian diplomatic support.
Senator Clahk. AVhat was involved? Have you any very definite
idea about that, Mr. Spear?
Mr. Spear, The Italian Government gives its industry the strong-
est kind of diplomatic support. In fact, it was reported that they
guaranteed their builders against a loss.
The Chairman. Mr. Spear, we had a letter introduced here ycb-
terday, written by Basil Zaharoff, in which he used that same iden-
tical expression. Has it become rather contagious?
Senator Clark. Maybe it is a code word.
Senator Bone. Is that a trade expression?
Mr. Spear. I think Sir Basil is the real author and some of us
have quoted it.
Senator Clark. You did not actually expect Italian business?
Mr. Carse. We had an Italian licensee.
Senator Clark. You did not actually expect to get the business?
Mr. Carse. We had an Italian licensee.
Senator Clark. I understand that, but you say in the next para-
graph of this letter
Mr. Carse. Who was different from the other Italian yards. So-
that if our licensee could arrange to get business then, offering our
type of boat rather than the type that was built by the other Italian
yards, which we do not of course consider comparable to ours,
then we would get a royalty on that construction.
Senator Clark. But you did not expect
Mr. Carse. If you cannot get the business one way, you can
probably get it another way.
Senator Clark. That is the rule in the armament business is it
not, Mr. Carse ?
Mr. Carse. I think it is the rule in any business, Senator.
Senator Clark. You did not actually expect your Italian licensee
to get the business, did you, Mr. Spear, because you provided that
they should make a bid higher than Vickers'. Why was that?
Mr. Spear. Because we felt if it was a matter of Italian influence
they could stand a higher price. I presume that is the reason.
Senator Clark. You say in the next part of that letter [read-
ing] :
The general idea, of course, is lo fix the Italian price a little higher than
Vickers" price and if by any chance they should get the order, the profit will
be ample to take care of them as well as Vickers and ourselves. .
In other words if Vickers got an order or you got the order, there
would simply be a split between you and Vickers, but if you had ta
give the Italians any, you would give them a split ?
Mr. Spear. Not if we got it, there would be no split.
Senator Clark. Did you not have an arrangement in Argentina
that if Vickers got it, they got a split out of it ?
Mr. Spear. I do not think so.
Mr. Carse. Vickers had no rights in South America,
Mr. Spear. I do not think they had any arrangement where they
would share with us if we got an Argentine order.
MUNITIONS INDUSTRY 185
Mr. Carse. The equalizing things were with respect to Europe
and the Asiatic stuff.
Senator Clark. Now, instead of building these submarines, Ar-
gentina finally bought battleships from Bethlehem, did they not?
Mr. Carse. Not at that time.
Senator Clark. And all you got out of it was a matter of some
guns and bombs.
Mr. Spear. No; I think the old Argentine battleships, Senator,
were built a good many years ago.
Senator Clark. Mr. Spear, here is a letter under date of January
7, 1925, from yourself to Mr. Carse, which I will offer as " Exhibit
No. 116."
Mr. Spear. Yes, sir.
(The letter referred to was marked " Exhibit No. 116 " and
appears in the appendix on p. 400.)
Senator Clark. In that letter you state in part as follows:
When this negotiation stai'ted, the order was of substantial size, but owing
to the diversion of their funds to battleship construction by Bethlehem, they
have had to cut it down to small proportions, so that the importance lies not
in the amount of money involved but in tlie fact that they have adopted
our type of stuff in competition with the British, which, of course, puts us
In a preferred position to get the business when they are ready to place a sub-
stantial ordei-, as they well may be next year.
Mr. Spear, Senator, that was a reconditioning of the old job.
The word " construction " was not the proper word I should have
used. The ships were actually built 10 or 12 years ago.
Senator Clark. You got the contract for the Y-guns. arbors,
cartridge cases, and depth charges ; did you not ?
Mr. Spear. Yes, sir ; as I recall it, that is what we got.
Senator Bone. Mr. Spear, may I ask what your firm manufac-
tures or can manufacture in the way of armament? Did you ever
make torpedoes, also? Do 3'ou manufacture guns?
Mr. Spear. We have made a few guns.
Senator Bone. How large a gun can you make with your equip-
ment?
Mr, Spear, It has never been studied out, but I think about a
4-inch.
Senator Bone, Some of these submarines carry a pretty big gun,
6-inch.
Mr, Spear. The great big ones they used to build did, but the
modern ones are limited by treaty.
Senator Bone. Do you undertake to make cartridges and cartridge
cases ?
Mr. Spear. No, sir.
Senator Bone. If you get a contract of that kind, you shop it
out to some firm which makes them?
Mr. Spear. If we get an order regarding supplying ammunition,
we simply buy it.
Senator Clark. In this case, did you shop it out to some manu-
facturer?
Mr. Spear. Those depth charges and Y-guns, and those things we
could build ourselves.
Senator Clark. Depth charges, arbors, cartridge cases, and Y-
guns.
186 MUNITIONS INDUSTRY
Mr. Spear. We did make the cartridge cases.
Senator Clark. Do you make guns?
Mr. Spear. It is not a gun but an antisubmarine weapon.
Senator Bone. Do you make torpedoes?
Mr. Sfear. No, sir; we do not.
Senator Clark. Did you have an interest in Whitehead at one
time ?
Mr. Spear. No, sir ; they were licensees of us.
Senator Clark. You had nothing to do with torpedoes?
Mr. Spear. No, sir.
Senator Bone. What outfit makes torpedoes?
Mr. Spear. I do not think any of them do.
Senator Bone. Tlie Government makes them?
Mr. Spear. The Government makes them themselves. The E. W.
Blis^ Co., of Brooklyn, for many years was the only private source
of supply. The Government gave some of them to them, and the
Government built some of them, but my information is that the
Government is doing it itself, because it put up extra factories.
Their requirements are not very great, and they do it all themselves.
Senator Clark. Mr. Carse and Mr. Spear, to refresh your mem-
ory on the arrangements which you had with Vickers with regard
to the Argentine business, I call your attention to a memorandum
of agreement dated February 27, 1924, and signed on behalf of
the Electric Boat Co. by L. Y, Spear, which I will ask to have
marked as "" Exhibit No. 117.'' That letter reads as follows :
Exhibit No. 117
February 27, 1924.
Messrs. Vickers, Limited.
London.
Argentine Submarine Business.
Deiar Sirs : 1. In conference with General Livingston, representing you, the
following arrangetuents have been agreed to with respect to Argentine sub-
marine business.
2. All previous understandings and agTeements are hereby canceled and
replaced by what follows below.
3. Both companies will do their utmost to eliminate all other competition in
Argentine and will cooperate fully to that end, each consulting and advising
with the other as may be necessary to effect this purpose.
4. In the event of the Electric Boat Company receiving an order for construc-
tion in the United States or in the Argentine it shall pay to Vickers Limited
five percent of the gross contract price thereof, exclusive of armament. Recip-
rocally, in the event of Vickers Limited receiving an order for construction in
Great Britain or the Argentine it shall pay to Electric Boat Company five i)er-
cent of the gross contract price thereof, exclusive of armament.
In the event of it being necessary for either party to supply its own special
designs, including working drawings, to the other party the party obtaining the
order shall pay ten percent instead of the five percent above mentioned.
In the event of the Electric Boat Company receiving an order and electing to
cari-y out the construction work in whole or in part in Barrow the above
mentioned five percent will be payable to Messrs. Vickers Limited and the
construction will come under the proposed general agreement for any such
construction work.
5. The above provided percentage payments shall be due and payable pro rata
as and when payments are received from the Argentine Government.
6. Neither party shall submit nor have submitted any tender from any outside
controlled source except with the consent and approval of the other.
Yours very truly,
Electric Boat Company,
By L. Y. Spbbar.
MUNITIONS INDUSTRY 187
That payment to Vickers was not in the nature of a royalty, was it,
Mr. Spear?
Mr. Spear. No; it was just a business arrangement.
Senator Clark. That is what is ordinarily known in common par-
lance as an agreement in restraint of trade, is it not, Mr. Spear ?
Mr. Spear. I think it would be called so in the United States.
Senator Clark. In other words, you divide up the territory and
each divvies, no matter who gets the business?
Mr. Carse. Just us two as against the others.
Senator Clark. Just you and Vickers, in accordance with your
understanding, and you agree to split the returns no matter who gets
the business?
Mr. Spear. That is the way of it. We considered that was the
wise thing to do.
Senator Barbour. "Was there pretty keen competition on basic
patents ?
Mr. Spear. That was when? 1923?
Mr. Carse. 1924.
Mr. Spear. I should doubt, Senator, if there were many patents
left at that time.
Senator Bone. That is a practical adaptation of the " hands across
the sea " policy, is it not?
Mr. Spear. I should call it a practical application, yes, sir.
Senator Clark. Now, Mr. Spear, in 1926 you told your European
agent, Mr. Koster, that if you got this business you were going to
have the construction work done in Italy and Belgium, did you
not?
Mr. Spear. Which business is that, sir?
Senator Clark. That is the Argentine business. I call your atten-
tion to a letter from Captain Koster, under date of July 10, 1926,
addressed to you, which I will offer as " Exhibit No. 118."
(The letter referred to was marked " Exhibit No. 118 " and
appears in the appendix on p. 401.)
Senator Clark. " Exhibit No. 118 " starts off in this fashion :
Subject: Argentine.
Deab Speab : I have received your cablegram of July the Sth, as follows :
" European construction for Argentine probably essential account price. Pro-
cure immediately all information and requirements from Galindez mission in
London. Subject to necessary arrangements with Vickers to be made later
contemplate construction Itiily or preferably Belgium. Ample time prepara-
tion design and estimate essential. Unless Johnstone presence Finland essen-
tial suggest that you recall him soon to assist you."
In referring to Galindez mission, that was the Argentine Mission
in London at that time, Avas it not?
Mr. Spear. Yes.
Senator Clark. At that time Captain Koster was complaining
about his compensation, was he not, Mr. Spear, he being your Euro-
pean representative ?
Mr. Spear. I know he was at one time. I do not know whether it
was then or not.
Senator Cl^vrk. He says :
I am now handling outside the usual negotiations for submarines, the fol-
lowing matters —
and he enumerates what he is doing for you in various places.
188 MUNITIONS INDUSTRY
Mr. Carse. Under an arrangement which Mr. Rice made with him
in 1912, his compensation was either in pounds or dollars, and some
time during the period he wanted to change to francs. It would
have been 100,000 francs.
Senator Clark. He enumerates what he is doing for you. First —
Obtain affidavits for plans covering claim against the German Government.
2. Direct campaign in Holland with the aid of French and Italian, and
perhaps the United States Government — if you can obtain that instructioms be
sent to your Ambassador at The Hague — in view of the combating of the " N. V.
Ing. Kant v. Scheepsbouw ", as well as further German activities.
3. Obtain information, data, and, if possible, plans about German torpedoes.
What was it that he was trying to obtain about German torpedoes,
Mr. Spear?
Mr. Spear. We were trying to get some information about it.
Senator Clark (continuing reading) :
4. Obtain requirements and information about Argentine submarines.
5. Direct lawsuit against Whitehead-Fiume, in which the company has a
50 percent half interest.
6. Follow up orders for guns, etc., for Peru.
The Chairman. For what company?
Senator Clark. That company. Mr. Carse testified on yesterday
that they did not want to put up their money for the suit and if
Koster would go ahead and do it, they would give him half of what
he got. [Continuing quotation:]
6. Follow up orders for guns, etc., for Peru.
7. Development business Y-gun, Davis gun, and depth charge.
8. Reception of directors and friends of the company.
What did that duty consist of?
Mr. Spear. Showing them the right place to get lunch.
Senator Clark. He feels as if he has not been rightly treated, for
in the next to the last paragraph he states :
For all this important work, outside of the normal business, the company
pays me a salary in francs, which is equivalent to what, I suppose, your drafts-
men or your stenographers get, and whilst you wrote to me that for some time
you had been thinking about this matter, I wish to say that the time to act is
now, and I request to be paid a suitable salary which will allow me to live
like a man in my station of life, and which I beg you to fix at one thousand
dollars a month, payable in dollars.
What did you do about that?
Mr. Spear. Mr. Carse arranged that.
Senator Clark. How much did you pay him?
Mr. Carse. It was not as much as that.
Senator Clark. How much was it?
Mr. Carse. Because I think he wanted 50,000 francs, but when
the franc got down to about 3 cents, he was not getting very much,
about $1,500 or $1,800 a year. Of course, we had to give him some
decent compensation, and*^ I think we raised him up to perhaps seven
or eight thousand dollars.
Senator Clark. In 1926 you did actually obtain the intervention of
the State Department to assist you in obtaining business for con-
struction in Belgium, did you not?
Mr. Carse. I do not know. We tried to arrange it.
MUNITIONS INDUSTRY 189
Senator Clark. I call your attention to a letter dated September
16, 1926, which I will oU'er as " Exhibit No. 119."
(The letter referred to was mai'ked " Exhibit No. 119 ", and ap-
pears in the appendix on p. 401.)
t^enator Clark. This letter is addressed to Mr, C. S. McNeir,
Hibbs Building, Washington, D.C., and is signed by Butler Wright,
Assistant Secretary of State. The letter reads :
Oil September 9 the Department at your request informed the American
Ambassador of Buenos Aires by cable that the Electric Boat Company of
New York was C(;mpeting before an Argentine Commission in Paris for an
order for three submarine torpedo boats of about 9U0 tons each, which it was
proposed to build at the works of the Cockerill Company in Belgium from
designs and under the superintendence of the Electric Boat Company which
would also furnish certain parts. The Ambassador was instructed to seek an
early opportunity informally to request the appropriate Argentine authorities
that American firms be given an equal chance to compete for the business
and that their offers receive consideration equal to that accorded to any other
foreiiiii companies.
The American State Department certainly was not doing anything
particularly for American labor when they tried to obtain work for
the Cockerill Shipbuilding Yards in Belgium, was it?
Mr. Caese. The Cockerill proposition w^as based entirely on price.
It was absolutely impossible to get the work done in the United
States because of the cost of wages.
Senator Clark. Yes, but wdiiit business was it of the Department
of State to be trying to procure business for the shipyards of Cocke-
rill in Belgium?
Mr. Caese. It would help us.
Mr. Spear. It. would benefit us.
Senator Clark. It would help you, yes.
Mr. Spear. ^Ye make all of the plans here and supply certain
parts and get a royalty.
Mr. SuTPHEN. We supply the engines.
Mr. Carse. We made an arrangement with Cockerill to do the
work. Cockerill was considered one of the finest epgine plants in
the world.
Senator Clark. It may be a very fine engine plant but it does not
employ any American labor, does it?
Mr. Carse. No. But the Argentine Commission, when we sub-
mitted Cockerill, they sent a representative to examine them, and
they reported that he was not competent to do the work. Of course.
we knew that was not so, and there was expressed a desire to have
the work done by France because of some diplomatic relations. So
we made an arrangement with a French concern to act as a licensee.
Well, something went wrong there. Also with an Italian firm and
something went wrong with that.
We might as well be frank about it and tell you what the real
story was. It was this. Gaiindez, the admiral who was the head
of this commission to place this order, his wife was a niece of
Orlando, the head of a shipbuilding concern in Italy who had been
at one time Premier of Italy. So the contract was given to the
Orlando shipbuilding firm. Of course, everybody did not under-
stand that at first and so we wasted a lot of typewriting and both-
83876— 34— PT 1 13
190 MUNITIONS INDUSTRY
ered other people trying to present a proposition that would be
accepable to them.
Senator Clark, Mr. Carse, in 1926, in November, you got a cable-
gram from Commander Aubry from Buenos Aires, in which he said
he could get n contract if you Avould pay $50,000 special commission.
I refer vou to this cablegram which I will ask to have marked
" Exhibit No. 120."
(The cablegram referred to was tliereui)on marked " Exhibit No.
120 ", and appears in the appendix on p. 402.)
Senator Clark. This cablegram is dated November 14, 1926. Do
you know whether that had to do with Argentine business or Peru-
vian business, both of wdiich Aubry was handling at this time?
Mr. Carse. This was undoubtedly Argentine.
Senator Clark. He was in the Argentine?
Mr. Carse. Yes.
Senator Clark. In that cablegram Mr. Aubry says:
No. 3. I am of opinion that we will obtain orders for six —
I suppose he means six submarines?
Mr. Carse. Yes.
Senator Clark (continuing reading) :
for six now, but we must agree to pay 50,000 dollars cash against signing (on)
contracts as an extra local commission. In return, they will also maintain
price of your tliree therefore such net amount ought to t»e reduction of price
not to be included. Writing contracts. Cable if you accept. Juan Leguia due
to arrive New York loth November. He may be interested in amphibians.
Reply by Postal.
What did he mean by amphibians?
Mr. Carse. Amphibian airplanes?
Senator Clark. Did you do any business with Juan on the subject
of amphibians?
Mr. Spear. No; we tried to. "We were not directly interested, but
we knew the people who built them very well.
Senator Clark. What was that special commission of $50,000, was
that bribery?
Mr. Carse. I do not know whether it was bribery. He had to
pay it to some people down in Buenos Aires. I do not know to whom.
Sen;itor Clark. And you were perfectly willing to do that, were
you, Mr. Carse? You responded on November 15th by cable, which
I will offer as " Exhibit No. 121."
(The cable referred to was marked "Exhibit No. 121", and
appears in the appendix on p. 402.)
Senator Clark. The translation of this cable is:
No. 4. With understanding that unit price for six will be same as already
quoted for three that is i?713.50O we agree to additional commission total
$50,000 payable cash on signature contracts. Important you defer submitting
contract form until after receipt information fi'om us by next steamer. Tele-
graph wliether such delay permissible also your opinion regarding maximum
pormissible time for delivery of six. Congratulations on prospects.
Mr. Carse. Yes; that is true. I agreed to pav $50,000.
Senator Bone. That would be considered as '^ doing the needful ",
would it not?
Senator (^lark. " Greasing the waA^s ", is anotlier expression.
Senator Bone. That is perhaps a more euphonius term.
MUNITIONS INDUSTRY 191
Mr. Carse. Call it what you please, but he got down there and
talked around to people who had access or something of that nature.
This man coming from the outside could not secure the business in
Buenos Aii-es and keep all the commission in tlie transaction, and
this man thought that he was to give some to him.
Senator Bone. Did you get the business?
Mr. Carse. No, sir; we did not.
Senator Bone. Then evidently somebody else did more than the
needful down there, if they got the business. Is that a fair
assumption?
Mr. Carse. I think I explained to you our understanding of how
the business went otherwise. Ap]Darentl3' Admiral Galande v.as more
important than some other person in Buenos Aires.
Senator Bone. That particular gentleman may be more in need
of the needful and was willing to meet other offers that were ten-
dered. Is that a fair assumption?
Mr. Carse, I do not know about Admiral Galande. Mr. Aubry
evidently was putting his money on the wrong horse.
Senator Clark. Then you did get a later explanation from Mr.
Aubry as to this transaction on March 24, 1927, which I would like
to offer as " Exhibit No. 122."
(The letter referred to was marked " Exhibit No. 122 ", and
appears in the appendix on p. 402.)
Senator Clark. This evidently has to do with the same $50,000
special commission. It is dated March 24, 1927. It reads:
My Dear Fpear: I wisli to acknowledge receipt of your personal letter of
February lOlh and your 3 letters of Fel)ruary 10th. Nos. 124, 125, and 23;
also yours of Feb. 11th, for all of which please accept my best thanks.
I must apologize for not having written after my letter of February 24th,
with the exception of a very short one under date of March 10th. The reason
for this beins; that the impressions received since February 24tl!, until recently
have caused many unceitainties wiiicii placed me in the position of preferrini?
to write you as soon as I was certain of what I was sayins?, and that, unfor-
tunately, was not the case from February 24th up to March IQih. My cable
of March 8th requesting the $20,000. in advance of commission promised, duly
ar-ived on the lOtli March. I cabled you in regard to this because it was
imperative to get action from the man to whom we have offered $.50,000, and
I knew at the moment that only he could avoid t!:e consinumation of the plans
of the Minister of Marine and the Minister of the Treasury in regard to
French construction. That man told Ribero that he would not undertake
any action that might compromise himself in any way unless he coulil see part
of the money offered in sight.
In other words, he was perfectly willing to compromise himself
if he could see the color of his money.
* * * and I therefoi-e made arrangements by which he might be sure of
obtaining this amount of $20,000 — and I also made sure that he cannot touch
the money until the contract is signed, so I am therefore responsible, as I
.stated in my cable, for the refunding of the money to the Company in case the
Company or our licensees do not obtain the contract.
Then further on in the letter, if you may recall, he says:
* * * but I certainly can tell you that my strong opinion is that we will
not lose the order, one way or anotl^er.
So apparently Mr. Aubry was willing to resort to one way if he
could not get the contract in another.
Mr. C\RST'. He was very sure of that business. We did not get it,
and wo uc'dod it. too, verv badly.
192 MUNITIONS INDUSTRY
Senator Clark. Mr. Aubry was even able to insert editorials in
prominent Argentine newsj^apers from time to time, was he not,
Mr. Carse?
Mr. Carse. Well
Senator Clark. He says further in this letter :
Your cable No. 68 in reply to my Xo. 33 was also very welcome, because
we are iiiakin« a very, very big fffort to deveb^p a jrrent campaign to .see
tbat all our work is not lost at the la:<t minute by a combination t-ucli as tbe
Frencli one wbicb 1 explained to you in my letter of February 21tb. We
have been able, in this respect, to get an editorial in the most reiialtle news-
paper in the Argentine. "La Prensn ", which I herewith enclose iu order tliat
you may have an idea of what it says.
And then he says very modestly :
You can, I suppose, imagine W'lio is responsible for this editorial.
Did he receive any compensation for controlling the newspapers
of Argentina ?
Senator Bg^je. That is the good old InsuU and power trust
technique?
Mr. Carse. Some Argentinean wrote it for him, probably. He
could not do it himself.
Senator Clark. Then a little .later, in 1927, Mr. Spear, you had
a scheme on for gettnig some Argentine business which was to be
built in France, did you not?
Mr. Spear. Was it not the same business?
Senator Clark. I understood from Mr. Carse that he never had
any arrangement with a French concern; I understood him to say
that this morning.
Mr. Spear. I think we did have a temporary arrangement at
one time.
Mr. Carse. I explained to you that we did have an arrangement
at that time. At the same time that we had the Cockerill matter
we arranged I think with Normand, a French concern.
Senator Clark. I offer as " Exhibit No. 123 " a letter cfated Lima,
Peru, May 12, 1927, to Mr. Spear, from Mr. Aubry.
(The letter referred to was marked ''Exhibit No. 123", and
appears in the appendix on p. 403.)
Senator Clark. Referring to the Argentine business, Mr. Aubry
says:
We will have the order for three submarines to be built in France and I
entirely agree with tlie suggestions contained in your letter of the 26th April
to Sr.'Ribero, especially as regai-ds paragraph No. 2, where you refer about
how exceedingly difficult it is to deal with the French firms, especially when
they think that the Government has designated any particular yard for the
construction. Tl'.e selection of the building yard, I hojie, is going to be left
entirely in our hands, and I have sent, today, a very impressive wire to Ribero
to that effect in order that our friend Captain Koster will not suffer the same
ordeal as in the past in Buenos Aires. 1 am in touch by wire with Ribero
all the while and I have also received already letters from him. In his last
letter of the 27th April he sent a copy of the wire he had forwarded to you
on that date, in which he pointed the specified commission of £-",()00 per
boat for the friends and, besides, the special commission agreed with me
sometime ago ; * * *.
What does that refer to, Mr. Spear, this special commission of
5,000 pounds per boat that you agreed on with this man Ribero.
Who is he?
MUNITIONS INDUSTRY 193
Mr. Spear. Ribero was a citizen of Buenos Aires. He was a man
of wide political acquaintance and a good deal of influence there
whom Aubry frequently used, whom he emploj-ed on a commission
basis to help him secure this order.
Senator Clark. Apparently you had arranged with Ribero to pay
him a commission of 5,000 pounds, and in addition to that tlirough
Aubry there had been another arrangement for a special commission
with Ribero. He said :
* * * and, besides, the special commission agreed wirh me sometime aso ;
and lie said to me that everything is in order in regard to this matter excepting
that he had noticed that in his document covering his personal commission the
expiration date is 9th June. 1927, and although lie felt sure that morally he
is absolutely well covered because any contract that will be sijmed weeks or
even months after the 9th or June v\ill be the I'esuit of our work and efforts
and recognized so by the company, he would very much prefer to have every-
thing legally in order.
Did you give him a written memorandum extending that period?
Mr. Spear. I think we did.
Mr. Carse. We did not have any direct arrangement with Ribero,
did we?
Mr. Spear. I think so. I merely confirmed the arrangement that
we had.
Senator Bone. Mr. Snear, can you inform us whether or not the
French and Italian and English munitions concerns and submarine
builders and sliipbuiklers paid commissions on business acquired in
South America?
Mr. Spear. I think they all did.
Senator Bone. They all pursued about the same course in getting
business?
Mr. Spear. Yes. You will find it is impossible to do business in
those countries without enlisting the local people.
Mr. Raushenbush. There is one more question. That commis-
sion of $50,000 to somebody in the Argentine; after all, that is a
very considerable sum to be paid to one individual.
Does not any one of you three gentlemen know to v/hom that large
sum was to be paid.
Mr. Spear. If I ever knew, which I doubt, I do not know now,
unless there is some record of it.
Mr. Raushenbush. You mean that you would authorize an agent
to pay out $50,000 without knowing to whom it was going ?
Mr. Carse. Yes. You see, there was an order there for $735,000.
They talked about four or six boats. Four boats would be 3 million
dollars, and six boats would be 41/2 million dollars, and a ct>mmis-
sion of 50 thousand dollars is not excessive on that. On the larger
aijiount it Avould be about 1 percent.
Mr. Rauspienbush. That was in addition to Aubry's commission,
was it not?
Mr. Carse. Yes.
Senator Bone. You did what you thought was necessary to get
the business?
Mr. Carse. Yes. It was absolutely necessary. You have to em-
ploy some local personage.
The Chairman. In addition to the salary that was paid Aubry,
it has appeared that you paid commissions yearly as well. Were
those commissions directly to him ?
194 MUNITIONS INDUSTRY
Mr. Carse. Yes. "We had no dealings with others. We paid com-
missions to Aiibry.
The Chairman. Suppose you had gotten the contract and a call
had been made upon you for the $50,000 of commission in this case.
How would 3'()U have charged that up on your books'^
Mr. Cai!se. We would have paid that to Aubry.
The Chairman. You would have charged that as commission to
Aubry?
Mr. Carse. Yes; and Aubry would have passed it along.
The ChairxMan. In 1924 you paid him $32,000: in 1925, $42,000;
in 1926, $40,000; in 1927, $38,000. Vvliat were those commisriions
for?
Mr. Carse. Those were percentages on the amounts that we re-
ceived from the Peruvian Government on either the construction
or on the payment of the notes. Our arrangement with him was to
pay him a certain commission as and when we received the pay-
ments on the contract.
The Chairman. In 11 years, up to August 15th of this year, the
total paid him in commissions was $253,000.
Mr. Carse. Yes, sir.
The Chairman. Would you have any way of knowing what part
of that was direct commission to him and what part of it was com-
mission paid through him to others?
Mr. ('arse. No; I do not think we have any way of knowing
definitely.
^lenuK^r Bone. I gathered from your statement a few minutes
ago that the Peruvian Government still owes you about a million
dollars.
Mr. Carse. Yes.
Senator Bone. If that sum should be realized in collections, you
would then have a very large commission to pay out of that to
Mr. Aubry?
Mr. Carse. $30,000 or $40,000.
Senator Bone. That would be paid only in the event that the
Peruvian Government should discharge its obligation to you?
Mr. Carse. That is correct.
relations with VICKERS in south AMERICA
Senator Clark. Mr. Carse, all the time that you were selling to
Peru and trying to sell to Argentina and Brazil, your associate,
Vickers, was selling to Chile and asking you from time to time to
reduce the royalties to facilitate that sale; is that correct?
Mr, Carse. Yes. Craven always asked us to reduce royalties.
Senator Clark. He was a pretty good trader?
Mr. Carse. Oh, yes.
Senator Clark. He would not be holding that job with Vickers
if he was not?
Mr. Carse. Yes; that was his job.
Senator Clark. He wrote you in 1928 that he was trying to
ginger up the Chileans to take three more boats from him, did
he not?
Mr. Carse. Yes.
MUNITIONS INDUSTRY 195
Senator Clark. I offer that letter, which is dated the 24th of
September, 1928, as " Exhibit No. 124."
Senator Clark. This "Exhibit No. 124" is a letter from Mr.
Craven to Mr. Spear, dated the 24th of September 1928, and it says :
My De^\r Spear: I am trj'ing to giuger up the Chileans to take three more
boafs, and want to ask if yuu will accept the same royalty as yon did last time.
You will remember this was £10,000 per boat. I may avoid price cutting in
view of the fact that we reduced our tender price last time to meet all com-
petition, and I am trying to bring a few stunts into the design which will make
it more or less our show and no one else's. It vrill naturally take a little time
to work up, but the sooner I can get the thing guing i)roperly the better, and
I should much appreciate an early reply.
You can assume now that I shall be asking you to treat us for this year's
British boats in the same way that you did last year. Competition is going to
be just as keen, if not more so, as merchant ship orders are worse than ever,
and according to the latest reports 539c of the siiipbuildiug berths in the
country are empty.
Yours sincerely,
C. W. Craven.
What did he mean by the way in which you treated him before,
Mr. Spear ? Do you recall ?
Mr. Spear. Yes; a reduction. He asked us to agree to a smaller
royalty than our contract provided.
Senator Clark. How much did you finally agree to take, Mr.
Spear ?
Mr. Spear. The year before, what was it?
Mr. Carse. I am not certain.
Mr. Spear. It was less than the 3 percent to which we were entitled
^by our contract.
Mr. Carse. We used to split the diiference with them, generally
•speaking. He put up such a tale of woe.
Senator Clark. He probably asked you to take more of a reduc-
tion than he expected to get, if you were splitting the difference.
Mr. Carse. That is what I figured. I was the wicked partner in
that matter, to let Mr. Spear out.
Senator Clark. It seemed to be Commander Craven's idea, did it
not, that when the business was dull in the construction of merchant
vessels, as it apparently was in this year, it was necessary to step
out and ginger up these fellows for the manufacture of war vessels
to keep the old shipyard going.
Mr. Carse. To keep the plant going; yes.
Mr. Spear. That was his idea.
Mr. Carse. If you have a large organization it becomes a very
serious matter at times to be able to get business to keep things
going. Otherwise you might have to discharge thousands of men.
Vickers employed at times many thousands of men.
Senator Clark. In 1927 he managed to get the price of vessels
to Chile put up, did he not?
Mr. Spear. I do not r^ecall, but if he said so, I do not doubt it.
Senator Clark. He wrote you on the Tth of November 1927 a letter
which I will offer as " Exhibit No. 125."
(The letter referred to was marked " Exhibit No. 125 " and appears
in the appendix on p. 405.)
Mr. Carse. He did not get those three extra boats.
196 MUNITIONS INDUSTRY
Senator Clark. He sa5's in this letter;
During the last few dnys by skillful nmTionvcring wo have nuinaserl to get
some of our competitors' prices in the Chilean competition put up * * *,
It was the competitors' prices that he was getting put up, I see.
He continues :
And so may have prevented a reitl prlce-outtinir war which would have re-
sulted in our taking the boats at a loss. However, I Imiip we shall know our
fate soon, and, of course, I will cable you immediately I hear anything.
You do not know what skillful maneuvering it was that enabled
him to get his competitors' prices raised ?
Mr. Spear. I never knew anything about it except what was in
the letter, just as you read it.
Senator Clark. Mr. Spear, who was Mr. H. G. Gamble?
Mr. Spear. "Wliat was his address?
Senator Clark. The letterhead is the Electric Boat Co., inter-office
correspondence between H. G. Gamble and S. A. Gardner.
Mr. Spear. What was it about?
Senator Clark. It is about a steel patrol boat to be sold to Vene-
zuela. This was in 1931.
Mr. Spear. Mr. Gardner is one of my staff at New London. For
the moment I cannot place Mr. Gamble. Did we have a salesman by
the name of Gamble?
Mr. SuTPHEN. We did.
Mr. Spear. He was one of our salesmen.
Senator Clark. He says in this letter that he quoted a price to
Mr. Gamble on this Venezuelan patrol boat of $26,500 and offered a
commission of $15,000. Was that a very unusual commission simply
for the purpose of getting a toe hold in Venezuela, or why did j'ou
offer such a commission?
Mr. Spear. I think that is a typographical error. It must have
been $1,500.
Mr. Carse. How manj^ boats did he have in mind, just one?
Mr. Spear. Yes.
Mr. Carse. Of course, that is foolish.
Mr. Spear. It must be a typographical error. It should be $1,500.
Senator Clark. Now, Mr. Spear, I read you this morning a letter
from you to Commander Craven with regard to these Chilean boats
in which you told him ^''ou did not think it was wise to talk of any-
thing except British construction and had him make an offer to the
Chileans. Then, some time later he wrote you about that matter,
in a^ letter which I will offer as " Exhibit No." 126."
(Tlie letter referred to was marked " Exhibit No. 126 " and appears
in the appendix on p. 406.)
Senator Clark. This letter is dated the 31st of March 1928, and
says :
Mt Dfak Spear. I apologise for having taken so long to answer your letter
of the 28th February, but I wanted to have a talk with Thurston about it.
First, let me tell you that " Z " has written and asked for a copy of the " O"
class design to be sent to Fuster.
Does the " Z " refer to Zaharoff ?
Mr. Spear. That was Sir Basil Zaharoff.
MUNITIONS INDUSTRY 197
Senator Clark (reading) :
Wo took some fonsirlerable time to deal with the matter, but a hastener came,
and as the admiralty allowed us to send the design, minus certain secret
fittinsf.s. we had to agree. I am afraid you will be upset, but it really could not
be helped.
What does that refer to? Did he give out some of your confi-
dential stuff without your permission?
Mr. Spear. No, sir.
Senator Clark. What were you going to be upset about?
Mr. Spear. Upset because this refers to Spanish business. Fuster
was the managing director of the Sociedad. All that business had
been done directly by us. to our design. He thought I would be
up^et if Vickers mixed the thing up by submitting design.
Senator Clark. Was the " O " class design your design or
Vickers'?
Mr. Spear. That was a British design.
Senator Clark. That was the Vickers' design?
Mr. Spear. Yes.
Senator Clark (continuing reading) :
"With regard to paragraph 2 of your letter, the price is £1.094.000, including,
of course, all the usual admiralty supplies, wireless, torpedo tubes, etc. It is
not as good as I hoped for. I have included £10,000 per boat for you, * * •
That would be only $150,000 on the three boats, would it not?
•Mr. Spear. I do not know what the exchange was.
Senator Clark. It was in that neighborhood?
Mr. Spear. If the exchange was at parity.
Senator Clark. I read further:
And the delivery dates in the contract are June. July, and August 1029.
The whole thing has been most secret, and as Dawson negotiated the final
contract with the Chief of the Commission in London. I had to accept his
ruling, that I was not even to mention the mater to you in writing, hence the
message by Roberts,
Roberts was the Vickers agent in the United States and a member
of TOur board of directors.
Mr. Spear. Yes, sir.
Senator Clark. So that after promising that he would not com-
municate the matter to you in writing, he violated the spirit of it by
sending his agent over to tell you about it. Is that correct?
Mr. Spear. I don't think so. Senator, as I read it.
Senator Clark. I read further:
Even today, we are bound to secrecy, so will you please promise me not to
let .vour little friends from the other South American country know what is
going on at pre.sent.
In other words, he did not want you to tell there had been a con-
tract from Chile until Chile said you were released from the obliga-
tion of secrecy.
Mr. Carse. I don't think so.
Senator Clark. What does he mean when he says :
so will you please promise nie not to let your little friends from the other
Soutli American country know what is going on at present.
Mr. Spear. He thought that would be injurious to his affairs in
some way.
198 MUNITIONS INDUSTRY
Senator Clark. Reading further he says:
Delivery, as you will see, is a terribly tight one, and I have heavy iiennlties
against them, but I am afraid that cannot be helped.
Mr. Carse. That refers to the bid, I think, because he bid, and we
were building boats for Peru.
Senator Clark. Evidently he was afraid you would tell the other
South American countries about his Chile negotiations, unless he
got 3^ou to promise not to do it.
Mr. Carse. Everybody knew it.
Senator Clark. Reading further, this letter says :
Regarding paragraph 3 of your letter, I have now been able to have a talk
with Thurston.
Thurston was a naval architect associated with Vickers; was he
not?
Mr. Spear. He was the chief naval architect with Vickers at that
time.
Senator Clark. Reading further he says:
He tells me it is really rather difficult for him to support your contention
about the stability of the " C " class. He says that we have nothing in our
records to support the figures obtained by the Spanish boats, and he would find
it rather difficult as a naval architect to definitely say they are good for the
Spaniards. However, he has promised to do what he can if we are consulted."
What does that mean, Mr. Spear?
Mr. Spear. That means these boats were designed by us and
built under our supervision, and in the contract it provided that
they should have a certain amount of stability measured by what
the naval architect called " metro centric height." The boats were
finished, and it came out they had more metro centric height, rather
than less, and some of these Spanish officers thought under those
conditions boats would not behave well at sea. In other words,
there was too much metro centric height. There was nothing in the
contract as to how much it should be, but simply that it should have
this limit.
Senator Clark. Had you written to Craven to find out what
Thurston's opinion would be if you submitted him figures as an
authority?
Mr, Spear. No; they were supposed to consult Vickers as one of
the technical officers, giving the facts, and I supposed they would
support what we would say to the Spanish, that the boats would
speak for themselves, that we had complied with the contract, and the
stability was not excessive. But I find that Mr. Thurston never
likes to take any ideas from me about design, hence this attitude.
Senator Clark. Thurston's attitude was that he did not want to
risk his reputation as a naval architect on your contention, but he
would give you the best break he could. Isn't that what he said?
Mr. Spear. Thurston's attitude was he did not care to take any
suggestions from me. He thought he knew more about those matters
than I did, and I did not agree to that.
Senator Clark. Then he goes on to say further [reading] :
With regard to paragrnph 4, I wish you the best of luck, and hope you may
be able to knock out some of your Government dockyards. They seem to be
even more of a nuisance with you than they are here.
MUNITIONS INDUSTRY 199
What did he refer to there?
Mr. Spear. He meant our efforts to get the Navy Department to
place some of its orders with other nav^^ j^ards for submarines.
Senator Clark. Had you referred to these yards as nuisances?
Mr, Spear. No; that is his expression.
The Chairman. Certainly the American dockyards would not be
nuisances to him, would they?
Senator Clark. No; he says they seem to be more of a nuisance
with you than they are here. He had had some trouble with the
Government dockyards in England; had he?
Mr. Spear. Yes ; some with the Government yards and some with
private industry.
Senator Clark. However, he exerted some influence in the ap-
pointment of the director of dockyards. What is the office of the
director of dockyards?
Mr. Spear. I think the director of dockyards had general super-
vision over the dockyards.
Senator Clark. He says:
I wonder whether you have heard that our old friend Percy Addison is now
the director of dockyards. I helped him all I could to get the job, and I
think he will be an ideal fellow for it. It means his retirement, but it also
means his having a permanent job for about ten years if he behaves himself.
Mr. Spear. I might say for your information the Director of
Dockyards has nothing to sa}^ about what ordeis will be placed in
Government dockyards or in the private industries. He is respon-
sible for the operation only when the Admiralty says you are to
do so and so. Then, the responsibilitv passes to him.
The Chairman. He says here, if he behaves himself he could
have it for 10 years. Who would he have to satisfy?
Mr. Spear. He would have to satisfy the Admiraltj'^ authorities.
The Chairman. And not Mr. Craven necessarily?
Mr. Spear. No; not Mr. Craven.
Senator Clark. Now, Mr. Spear, I call attention to a letter dated
August 6, 1928, which I offer as " Exhibit No. 127 ", from you to
Admiral Craven.
(The letter referred to was marked " Exhibit No. 127 " and appears
in the appendix on p. 407.)
Senator Clark. The first paragraph of this letter, " Exhibit No.
127 ", seems to have to do with Vickers securing for you certain
patent rights in England on a new compensating system for fuel oil.
Was Vickers your agent in Europe for that sort of business?
Mr. Spear. They did not do the actual patent work; no.
Senator Clark. They had suggested to you new patent protection
in England, and you acted on that suggestion,
Mr. Spear. Yes.
Senator Clark. I am interested in this language in this letter, Mr.
Spear as follows:
It is too bad that the pernicious activities of our State Department have put
the brake on armament orders from Peru by forcing the resumption of formal
diplomatic relations witli Chile. My friends advise me that this gesture
means tliat all contemplated orders must go over until next year.
And did you regard it as a calamity when the United States State
Dei^artment was able to bring about the resumption of diplomatic
relations between Peru and Chile and prevent a war?
200 MUNITIONS INDUSTRY
Mr. Spear. No; I certainly regartled at the time it would have a
bad irifluence on our negotiations. I did not think they would
proceed.
Senator Clark. You regarded the activities of the State Depart-
ment in attempting to preserve peace and improving diplomatic
activities in South America as pernicious?
Mr. Spear. That is the word I used.
Senator Clark. You also say :
This hitch also means that we must not delay too long" in i^etting Aubry
back on the job in Lima.
What was Aubry going to do since the diplomatic relations had
been resumed, was he going to bring them U]) again?
Mr. Spear. No; it meant conditions would be more difficult and
he would have to get back there.
Senator Bone. What do you think he might have done to inter-
rupt these diplomatic relations in any way?
^Ir. Spear. Senator, I do not think he could have done anything.
Senator Bone. What do you think he might have done?
Mr. Spear. I might have told what he might have tried to do.
Senator I'«one. What do you think he would have tried to do?
]\Ir. Spear. Senator, I do not think he could have done anything.
Senator Bone. What do you think from your experiences he might
have done?
Mr. Spear. I could tell you what he might have tried to do.
Senator Bone. What do j^ou think he would have tried to do?
Mr. Spear. I do not think he would have tried to do anything,
because he was too sensible a man to try it. But I think he might
have tried to persuade the authorities that the mere resumption of
tiiplomatic relations would not solve their problems, and persuade
them to go on with the plans they had in mind. I think that is
what he would have done.
Senator Bone. As one member of the committee I am wondering
whether the building up of a larger Navy and a larger force would
aid diplomatic relations or whether it might thwart diplomatic
measures.
Mr. Spear. Diplomatic methods are fine when they w^ork.
Senator Bone. At least when they work, they work. We had a
war not long ago, and it did not work ai all, we are worse now
than we were before the war. Am I correct in that?
Mr. Spear. I think so.
Senator Bone. I am happy you agree with me in that conclusion.
Senator Clark. Mr. Spear, I bring to your attention this letter
dated the 8th of February, 1929, addressed to you from C. W.
Craven, which I oifer as "Exhibit No. 128."
(The letter referred to w^as marked " Exhibit No. 128 ", and ap-
pears in the appendix on p. 407.)
Senator Clakk. In this letter, Mr. Spear, Admiral Craven thanks
you for sending him copies of the instruction books which were
issued by you relating to the TI type of submarine for Chile and
the II type of submarines for Peru. That would indicate at the
same time Vickers was selling submarines to Chile, and j^ou were
selling submarines to Peru possible adversaries, you and Vickers
were collaborating on the instruction books you and Vickers would
use on those submarines.
MUNITIONS INDUSTRY 201
Mr. Spear. He knew we had had experience in preparing for
Spanish people a book of instruction on what they should do, and
he wanted that as a guide for his book. They have different ways of
looking at things, and instruction books for them are quite different
from what you would write for English peoi)le, with more sea-far-
ing experience.
Senator Clark. Now, during this year 1929 there was some cor-
respondence between you and Commander Craven indicating some
apprehension about the result of the movement for limitation of
armaments, was there not?
Mr. Spear. I think there was.
Senator Clark. I call your attention to a letter from Commander
Craven dated July 13, 1929, which I offer as " Exhibit No. 129."
(The letter referred to was marked "Exhibit No. 129", and ap-
pears in the appendix on p. 408.)
Senator Clark. In " Exhibit No. 129 " Commander Craven says :
Your note regarding the limitation of armaments is very interesting, and
I can assure you I am extremely anxious about some of our present contracts.
Although the papers say that certain submarines have been cancelled, nothing
has yet taken place although there is always a possibility of it happening.
However, we shall know our fate within the next week cr two and if I hear
anything I will at once let you know.
Were j^ou apprehensive too about the result of those movements
for limitation of armament?
Mr. Spear. I was not particularly apprehensive, because I did not
think the situation would permit an agreement which would do more
than limit the tonnage of submarines. I did not think there was
a possibility diplomatically of carrjdng out any abolition of sub-
marines on account of the position of France and Japan. There
was a proposition of limiting the tonnage, and eventually they
did that.
Senator Clark. He was naturally apprehensive of any limitation
of armament was he? I mean Commander Craven.
Mr. Spear. He was in a worse position than I was, because he had
contracts, and if they had a limitation, those contracts would be
canceled.
Senator Clark. He, also, or his company, manufactured other
arms.
Mr. Spear. His company did. and we did not.
Senator Barbour. With the Chair's permission I would like to
ask a rather academic question of the witness, and I do not care
which one of the three answers it. But which question I think
important as far as the committee's point of view is concerned, but
perhaps not so important so far as this particular instance is con-
cerned or this com])any. On tlie basis of the methods wliich have
been disclosed by this correspondence here, wise or unwise, whether
necessary or otherwise, I wonder whether in the light of this dis-
closure at a public hearing two things may result: One, whether
you feel that you can sell your product in the future, and, secondly.
if you cannot, whether in your opinion someone else can do so.
Mr. Spear. I assume, Senator, the fact that these intimate details
and correspondence appear in public would naturally have a ten-
dency to cause our European and South American friends to say
202 MUNITIONS INDUSTIiy
we will not do business with them, because you can never tell
when tlie details of your business will be revealed, and how much.
It would be much more difficult to obtain foreign orders on that
account. The other part of question was what?
Senator Barboue. Now, that was assuming this disclosure made it
impossible for you, whellier justili;d)le or not, to get the character
of business you enjoyed before, assuming this lost to you because
you are here and this correspondence has been disclosed and ques-
tions liaving been asked and answered, whether someone else is
going to get that business.
Mr. Spear. Oh, yes; certainly, all of that business would go to
the European firms that specialize in it.
Mr. Kaushenbush. Mr. Spear, may I supplement that? Of
course, Vickers is not one of tlie firms that are directly comi)etitive
with you, but if they get the business, you still get a royalty on it.
But, leaving them- out and just considering the Italians and the
French as possible competitors
Mr. Carse. And the Germans.
Mr. Hausiiexbush. You say the Germans are coming back in
the Dutch companies, under German control?
Mr. Spear. Yes; they have started it already.
Mr. Kaushenbush. If the Dutch Govei-nment, the French Gov-
ernment, and the Italian Government go into their affairs, then all
of those companies will be on a par too, because it seems to indicate
the foreign firms have done pretty much the same, or more so than
you have.
Mv. Spear. I presume those foreign companies have been seeking
business.
Mr. Kaushenbush. And in cases they have taken it away from
you ?
Mr. Spear. Yes ; they have taken it away from us.
Senator Barbour. Mr. Chairman, I do not want to be put in a
position that I am not in sympathy with this committee, nor do I
want to be put in a position where I am in sympathy with what
has been revealed here, but we have started a series of hearings,
and I want to know whether that will be detrimental to the Ameri-
can manufacturer.
Mr. Spear. In my judgment it will be.
Senator Barbour. Or whether it will be in the whole field of these
undertakings, and not simply at the cost of the American manu-
facturer.
Mr. Spear. To answer 3'our specific question, my own judgment is
it will make it exceedingly difficult for us or anybody else in the
same position to negotiate with any real prospect of success for
foreign orders for a long time. That would be my judgment.
Senator Barbour. Other countries are not holding these same
investigations.
Mr. Spear. No ; this is the first one I know of.
Senator Barbour. I do not say that I am in sympathy with the
way in which you have conducted your business and I am not passing
on the facts at all, whether it is necessary or unnecessary. The testi-
mony has been very well presented and the picture very well j^ainted,
but I am interested from the point of view of this committee of which
MUNITIONS INDUSTEY 203
I am a member, on what we are ultimately going to accomplish, and
that is why I asked 5'ou as to what you felt will be the result of
your having testified as you have been requested to do.
Mr. Spear. That is my feeling really, just what I told you. Natur-
ally these European matters are dealt with with some confidence, and
if they feel their negotiations are going to be made a matter of pub-
licity, I should judge they would go to some other country where
it is not so made.
Mr. RAUSHENBrsH. For my own curiosity, along the same line, j^ou
will probably notice we have been scrupulous to bring out where
your Italian, French, or Dutch competitors have entered into the
same thing. Now would you not prefer to have this whole method
of getting business abroad changed, and go back to the simple
method of getting business on quality ?
Mr. Spear. Oh, yes.
Mr. Raushenbush. And if this does occur through the testimony
with regard to Vickers or later testimony that comes out with regard
to the Italians or things done by other governments, perhaps even
the so-called "■' League of Nations " going into the matter, and the
whole price and competition system is changed in that way, you
would appreciate it very much?
Mr. Spear. I would regard it as a distinct improvement all around.
The Chairman. Mr. Sutphen, you called my attention to the ex-
istence in today's Washington Times of a dispatch from London
dated September 6th being an International News Service dispatch
which 5^ou thought in the light of what was developed yesterday
ought to be printed in our record.
This dispatch says :
London, September 5, (I.N.S.) — The British Government fully approved ne-
gotiations between the munitions firm of Vickers, Ltd., and the Electric Boat
Company of America regarding submarine construction, Comdr. Sir Charles W.
Craven, managing director of Vickers, announced today.
In a brief statement, Sir Charles paid tribute to the ingenuity of American
submarine designers and manufacturers. Letters written by him figured in the
testimony introduced in Washington yesterday before the Senate committee
investigating munitions contracts.
If there is no objection on the part of any member of the com-
mittee I would also ask that there be inserted a dispatch from Lon-
don printed in the Washington News of toda}'' again quoting Sir
Charles Craven, among other things that he says, the British Gov-
ernment knew all the time about the existence of the contract between
the Electric Boat Co. and Vickers. However, it appears from
dispatches which are also coming from London that the people of
Britain have known absolutely nothing about it, and that it was a
very positive surprise to them. Let that dispatch be printed in the
record as follows :
London. — Vickers-Armstrong, powerful British munitions firm, S'r Basil
Zaharoff, the world's m.ost noted salesman of weapons, and the Electric Boat
Co., American submarine builders, were admittedly linked today in a general
scheme to split the world's businet's in undersea boats, by Comdr. Charles W.
Craven, a Vickers executive.
Questioned regarding the disclosure before the U.S. Senate's investigating
committee that Zaharoff had been paid $2,000,000 by the American concern,
Craven said that an agreement between Electric T^oat and Vickers had been
operative 35 years.
204 MUNITIONS INDUSTRY
" The agreement was drawn up 5 years ago ", he said, " with the full knowl-
edge of the British Goveninicnt. The Ele^rtric Boat Company produced designs
for the first practical suhniarine, and hruught the first order to Vicliers-Arm-
strong. Since tiien we liave always iionored the company patents."
It was pointed out that the Electric Boat Co., which has its phmt at Groton,
Conn., for years has advertised itself as rotidy to supi)ly suimiarines to any
nation. Tlie most recent publication of " Jane's Figliting Shiiis ", a British
publication, displays a full-page advertisi'ment in which the comitany announces
it has built submarines for: United States, Great Britain, Japan, Italy, Hol-
land, Russia, Spain, Austria-Hungary, Denmark, Norway, Peru, (Jhile, and
Canada. A total of 3!J4 undersea ships had been constructed by the company
up to the time of the present i)ublicalion.
The Chairman. We will have to ask the witnesses to appear again
at 10 o'clock tomorrow morning. We had hoped that we were going
to get through with them this afternoon, but we are going to be here
late if we do. I am going to strive earnestl}^ to get through by noon
tomorrow.
The committee will stand recessed until 10 o'clock tomorrow morn-
ing-
(Thereupon the committee recessed until 10 o'clock a.m. tomorrow^
Thursday, Sept. 6, 1934.)
I
MUNITIONS INDUSTRY
THUBSDAY, SEPTEMBEE, 6, 1934
United States Senate,
Special Committee to Investigate
THE Munitions Industry,
Washington, D.C.
The hearing was resumed at 10 a.m., in the caucus room, Senate
Office Buildino-, pursuant to the taking of recess, Senator Gerald P.
N5^e (chairman) presiding.
Present: Senators Nye (chairman), George, Clark, Bone, Pope,
Vandenberg, and Barbour.
Present also: Stephen Raushenbush, secretar}'-, and Robert Wohl-
forth, assistant to chief investigator.
The Chairman. Let the committee be in order. Of course, the
reporter will note the presence of the seventh member of the com-
mittee this morning. Senator Vandenberg.
FUKTHEE TESTIMONY OF HENKY R. CARSE, LAWREImCE Y.
SPEAR AND HENRY R. STJTPHEN
RELATIONS WITH ZAHAROFF AND SPAIN
Senator Clark. Mr. Spear, in 1916 jou arranged to have two
officers of the Spanish Navy taken through an American submarine
at the Boston Navy Yard, did you not?
Mr. Spear. I think so.
Senator Clark. I will direct your attention to a memorandum
to vou, dated February 1, 1916, the memorandum being signed b'/
S. B. Smith. Who is S. B. Smith?
Mr. Spear. S. B. Smith at that time was in our employ as a trial
captain.
Senator Clark. Was it not against the law or against the regu-
lations to take officers of a foreign navy through an American sub-
marine without disclosing that fact at that time?
Mr. Spear. I think you will find, Senator, that those matters are
all taken care of by being referred to Washington, as to whether
or not thej'^ are allowed to go. That is the practice now anyway.
Senator Clark. What I am getting at, Mr. Spear, is this, and I
direct j^our attention to this memorandum again; it says:
At 9 : 00 a.m. on January 31st I met Captains Carranza and Garcia, of the
Spanish Navy, at tlie Pai'ker House, Boston, by previous npiJointment.
I expressed Mr. Davison's regret that he way unable to he presput.
Previously, requests for passes had been obtained signed jointly, as is
customary, by Mr. Gardner
Who is he?
Mr. Spear. Mr. Gardner was then one of our engineers.
8.3876— 34— PT 1 14 205
206 MUNITIONS INDUSTRY
Senator Clark (continuing reading) :
and a Fore River Co. official.
]\Ir. Spear. Yes, sir.
Senator Clark (reading) :
TIie.se requests referred to Mr. S. B. Smith, of the Electric Boat Company,
and two assistants.
Mr. Spear. Yes, sir.
Senator Clark. Why was the request made in that way?
Mr. Spear. I do not know. I do not think that was the proper
way to do it.
Senator Clark (continuing reading) :
We wont to tlie Boston Navy Yard, whore the commandant's aide infonuod
me that the captain of the yard, Commander Haswell, handled such matters
personally.
Mr. Spear. Yes, sir.
Senator Clark (continuing reading) :
Commander Haswell gave nie the necessary order to Mr. Roth and we went
on hoard the boats. During our visit these two officers were not recognized.
Mr. Spear. Yes, sir.
Senator Clark. Why was there necessity for this surreptitious-
ness if the matter had been referred to Washington and the matter
was disclosed?
Mr. Spear. I know of no reason for surreptitiousness. The boats
were not American boats, you understand.
Senator Clark. What were they?
Mr. Spear. They were the vessels about which I told you yester-
day, which were interned in the Boston Navy Yard, which were
built originally for the British Admiralty, and it was not a matter
in which the United States Goverimient was interested.
Senator Clark. You think your officials simply went out of the
way on this matter of surreptitiousness?
lifr. Spear. I certainly do. There was no reason for them being
surreptitious.
Senator Clark. I offer that memorandum as " Exhibit No. 130."
(The memorandum referred to was marked " Exhibit No. 130 "
and appears in the appendix on p. 408.)
Senator Clark. I now offer as " Exhibit No. 131 " a letter under
date of January 9, 1920, being a letter from Mr. Carse to Mr. Spear.
Mr. Carse, as far back as 1920 you were objecting to the payment
of the 5 percent of the selling price on the Spanish business to
Zaharoff, were jaut not?
Mr. Carse. I do not know. I do not recall.
Senator Clark. You said the business would not stand it and it
was not justified.
Mr. Carse. It is a long while ago.
Senator Clark. I will read that letter into the record [reading] :
Exhibit No. 131
January 9, 1920.
L. Y. Spear, Esq., Vice President,
Groton, Conn.
Dear Mr. Spear: I have yonr letter of the 5th instant in regard to business
in Spain, and it seems to me thnt the payment of 5 percent of the selling price
\(i Zaharoff is a very onerous burden and one which I do not believe the business
MUNITIONS INDUSTRY - 207
can or should st:ind. Such agreements were entered into many years ago at
a time when the business expected was very small volume and the actual
costs were low. Now, when business presents in large volume and the costs are
high the addition of such burden tends to prevent any business being con-
sumated. especially when it is such an excessive charge. I think this is one
of the things we must have in mind to take up and secure modific.-ition of,
because I do not believe originally or fundamentally there is any basis for
such allowance. It is simply one of those things these people secured from
Mr. Rice when he was giving up everything they asked for.
Now, in regard to joining in the construction of such boats and the furnish-
ing of material, I ihink we should make a very careful unbiased study of the
material we are to furnish, put aside any pride of opinion and give machinery
that operates without having to go through all the children's diseases that
have been experienced in the past.
I hear from very many sources that the real trouble with the S engine is
that the crank shaft is not heavy enough, and I certainly would not consider it
wise to ship machinery abroad with any defect known to us. If there are
any other questions that have arisen I think we should also work there on
the safe side.
Yours very truly,
Signed Cakse.
When you referred to Mr. Rice in that letter, Mr. Rice was your
predecessor as president of the Electric Boat Co., was he not, Mr.
Carse ?
Mr. Carse. Yes, sir.
Senator Clark. Had you had any trouble with the vessels being
furnished to Spain, Mr. Carse?
Mr. Carse. Not that I know of.
Senator Clark. Where did you get this information about the
trouble with respect to the S engine?
Mr. Carse. We had built an engine for some boats for the United
States Navy, which they thought were not quite heavy enough.
Senator Clark. You expressed a very clear opinion in this letter,
Mr. Carse, with respect to those that Sir Basil Zaharoff had bilked
in the original contract.
Mr. Carse. It does not say " bilked."
Senator Clark. You say that it was an unjustifiable payment
granted at the time that Mr. Rice was giving up everything they
asked for. I do not wish to quibble with you about terms. You say
that the commission was not justified and was given by Mr. Rice at
the time he was giving up everything they asked for. -What did
you do about cutting down that commission?
Mr. Carse. The newspapers in this country and all over Europe
are using your words as coming from me. I do not want to use
words that I never had in mind, I was trying to reduce all of our
expenditures that I could, and in 1920
Senator Clark. Just a minute, Mr. Carse, if you please. So that
there will not be any possible misunderstanding as to the use of
words, I will simply repeat your own words as the basis of my ques-
tion. You say:
I do not believe originally or fundamentally there is any basis for such
an allowance. It is simply one of those things these people secured from Mr.
Rice when he was giving up everything they asked for.
What did you do about reducing that commission ?
Mr, Carse, That was my opinion. Whether my opinion was a
good one or not is, of course, open to question.
208 MUNITIONS INDUSTRY
Senator Clark. Yes, sir; but did you take any steps to back up.
your opinion'^
Mr. Cause. Yes, sir; I discussed it.
Senator Clark. With whom?
• Mr. Carse. With Sir Basil Zaharoff in 1924.
Senator Clark. What did he say?
Mr. Carse. He said that it was a proper allowance to make.
Senator Clark. Did he convince you that it was the proper
allowance?
Mr. Carse. Yes, sir.
Senator Clark. Now, by 1924 .there was in Spain a Sociedad
Es])anola de Constructora Naval, was there not?
Mr. Carse. That was the concern
Senator Clark. Which was protesting to you at that time against
the terms which you and Vickers were making with them. Is not
that correct?
Mr. Carse. It may have been. Ever3^body always tries to get all
they can and everybody tries to pay as little as they can.
Senator Clark. Who is Mr. Ernest B. Sansom of London, ad-
dressed to London?
Mr. Carse. I do not know.
Senator Clark. I direct 5?our attention to a letter dated June 5,
1924, addressed to Ernest B, Sansom, Esq., London, signed by N. F.
on behalf of the Spanish company, which I will ask to have marked
" Exhibit No. 132."
(The letter referred to was marked " Exhibit No. 132 " and appears
in the appendix on p. 409.)
Senator Clark. Do you know who " N. F." was, Mr. Spear, writ-
ing on behalf of this Spanish company?
Mr. Spear. In this letter which I have here?
Senator Clark. Yes, sir ; signed simply by the initials " N. F."
]Mr. Spear. No ; I do not know, sir, who " N. F." could have been.
You are referring to a letter written to Mr. Sansom on June 5,
1924?
Senator Clark. Yes, sir. It refers to your business and a copy
of it, which I have, was taken from your files, so evidently it was
called to your attention.
Mr. Spear. I do not think it has ever been called to my attention,
that I remember, but I do not know what official those initials
" N. F." stand for.
Mr. Raushenbusii. Would not that be Fuster?
Mr. Spear. Nicholas Fuster; yes, sir.
Mr. Raushenbusii. He was president of the Constructora Naval.
Mr. Spear. He was managing director.
Senator Clark. Mr. Sansom was probably connected with Vickers
because they are mentioned in the letter, of which you were furnished
a copy.
Mr. Spear. I do not know that, Senator, but I know they had a
London board in addition to the Spanish board, a sort of advisory
board in London, and I should judge that Mr. Sansom, whose name
is referred to here in connection with Vickers, was probably a
member of that board.
Mr. Carse. I do not know. I never heard of him.
MUNITIONS INDUSTEY 209
Senator Clark. This letter says on the bottom of page 1 the fol-
iUawing, Mr. Spear:
When I was in England in tlie montli of June of last year, tlie question
"was brought forward in the terms which you perhaps are familiar with, and
Sir Trevor Dawson and Lieut. Spear of the E.B.C. delivered to ms a "Rough
draft", of which I include a copy herewith, (document A) ; also send enclosed
« copy (document B) in which are set forth the amounts which we would
have to pay the E.B.C. and to Vickers, Ltd., if we made with both firms
the contract which they proposed to us. This proposition could not be ac-
cepted by our .society, and in order that you may t-ee that it is completely un-
acceptable, I include a statement which we have made out (document C) in
which we have sought to apply the '" Rough draft " to various assumed cases
of estimates for submarines. Also I am sending you (document D) a note
in which is explained the intention (or basis V) on which we have prepared
the above mentioned statement.
Was this contract afterward entered into in spite of the objections
of the Spanish company?
Mr. Spear. I think on modified terms. That is a matter of recol-
lection, Senator, and I have not looked it up, but my recollection is
that the terms ^vliich we proposed were not acceptable to them and
they proposed different terms and we finally reached an agreement.
Senator Clark. They told you at that time, did they not, Mr.
Spear, that the prices which had been charged by them, by this
Spanish company in Spain, had been so high that they had attracted
the competition of another Spanish firm known as the " Union Naval
de Levante ", a rival firm using Krupp plans'^
Mr. Spear. Yes, sir.
Senator Clark. And suggested that you ought to reduce your
price or the competition would put them out of business?
Mr. Spear. It appears in that letter ; yes, sir.
Senator Clark. Who is this Captain Fuster? What does he
mean by referring to you and Vickers as guaranteeing firms?
Mr. Spear. We guarantee the technical results.
Senator Clark. In other words, it is the technical end you guar-
antee and not the financial responsibility?
Mr. Spear. We do not guarantee the financial responsibility.
That is his own business. He makes his own prices and does his own
■dealings, but we are responsible for the technical performance.
Senator Clark. That is the guarantee to which he refers?
Mr. Spear. That is the guarantee to which he refers.
Senator Clark. Now, Mr. Spear, in 1925 j^ou were expecting an
income from six Spanish boats, on which the income of your firm
would be $1,750,000, after you had taken care of Zaharoff's 5 per-
cent, were you not?
Mr. Spear. I cannot remember the figures. If you have the record
there, all right.
Senator Clark. To refresh your memorv. I will offer as " Exhibit
No. 133 " a letter from you to Mr. Carse, dated July 16, 1925.
Mr. Spear. Yes, sir. ^
(The letter referred to was marked " Exhibit No. 133 " and appears
in the appendix on p. 410.)
Senator Clark. In that letter, marked " Exhibit No. 133 ", you
say in part as follows :
Vy'lien I broached the idea, I had in mind the profits on the six C boats, but
before dealing with that it may perhaps be well to refresh your mind as to the
210 MUNITIONS INDUSTRY
six B boats. We have had an accounting on four of these, and while we think
we have not received everything that is due us on them, the whole situation is
quite hazy and there is no certainty that we will ever receive anything more.
In other words, 5'ou had an idea at that time that you Avere being
short-clianged by the Spanish Government, did 3'ou not, ]\Ir. Spear?
Mr. Spear. Not by the Spanish Government.
Senator Clark. The Spanish company.
]\Ir. Spear. I would not say " short-changed."
Senator Clark. You did not think you were getting everything
you were entitled to ?
Mr. Spear. I thought our accountant might go over the accounts
and find we were entitled to a little more.
Senator Clark (continuing reading) :
Turning now to the six C boats, the contract jirice of these is 13,186 pesetas
each and the lowest estimated gross profit per boat (after taking care of
Zedzed's 5%)
That was Zarahoff, was it not?
Mr. Spear. Yes, sir.
Senator Clark (reading) :
is a little over 4,000,000 pesetas, so that our anticipated minimum total income
from the six boats is $1,750,000.
Did you collect that $1,750,000, Mr. Spear?
Mr. Spear. No, sir. What was eventually done was this: These
boats to which they refer now were never settled on the basis of
the old contract. We arranged a modification of the contract under
Avhich they paid us a fixed percentage of the contract price. Instead
of dividing what profits there might be, when they were through
with construction, it was changed into a royalty percentage.
Senator Clark. At that time you were contemplating using those
prospective profits as the basis for a loan on which you expected or
hoped to have the help of Sir Basil Zarahoff. Did you ever go
through with that transaction?
Mr. Spear. No, sir.
Senator Clark. Now, Mr. Spear, I will ask you to direct your at-
tention to '• Exhibit No. 134 ", being a letter from you to Mr. Carse,
dated October 24, 1929.
(The letter referred to was marked " Exhibit No. 134 " and appears
in the appendix on p. 411.)
Senator Clark. In that letter of October 24, 1929, Mr. Spear, you
i-eferi'ed to the financial aid which the Sociedad, which was your
Spanish associate, has been rendering to the Government, and ex-
pressing the hope that you did not believe there was any real danger
in view of tlie money vrliich the Sociedad had loaned the Spanish
Government, of the order going anywhere else.
What do you knovf about the money advanced to the Spanish
Government by this armament concern?
Mr. Spear. I do not think they advanced any money.
Senator Clark. What did you refer to as financial aid, Mr. Spear?
Mr. Spear. They had undertaken to do some work for the Gov-
ernment with deferred pajmients.
Senator Clark. That is the " financial aid " to which you re-
ferred ?
Mr. Spear. That is what I had in mind ; yes, sir.
MUNITIONS INDUSTRY 211
Senator Clark. Now, Mr. Carse, I will ask you to refer to " Ex-
hibit No. 135 ", being a letter from you to Mr. Spear, dated December
9, 1932.
IVIr. Carse. Yes, sir.
Senator Clark. By that time it had become clear to you, had it
not, Mr. Carse, that the Spanish concern, the Sociedad, was com-
pletely under the influence of Vickers and would do anything that
Vickers wanted them to do, because the Spanish concern owed money
to Vickers?
Mr. Carse. I had so understood.
Senator Clu\rk. So that you had the situation of the Spanish Gov-
ernment having to give its business to the Sociedad because the
Spanish Government owed money to the Sociedad, and of the Socie-
dad being under the influence of Vickers because it owed money to
Vickers ?
Mr. Carse. Well — that is all right.
Senator Clark. I will read you this letter in full :
Exhibit No. 135
December 9, 1932.
Mr. L. Y. Spear,
Vice President Electric Boat Co.,
Groton, Conn.
Dear Mr. Spe^vb : I have your letter of the 6th with copy of one from Colonel
Fuster advising that Sociedad Espanola has secured a contract with the
Spanish Government for tlie construction of one new submarine boat, and it
certainly is very nice to know that he expects to proceed as with provious
boats.
I note what you say about the question raised by Commander Craven regard-
ing the percentage that should accrue to us. and that is like our dear com-
mander, for you understand that lie lias become vice president or officer of sim-
ilar title of the Sociedad Espanola and that the Sociedad owes Vickers large
sums of money, so that he is looking after his interest very promptly. They
certainly intruded into our Spanish arrangement at the time we had to make
the last adjustment, but I certainly consider that we should hold out against
any further reduction.
I trust our new engine may prove very successful and that we will be able
to show them the superiority.
Yours very truly,
Henry R. Carse, President.
How did Vickers intrude into your arrangements with Spain?
Mr. Carse. Mr. Spear can tell j^ou.
Mr. Spear. I can perhaps tell you better. Senator. In the be-
ginning of all this Spanish business, the first contract, we were the
sole licensors of the Spanish compan}^ When that contract was
drawing to a close it was replaced by a contract under which both
Vickers and ourselves became their licensors, so that they could ob-
tain their technical information from either of the two firms which
they desired, and that is what Mr. Carse had in mind in saying that
they intruded into our business, into what had originally been our
exclusive business.
Senator Clark. You felt that they had intruded in on you ?
Mr. Spear. Mr. Carse thought so, evidently. He wrote it.
Senator Clark. You thought that they had been able to do that
because the Sociedad owed a large amount of money to Vickers, and
you found that Commander Craven had recently become an officer
in the Sociedad?
Mr. Carse. Of course.
212 MUNITIONS INDUSTRY
Senator Clark. So that in 1933 you complained to Sir Basil Zaba-
rolf about the whole thing, did you not?
Mr. Cak.se. Did I?
Senator Clark. As to the conduct of the Sociedad.
Mr. Carse. In 1933?
Senator Clauk, October 11, 1933; yes, sir; in a letter from you,
Mr. Carse, to Sir Basil Zaharofi', which I will ask to have marked
" Exhibit No. 136."
Senator Clark. That letter reads :
De-\e Sir Basil: I tiust that you are enjoying very good health, notwith-
standing the reports that appear in tiie i)apers from time to time of your
being luaisposea, and that you will continue to be active in your numerous
affairs for many years to come.
In fact, reports appeared from time to time that he was dead,
did they not?
Mr. Carse. All sorts of things.
Senator Clark (reading) :
On September 21st we received a letter from the Sociedad Espanola, of
which the enclosed is a translation. You will note that nothing is said about
the five percent of the contract price heretofore remitted to us and by u»
transmitted to you, and that they advise of a payment to us of one and one-
half percent instead of three and one-half percent. According to our contract,
the one and one-half was to have been paid to us if they should build sub-
marine boats not of our design or related to any advice or information we
might give in relation to the construction of the boat. As a matter of fact,
we have supplied at the request of Sociedad, valuable information and assist-
ance, and tiieir plans were modified in a number of respects in accordance
with our advice. On November 25, 1932 Captain Fuster wrote us that " we
shall proceed in accordance with your good selves and Messrs. Vickers-Arm-
strong during the construction of same." In addition, our technical people
advise that undoubtedly the Sociedad necessarily are making use of seven of
the Spanish patents of the Electric Boat Company relating to submarine-boat
construction. Vv'e have communicated with Commander Craven in regard to
the subject and he cabled us on October 6th '"After meeting Spanish directors
am convinced that best advice I can give you is to accept their offer regarding
submarine royalty."
That was when Craven was both an officer of Vickers and an
officer of the Sociedad, was it not?
Mr. Spear. Yes, sir.
Senator Clark (continuing reading) :
As this connection with the Sociedad was arranged years ago through your
good self, we have not replied to their comnmnication of September 11th until
we could communicate with you and receive your advice and instructions on
the subject.
With the highest esteem and ))est wishes for your continued good health, in
which Mrs. Carse joins me, I remain.
Very sincerely yours,
H. R. Carse3, President.
What did Sir Basil tell you when you applied to him for help and
instruction ?
Mr. Carse. He told me to send on the money, and I wrote him an-
other letter in further explanation, and I suppose his secretary did
not understand the matter.
Senator Clark. You had already told him in this letter that you
did not have the money and they had not paid you his cut.
Mr. Carse. I think most of Zaharoff's correspondence now, and so
forth, is conducted by his staff in his office. Sir Basil Zaharoff is_85
years old. We did not pay him any money.
MUNITIONS INDUSTRY 213
Senator Clark. Did he give you any advice as to what 3'ou should
.Jo about this arrangement with Spain, which was the subject on
vvhich you asked him for advice and instruction ?
Mr. Cakse. He did finally. I wrote him further and sent him more
detailed information, and he advised us to agree to accept the 1^-
percent payment, which we did, and we have not received it.
Senator Clark. You never got the rest of your mone}'^?
Mr. Carse. No ; and perhaps now we won't.
Senator Clark. You did not think that you could interfere
directly in the Spanish business as long as Sir Basil was alive, did
you. Mr. Carse?
Mr. Carse. Of course not. Sir Basil had handled the matter.
Senator Clark. And even if they breached the contract with you,
as to what j-ou were entitled to under the contract, if Sir Basil did
not choose to act, there was nothing you could do about it?
Mr, Carse. What can you do in a foreign country
Senator Clark. You had to accept the 1% percent as what they
choose to pay?
Mr. Carse. What can you do in a foreign country? You have to
depend on the good faith of the people with whom you are dealing,
and nothing else. It would be rather absurd for an American con-
cern to bring an action of some kind in a foreign court, except Eng-
land, against anybody who is a resident of that foreign country.
Senator Clark. So that you were without help in the matter?
Mr. Carse. You have to get down to practical matters.
Senator Clark. This is a very practical matter, is it not, Mr.
Carse?
Mr. Carse. Like any other business. It is not any different than
any other business, Senator.
Senator Clark. Now, Mr. Spear, I direct your attention to " Ex-
hibit No. 137 ", being a letter dated the 14th of March 1934 from
Commander Craven to you.
(The letter referred to was marked " Exhibit No. 137 " and appears
in the appendix on p. 412.)
Senator Clark. This letter, which has been marked " Exhibit No.
137 ", reads as follows :
Naval Construction Works.
Barrouy-in-Fwness, March 14, 1934.
Personal and confidential.
L. Y. Speae, Esq..
Electric Boat Co.,
Groton, Conn., U.S.A.
My Dear Spe.\r : I am awfully sorry that I ne,£rlected to answer your letter
of the 9th February, reference 12r)9/283/LTS, and that you therefore have to
send me a shakeup on the 28th February. I have wired you this morning as
follows :
"Apologize my neglect answering your letter 9th February. Consider your
proposals paragraph three for payment for work done reasonable. Leave you
to approach Sociedad in view my dual position. Writing."
As I am deputy chairman of the Sociedad — and I can assure you that I am
having plenty of difBculties with them by virtue of that position — I should
much prefer that you should take up the question under discussion. If it is
referred to me. as I think it will be, I shall say that I consider your proposal
very reasonable.
To what did that refer, Mr. Spear ? That was in this year.
214 MUNITIONS INDUSTRY
Mr. Spear. That refers to this order which was received last year,
I believe, for one submarine under which the Spanish company,
about which Mr. Carse has told you, elected to say that it would be
built under that provision of the contract which provided for li^
percent. That contract was written this way
Senator Clark. They said the same thing to Vickers, did they
not?
Mr. Spear. I presume so.
Senator Clark. Vickers was to get the same cut out of it that
you got?
Mr. Spear. Yes. We were joint licensors.
Senator Clark. Vickers got the same under the Spanish contract,
as modilied, that you got?
Mr. Spear. Precisely. They would pay the licensors 3 percent,
half of which went to Vickers and half of which went to us and they
were entitled to appeal to each of us for advice and assistance.
Senator Clark. Originally they were to pay each of you 3 percent,
were tiiey not?
Mr. Spear. That was under the original contract. I am trying to
explain to you what that contract was.
Senator Clark. Very well, please proceed.
Mr. Spear. Under the terms of the contract, if, as defined in the
contract, the ships were built to plans and under our supervision,
we supplied all of the plans and they paid us jointly 7 percent. Now,
there was another provision in the contract tliat if they should build
any submarines under which we did not supply them the design, they
w^ouJd then pay a total of 3 percent. Under that contract, with the
3 percent provision, they were not entitled without compensation to
receive technical advice and assistance from us. Under the other
contract they were. That was all covered by the 7 percent, or the
working plans and everything. We played grandfather to them.
But if they elected or did build in any other way, then they were not
entitled to that.
Now, they elected to build the other way, and the design of that
boat was not prepared by us. It was prepared by them. But after
they got the contract, 1 think they got what we might call collo-
quially a little cold feet about the technical features of the contract
and they wrote us a number of letters asking our advice and opinion
about it. Now, to investigate those matters required engineers and
designers to spend time on it and that costs money. As they were
not entitled to free service when they were paying li/^ percent, I
took it up with them and said that we did not feel that they should
ask us to work for them on something which was not covered by the
contract for nothing. I proposed that they pay the actual cost of
that material and the labor, plus a percentage for overhead, what-
ever it might be. That was the proposal that I wrote to Commander
Craven.
Senator Clark. Did that affect Vickers as well as yourself?
Mr. Spe^vr. Well, if they asked Vickers for opinions also, I pre-
sume the terms to the two companies would probably be the same.
Senator Barbour. Senator Clark, with your permission and that
of the chairman, I would like to ask a question at this time.
MUNITIONS INDUSTRY 215
While we have a wealth of information here as to your prob-
lems on how to get this business, one thing that is not clear to me is
whether your concern had a monopoly so that you would get the
business anyway, or whether you were confronted with a competitive
situation; in other words, whether your problem was to try to get
business that would accrue to an American manufacturer of these
boats or whether the business would go to somebody else somewhere
else who made this kind of boat. I do not think that has been clearly
brought out at any time during this discussion.
Mr. Spear. Perhaps I can clear that up, Senator. There does not
exist anything in the nature of a monopoly; nothing of the sort.
There are four or five concerns, possible more now, all over the
world who have finally specialized in constructing submarines, and,
in addition to that, a great many of them are constructed in Govern-
ment yards. There does not exist any such thing as a monopoly.
If you take ail the submarines now on the Navy list — of course,
there have been boats built in the past that have been outworn and
discarded and I do not know — it would take a long time to collect
all those figures — but, if you take the boats now on the list, and
take for instance, the French and the Japanese who have the greatest
number of submarines of anybody, nojie of those were built by us.
None were built by any one concern. All of the French boats were
built in France, partly by private French shipbuilders and partly
hj Government French shipyards. The same is true in Japan.
In England, Vickers does the bulk of it, but not all of it.
In this country we have received only three contracts for sub-
marines, or contracts for only three submarines since 1918. The
navy yards have done much more than we have.
The Italians have several yards engaged in this work and no
one of them has a monopoly with the Italian Government.
When you go into the countries which desire to purchase sub-
marines, as many of them do, who have no building facilities or
are not able to produce, then it becomes a world-wide competition
between ourselves, the British, the French, the Italians, and possi-
bly the Japanese and the Holland and German concerns operating
in Holland and Sweden.
All of the business that has been done in the countries who have
built submarines, as I recall it now — and I am talking about recent
years — outside of the large countries which I have covered — I am
now referring to Turkey, Greece, Jugoslavia, Argentine, Brazil, Fin-
land, Kussia, and Peru — I say, of all of that business — I cannot tell
you exactly because I do not have the figures in front of me, but I
have them somewhere as to just how many boats that would make — it
is quite a large number — but of all of that business, the amount that
we secured was the four submarines for Peru and none other.
There was no one concern that obtained a monopoly in the busi-
ness of the countries where they do not produce their own. And
there was no one concern that I know of that has obtained a mo-
nopoly of the business in their own country. In other words, it is
quite a widely distributed business.
Senator Barbour. The point that I wanted to clear up was this:
This effort, which has been developed here through letters of your
216 MUNITIONS INDUSTRY
own compaiij' that have been taken from your files, letters between
officers of j'our own company, and so forth, shows that it has been
an effort that has been made on the part of your organization to get
business. The point that I think is important to the committee is
whetlier that etTort was necessary to get the business for the United
States or whether, if you had not made any effort at all, the same
shi])s would have been ordered from somebody else?
Mr. Spear. The same sliips would have been ordered from some-
body else; the contracts would have been awarded to somebody else.
Senator Boxe. Let me ask in that connection if you can enlighten
us. as to whether all your competitors in Europe were also very
aggressively pursuing business over there, Mr. Spear.
Mr. Spear. We always found very keen competition, Senator.
Senator Bone. And these competitors were not always ethical;
they were engaged in a lot of what we might call, well, funny
business ; can we put it that way ?
Mr. Spear. I would say some of the methods used would not be
considered ethical in this country, Senator.
Senator Bone. That is what I am getting at. In other words,
considered in the light of our own business standards it would look
pretty rotten, would it not, Mr. Spear? Let us be frank about it.
Mr. Spear. I am being frank ; some of it w^ould.
Senator Bone. That is what I am getting at. Senator Barbour
has asked you about the necessity of doing what you did in order
to get the business. What I am developing for the record is this:
You were running up against competition that was anything but
ethical; is that right?
Mr. Spear. Yes. We frequently thought that some of the tactics
were very unfair.
Senator Bone. That is what I had in mind. In other words, they
were pretty raw; is that right?
Mr. Spear. I think so, sir.
Senator Bone. When you went out into this world market, j^ou
ran into a bunch of fellows doing business on the other side of "the
fence who were prettj'' tough customers to deal wath ?
Mr. Spear. That is true.
Senator Clark. Returning to Spain, Mr. Spear, the situation wdth
regard to Sir Basil's monopoly — the matter of monopoly has been
discussed here in other countries — the situation in regard to Sir
Basil Zaharoff's monopoly of the Spanish business was somewhat
disturbed when the Spanish people rose up and threw Sir Basil's
cousin out of the country ; is that right ?
Mr. Spp:ar. I do not know what Sir Basil's position was in Spain.
Senator Clark. Prior to that time there had been a practical
monopoly in Spain, had there not. controlled by Sir Basil ?
Mr. Spear. There was only one builder in Spain.
Senator Clark. As is evidenced by a letter from Sir Basil Zaharoff
to Mr. Carse, which has been introduced in evidence and to the
following paragraph of which I direct your attention — I am refer-
ring to " Exhibit No. 35 " :
Our Spanish company are very nuicli disturbed, because they fear their
Government may suspect their good faith, and they tell me that it has always
MUNITIONS INDUSTRY 217
been an exceedingly difficult and delicate problem to create a monopoly for
the Electric Boat Co. products, and tliat this unusual intervention has already
caused serious friction.
So that there was, so far as Spain was concerned before the revolu-
tionists overthrew the Government, a monopoly controlled by Sir
Basil Zaharoif in your behalf ; was there not ?
Mr. Spear. Not entirely. Senator. The Spanish at one time did
acquire some submarines from Italy. "VATiether that was after the
Sociedad began construction on that, I do not recall. But I do
recall that they did acquire some submarines from Italy.
Mr. Carre. It was a patent monopoly, if it were a monopoly.
Senator Clark. If it was merely a patent monopoly, why does Sir
Basil speak of the great difficulty and delicacy of maintaining it?
There is no difficulty or delicacy in maintaining a patent monopoly,
is there!
Mr. Spear. There is.
Mr. Carse. There is.
Mr. Spear. There is, unless your customer feels absolutely con-
vinced that yours is the best patent.
Senator Clark. But Sir Basil's reference has to do with the diffi-
culty wliich the Sociedad had with the Government in maintaining a
monopoly in Spain. That does not seem to have any reference to
a patent monopoly, does it?
Mr. Carse. No; but if it were a monopoly, it was based on our
patents.
Senator Clark. Mr. Spear, returning to this letter to you from
Commander Craven, of the 14th of March 1934, the last paragraph
of that letter would seem to indicate that you were still pretty well
hooked up in Spain, even since the revolution, through the Sociedad,
would it not ? He says :
I can tell you -at once that there is every possibility of the Government ap-
proving the consti-uction of certain warships, includina: two repeats of the sub-
marine now building. Of course, things look very stormy in Si);;in at present,
and I sincerely hope nothing will be done to check the swing to the right which
has recently taken place, because the present Government look as if they are
going to be most sympathetic to the Sociedad and give us a modest naval pro-
gramme, which, I can assure you, is very sorely needed to keep the place going.
Mr. Speak. Yes.
Senator Clark. What was that " swing to the right " in Spain,
Mr. Spear? Do you know anything about it?
Mr. Spear. I do not know anything about it, except that that
probably referred to what the press reported as the political trend
in Spain. At one time it looked as if they might have very serious
trouble there after the revolution. I recall that the newspapers dealt
with the subject all the time. I presume that is what he was talking
about.
Senator Clark. Of course. Commander Craven, being a leading
official of the Spanish company as well as Vickers, would naturally
be closely in touch with that situation?
Mr. Spear. Naturally he would know a great deal more about it
than I would.
Mr. Carse. That yard was the only shipyard in Spain that was
competent to build naval vessels.
218 MUNITIONS INDUSTRY
Senator Clark. You do not think that this Sociedad dc Levante^
or whatever it was, that were using Krupp phmts, was competent ta
build vessels?
Mr. Carse. Apparently not. It did not get anj;- business.
Senator Clark. That does not necessarily follow with Sir Basil
on the job, that the competency of the yard had anything to do with
their getting business.
Mr. Carse. Just because one concern has got a shipyard, that does
not mean that they have an organization and experience.
Senator Clark. These Spanish representatives of j-ours, the Socie-
dad, w^ere evidently very much alarmed, according to the letter which.
1 just read, by the intervention of the other organization. They said
nothing about their incompetency.
Mr. Carse. No ; but they apparently had not built any boats ; had.
not had any experience in building.
Senator Clark. Of course, you will agree that in the Spanish busi-
ness, the adequacy of the yard has very little to do with their get-
ting business, with Sir Basil on the job?
Mr. Carse. I do not know about that.
Senator Clark. Now, Mr. Carse, in 1920, your representative in
Europe, Captain Koster, notified you that he had been decorated by
the Italian Government with the Crown of Italy, did he not?
Mr. Carse. Maybe; I do not recall.
Senator Clark. Referring to a letter to you from Captain Koster,.
dated the 9tli of November 1920, which I will offer in evidence as
"Exhibit No. 138."
(The letter referred to was marked " Exhibit No. 138 " and appears
in the appendix on p. 412.)
Senator Clark. Do you know why he was decorated?
Mr. Carse. No.
Senator Clark. By the Italian Government?
Mr. Carse. No; I do not know why. That did not impress me.
What did it mean ? It did not mean anything, anyhow.
Senator Clark. Captain Koster evidently failed in his purpose,
because he immediately sat down and wrote you when he got this
decoration. You did not increase his pay on account of the decora-
tion, did you?
Mr. Carse. Not a cent.
relations united states government
Senator Clark. Noav, Mr. Carse, in 1923 you asked and received
the help of the State Department of the United States in bidding
for Italian business, did you not?
Mr. Carse, I do not remember.
Senator Clark. I direct your attention to a letter which I will ask
to have marked as " Exhibit No. 139."
(The letter referred to was marked " Exhibit No. 139 " and appears
in the appendix on p. 412.)
Senator Clark. "Exhibit No. 139" is a letter dated June 5. 1923,
to the Secretary of State from Mr. Carse. in which you asked the
intercession of the State Department in this matter and in which
you say :
MUNITIONS INDUSTRY 219
The work of the Electric Boat Company is well and favorably known in
Italy, as during' the late war eight sultmarines were constructed by the Elec-
tric" Boat ComiJany at Montreal for the Italian Government, which made the
trip to Italy under their own power.
Did you have a shipyard at Montreal during the war?
Mr. Spear. No. We had the use of one. We arranged for the use
of an existing plant. We did not own it.
Senator Clark. You simply made an arrangement like the ones
that you had made in Belgium and in France?
Mr. SrEAR. Not a similar arrangement. It was an arrangement
to place the facilities at our disposal. We actually conducted the
work ourselves.
Senator Clark. The State Department wrote back, which letter I
will oiler as " Exhibit No. 140 " at this time.
(Tiie letter referred to was marked " Exhibit No. 140 " and was
read by Senator Clark in full, as follows:)
Exhibit No. 140
Department of State,
Washington, June i), 1923.
Mr. Henby R. Cakse,
President Electric Boat Company,
Nassau and Pine Streets, New York City.
Sib: The receipt is acknowledged of your letter of June 5, 1923, setting
foi'th certain details in connection with the bid that the Electric Boat Com-
pany is about to submit, through the Cantieri Navali della Spezia, for the
construction of submarine for the Italian Government. You state that com-
petitive tenders are to be submitted to the Italian Government on or before June
11, and request the intercession of this Department, in so far as it is considered
proper and desirable in this matter.
In replying you are informed that pursuant to your request the American
Ambassador to Italy has been authorized to lend your representative such
appropriate assistance as he may consider warranted under the circumstances
and having in mind the interest of this Government in the limitation of arma-
ments. I am, sir.
Your oliedieut servant,
(Signed) Lei,and Haerison,
Assistant Secretary
(For the Secretary of State).
What you were really doing, Mr. Carse, was asking the United
States Government to intervene in behalf of one Italian company
in competition in business with other Italian companies; is that
correct ?
Mr. Carse. Not to intervene.
Senator Clark. Well, to intercede, using 3?our own expression.
Mr. Carse. These things, as I explained a day or so ago — this
was brought to Mr. Spear's attention apparently by our ambitious
agent to Europe, Koster. These agents were always asking the
head office to do all sorts of things. Well, we did not agree to all
their requests, but if we turned them down, the^'' would say, " Well
we do not get any help from home, how can we expect to secure any
business." So I simply passed this along to the Secretary of State.
Senator Clark. You asked his intercession, did you not? That is
the term that you used?
Mr. Carse. As far as it was considered proper and desirable. He
just said that he would give the information to the Ambassador to
do as far as he thought proper and desirable; which was nothing.
220 MUNITIONS INDUSTRY
Senator Clark. But you were askinfj the American State Depart-
ment to intervene on behalf of the bid of one Italian company against
the bid of another Italian company or companies, were you not?
Mr. Cakse. As far as it was proper for him to do so.
Senator Clark. But it was in behalf of the bid of one Italian
company against other Italian companies?
Mr. Carse. Our licensee.
Senator Clark. Yes; but you recognized this fact yourself in a
letter to Mr. Spear who was at that time in Paris, which I will offer
as " Exhibit No. 141."
Senator Clark. In that letter, which is dated June IG, 1923, you
say:
Dear Mr. Spear: In relation to your cablegram about having the State De-
partment instruct the Ambassador at Rome to assist you in your negotiation
with the Italian Government —
It was evidently Mr. Spear instead of Koster who asked you to
have the State Department intervene, was it not?
Mr. Carse. Yes.
Senator Clark (continuing reading) :
as McNeir was absent for a day or two (although outside of this he has been
a very regular attendant since the death of Mr. Chapin), Frank B. Lord took
the matter up with the State Department, and —
Who was Frank B. Lord?
Mr. Carse. He was a man in Washington who was a friend of
McNeir 's.
Senator Clark. Was he one of your representatives, too?
Mr. Carse. He acted as a substitute for McNeir. He was a friend
of McNeir's.
Senator Clark (continuing reading) :
Frank B. Lord took the matter up with the State Department, and McNeir
continued it later, and upon my assurance that you personally would be in
Rome handling the negotiation they sent a cablegram to the Ambassador at
Rome, the general tenor of which we understand was favorable, but they de-
clined to give us a copy of it. They took the position that unless an American
citizen was on the ground and interested they would not care to take any
action, as their intercession on behalf of one Italian shipbuilding concern
against another might be questioned. I cabled you at Paris as follows:
"Assuming you will go Rome State Departmeiit cabling our Ambassador
to lend you assistance and extend courtesy consistent with his position. '
Yours very truly,
(Signed) Henry R. Carse, Pres.
Mr. Carse. Nothing came of it.
Senator Clark. Nothing came of it?
Mr. Spear. No ; I went to Rome.
Senator Clark. To give some color of American interest to the
matter?
Mr. Spear. We were interested in it, Senator. We wanted very
much to get it if we could. But I did not succeed.
Senator Clark. Mr. Carse, you were making submarine chasers
for Italy before the entrance of the United States into the war,
were you not?
Mr'. Carse. Italy? I do not think so. No, no; it was after the
war, after the United States went into the war.
MUNITIONS INDUSTRY 221
Senator Clark. I direct your attention to a letter signed by you
to Mr. C. F. McNeir, Hibbs Building, Washington, D.C., dated
November 9, 1923. which I will offer as " Exhibit No. 142."
(The letter referred to was marked " Exhibit No. 142 " and appears
in the appendix on p. 413.)
Senator Clark. This letter says in part:
I wish you coulil call on Commander Sommati and try to find out what he
has in mind. The contract of November 1916 was for 4 motor yachts instead
of 2S—
This was in response to an inquiry which had come to you from the
naval attache of the Italian Government as to the work that you
had done for the Italian Government during the war, was it not,
Mr. Carse?
Mr. Carse. I do not recall.
Senator Clark (continuing) :
was for 4 motor yachts instead of 28 and was between the Elco Company and
Paul Koster (our representative in Europe) and not the Royal Italian Navy,
and the price for the boats was .$48,000 each and not $44,500, and only 25
percent was paid at the signing of the contract, and not 75 percent. The
order was negotiated by Koster in Paris through the Italian Embassy there
and was executed by Koster as the party of the first part because the United
States was not then at war with Germany and the State Department had
ruled that these motor boats would be considered as war craft, and it was
therefore considered unwise to have any of the belligerents a party to the
contract.
Now, what you were doing, Mr. Carse, was this: Having had a
ruling from the State Department that these vessels would be con-
sidered vessels of war, you entered into a fake contract, not with
the real purchaser, which was the Italian Government, but with your
own agents in Paris, for the purpose of violating the neutrality laws
of the United States, is not that correct ?
Mr. Carse. No.
Senator Clark. Well, what is the fact about it?
Mr. Carse. I am trying to recall this. I could not tell about the
four boats because that has passed from my mind. We afterward
built quite a few.
Senator Clark. I am not interested in what you did after the war.
Your own letter here, dated November 9, 1923, shows in your own
language that these boats were furnished to the Italian Govern-
ment; that there had been a ruling by the State Department that
those boats would be considered vessels of war and, therefore, pro-
hibited by the neutrality laws of the United States from being sent
to a belligerent; that you entered into a contract with your own
agents in Paris so that the name of the belligerent would not appear
in the contract, and the shipment of the vessels would not be stopped
by the United States Government.
Does not that appear in that letter ?
Mr. Carse. Yes ; that appears in the letter.
Senator Clark. Mr. Carse, I will direct your attention to a letter
<lated November 15, 1923, which I will ask to have marked " Exhibit
No. 143."
(The letter was marked " Exhibit No. 143 " and appears in the
appendix on p. 414.)
83876— 34— PT 1 15
222 MUNITIONS INDUSTRY
Senator Clark. This letter is from Henry R. Carse to Comdr, E.
Sommati Di Mombello, naval attache, Italian Embassy, Washington,
D.C. The second paragraph of the letter reads:
We find the hulls numbers 7 and 10 (the Italian numbers of which were 71
and 12) were part of the first contract for the construction of 4 motor boats,
which contract was executed between Paul Koster, our representative in Paris,
and the Electric Boat Co., in order to avoid any question being raised of
neutrality in regard to building for a belligerent what might be claimed by the
German Government to have been war boats, and I enclose herewith a copy
of said contract for your confidential information.
Does that refresh your memory on the subject, Mr. Carse?
Mr. Carse. No. I do not just remember when these boats were
built or where these boats were built.
Senator Clark, It is not a question of where they were built.
Mr. Carse. Well, if they were built up in Canada, it would not
have
Senator Clark (interposing). If they had been built in Canada
why would it have been necessary to execute the contract in the
name of Koster? You state in your letter to McNair of November
9, that you had the contract entered into in the name of Koster, your
own agent who was a dummy,
Mr. Carse. Well, he got the order.
Senator Clark (continuing). To keep it from appearing that
you were contracting with a belligerent, in view of the fact that the
United States Government had ruled them to be war vessels.
Mr. Carse. Well, to keep the United States Government from being
bothered by complaints from the German Government.
Senator Clark. Oh, it was just to save the time of the United
States Government officials, was it?
Mr. Carse. Oh, yes.
Senator Clark. Is that why Koster was decorated by the Italian
Government ?
Mr. Carse. I do not know. We had built in Canada very many
of these motor boats, which were known as " submarine chasers ",
and which went over there for England and France.
Senator Clark. I understand that, but you stated in this letter
that it was necessary to execute this contract in the name of Koster
to keep the United States from interfering with you, because you
would be dealing with a belligerent.
Mr. Carse. To keep the United States from being bothered is the
question raised. I do not know whether they would have interfered
with four 80-foot motor boats going over without any armament,
and so forth. I do not think they would have.
Senator Clark. That was your explanation to Mr." McNair why
you wanted to execute the contract in the name of Koster?
Mr. Carse. Yes. Of course, it is there. I cannot deny that that
is what I said.
Senator Pope. Did you advise the United States Government of
this transaction?
Mr. Carse. No.
Senator Clark. That was the purpose of executing the contract
in the name of Koster, so that the United States Government would
not be advised of it, was it not, Mr. Carse ?
Mr. Carse. I don't think they were shipped until after the war.
^t would have taken us sometime to have btiilt them. I know after
MUNITIONS INDUSTRY 223
we entered the war we executed a contract to Mr. Baruch for a
number of these motor boats for the Italian Government. I think
we shipped them more than a hundred.
Senator Clark. But I am referring to the contract made m the
name of Koster.
Mr. Carse. Mr. Sutphen says they did not go out until after we
had entered the war. I do not recall the thing.
Senator Barbour. If you had manufactured these boats m
Canada
Senator Clark. There is no testimony they were manufactured in
Canada.
Senator Barbour. If you had not manufactured these boats some-
where whether in Canada or not, would anybody else have manufac-
tured them?
Mr. Carse. Other people on the other side were making propo-
sitions to the Government over there, but our 80-foot boats which
we had designed and built for the British Government after the
Lusitania was sunk was a very happy design ; they kept the seas in
very rough weather. They used to go up north of Scotland and stay
out there 4 days in the roughest kind of winter weather. Then
France bought some and Italy bought some.
Senator Clark. How do you know if you had not sold these boats
to the Italian Government during the war in violation of the neu-
trality law, they would have gotten them somewhere else? As a
matter of fact, all of the belligerents were buying boats anywhere
they could, but what assurance have you, that if you had not sold
these boats through Koster to the Italian Government, that the
Italian Government would have gotten them somewhere else?
Mr. Carse. Anybody can make a wooden motor boat.
Senator Clark. What assurance have you that if you had not
sold them these boats through Koster, that the Italian Government
would have gotten them themselves ?
Mr. Carse. I do not know.
Senator Clark. You had no assurance whatever that it was neces-
sary for them to have you make this fake contract with your agent
to have the boats constructed. He was your own agent ?
Mr. Carse. I had no connection with the Italian Government.
Senator Clark. I am not speaking about your having any con-
nection with the Italian Government, but you did make a contract
nominally with your own agent when he was really in truth and
fact representing belligerent power, and you did that to escape the
ruling of the State Department on the subject?
Mr. Sutphen. There had not been any ruling, Senator.
Mr. Spear. No ; I think there had been no ruling.
Senator Clark. Mr. Carse states there was a ruling.
Mr. Sutphen. No; there was no ruling.
Mr. Spear. Under our international law there was no violation of
neutrality. The boats were shipped on the decks of vessels.
Senator Clark. I will read what Mr. Carse says, as follows :
The order was negotiated by Koster in Paris through the Italian Embassy
there and was executed by Koster as the party of the first part because the
United States was not then at war with Germany and the State Department
had ruled that these motor boats would be considered as war craft, and it was
therefore considered unwise to have any of the belligerents a party to the
contract.
224 MUNITIONS INDUSTRY
Do you know of any other manufacturers of munitions in this
country that resorted to similar practices during the war?
Mr. Cahse. I do not know about the others.
Senator Clark. Do you know whether the Bethlehem did?
Mr. Carse. I do not know anything about their business at all.
Senator Clark. You were intimately associated with Bethlehem?
Mr. Carse. Yes, sir ; but they do not tell us their business.
Senator Clark. In fact in 1925 you were really, hurt because Beth-
lehem had not furnished you all of the business they had, weren't
you, Mr. Carse?
Mr. Carse. That was with another corporation, not the Electric
Boat.
Senator Clark. Mr. Carse, I call your attention to this letter dated
December 28, 1925, from yourself to W. B. Benson, which I offer as
'' Exhibit No. 144."
(The letter referred to was marked " Exhibit No. 144 ", and
appears in the appendix on p. 414.)
Senator Clark. Mr. Benson, to whom this letter was addressed was
your Pacific coast manager?
Mr. Carse. Of the Transmarine Transportation Corporation, but
he had nothing to do with the Electric Boat. The Transmarine
Transportation Corporation was trying to operate the ships we had
taken over from the Shipping Board, and he had nothing to do with
the Electric Boat.
Senator Clark. Whether or not he had anything to do with Elec-
tric Boat, it will appear from the letter who he did represent. I read
from the letter as follows :
I have your confidential letter of the 21st instant, which I have read with a
great deal of pleasure, but I am surprised that Mr. Hill should have taken
such a position as indicated, hecause our relations here have been so intimate
for many years, and certainly not to the loss or detriment of the Bethlehem
Company. I figured up about a year ago that since 1915 we have paid the
Bethlehem Company between twenty and twenty-five millions of dollars for
work done for us.
Was that the Electric Boat Co. of which you were speaking, or
the other company — what was its name?
Mr. Carse. The Transmarine Transportation Corporation.
Senator Clark. Which one was it paid Bethlehem between 20 and
25 millions of dollars?
Mr. Carse. The Electric Boat Co.
Senator Clark. So it doesn't have reference to Electric Boat Co.
affairs.
(Reading further:)
We have paid the Bethlehem Company between twenty and twenty-five mil-
lions of dollars for work done for us, all on a cost-j)lus basis, in connection with
contracts which we were doing niostl.v on a straight price contract, and in this
connection we paid the Bethlehem Company three millions or more for in-
creased wages paid during the war time on construction for the Navy Depart-
ment for work they were doing on submarine boats for us, which we have
not yet been able to recover from the Navy Department, but on which we have
lost interest these seven or eight years, and you can figure up very readily
that it runs into extremely large figures. There are some unsettled accounts
between us, but we have paid them every penny of theirs out of pocket and
the only unsettled items are some which depend upon whether the Navy
Department allow certain claims and pay to us, in which case we will pay
them over to Bethlehem, and if we do not receive payment they cancel them-
selves; and others, where they were to receive a certain bonus if they turned
MUNITIONS INDUSTRY 225
out certain work at a lesser amount than the certified cost, or in quicker time ;
but, as we have not come to a full and final settlement with the Navy Depart-
ment, we do not feel that such comparatively small items are pressing.
We know very well the very friendly relations between ourselves and Mr.
Tynan.
Who was Mr. Tynan ?
Mr. Carse. He was with the Union Shipbuilding.
Senator Clark. He was also with Bethlehem, was he not?
Mr. Carse. Yes.
Senator Clark. I read further from this letter as follows:
We know very well the very friendly relations between ourselves and Mr.
Tynan, because, in connection with his splendid services we did a remarkable
stunt in 1914-1915 in building submarine boats for England at Montreal, where
a bonus of one million dollars was earned.
What was the remarkable stunt you performed ?
Mr. Carse. We turned out those submarines in 7 months.
Senator Clark. The letter continues as follows:
Our friend Tynan received from Mr. Schwab a substantial acknowledgement
for his extraordinary services, and in addition to that, which gave prestige and
reputation he gained by that work, which brought to the Bethlehem Company
ordei's for over three hundred millions worth of work from Great Britain.
Now, did this letter correct that condition, Mr. Carse ?
Mr. Carse. No; it did not. That evidently was caused by Mr.
Benson writing me saying that some Bethlehem representatives had
refused to consign any of their shipments in our vessels, for some
reason, I don't recall what it was, and I thought such a letter as
that which he might show the Bethlehem man would cause him to
change his plans and direct some of his traffic over our boats which
very badly needed the freight.
Senator Clark. Mr. Carse, you have heard of shipbuilding com-
panies combining on a bid and making the same bid for boats,
haven't you?
Mr. Carse. No ; I don't know.
foreign relations — roumania
Senator Clark. In 1925 you discussed with Mr. Spear, or rather
Mr. Spear discussed with you the question of bidding on some
Rumanian boat, did you not? To refresh your memory I refer
to this letter dated November 3, 1925, addressed to you by Mr. Spear,
which I offer as " Exhibit No. 145."
(The letter referred to was marked " Exhibit No. 145 " and
appears in the appendix on p. 415.)
Senator Clark. In this letter, " Exhibit No. 145 ", Mr. Spear says :
To refresh your mind, I will say that when the Roumanians got in tenders
sometime ago, everyone expected that the order would go to Italy. All the
Italian yards, however, grouped themselves into a syndicate and offered exactly
the same price at which the Roumanians took offense and consequently re-
opened the business. As the thing now stands, they are asking for quotations
on six boats on which they have placed a price limit of £120,000 each. To
fully meet their specifications would require a boat of about 600 tons dis-
placement which is too big for the money available and we have accordingly
worked out a project with a 500-ton boat which comes pretty close to meeting
their requirements. As construction in Italy in this case is out of the question,
our best bet would seem to be Cockerill in Belgium. On this business, we
would have to pay an agent's commission of 2% and a participation to Vickers
of 3% so that the net price would be $551,000 per boat.
226 MUNITIONS INDUSTRY
Why did you have to give a cut to Vickers on boats for the Ru-
manian Government?
Mr. Spear. That came within the provisions of the contract which
has been elaborated here, it was in their territory under that contract.
Senator Clark. That Avas on the cut you had to pay Vickers if
you got the Argentine business ?
Mr. Spear. No; the Argentine was a special agreement, and this
is a part of the agreement which has been si:)read in the record here.
Senator Clark. You had a standing contract Avith Cockerill in
Belgium to manufacture in their yards, allowing 100 percent over-
head, and you took a split of 50-50 on the profits.
Mr. Spear. That was the contract.
Mr. Carse. Nothing ever came of it.
FOREIGN relations ITALY
Senator Clark. Now, Mr. Carse, what was the arrangement you
had with Premier Orlando of Italy as to business ?
Mr. Carse. It was long before my time.
Senator Clark. You seemed to know about it as indicated in this
letter of date January 21, 1929, which I offer in evidence as " Exhibit
No. 140."
(The letter referred to was marked " Exhibit No. 146 " and
appears in the appendix on p. 416.)
Senator Clark. In this letter, " Exhibit No. 146 ", to Mr. Spear,
you state :
Ye;irs a,i,'o we had an arrangement with Orlando, who was Premier of Italy,
and he ignored his obligations under the agreement.
You were evidently familiar with the agreement before tliat time.
Mr. Carse. Mr. Spear knows about that.
Mr. Spear. I can tell you about that, Senator.
Senator Clark. All right; you may.
Mr. Spear, Many years ago we entered into a license agreement
with an Italian shipbuilding concern known as " Orlando." They
never did any business for us, and we found out afterward these
various Italian yards were interlocked in such a way that we felt —
I do not want to make this charge definitely — ^biit we felt we had
been " gypped ", in plain language. I went there with Mr. Rice,
and we consulted Italian counsel as to whether we could get any
legal redress for what happened, and he strongly advised us to
let it alone on account of the political influence of Mr. Orlando. I
think Mr. Carse is mistaken there in identifying that Orlando with
the Orlando who was subsequently Prime Minister. But this is an
old matter.
Senator Clark. That was the interest I- had in Mr. Carse's state-
ment you referred to.
Mr. Carse. I understood it was the same Orlando, but I had no
knowledge myself.
Mr. Raushenbush. In your testimony the other day with refer-
ence to Orlando and the ship company and the Argentine party, I
forget who it was
Mr. Spear. Admiral Gelindez.
MUNITIONS INDUSTRY 227
Mr. Raushenbush. At that time I believe you testified it was the
same Orlando?
Mr. Spear, I think that was Mr. Carse's testimony, because it is
my impression it is a different man. I believe they belong to the
same family.
Senator Clark. Mr. Carse, I direct your attention to this letter
dated June 17, 1927, from yourself to Mr. Spear, which I offer as
" Exhibit No. 147."
(The letter referred to was marked " Exhibit No. 147 ", and
appears in the appendix on p. 416.)
Senator Clark. At that time, Mr. Carse, you were considering
your whole European representation, were you not?
Mr. Carse. Yes.
Senator Clark. In that letter, at the bottom of the last paragraph
on page 1, you stated that the submarine business was paid out of
the United States Treasury. What does that mean?
Mr. Spear. I think they paid for everything they got.
Mr. Carse. When we declared war, you will recall there was a war
board created, of which Mr. Baruch was the head, and they ordered
a number of things, among others these motor boats. Now, what I
meant was that the money was paid to us through the war board.
I signed the contract with Mr. Baruch.
Senator Clark. At that time Mr. Aubry was undertaking to get
the job as your European representative, was he not?
Mr. Carse. He was suggesting it.
Senator Clark, He had been appointed naval attache of the Peru-
vian Embassy in Paris.
Mr. Carse. He thought he would like to give that up to take a
position with us as the European agent.
Senator Clark. You say in this letter :
Your letter of the 16th at hand in regard to Aubry. When he was
last in this country he discussed with me the subject of being our repre-
sentative in Europe, which I believe I mentioned to you, and indicated that
that arrangement would be very agreeable to him because he felt that the
South American field was nearing the point of exhaustion.
Senator Bone. When was this ?
Senator Clark. This was in 1927. Aubry felt he had about out-
lived his usefulness in South America. The letter then continues
as follows:
The record that Aubry has made in South America shows his efficiency, and
we have not been burdened by spending large sums of money and chasing
rainbows as in Europe in the past. The position might be taken that if
we did not go after business we would never get any, but I fhink there is a
difference between spending your energies on possibilities after close analysis
rather than chasing matters that if secured would not prove profitable or
beneficial. I consider that Passano
That was the man who represented you in Italy ?
Mr. Carse. Yes.
Senator Clark. What was he, Spanish or Italian?
Mr. Carse. He was Italian.
Senator Clark. I read further from this exhibit :
I consider that Passano is an absolute loss to the company, and all the
money spent by him is vanity and vexation of spirit. The people with whom
he discusses these matters are simply looking for what they can get out
of him and I cannot see that there is any reason for continuing him.
228 MUNITIONS INDUSTRY
Now, when had Sir Basil communicated with you about Koster?
Mr. Spear. It is in the record.
Senator Ci.ark. What did he say to you about Koster?
Mr. Spear. He did not say anything definite. He did not consider
him a man who would be able to secure business for us.
Senator Clark. Did he tell you he was an international spy?
Mr. Carse. I do not know that Sir Basil did, but I heard that.
Senator Clark. Where did you hear it?
Mr. Carse. I can't exactly state it. Back in the War our Navy
Department demanded the right to use some of the patents we had
from Germany which called for certain royalties to be paid to the
Germans, and we could not give them a license. So after the
Armistice I wrote a letter to Koster asking him if it was permis-
sible for him to try to get in touch with the German patentees
and secure their patents. That letter was opened by the French
authorities and it might have caused trouble only he cabled me, and
1 cabled to a personal friend of mine in Paris, an American who
was almost a Frenchman, his mother had been intimate with the
Queen, and he went around and saw the Secretary of the Navy
and vouched for Koster. I think it was in that connection I was
told that the French office looked upon Koster, because he was a
Dutchman, more or less as what you might call an international
spy.
Senator Clark. You go on in this letter, Mr. Carse, and say :
In regard to Koster, the strong adverse opinion of Sir Basil should not be
ignored because there evidently is some ground work for his antagonism, and
since Koster was appointed by Mr. Rice in 1912 he has not secured a dollar's
worth of business except the submarines and motor boats from Italy which
were paid for from the United States Treasury, and he led us into the cargo
ship proposition, which almost proved a mortal blow. I like Koster and admire
his persistence but he does not produce anything, evidently not proving himself
personna grata to the powers that be.
Our experience with Aubry shows that he has proper understanding and has
been able to accomplish things which would probably have been impossible with
anyone else. Of course if he were our representative in Europe he would not
have any connection with our Spanish business, because Sir Basil insists upon
that being kept away from our European representative, and, of course, the
question is how would a Spaniard be received by the people of other European
countries. Regarding that, my opinion would be of no value. I should say that
we could agree to proposition (a) as outlined by Aubry, because he would be
entitled in any event, at least morally, to commissions on any business we
should develop in the near future from either Peru or Argentine and, as he
states, he would not look to us for any other compensation while he was
naval attache for Peru. If we could retain an option on his services for the
future without any obligation on our part, that would also be wise, but I do
not believe that- we should obligate ourselves to employ him as European agent
until such time arrives as we may wish to decide the question.
Senator Pope. Mr. Carse, when was this man Passano your agent
in Italy?
Mr. Carse. He was not our agent in Italy. Passano had been our
agent in Russia before the war, and through him we had secured
some large contracts from Russia for submarine boats. When the
revolution broke out in Russia, Passano went with some of his family
east, and came around to this country, and we paid to him certain
commissions that were due to him for the work he had done. He
was a very presentable man, a great tall man with quite a showy
figure. We retained him in our service because it was thought at
that time by a great many people that the revolution would not last
MUNITIONS INDUSTRY 229
and that there would be a resumption of a new government based
upon the old, and in that event Passano would be very helpful in
being able to get in touch with the business we had established in
Eussia, The Duma had voted quite a large program for submarine
boats and had named our type of boat as the one to be used.
Senator Pope. Did he operate for you in Turkey ?
Mr. Carse. Yes; we sent him to Turkey on that business.
Senator Bone. Was he able to produce any business for you in
the Turkish market?
Mr. Carse. No ; we have never had any business in Turkey. While
we followed up all of these possibilities, in my mind I thought they
were the barest possibilities and not probabilities, but we could not
ignore anything, we needed the business to maintain our organiza-
tion, so we followed these different matters, until I came to the
definite conclusion that it was not possible for an American concern
to secure any orders for submarine boats from a foreign government
in continental Europe.
Senator Pope. Do you know when his connection with your com-
pany ceased?
Mr. Carse. I think probably Senator Clark has something there
that will show.
Senator Pope. In 1929 he was acting for you?
Mr. Carse. Yes.
Mr. Spear. I think his connection ceased in 1930 or 1931. That
was when Mr. Carse decided to abolish entirely the European repre-
sentation.
Senator Bone. Who did the Turks buy submarines from?
Mr. Carse. From Italy.
Senator Bone. What outfits down there manufactured subma-
rines ?
Mr.sCARSE. There were a number of yards, but they are all Italian
names, and I do not know them.
Senator Bone. Are they tied in with Vickers or Krupp by any
stock relationship or anything of that character?
Mr. Spear. I do not think there is any stock interlocking. I
never heard of one. There was one company in Italy that had some
connection with Vickers, but whether that particular yard ever built
a submarine I do not know. I think there are four private yards
in Italy that build submarines.
Senator Vandenberg. May I inquire, Mr. Carse, It was your opin-
ion in 1927 that Mr. Koster — quoting you — " does not produce any-
thing ". and if that was your opinion of Mr. Koster in 1927, why
did you double his salary in 1927?
Mr. Carse. Did I double it?
Senator Vandenberg. It went from $6,000 to $10,000 and it was
$5,000 previous to that; and that is in 1927 when it appears to be
your opinion that he does not produce anything.
foreign relations GERMANY
Mr. Carse. Well, Mr. Spear did not agree with me. Mr. Spear
thought he was very helpful and useful over in Paris. And, then,
we could not let him go because we were working on this Mixed
Claims Commission with Germany for the infringement of our pat-
230 MUNITIONS INDUSTRY
ents, and Koster was necessary to try to secure some data, which we
could use in the suit.
Senator Vandenhekg. Would Koster make any threats of disclo-
sures, and so forth, in the event you proceeded with his discharge at
that time?
Mr. Carse. No; he did not.
Senator Pope. What was the date that Sir Basil Zaharoff talked
to you against your employment of this man Koster?
Mr. Carse. I saw him in 1924, but this suit in this Mixed Claims
Commission was pending for years, and Koster got us some data
that proved to be the basis of any action at all, because the Germans
refused to produce the plans of their boats that they built and said
there were none in existence. After we had secured some data from
Koster, the Germans produced the drawings of the interior of the
boats.
Senator Clark. Mr. Carse, your claim against Germany was for
the manufacture of U-boats during the war?
Mr. Carse. It was for the use of our patents in the building of
submarine boats during the war.
Senator Clark. You had never licensed Krupp?
Mr. Carse. We had licensed the Vulcan Co. in Germany in the
same manner we had Vickers, I think in 1909. Vulcan had not
gotten any business, so Mr. Rice arranged with Krupp and during
this agreement in the negotiations it was agreed to, as I understand,
by the parties in the conference subject to confirmation by the
directors of Krupp, and the directors finally refused to ratify it.
But Krupp took all of the patent information from the Patent Office
and proceeded to build submarine boats.
Senator Clark. Was that during the war or before the war?
Mr. Carse. Before the war.
Senator Clark. How long before?
Mr. Carse. Several years. We brought action against Krupp in
the patents courts.
Senator Clark. Of Germany?
Mr. Carse. Of Germany; and the Government wanted to inter-
plead as a party, and the court rejected that thing. We sued Krupp
for a certain sum per boat or per tube, which was the thing in ques-
tion, and they offered just a nominal sum, because they claimed that
it was a minor part of the boat. It was the absolute essential part
of the boat. That patent was very good.
So there wasi a judgment handed down in the patents court, and
both parties appealed from it, being thought by one that it was too
much and by the other that it was too little. Finally the Court of
Appeals of Leipzig in 1913, I think, rendered a judgment in our
favor, that they should pay so much for every torpedo tube in any
submarine boat that was built, and then the war came on. I do not
know whether Ave had appealed or not, but a settlement was made,
and the war came on, and after a while they engaged in an intensive
building of submarine boats, and after the war was over there was
this American-German Mixed Claims Commission that was created
to receive any claims from American firms. And from our Navy
Department we obtained information that their records showed
that Germany had built 441 submarine boats. So that we filed a
MUNITIONS INDUSTRY 231
claim for a royalty of $40,000 on each boat. And that, of course,
pended for years. They simply denied any infringement of our
patents and told us to produce the evidence.
The German submarine boats had all been sunk, as it was thought.
Those that were taken by Great Britain had been sunk, and the
couple which the United States had taken had been sunk, but we
found that the French, instead of sinking all of theirs, had kept a
couple. So that through Koster we arranged to have a commission,
French commission, appointed by the French Government to make
an examination of those boats, and they made certain drawings and
sketches of certain of the internals of those boats, and they found
in some way some drawings, some German drawings, that had been
left in those boats. And on the basis of that we presented this
thing as evidence of the infringement of our pat^snts, and then the
Germans found drawings which they said did not exist, and they
presented them more or less in rebuttal.
Senator Clark. You presented a claim for 441 times $40,000?
Mr. Carse. Yes, sir.
Senator Clark. Which is roughly $17,000,000?
Mr. Carse. That is right.
Senator Clark. Then in December 1925 Koster notified you that
Germany had also made a number of U-boats for Austria ?
Mr. Carse. Yes, sir; I believe he did.
Senator Clark. Twenty-seven. Did you include them in your
claim ?
Mr. Carse. No.
Senator Clark. You had licensed one German concern and one
Austrian concern prior to the war, had you not, for the manufacture
of U-boats?
Mr. Spear. There had been a license for the Vulcan Co., Senator,
which I can tell you about, which existed for a number of years;
and then the Vulcan Co. advised us that the German Government
did not desire to have any German firm which was a licensee of any
foreign company building submarines for it, and that they had
made up their minds, as a matter of policy, that their construction
of submarines should be by a private yard, Krupp, and in their own
Government dockyard at Danzig, and, accordingly, the license was
of no use to anybody, and it was canceled.
Senator Clark. You had also issued a license to Whitehead in
Austria?
Mr. Spear. We had issued a license to Whitehead in Austria, and
they did some business, but the Vulcan Co. never did.
Senator Clark. In other words. Whitehead had your plans, if
they had done some business?
Mr. Spear. Whitehead had the plans of the boats we were building
many years ago.
Senator Clark. It was your idea, Mr. Carse, that these U-boats
could not have been constructed except under your patents?
Mr. Carse. They could not have been operated except under our
patents. Is not that right ?
Mr. Spear, It was our idea they used our boats, and the particular
patent on which the issue came down was vital on the small-size
boats and not the bigger ones, but we never supplied any plans to
232 MUNITIONS INDUSTRY
them. I want to make that clear. There were no phms made by us
in the hands of the Germans that they ever <i:ot from us.
Senator Clark. Were they in the hands of the Austrians?
Mr. Spear. Naturally they had the plans of the particular boat
which they built — one class of boat.
Senator Clark. Of course you recognize, Mr. Spear, when you
file your plans in another country, that in the event of war they
will be seized by the government and will be used for any belligerent
purpose ?
Mr. Spear. Anybody knows that, Senator.
Senator Clark. Yes; of course. So, really, the construction of
the U-boats would not have been possible except for your patents?
Mr. Spear. I would not say that.
Senator Clark. That is a statement that Mr. Carse made before.
Mr. Carse. That is a claim.
Mr. Spear. That is a claim. I would not agree with it.
Senator Barbour. Mr. Spear, how many U-boats or submarines do
you think were made b}^ you or by others, that is, made under a
license to use your patents? What would be the total number of
boats ?
Mr. Spear. I should think, going back to the beginning. Senator,
and taking all the boats we built and those built b}'^ anybody who was
our licensee, I should think it would be in the neighborhood of 175.
Senator Barbour. One hundred and seventy-five?
Mr. Spear. I should think so. (Conferring with associate.) Mr.
Carse says I gave him some figures, and I want to correct that.
Those figures were given to him some years ago, showing a larger
number than that. I do not recall the number. I have the data in
my office. My records show that.
Mr. Raushenbush. I think we will get to that later.
Senator Barbour. That would account directly or indirectly, so
far as you people are concerned, for 175 submarines, approximately?
Mr. Spear. Whatever it may be. Mr. Carse thinks the figure was
about 300. As I say. I do not remember the exact figure. Senator.
Mr. Carse. 1 think Mr. Raushenbush has it in his papers; have
you not?
Mr. Raushenbush. I think we will come to that a little later on.
Senator Barbour. I am trying to figure from my point of view, as
a member of the committee, what that represented as to all U-boats
at that particular time.
Mr. Spear, Of course, that dates back 30 years ago. Senator. This
is just a mere guess, without the figures before me, but I should say
that that represented 20 to 25 percent. That is a guess without
figures in front of me. Senator, and I should say it represented
between 20 and 30 percent.
Senator Barbour. That is what I wanted.
Mr. Spear. It may be inaccurate.
Senator Clark. Mr. Carse, you said a moment ago that the French
had two submarines. Was not that a violation of the Treaty of
Versailles?
Mr, Carse. I do not know.
Senator Clark. Is it not?
Mr. Spear. I can tell vou about that.
Munitions industry 233
Senator Clark. I would be glad if you would.
Mr. Spear. When the war was over, Germany was obliged, of
course, to surrender all these submarines. The greater part of them
were taken to Scapa Flow, as you will remember, and were eventually
sunk by the Germans, but the victors proceeded to do what they liked
to the" defeated, and a certain number of ships were assigned to
France, with an agreement between France, Great Britain, Japan,
and everybody else on the other side, on the theory that during the
war the French dockyards had been entirely devoted to building
for the army and had not built any ships for themselves, and could
not, and therefore their navy was getting worn out, and they were
permitted b}^ agreement between the powers to keep some cruisers and
some submarines and some destroyers and were permitted to add
them to their navy.
The agreement on the part of the other people, where they were
permitted to take the things and look them over and sink them — •
and not add them to their navy, but sink them in a certain period of
time — was carried out. That was what was done. As I recall it,
there were 2 or 3 German submarines brought here by the Navy
Department, which were kept for examination two or three months
and then they sank them. The British Government did the same
thing, and I think the Japanese Government did. That is my
recollection.
Senator Vandenberg. I am still interested in the fact that Mr.
Koster's pay was doubled at the time that the president of the cor-
poration said he did not produce anything. I would like to ask,
Mr. Spear, if in 1927, when this paradox arose, Mr. Koster had any
correspondence with you, in which he discussed, at least indirectly,
threats of what he might do in the event that he was asked to resign.
Mr. Spear. I do not recall. There might have been such corre-
spondence, Senator. If there is, it would be in the record.
Senator Vandenberg. I have before me — I think there is no copy
available — but I have before me a letter from Mr. Koster under
date of June 28, 1927, in which he says among other things to you:
" I have the impression that certain intriguers are playing a hidden
hand."
Then he says:
I have always remembered what the hite Mr. Albert Vickers told me:
" Koster ", he said, " never threaten."'
That reads to me like a very adroit method of threatening. Does
it not read that way to you?
Mr. Spear. It might bear that interpretation.
Senator Vandenberg. Did any fear of what Mr. Koster might dis-
close enter into the doubling of his salary at a time that the president
of the corporation said he was worthless?
Mr. Spear. Not the slightest. There was nothing which Koster
could disclose which would cause us any alarm whatsoever.
Senator Vandenberg. Apparently Mr. Koster thought there was
something.
Mr. Spear. He might have thought so.
Mr. Carse. I think I can explain that, Senator. I am just speak-
ing from memory now, but you have a record of the salaries received
from year to year by Koster.
Senator Vandenberg. Yes, sir.
234 MUNITIONS INDUSTRY
Mr, Carse. Do you have them there ?
Senator Vandenberg. Yes, sir.
Mr. Carse. You will note how small it became. That was caused
by this: I think the original agreement made by Mr. Rice in 1912
provided for the payment to Koster either in pounds or dollars, and
sometime afterward he asked to have that pay changed and made
in francs. 1 think it was 50,000 francs, which was about the equiva-
lent of $10,000. Well, when the franc commenced to dwindle, of
course his compensation, as far as we were concerned, dwindled
until, as you will notice there, in some years it was very moderate,
and he says in that letter that it was about the compensation that
a stenographer might receive. We had had that in mind as being
unfair to a man who had to have a certain standard of living, so
that we increased his pay to make it a fair compensation.
Senator Vandenberg. His utility was decreasing in the same pro-
portion, according to your viewpoint?
Mr. Carse. I did not think that he was accomplishing very much
in the way of getting new business, but we had to keep him to
trace out this German claim. We had to have somebody on the
ground there. We had him go and consult the German consul from
time to time, to meet some of the contentions of the opposition, and
he got the information. It was based on that that we finally in-
creased his salary.
Senator Vandenberg. I would like to ask Mr. Spear, finally,
whether he knows what Koster is talking about when he refers to
" intriguers who were playing a hidden hand."
Mr. Spear. I think I know what he meant. His relations with
Sir Basil Zaharoff were very bad, and he knew it. I think he was
aware of the fact that Sir Basil was recommending to Mr. Carse
that he dispense with Captain Koster's services. I think that is
what is meant, Senator. In fact, I am quite sure of it, because at
various times he had spoken to me about knowing that Sir Basil
did not approve of him and was endeavoring to persuade Mr. Carse
to dispense with his services.
Senator Bone. Mr. Spear, may I ask one question about a matter
which has been touched on by Senator Clark? I gather from your
testimony throughout this hearing that practically every country in
the world has recording statutes which protect patents when they
are filed.
Mr. Spear. Nearly every country; I think so.
Senator Bone. That is correct, I take it?
Mr. Spear. Practically every one. They ought to have, and I
think they have.
Senator Bone. When you prepare or discover a new device in con-
nection with your business, do you make a patent record of it in
each of these countries to protect your patents?
Mr. Spear. Not now. We did in the early days of the company's
existence.
Senator Bone. How do you record it now ?
Mr. Spear. We record it in the United States.
Senator Bone. You would have to record it in Canada and Great
Britain to protect yourself?
Mr. Spear. Not necesarily. I am trying to answer you accu-
rately, Senator. For some years past we have concluded that it was
MUNITIONS INDUSTRY 235
not good busines policy to attempt to take out patents on every im-
provement we made in a submarine all over the world, so that we
have limited it primarily to those countries for which we have been
able to obtain business, or where we have had a licensee, whose inter-
est we thought we should protect. We generally apply — not always,
but w^e generally apply for it in Spain to protect our Spanish
licensee.
Senator Bone. That is, in any of these various countries, wnen a
company becomes your licensee, they have this information in their
possession ?
Mr. Spear. They Avould have the right.
Senator Bone. They would have the right to them?
Mr. Spear. To use the patent on boats built under license from
us, and not on any other boats. If they built any other boats, they
would have no legal right.
Senator Bone. How do you deal with the United States in rela-
tion to these patents?
Mr. Spear. There is no special arrangement about it now. From
time to time, when we have got something which we think is quite
important — and the Government does not always agree with us — we
unofficially consult the Navy Department as to whether or not that
is a matter that they think they would like to have kept confidential.
It is not a matter of record, but I go personally. If they say, " This
is something which we think we w^ould be very much interested in ",
and they would probably not want us to apply for some patents on
it, we do not do it. But unless they say they are particularly in-
terested in it, then we use our own judgment.
Senator Bone. Who fixes tlie price for the use of these patents in
the event the United States Navy wishes them? The Navy Depart-
ment itself?
Mr. Spear. The Navy Department would fix the price. The only
time that the Navy Department has ever paid us anything on account
of patents was in this case : It was not patents solely, but patents
and plans, and they fixed the price and said they wished to build
2 boats of a certain type, of which we were building 6 or 8 for them;
they wished to build 2 in the navy yard, and they said, " This will
be what we will pay you ", and that was the end of it. I think they
jmid for the plans and patents, $35,000 or $40,000. It was some years
ago, but it is a matter of record. Those are the only transactions for
submarines. There have been one or two cases where they took a
license for engines, Avliich they wanted to build, and they paid a
nominal sum for that license, but ordinarily they have felt free, I
think, not to bother very much when they were designing a boat
whether they used our patents or not, and we have not thought it
was good policy for us to be pestering possible customers about pay-
ing for patents that we thought they were using, which they might
not think the}'^ were. So that we have never felt, as I remember it,
that we should do that. We prepared some papers once but never
filed any claim, did we?
Mr. Carse. No.
Mr. Spear. I think not. We have never claimed it.
Senator Clark. Mr. Spear, or Mr. Carse, in 1929 Koster informed
you that Dutch companies were helping German companies evade
236 MUNITIONS INDUSTRY
the Treaty of Versailles in the manufacture of submarines, did he
not? I refer to a letter dated the i^otli of March 1929 from Koster
addressed to the Electric Boat Co. at Groton, Conn., dated in Paris,
which I will ask to have marked " Exhibit No. 148."
(The letter referred to was marked " Exhibit No. 148 ", and
appears in the appendix on p. 417.)
Mr. Carse. As I remember it, the German shipbuilders organized
a corporation or corporations in Holland.
Senator Clark. There are several enumerated in this letter, but it
is not worth going into detail.
Mr. Carse. I never realized existing Dutch shipbuilding concerns
were utilized.
Senator Clark. He says certain companies in Holland, and he
names the German companies.
Mr. Carse. He would know.
Senator Clark. He was very much worked up about that, Mr.
Carse, was he not?
Mr. Carse. He was rather.
Senator Clark. He said :
If I did let myself go, I would say that the entire thing is a huge camouflage
and a lie, and I suppose that Mr. von Levinsky is shaking in his shoes as to
the military sanctions which the Fatherland may incur (see objection 9). I
will volunteer in the invading army, and I might go on in this strain, if I
were not in such a hurry.
Koster has changed his mind after that, has he not, Mr. Spear?
Mr. Spear. I do not get the import of your question, sir.
Senator Clark. In his letter to you of the 13th of February, 1934,
he informed you that there was a company'- by the name of the Berg-
mann Co. in Berlin which was secretly manufacturing submachine
guns for certain organizations in Germanj^
Mr. Spear. He was not as familiar with German activities then.
Senator Clark. That is my thought. Mr. Carse, when the war
started you had under contract certain submarines which you were
building under your supervision on the Black Sea for Russia, did
you not?
Mr. Carse. Yes, sir.
Senator Clark. And the engines for those submarines were being
manufactured in Germany?
Mr. Carse. Yes, sir.
Senator Clark. And at the outbreak of the war, of course the
engines were seized by the German Government and used for their
own purpose?
Mr. Spear. Yes, sir.
Senator Clark. So that it follows that when you start in building
in foreign countries, as has frequently seemed to be your plan by
various bids which you have made, and when you manufacture
abroad it is imi^ossible for you to prevent some of the material from
getting into the hands of a belligerent in the event of war?
Mr. Spear. I do not see that you can prevent it.
Senator Clark. That is what I say. For instance, if you manu-
factured the submarines which you bid on for Argentine or Brazil
in Belgium and there came a war between Belgium and Germany,
MUNITIONS INDUSTRY 237
or Belgium and France, your submarines would be seized, if Belgium
wanted them, and would be used by a belligerent power?
Mr. Spear. I presume they would.
Senator Clark. That follows inevitably from the manufacturing
of them in foreign countries; that is, that you cannot control the
disposition of j^our product in the event of war, does it not?
Mr. Spear. I think not ; that is correct.
Senator Clark. In 1930, Mr. Carse, you were told by the State
Department that they viewed with disfavor the exportation of mili-
tary equipment to Russia, were you not?
Mr. Spear. Yes, sir.
Senator Clark. And to discontinue it?
Mr. Spear. We were not doing any other.
Senator Clark. You were talking about that?
Mr. Spear. We had an inquiry which we took to the State Depart-
ment.
Senator Bone. To what country?
Senator Clark. Russia.
Mr. Spear. We had an inquiry from the Russian representatives,
the Amtorg Co., and we went to the State Department.
Senator Bone. At that time was the State Department looking
with favor upon the exportation of munitions of war to other
countries ?
Mr. Spear. I could not answer that. Senator. I do not know.
Senator Bone. Is that a fair assumption?
Mr. Spear. I do not think at that time they were particularly con-
cerned unless there was some disturbance.
Senator Bone. They must have come out against the munitions
companies exporting munitions to the other countries at that time.
Why should they put a barrier against the exportation of arms to
Russia and not against other countries?
Mr. Spear, I do not know their reasons, Senator, but at any rate
they looked upon it with disfavor, so that we dropped it.
Senator Clark. I offer as " Exhibit No. 149 " a letter dated in
Paris, February 13, 1934, from Mr. Koster to Mr. Spear, to which I
referred a moment ago.
(The letter referred to was marked " Exhibit No. 149 " and
appears in the appendix on p. 419.)
Senator Clark. Mr. Spear, at that time you were communicating
with Mr. Koster to represent you or represent somebody in Eurojje
for the Davison gun, were you not?
Mr. Spear. I was in communication with him ; yes, sir.
Senator Clark. What is the Davison gun ?
Mr. Spear. It is a new anti-aircraft gun for defense against air-
craft attacks.
Senator Clark. Is that controlled by the Electric Boat Co.?
Mr. Spear. It is not, sir.
Senator Clark. That was a private venture ?
Mr. Spear. That has nothing to do with the Electric Boat Co.,
which has at the present time no interest in the matter.
83876—34 — pt 1 16
238 MUNITIONS INDUSTRY
FOREIGN RELATIONS — HOLLAND
Senator CLiVRK. Now, Mr, Spear, in 1921 Koster wrote you at
length, which I will offer as " Exliibit No. 150 ", which is an undated
letter from Paris, in 1921, evidently from the comment on it subse-
quently in the file.
(The letter referred to was marked "' Exhibit No. 150 '' and
appears in the appendix on p. 419.)
Senator Clark. Koster wrote you at length about an understand-
ing which he said existed between Schelde, which was your Dutch
licensee at that time, was it not, Mr. Carse ?
Mr. Carse. Yes, sir.
Senator Clark (continuing). And Feyenoord, another Dutch con-
cern.
Mr. Carse. Another Dutch shipbuilding concern.
Senator Clark. Schelde, your licensee, had failed to bid on some
submarines and allowed the matter to go to Feyenoord, and
Feyenoord got the business, and Koster considered that a violation
of your contract with Schelde. Is that con-ect ?
Mr. Spear. That is correct.
Senator Clark. And he wrote you a long letter, in which he set
out that after consultation with Johnstone — he was another of your
European agents, was he not?
Mr. Spear. He was not an agent but a technical engineer attached
to the office for technical purposes.
Senator Clark. You had him in Europe at that time ?
Mr. Spear. Yes; and he had been in Holland.
Senator Clark. And he did participate at times in the sale of
submarines?
Mr. Spear. Yes, sir; as a technical man.
Senator Clark. He was working with Koster at that time ?
Mr. Spear. At that time.
Senator Clark. Koster writes of a form letter which he suggests
you write to Schelde with respect to this matter, and to make a com-
plaint about the situation in connection with Feyenoord, for not bid-
ding on the submarines, and threatening to take the matter into
court; did he not, Mr. Spear?
Mr. S'pear. Yes, sir; he attached here a draft of letter which he
suggests we write.
Senator CliVRK. And, Mr. Spear, under date of February 2, 1921,
you wrote to Mr. Carse a letter, which I will ask to have marked
" Exhibit No. 151 ", with reference to Kost^r's report.
(The letter referred to was marked " Exhibit No. 151 " and
appears in the appendix on p. 422.)
Senator Clark. In that letter, " Exhibit No. 151 ", you say in part:
You will note that Koster makes some specific recommendations as to the
steps that he thinks we ought to fake.
You will recall that the whole situation is hooked up with our general con-
tract with Vickers and that they have an interest in the Dutch profits. In
view of the somewhat delicate naiure of our general relations with Vickers
and their recent active intervention in Holland, I am inclined to the helief
that we .should not open up the matter with Schelde hy correspondence or other-
wise until after we have conferred with Vickers. The main point in ray mind
is to avoid taking any action which Vickers might possibly construe into a vio-
lation of our contract with them.
MUNITIONS INDUSTRY 239
What was the active intervention of Vickers in Holland, Mr. Spear,
to which yon referred, and why did you have to consult with Vickers
before you could take up the matter with Schelde ?
Mr. Spear. What happened was this, Senator : The Dutch company
wished to acquire some submarines in one particular year — I do not
know what it is — and in that year, instead of simply asking the Dutch
builders or instead of placing tlieir own designs and asking the Dutch
builders to provide their own specifications, they attempted to spread
it out and asked foreign bidders to tender also, and, as I recall it,
they also asked some bids on these, and the tender was accepted
to make some, so that the actual work would be done in Holland.
And in that connection Vickers, with our consent, submitted a tender
and a design, and that tender was eventually accepted by the Dutch
Government, and provision was made between the Dutch Govern-
ment and Vickers, I think, Schelde — I am not sure of that — to carry
out the actual construction in Holland. That is it.
Senator Clark. So that you did not feel yourself free to deal
with your own licenses without consultation with Vickers ?
Mr. Spear. They left it to them. Under that arrangement with
Vickers, Vickers was then doing business with them, under that
arrangement, which was more or less dictated by the Dutch com-
pany. We naturally felt that we did not want to start something
about Schelde without consulting the other person who also was
working with him at that time.
Senator Clark. Did Bethlehem get into this Dutch picture at all?
Mr. Spear. I do not recall.
Senator Clark. It was at about the same time they were trying
to " chisel " in on the submarine business, was it not ?
Mr. Spear. What date was that?
Senator Clark. It is undated, Mr. Spear. Roster's letter is un-
dated. You mean your letter referring to it?
Mr. Spear. It is February 2, 1921.
Senator Clark. Yes, sir.
Mr. Spear. I do not recall. Senator. I do not recall any attempt
by the Bethlehem Co.
Senator Clark. I was trying to find out what this was, Mr. Spear.
I now offer as "Exhibit No. 152 " a letter from Mr. Carse to your-
self, under date of October 30, 1920, which reads as follows :
Exhibit No. 152
Electric Boat Company,
Groton, Conn., October 30, 1920.
Mr. H. R. Caese,
President Electric Boat Company,
New York City.
Deiar Mb. Cabsb: Enclosed herewith please find copies of Vickers cable of
October 27th, ours of October 29th, and our letter to them of today, all in
reference to the question of a submarine engine tender to Bethlehem.
As there is a rumor going around to the effect that Bethlehem has recently
come to an understanding with the English armament ring, viz, Vickers,
Armstrong, etc.. I have thought it just as well not to reveal in any detail our
plans and policies with regard to enforcing the provisi(ms of our contract with
Bethlehem to which the letter briefly refers. In this general connection, I
may say that we now have letters from practically all the Embassies acknowl-
edging the receipt of the notice which we sent them and stating that their
Governments would be informed in the premises.
240 MUNITIONS INDUSTRY
While on the general subject, I might add that in view of Mr. Chapin's-
last letter, I feel that we ow^ht not to accept Mr. Edmond's opinion as final,
and as an opinion from a third source cannot be obtained on a moment's
notice, I suggest that it might be wise to make a start now towards obtaining
one.
Very truly yours,
L. Y. Speab.
LYS/NM
Enc.
That was the letter that you sent to all the embassies notifying
them that Bethlehem was under contract with you and that they
were not free to deal with others?
Mr. Spear, Yes, sir.
Senator Clark. What does this refer to where they speak of a ten-
der to Bethlehem? Was Bethlehem getting bids from Vickers on^
the building of submarines at that time? In the first paragraph they
say, " all in reference to the question of a submarine engine tender
to Bethlehem."
Mr. Spear. The question of submarine-engines tender to Bethle-
hem— yes.
Senator Clark. To Bethlehem?
Mr. Spear. Yes.
Senator Clark. Would that indicate that Bethlehem was getting
in on the business of building submarines and getting bids from
Vickers ?
Mr. Spear. I do not recall, but what I should assume it to mean
is this, that Bethlehem had asked these other people to give them a
tender on engines for submarines and that had come to our notice.
We would naturally think that they were asking somebody to get
engines
Senator Clark. You mean that they were preparing to build some
submarines ?
Mr. Spear. That they were getting ready to make some bids on
submarines, which was not permissible at that time.
Senator Clark. That was at the time when you Avere notifjdng all
these embassies that they could not deal with Bethlehem because
Bethlehem was under contract with you; is that right?
Mr. Spear. In the contract it was provided that they had no
right at that time to enter the business.
Mr. Kaushenbush. When did that contract expire?
Mr. Spear. I think in 1923 or 1924. I cannot tell you exactly be-
cause there was a question of so many years — I think two or three —
after the completion of the last work that we placed with them, that
entered into it.
Senator Clark. In this same letter that Kost^r wrote to you on
this general situation, he informed you that he had recently been
offered a prize in Holland for an essay on " The use and future use
of submarines for our East Indian colonies." Also that the Naval
Society had accepted his offer and had issued a call for competitors.
He goes on to say :
Duriiiff my stay in Holland. I visited my friends of the Navy League, which
a.s yon know, I created about 16 years ago, under wnich I am the only honorary
meraber. We have agreed on a campaign for the strengthening of the naval
defenses in Holland and India for which a prominent part A'ill be played by
snhmariiies.
MUNITIONS INDUSTRY 241
He was doing all of that as part of his agency for you, Mr. Spear,
was he not?
Mr. Spear. Yes.
Senator Clark. Drumming up business for submarines by organ-
izing the Navy League and offering prizes.
Mr. Carse. But we were not getting the business.
Senator Clark. But that was the purpose of the Navy League in
Holland, was it not?
Mr. Spear. Mr. Sutphen just called my attention to the fact —
although I do not think it is material at all — that the League was
established long before.
Senator Clark. This was in 1920 that he went over there and got
the League to put over this program, and he was an honorary
member.
Mr. Spear. There is no question that he was trying to promote
"his business.
Senator Clark. Later, Vickers cabled you in regard to the Shel-
'ders matter, which cable I offer as " Exhibit No. 153."
(The cable referred to was thereupon marked " Exhibit No. 153.")
Senator Clark. This cable reads:
Exhibit No. 15.3
confirmation
Elecboatco, New York: 23-8-21.
For Sutphen Bentleys Code referring to Dutch submarine business for sake
of good order we confinn arrangement made at interview with you when last
in London as follows that fl2,000 sterling is the total amount which Electric
Boat Co. will receive on account of submarine ordered through Vickers from
Schelde and also on account of drawings which we supply to other 2 builders
and that neither we nor Schelders nor other 2 builders are under any other
obligation to you stop we surrender all claims of division of Scheldes profits
stop for record purposes kindly cable your agreement which we require so
that we may formally confirm to the Schelde that they are under no obligation
to you.
Vickers.
That was the arrangement that you finally entered into ?
Mr. Spear. Yes.
Senator Clark. That was made through Vickers?
Mr. Spear. Yes.
Senator Clark. So that submarine construction was according to
Vickers' plans and patents rather than your own ?
Mr. Spear. Yes; in Dutch yards.
Mr. Carse. It covered our patent, too.
Mr. Spear. It covered our patents also.
FOREIGN relations FRANCE
Senator Clark. Mr. Spear, in 1919 Koster wrote a letter to the
Submarine Boat Corporation, which I will offer as " Exhibit
No. 154."
(The letter referred to was marked " Exhibit No. 154 " and
appears in the appendix on p. 423.)
Senator Clark. In this letter Mr. Koster informs you that a
representative of a French newspaper called " Lloyd Francais " had
242 MUNITIONS INDUSTRY
called on him and undertaken to sliake him down for 2,000 francs
for publishing a letter which Mr. Koster had written to the paper;
is that correct ?
Mr. Spear. So I gather from what he said.
Senator Clark. And he had indignantly repudiated this sugges-
tion and told the newspaper man that, if he did not print it exactly to
suit him, he would publish this offer of 2,000 francs. That is correct,
is it not, Mr. Spear?
Mr. Spear. This was a letter to the Submarine Boat Corporation,
but has nothing to do with the Electric Boat Co.
Senator Clark. Well, the Submarine Boat Corporation controlled
all the stock in the Electric Boat, Co., did it not?
Mr. Spear. Yes. But just to get the record clear, they are not
talking about submarines here, but about merchant ships.
Senator Clark. In any event, it is the same concern. The Sub-
marine Boat Corporation was the holding company.
Mr. Spear. At that time; yes.
Senator Clark. That is what I mean, at that time.
The Chairman. The Submarine Boat Corporation was a holding
corporation ?
Mr. Spear. It was. It is out of existence now. But, if you will
allow me to interrupt you a moment, Mr. Chairman, it may help to
explain matters, the Submarine Boat Corporation in its own name
and not through the Electric Boat Co., constructed a large number
of ships for the Government, the United States Government, during
the war at Newark Bay. Subsequent to the war, they were unwise
enough to take some of those ships from the Government, which
they attempted through a subsidiary which they formed to operate.
They were verj^ anxious for a long time to get rid of them, to get
somebody to buy them.
The Chairman. And the ownership or stockholdings of the Elec-
tric Boat Co., are they much smaller than they were in the Submarine
Boat Corporation? In other words, was the ownership of the
holding company confined to fewer hands ?
Mr. Spear. I think it was about as widely spread as the original •
boat company was. It was very widely spread; yes, sir.
Mr. Carse. We had at one time about 5,000 shareholders. I think
it runs about 3,500 now.
The Chairman. Was Zarharoff a holder of stock in that
corporation ?
Mr. Spear. I do not know.
Mr. Carse. I did not have any knowledge. He told me at one
time- that he was a stockholder in the company, but he never indi-
cated how much nor did I ever ask him.
The Chairman. In the company, you say. Did he ever indicate
to you that he was a stockholder in the corporation?
Mr. Carse. Well, it was a corporation at that time, in 1924. It
would have been the Submarine Boat Corporation in 1924.
The Chairman. Rather than the Electric Boat Co.
Mr. Carse. Yes.
Senator Clark. Mr. Spear, although Mr. Koster had exhibited
great indignation, on the 27th of June, 1919, at this suggestion that
he cough up 2,000 francs to this newspaper, by the 23d of July 1919,
MUNITIONS INDUSTKY 243-
just a month later, a change had come over the spirit of Captain
Koster's dreams, had there not?
Mr. Spear. I do not know, sir.
Senator Clark. In that connection I will offer a letter which I
will ask to have marked " Exhibit No. 155."
Mr. Spear. I will have to refresh my memory on that, Senator.
Senator Clark. This is a letter to the Submarine Boat Corpora-
tion signed by Koster. It is dated in Paris the 23d of July 1919.
I will read the letter [reading] :
Gentlemen : I have received your favor of July 3d re Lloyd Francais and
take great pleasure in sending enclosed clipping from this weekly paper which
contains the article I sent them. I am glad to see that they were decent
enough to publish without further asking for money, which I certainly would
not have given them. Moreover, I have obtained that publications adverse
to American shipping interests will be refrained from. This is quite satis-
factory results, I believe, and I am glad to be able to report it.
I now want them to change their attitude entirely and to help us build up a
fine reputation. For this I may need some funds from time to time and would
request you to authorize me to do the necessary in a reasonable and rational
way.
Yours faithfully,
(Signed) Koster.
What was your reply to that, do you recall ?
Mr. Spear. I never saw the letter. I never got it.
Senator Clark. Did you, Mr. Carse?
Mr. Carse. I do not recall it.
Senator Clark. You do not recall whether you authorized him
" to do the necessary " or not?
Mr. Carse. I do not think I did.
Senator Clark. I take it that " doing the necessary " is about the
same as " doing the needful " or " greasing the ways ", using these-
trade terms, is it not?
Mr. Carse. No; I think the larger part of this audience will con-
cede that in order to get certain articles in newspapers, some pay-
ment has to be made of an advertising character, as that would be.
But I do not recall what this was.
Senator Clark. You understood Koster's negotiations with the
French press had to do purely with advertising matters?
Mr. Carse. I did not see why I should contribute. I would not
sa}^ now, but I should say that my thought was that I could not see
why I should spend any money influencing the press in France.
Senator Clark. Let us step on further, Mr. Carse, in this matter,
and go to the 13th of February 1922, when there was a letter written
by Koster to you, Mr. Carse, which I will ask to have marked
" Exhibit No. 156."
Senator Clark. This letter is addressed personally to you in your
capacity as president of the Submarine Boat Corporation, and it
reads :
Confidential.
Deab President : I address this letter personally to you as it contains a matter
which is extremely delicate and about which I would not like to have misunder-
standings later on.
As you know through former correspondence, the general director and the
secretary general of " Peuhoet " each want to get fifty thousand francs out of
the contract which they eventually will make with us.
244 MUNITIONS INDUSTRY
What was "Penhoet"?
Mr. Carse. One of the large shipbuilding yards in France.
Senator Clark. And the general director and the secretary general
of " Penhoet " each wanted to get 50,000 francs out of the contract,
Mr. Koster informs you. The letter continues ;
Further, there are Mi'. Aubin, the director of tlie oflQce for foreign affairs of
the French shipbuilders, and Mr. Delpierre, general business man and editor of
the Moniteur de la Flotte, wlio have acted as intermediaries and helpers, and
who expect to bo paid.
They proposed that one hundred thousand francs should be divided in equal
parts between them and me. This undoubtedly will surprise you, and they seem
to think that I have the same mentality as their " Penhoet " friends. I think
that it is unnecessary to say that I cannot for a single moment entertain
this proposal, but in order to get the inside information about the matter which
I wanted, I had to act as if I consented to the arrangement. As they think
that I am cut out of the same kind of wood, and would take money belonging to
my company, they talk very much freer before me than they would do
otherwise.
One never knows how such things go, and I therefore want to have the matter
on record, as I cannot let my reputation suffer, even if I am willing to act a
part becaiise of the business.
Without this kind of arrangement no deal can be made in France. Later,
when the business is concluded. I will find means of letting the people here know
that I did not abuse the situation, as they now think I do, and which, I am
sorry to say, they think quite material. I am rather disappointed that they
have thought that I would go in for their proposal, but on the other hand I
must say, that nobody in the crowd knows me very well.
Having in this way unburdened my heart and eased my conscience, I will
continue to play the villain.
With best regards and respects.
Yours faithfully,
KOSTEB.
So that, according to Captain Koster, Mr. Spear, they do business
in France so that it is not only necessary to grease the ways and do
the needful with the press and with the officials of the companies
with which you were doing business, but it was also necessary for
your own agent to be pretending to plunder his company's treasury.
Mr. Carse. Apparently.
Mr. Raushenbush. And there is an implication there that the
French shipbuilding company was doing the same.
Mr. Carse. Yes. Well, he did not get the money; I know that.
I do not remember what I answered to him, but I know that he did
not get the money.
Senator Bone. Mr. Carse, is that the general psychology of Eu-
rope ? Does that letter present a fairly accurate picture of the way
of doing business over there ?
Mr. Carse. Well, I do not like to say that, Senator. This is one of
the cases that shows that in this particular instance it was. But,
because one man or one group of men acted a certain way, it is not
right to classify all Europe in that same class any more than you
would do so in the United States.
Senator Bone. But this chap Koster seems to be giving a fairly
accurate picture of the reaction that one would get from the way of
doing business over there. That is correct, is it not, Mr. Spear?
Mr. Spear. I should say his judgment is pretty good. He is a
European himself.
Mr. Carse. We never heard of that in Holland, for instance, did
we — anything of that nature?
MUNITIONS INDUSTRY 245
Mr. Spear. No; not that kind of thing, so far as I remember. I
think they have a little different standard from some of the other
European countries.
Senator Clark. You heard of your licensee going into cahoots
with a rival company. That may not be exactly the same sort of
thing, but that is pretty bad.
Mr. Spear. Yes. My own personal opinion is that it varies a good
deal in the different European countries. I think in some it is more
widespread than it is in others.
Senator Clark. Mr. Spear, you had an equally bad opinion of the
Balkans, as would be gathered from this exhibit was had in connec-
tion with France ?
Mr. Carse. We have never done any business in the Balkans.
Senator Clark. I direct your attention to a letter which I will ask
to have marked " Exhibit No. 157."
(The letter referred to was thereupon marked " Exhibit No. 157 ",
and appears in the appendix on p. 423.)
Senator Clark. This letter is to Mr. Carse from Mr. Spear and is
dated September 14, 1931. At that time you had under considera-
tion appointing a certain Mr. Menelas Metaxa of Athens as your
agent in Greece for the sale of Davis guns, Y-guns, and depth
charges to the Greek Government.
At the bottom of the page, I direct your attention to this language :
As to commission, I think it would be best to keep some elasticity in the
arrangement. Unless there has been some recent improvement in morals in
the Balkans, I judge that the commission will have to be rather liberal
in order to make business possible.
Mr. Spear. I think that was the common opinion.
Senator Clark. That indicated a rather low opinion of the Balk-
ans as a whole.
Mr. Spear. I do not think anybody had a very high opinion of
their business practices.
Senator Clark. I do not either. I agree with you entirely.
Mr. Spear. I hope we do not do them any injustice.
Mr. Carse. That had nothing to do with the Electric Boat Co.
FOREIGN RELATIONS — TURKEY
Senator Clark. Mr. Spear, in 1924 you were trying to negotiate
some business with Turkey, were you not?
Mr. Spear. Yes, sir.
Senator Clark. You had your agent Mr. Johnson down there?
Mr. Spear. Yes. I do not remember the exact date.
Senator Clark. I will refer you to a letter written in Genoa dated
October 22, 1924, which I will ask to have marked as " Exhibit
No. 158."
(The letter referred to was thereupon marked " Exhibit No. 158 ",
and appears in the appendix on p. 424.)
Senator Clark. This is rather a long letter, but parts of it are
rather pertinent and I should like to refer to them. On the first
page, you will note this language :
The armament wanted for these two boats is apparently the final decision
of the technical committee and was supposed to have been given to us on the
8th of September but we did not receive the letter until the 29th. I am
246 MUNITIONS INDUSTRY
certain that not one firm .submitted bids to meet these requirements except
us. The boat is to liave four internal bow tubes and twin deck revolving tubes,
total number torpedoes carried to be ten (10). Size of torpedoes. 18.
My letter no. 18 and my cable no. 7 explains what is meant by European
prices.
I called on C.N.R. yesterday afternoon and saw Mr. Piaggio and told him
what I wanted. Mr. Calcagno is in Palermo but is expected back here on
Sunday. In the meantime I have started things going here in obtaining
prices for main engines, main electric motors, and storage battery. When Mr.
Calcagno returns I can take up the other questions and hope to be able to
give you their figure within ten days from now.
Then I direct your attention to the following :
Shortly after I arrived in Angora the first time I was showing some of the
designs to the officers of the Navy office. One young officer, Escher Bey, came
to me and started talking about torpedoes. He is the torpedo expert in the
Navy office and was trained in the British Navy and at Vickers. After I had
finished with the designs he came to me and asked if I would write a letter
for him in Elnglish. I told him I would be glad to and he gave me a draft
of a letter to the Bucharest agent of the Baldwin Locomotive Works about
a 14" railway-gun battery the Turks are interested in. He told me that he
would come to my room at seven as he did not wish to be seen in any cafe
ivith me.
At seven the same evening Escher Bey arrived at my room and I gave
him the letter as I had written it. After a short talk about his stay in
England he told me that the letter was only an excuse for him to come and
Bee me as he had been waiting for several days to get a chance to speak to
me but as I had not mentioned torpedoes befoi*e he was unable to do so. He
Baid the main object of his visit was to tell me that if we wanted the business
we would have to deal through an office called " Tessund " which handles all
matters for the Minister of Defense. Two of the officers of the technical
committee, Escher Bey and Avni Bey, are in this business and that unless we
wished to discuss this with Tessund it would just be luck if we ever obtained
anything in Turkey. I told Escher Bey that I had nothing to do with that
end of the business but that I would speak to the Marquis and arrange a
meeting with him the following day. He agreed to this and left.
Was that Marquis, Pesano who was down there representing you,
as was Johnson?
Mr, Spear. Yes.
Senator Clark. He continues:
I told the Marquis the whole story and advised him that we would look
Into the matter and see just what could be done. The following day that
Marquis met Escher Bey and Ismail Hakki Bey at the office Tessund and they
asked for Turkish pounds 50,000 for their help in case we got a con-
tract. * * * —
That was about $25,000 in our money at that time, was it not,
Mr. Spear?
Mr. Spear. I think so, about that.
Senator Clark. The letter continues:
As 50,000 pounds would not lose us the contract in any case the Marquis
agreed to their terms and when he returned to Constantinople drew up a
paper before a notary agreeing to pay to Tessund 50,000 pounds in case we
received an order for a submarine, half to be paid with the order and the
other half in pi-oportion to payments received from the Government. The
first half was to go to the Minister of Defense. Tessund then told us that
we would receive a call from Colonel Edib Bey who is Tessund and the right-
hand man of Kiazim Pacha. Edib Bey called in due time and talked with
• us about the business. Said our great trouble was our very high price and
we went into detail explaining why our prices were high as compared to
foreign firms. He said that he was going to Angora soon and that he would
see the Minister.
MUNITIONS INDUSTRY 247
One reason the price had to be high was that you had to pay
50,000 pounds to the Minister of Defense and his friends, is that
correct ?
Mr. Spear. I do not think so. The price had all been settled
before that, so far as I Ivnow.
Senator Clark. The letter continues :
Wlien the Marquis joined me in Angora on the 27th of September Eilib
Bey was also there and it was through him we obtained tlie twelve-day
extension to submit a tender for the boat \\ith the deck tubes and the four
internal bow tubes. The INIarquis also saw Kiasim Pacha with Edib Bey and
started the conversations which finally led the Minister to promise the Marquis
two boats if we could give European prices for them. My letter no. 18
explains this matter.
Admiral Bristol's remarks about baksheesh do not hold good."
Do you know what he meant by that?
Mr. Spear. I think Admiral Bristol, who at that time was our
diplomatic representative in Turkey
Senator Clark. I know he was.
Mr. Spear. I think Admiral Bristol was quite pro-Turkish and
had reached the opinion that there had been a complete reform in
Turkey at that time and that baksheesh had died out.
Senator Clark. And Johnson found out that that was not true
very soon after he arrived in town. He continues in this letter :
We watched the office Tessund during our stay in Angor;i but (iid not see
any of our competitors enter there. De Per rot once told me that he had tried
to talk to Escher Bey but that he was turned down by him. So it appears
that they were not playing the game in every direction but acted on the square
with us.
In other words, Mr. Johnson thought there was honor even among
thieves, apparently.
This naturally brought up the question of the 5% to Ben Ayad. We told
the Prince that owing to the keen competition we would have to reduce his
commission and he agreed to accept one percent (1%). Thus to the price we
submitted with his one percent we added $25,000 to cover Tessund and also
for the necessary stamps duties we would have to pay in case we received a
fon tract.
Who was the Prince, Mr. Spear ?
Mr. Spear. I have a very vague recollection, Senator, that this —
whatever his name was —
Senator Clark. Ben Ayad?
Mr. Spear. Yes. He had approached us sometime before — not
us directly, but I think the Paris office and made some arrangement
with them to act for Turkey.
Senator Clark. And it was proposed to cut down his commission
from 5 percent to 1 percent?
Mr. Speajr. I should judge that would be the case from this letter.
Senator Clark (reading) :
Up to the time I left, a decision had not been given as to what firm would be
given the one boat but general opinion was that Chantiers de la Loire would
get it. It will be a French firm we knew. Just before the 28th of September,
General Mougin arrived in Turkey on a mission and was in Angora that week.
Edib Bey, who had told us that he would not go to Angora unless absolutely
necessary, left hurriedly for Angora in response to a wire from Tessund. Also,
just previous to that, France had given Turkey 50,000 pounds for the Ezerum
earthquake victims. Putting all this together and adding the remarks of the
248 MUNITIONS INDUSTRY
Minister to the marquis that he was " controlled ", it seems to me that it de-
veloped into a political question and Turkey repaid France by giving the French
firm the order for the first submarine.
The marquis had a very severe time of it with the Prince and worlied for 3
or 4 days with him to Iceep liini (the Prince) from making a scandal and
injuring our future chances in Turkey. The Prince when he heard tliat we
would not get the order went wild. He wanted to write open letters to the
Opposition press in Constantinople about the submarine business and also
wanted to send a telegram of protest to Ismet Pacha, the Prime Minister. For
3 days there was a struggle and at last the marquis convinced the Prince that
the only thing to do was to keep quiet and keep on fighting for the future. The
Prince agreed to this. Undoubtedly the l*rince ^^•as a great help in the be-
ginning and through him the marquis met Ohukri Bey and several other very
influential naval officers in Constantinople and who have and will do everything
in their power to help us in obtaining orders there. The marquis acted prop-
erly after he got to Angora and did not take the Prince into his confidence in any
way. That was why the Prince wrote to Captain Koster complaining about the
way he was treated. We were told by many people in Angora to get the
Prince out of that place as soon as possible and keep him away as he was doing
us more harm than good by his everlasting talking about things he knew noth-
ing about. We did get him away and he remained in Constantinople the rest of
the time. His uncle owns the paper of the Opposition and anyone connected
with that crowd is not at all welcome in Angora. Another thing the marquis
handled extremely well was the deputies.
Senator Clark. I take it " deputies " in this case correspond to
Senators and Congressmen over here?
Mr. Spear. I suppose so.
The Chairman. Did you say "correspond" or "resemble"?
Senator Clark. I mean they would have the same functions in
the government. [Reading:]
They hang about Angora and Constantinople trying to obtain their 1 percent
commission on orders for the Government and really do more harm than good.
They have no direct influence at all and only hope that luck will get them a
commission. The marquis was approached by any number of such men but
always turned them down. I, too, was approached in Angora by several men
but passed them by. Here, people have come to grief in their dealings in
Angora by mixing up with the deputies.
The marquis is in excellent relations with the Minister of Defense and the
oflieers of the technical committee. Abdul Rahim Bey is the only man I am
not sure of, but he is such a fool that one cannot expect anything from him
at any time.
The marquis is also in good relations with very prominent members of the
oppo.sition, including Enver Bey, Rizza Bey, and the leader of the opposition,
Renuff Bey, who was Prime Minister before Ismet Pacha.
The political situation in Turkey is serious and they expect a lively time
at Angora during the special session which met last Saturday. Kiasim Pacha
has held the office of the pre.'^ident of the national defense under both Prime
Ministers and, no matter what happens to the present Cabinet, Kiasim will
certainly remain at his post.
Chukri Bey, who is commander of all light craft and will also have tlie sub-
marines under him when tliey are in commission, has written to the Minister
of Defense protesting against awarding a contract for the submarine until
after he has had a chance to examine tlie various projects submitted and can
make his recommendations also. This the marquis asked of Chukri. Just
what will come of it I do not know btit, when I left, the rumor was about that
a special committee would be formed to examine into the plans. I wrote you
about that before but it then seemed to have died a natural death, but now
seems to have come to life again. Constantinople is full of rumors all the
time and one must use care in believing anything.
The marquis will stay in Constantinople until he receives the Y gun letter
and then will go to Angora and see the Minister about the ordnance business.
It is again a question of price, especially for the depth charges, and I sug-
gested to the marquis to make a strong talk about the safety features of our
type of charges. He has a copy of Winkler's letter to you, and there is also
a short notice in Jane about the charge.
MUNITIONS INDUSTRY 249
As soon as Mr. Calcagno returns we can set down to work and have the
offer for you in plenty of time. We have until the middle of November and
can probably get an extension if absolutely necessary, but I do not think
that it will be necessary. I can talk to anyone at C.N.R. now that Mr. Calcagno
is away and Ing. Ferrari has left. I can make Mr. Piaggie understand, but
in the technical office it is hard work. Use a mixture of English, French,
German, and Italian, and in that way can get things started, but I am not sui-e
at all times that I am understood.
Captain Battaglio is in Rome and last night I wired him that I would be here
for a week. This noon I liad a wire from him saying that he would be
here Friday. I will find out what the situation is in Italy and also about the
two destroyers C.N.R. are building at Riva Trigossa.
Senator Clark. Now, did anything come of all these negotiations
with Escher Bey and all of the other Beys ?
Mr. Spear. Nothing at all.
Mr. Carse. The Italians got the business.
Senator Clark. Now, in 1928, some several years afterward, you
resumed negotiations with Turkey again; did you not?
Mr. Spear. Yes.
Senator Clark. Your negotiations and your communication came
to you through Mr. Sterling J. Joyner.
Mr. Spear. Yes, sir.
Senator Clark. What is Mr. Joyner's connection with the
company ?
Mr. Spear. Vice president of the company, located in Washington.
Senator Clark. What are his duties in Washington?
Mr. Spear. His duties are to handle any business we have here
with foreign embassies, and things of that character.
Senator Clark. Does he occasionally do a little lobbying on naval
bills?
Mr. Spear. I do not know of any.
Senator Clark. Or on construction bills?
Mr. Spear. I do not know of any.
Senator Clark. He is vice president of your company?
Mr. Spear. Yes.
Senator Clark. I now direct your attention to a letter dated
January 19, 1928, from S. S. J. to yourself, which I offer as " Exhibit
No. 159."
(Said letter was marked "Exhibit No. 159", and appears in the
appendix on p. 427.)
Senator Clark. I note this letter is signed " S. J. J.", that would
be Mr. Joyner?
Mr. Spear. Yes ; that would be Mr. Joyner.
Senator Clark. I think this letter should be read in some detail
although I dislike to take the time. I will read it as follows :
Dear Lawrence: I ran into a situation that may prove to be veiT attrac-
tive and profitable. However, there are certain conditions that go with it
which are absolutely and positively part of the bargain or understanding at
the start — conditions over which I had no control, and which were not sug-
gested by myself, and which are most arbitrary because of the fact that this
whole proposition had been carefully canvassed before I was brought into it
at all. It has to be absolutely confidential in every manner, shape, and form.
However, for your information, on a separate card I will tell you who has
approved of the primary proceedings.
I have been in long conferences with no. 1, no. 2, and no. 3, with no. 3 and
no. 4 present and, secretly, this is the story : Because of certain conditions
developing in their country, and " forewarned being forearmed ", Kemal Pasha,
head of the Republic, has communicated with his representatives, nos. 1 and 2,
250 MUNITIO>rS INDUSTRY
expressing a desire to arrange to place orders in the United States immediately
for submarines, for antiaircraft guns, for aircraft, machine guns, and for
other necessary munitions for this equipment. When this request was for-
warded to nos. 1 and 2, they immediately took it up with no. 4, and nos. 1 and 2
discussed it with no. 4. I think nos. 4 and 5 discussed it between themselves.
Then it resolved itself upon the question of picking the man whom all parties
could tru.st. That party was no. 6.
Now, no. 6 was the man that was writing the letter.
Mr. Spear. I think so.
Senator Clark. He was the man that all parties could trust.
Mr. Spear. I think so.
Senator Clark. No. 1 was Ahmed Mouhter Bey, Turkish Am-
bassador; no. 2 was Ahmed Bedy Bey, counsellor; no. 3 was Kemal
Djenany Bey, second secretary; no. 4 was Admiral H. E. Long;
no. 5 was Admiral Hilar}^ Jones; and no. 6 was Mr. Sterling J.
Joyner.
Mr. Spear. Yes, sir.
Senator Clark. Who was Admiral H. E Long?
Mr. Spear. Admiral H. E. Long at that time was in active serv-
ice of the Navy and I think he was the president of the Naval Board.
Senator Clark. Who was Admiral Hilary Jones?
Mr. Spear. He is a very distinguished retired officer in the Navy.
Senator Bone. He had attended the Geneva Conference as an
attache, previously.
Mr. Spear. I think he was at both the Geneva and London Con-
ferences as one of the officers of the naval delegates.
Senator Clark. I read further from this letter as follows:
Of course, no. 6 was delighted to have an oppoi'tunity to discuss the matter..
Nos. 4 and 6 met with nos. 1 and 2 at uos. 1 and 2's I'esidence and had a very
long discussion. It was then and there decided that no. 6 was to proceed to
secure the information, arrange for a conference at no. I's residence, and to
bring about, if possible, a defensive program so far as the parties concerned
were in a position to prepare and supply. This will necessitate certain men
from various companies — after a conference here proceeding to Turkey and
conferring with Kemal Pasha and his officials for the closing of the orders,
meaning terms, payments, prices, deliveries, and types of equipment to b«»
approved of in Turkey. This may lead to program of reorganizing to a fair
extent their military program at this time. They hiive been buying large
supplies of material in England, France, and other countries. They are now in
a position to really purchase in the United States, and it is their desire and
absolute disposition to do so because they believe that the United States Gov-
ernment has no selfish interest from a territorial point of view, and that the
other nations really have. Also that the placing of the business in the United
States will equip them in a diplomatic way to treat on other subjects which
are being diplomatically considered at this time. The strength of our position
is the fact that we are the only ones called in and that we will be the ones who
will bring in the others, and that our position is absolutely confidential \ip to
this point, and that you and the writer will brhig nbout the meeting and
will from time to time have private conferences and that we will be in a position
to control the activities of anyone we bring in, i)rovided we are careful in our
choice and that we have the proper understanding in advance with those whom
we bring into the picture. The machine gun they have in mind is the Brown-
ing gun, which is m.inufactured by license through the Browning interests by
the Hartford, Colt Arms Company, of Hartford, Conn. They are also quite
willing to consider other machine guns. They have spoken of the Driggs Com-
pany. However, having had dealings with that company and with the most
friendly relations existing at this time. I do know their methods and strongly
recommend against even giving them a hint of a possibility of an alliance in
this business. I shall be glad to explain in detail.
The antiaircraft guns should be in line with our own recommendations and
types.
MUNITIONS INDUSTRY 251
The confidential feature of the matter is that no. 4 will really be the one
whom they will largely depend upon in private conference, and it was no. 4
who, through courtesy and kindness, brought me into the picture, on the advice
of no. 5. There are certain oriental conditions, quite confidential and personal,
which will enter into this matter, which we will also have to discuss and which
we will also have to control.
Do you know what those oriental conditions were?
Mr. Spear. I do not know what he had in mind.
Senator Clark. I read further:
The last part of the picture is that they insist that I close the contracts
with Kemal Pasha, and that such men as go over are simply technical experts,
because they do not want to complicate the situation with too many executives,
and unless these conditions can be met, they would discourage any further
consideration. They give us considerable latitude, saying that they are i)er-
fectly willing to have us recommend various companies, so long as we can
assume responsibility for their integrity and gTiarantee the quality of their
output. I can arrange quite readily any time for a conference at no. I's resi-
dence with you and such representatives of organizations that might be identi-
fied with our organization, and will do so after you have had a chance to
discuss the situation thoroughly with the people whom you care to bring into
the matter. So far, this is a cash proposition, properly protected and fortified
in a business-like way. In addition to that, there are certain military require-
ments that will be purchased, such as tanks, etc. Also guns, one-pounders, etc.,
which will be used for antitank warfare. Aside from the above, there are
certain industrial requirements, machinery and equipment for arsenal purposes
and commercial purposes, which will also be purchased.
This business will be without competition because of its confidential nature,
if I am correctly informed at this time. One of the essences of the whole
future is speed. If you can arrange with the Colt people, or any other people
who manufacture machine guns, to show to nos. 1 and 2 certain samples of
their guns, or in any case to present photographs, specifications, and such other
information as they may have available, it will serve the purpose of nos. 1
and 2 so far as their position here is concerned, and they in turn will then
communicate with Kemal Pasha and such other officials as are to be associated
in this matter, and make the necessary arrangements resulting from any deci-
sions arrived at during our conferences. Am quite interested in learning your
reaction just as soon as possible. Keep this entirely confidential, please.
Very sincerely yours,
(S) S. J. J.
Then there is a postscript as follows :
Since dictating the above, have talked to you on the telephone.
Now, Mr. Spear, what was done in pursuance to that communi-
cation ?
Mr. Spear. In pursuance of that I got in touch with Mr. Lowney
and the Wright Company.
Senator Clark. They make airplanes?
Mr. Spear. Yes ; they make airplanes, and I also got in touch with
the representative of the Colt Co. and those two gentlemen, myself
and Mr. Joyner held a conference with the Ambassador and his coun-
sellor in regard to this subject, at which time they discussed a great
many things they thought they were interested in. I do not recall
what the net result of it was except that we went over the whole
situation, endeavoring to check up whether Mr. Joyner had received
the correct impression. I got the impression from that conference
that the Ambassador who considered this matter was instructed by
the Pasha to make these arrangements in the United States.
Senator Clark. Were they executed here?
Mr. Spear. No, sir.
252 MUNITIONS INDUSTRY
Senator Clark. Did the scheme fall through?
Mr. Spear. It fell through.
Senator Clark. Now, Mr. Spear, or Mr. Carse either one, can you
tell us how long it has been the practice of the Electric Boat Co. of
using naval officers as agents?
Mr. Spear. It has never been our practice.
FOREIGN RELATIONS — JAPAN
Senator Clark. I refer you to a letter from Mitsui & Co., of Japan,
dated 34 Lime St., London, June 6, 1912, which I offer as " Exhibit
No. 160."
(The letter referred to was marked " Exhibit No. 160 ", and appears
in the appendix on p. 428.)
Senator Clark. This letter, " Exhibit No. 160 ", addressed to I. L.
Rice, Esq., President of the Electric Boat Company, London, reads
as follows :
In confirmation of the conversation the writer had witli you on the 4th
instant at the office of Messrs. Vickers L., Victoria Street, S.W., we beg to
record by this letter the arrangement made with reference to our sole agency
in Japan for the sale of your submarine or rearly submerged boats, on a
commission basis, as follows :
We undertake to exercise due diligence and to make our best endeavor
to secure orders, either directly or Indirectly, from the Japanese Government.
What is meant by " We undertake to exercise due diligence and
to make our best endeavor to secure orders, either directly or in-
directly, from the Japanese Government " ?
Mr. Spear. I do not know, sir. I do not think I ever saw this
letter in my life.
Senator Clark. I read further :
We will employ the services of Admiral T. Matsuo to cooperate with us
in securing such orders from the Japanese Government.
Do you know who Admiral T. Matsuo was ?
Mr. Spear. I have no direct knowledge.
Senator Clark. Do you know whether he is on the active list or
retired ?
Mr. Spear. I presume he was retired or they would not have been
so open in saying they had employed him.
Senator Clark. Reading further, the letter says :
On nil orders received by the Electric Boat Co., either directly or indirectly
they will pay a commission of 10 percent on the total value of such orders.
Out of this commission we agree to pay for Admiral jNIatsuo's services as
well as such other expenses as cablegrams and other incidental items. .
Payments in respect of the above commission to be made to us as and when
the p]lectric Boat Ca). receive payments in cash.
It is clearly understood that, notlnvithstanding the agreement now recorded,
we shall be at liberty to work for Messrs. Vickers L. for similar products
whenever we are called up(m to do so.
The agreement in question is terminable at any time by one year's notice to
that effect, given by either party.
We shall be glad to have your confirmation of the above.
Then that was confirmed by Mr. Rice ?
Mr. Spear. Yes.
(The letter of confirmation was marked " Exhibit No. 160-A",
and appears in the appendix on p. 429.)
MUNITIONS INDUSTRY 253
Senator Clark, Do you know how long that agreement was in
existence ?
Mr. Spear. No; but from memory I should say that expired
about — I think there is some mistake in copying tliat letter. I think
that is of a much earlier date.
Senator Clark. It is dated 1912, the copy I have.
Mr. Spear. The reason I say that, Senator, I recall having an
agreement, and this makes no reference to any previous agreement
of any sort from which you would infer one had previously existed
and it does not refer to being a modification or continuation, and it
is my knowledge that Mitsui was our agent in Japan as early as
1903, and I imagine this letter was 1902 instead of 1912.
Senator Clark. How long did they remain your agents over
there ?
Mr. Spear. I think they were our agents for about 6 or 8 years.
Senator Clark. Did you ever get any business out of them ?
Mr. Spear. Yes; we received one order.
Senator Clark. What was that order?
Mr. Spear. An order for some submarines.
Senator Clark. For the Japanese Government ?
Mr. Spear. Yes.
Senator Clark. You never licensed them to manufacture for any-
body except the Japanese Government?
Mr. Spear. We did not license them to manufacture for anybody.
We never had any license agreement with them. T]\ey acted merely
as our agents to sell our products in Japan.
Senator Clark. Wasn't that 10 percent you gave them an unusu-
ally large commission on submarine business ?
Mr. Spear. I should not think so at that time. I should say that
is about what the business was able to pay.
Senator Clark. Then, when it came along to 1926, you then found
Mitsubishi, a different concern, were manufacturing submarine boats
for the Japanese Government.
Mr. Spear. Yes.
Senator Clark. You suspected they were infringing your patents,
and I refer you now to " Exhibit No. 161 " offered in evidence, which
is a letter dated September 17, 1926, addressed to Mr. Spear from Mr.
Carse.
(The letter referred to was marked " Exhibit No. 161 ", and appears
in the appendix on p. 429.)
Senator Clark. This letter, " Exhibit No. 161 ", says :
Mr. Joyner has returned and has gone over things very elaborately with
us and, as previously advised you by cable and letter, he has in hand two
submarines of 2,500 H.P. ; two of 3,000 H.P. and two mine layers, also several
of the other vessels mentioned. There is no doubt from the details he has
gone over with us that he has this business in hand, and he having spent
two days at Groton with Mr. Sutphen, they feel there that the company can
without doubt fulfill the requirements. Mr. .Joyner sails on the Berengaria
on the 22nd and will meet you in London to discuss matters.
Were those boats to be constructed for Japan?
Mr. Spear. Yes.
Senator Clark. When you said, " Mr. Joyner has this business
in hand ", you were referring to Japanese business, Mr. Spear ?
Mr. Carse. I wrote that letter.
83876— 34— PT 1 17
254 MUNITIONS INDUSTRY
Senator Clark. You had in mind the Japanese business, when
you made that statement in the letter?
jNIr. Carse. Yes.
Senator Clark. I continue readinii; from this letter as follows:
He mentions tliat Jfitsnbishi has been building a large number of submarine
boats for .Tapan for some years b,i<-k and elaims that the boats are from our
designs. They have even been figuruig with tlie Argentine Minister about build-
ing the Argentine lioats in Japan. He staters that Viclier.s had a very large
oflice ut Mitsubislii's plant and that Vicivors has a claim against the Japanese
Government of twenty four million yen. but just what it covei's he does not
know exacrtly but has an idea there is something in it about submarine boats.
He states that Japan has offered Vickers twelve million yen in settlement, and
T have thought that perhaps we might have some interest in this claim.
li would seem as thougli Vickers had double-erossed us in Japan in not
having tlie contract executed by Mi^subislii which I sent tliem in 1916, which
pro\-ided for a royalty of ten per cent of the gross price. I know they have
given you an explanation that the British Government had given the plans of
the " k " boats to Japan and tliereforo Mitsubishi did not think it necessary
to go forward with our contract, but this might be something that would be
worth while your investigating pretty closely while in London. I do not
like to say anything harsh about Vickers because they have proved to be our
friends in' a number of other cases. You will see Joyner and he will give you
all this at first hand.
Did you pursue that investigation closely, Mr. Spear?
Mr. Spear. I looked into it as best I could. I think the question
referred to was as to whether or not the Vickers people had any right
or authority to make a license to Mitsubishi which allowed Mitsubi-
shi to think they could use our patents, and that had been discussed
with them before.
Senator Clark. Yes ; Mr. Carse says here :
I know they have given you an explanation that the British Government
had given the plans of the " K " boats to Japan.
What were those plans?
Mr. Spear. They were special plans of a boat built by the British
Government, a very high-speed boat.
Senator Clark. As I understand, the British Government had
given them those plans and they were not operating under your
plans, but operating under the plans given them by the British
Government, and they did not have to pay you anything.
Mr. Spear. That was the understanding.
Senator Clark. Did you have any other negotiations about it?
Mr. Spear. No ; it happened that we could not do anything, so it
was dropped.
Senator Clark. On page 2 the letter says :
Joyner, at request, is going to London to consult with Hayashi in regard to
the trip of the Prince here next year, and it is further intimated that perhaps
Hayashi has additional business. Matsaduria telephoned Joyner this morning
that his business would probably be increased to three of the smaller
submarines.
Now, who was the Prince ?
Mr. Spear. That was some Japanese prince arranging a visit to
the United States, Chicabu, I think.
Senator Clark. Joyner was arranging this trip for the Prince to
the United States, arid was called to London to make the arrange-
ment?
Mr. SuTPHEN. That was a brot^^er of the Emperor.
MUNITIONS INDUSTRY 255
Mr. Raushenbush. Senator Clark, Mr. Sutphen says that was a
brother of the Emperor.
Senator Clark. Down here it further says :
I have not heard anything from you in relation to the quotation on the cargo
vessels and Joyner seems to be extremely confident that the Japanese friends
will take six of our boats at at least $1GO,000 a piece. If this should he so,
we would of course prefer not to sell any more just now, especially at the
lower price.
What were those cargo boats, Mr. Spear ?
Mr. Spear. They were the same ones we have discussed before,
built by the Mitsubishi Shipyards.
Senator Clark. Did the sale of those boats go through?
Mr. Spear. No.
Senator Clark. What happened to it?
Mr. Spear. It just died.
Senator Clark. Did Joyner proceed and arrange for the trip for
the Prince?
Mr. Spear. I think he continued to arrange where he would go,
and made reservations.
Senator Clark. Still you did not get the business, although he
continued to entertain the prince?
Mr. Carse. We did not entertain the prince. The Prince of
Japan, I do not think, accepts those things. He was in mourning at
that time, because his brother had died.
The Chairman. He was different from the ministers from some
of these Balkan States?
vigkers
Senator Clark. Now. Mr. Spear, in 1930. you were informed by
Vickers they were making contracts for Portugal's business and
they were splitting that business with two other concerns. I refer
you to this letter which I will ask to be marked " Exhibit No. 162 ",
being a letter from Commander Craven dated November 28, 1930.
(The letter referred to was marked " Exhibit No. 162 ", and appears
in the appendix on p. 431.)
Mr. Spear. What is the question about the letter, Senator?
Senator Clark. They asked you again to cut your commission in
order to get that business?
Mr. Carse. I think they always did that.
Senator Clark. Did you do it?
Mr. Carse. I think I told them we would do the right thing that
was necessary, if they secured the business. I think they never se-
cured the business.
Senator Clark. He says they had the business, in this letter.
Mr. Spear. It was some time later they secured the business.
Mr. Carse. I suppose I met them half way; that was the usual
custom.
Senator Clark. Now, coming back to the Marquis Passano, how
long was he your agent over there, Mr. Carse?
Mr. Spear. I can tell perhaps better than Mr. Carse. From about
1912, I should say, until the second revolution in Russia he was our
representative in Russia. We had licensees there who did the busi-
ness for the Government, but he was our representative. As Mr.
Carse told you a while ago, he came to this country, and he stayed
256 MUNITIONS IXDUSTRY
for a while, possibly a year or more, then we moved him on to Eu-
rope, and he was attached to our Paris office up until we closed the
office about 1930 or 1931. He has subsequently died.
Senator Clark. Was he in the employ of your company when he
died?
Mr. Spear. No,
Senator Clark. I refer you to your letter of April 13, 1925, which
I ask to be marked " Exhibit No. 163."
(The letter above referred to was marked " Exhibit No. 163," and
appears in the appendix on p. 431.)
Senator Clark. To quote this letter of yours of April 13, you had
concluded that the whole record of Passano for 4 or 5 years seems
to be a regular opera bouffe, and yoii said you could not let him
know Koster had anything to do with his expense account, because
he would run Koster crazy, deviling him for money for expenses.
Yet, in spite of that, Passano received more compensation than
Koster?
Mr. Carse. He did; yes.
Mr. Spear. That was on account of the franc depreciation.
Mr. Carse. Yes; his contract was in dill'erent money. But you
know you cannot always do business the way your business judgment
dictates. You have to have a heart sometime. Passano had worked
very earnestly in our favor in Russia, and he had been driven out
with his wife and boy, and the boy was not just exactly all there.
He had a daughter that was left in the interior of Russia and I had
located her; she had not been killed. Passnno was a great big fellow
with big bushy whiskers and carried himself like the emperor of the
world. He had used up the commissions we paid him when he came
from Russia, and if we had thrown him overboard, I do not know
what would have happened, and naturally we kept him on the pay
roll.
Senator Clark. You did finally fire him in 1927, in spite of the fact
you did not know what he would do to keep from starving ?
Mr. Carse. His wife had had a very serious illness and had died.
We hacl advanced them money at that time for expenses in the hos-
pital, and so forth, which he repaid, but times were getting so that
our own finances were in such a position we had to stop and figure
where we were going to get the money from, and as that office had
not produced any money for a very long period of time, we had to
take the bit in our teeth and do what was absolutely necessary. As I
say, we hesitated and dragged along for some time, because it seemed
cruel to treat a man, who had given us the best he had, any other way.
Senator Clark. Mr. Carse, did you pay Koster in shares in your
company at any time?
Mr. Carse. No.
Senator Clark. He bought shares.
Mr. Carse. Yes; he bought shares.
Senator Clark. He mentions in the letter he had 3,400 shares in
your company.
Mr. Carse. Yes, sir.
Senator Clark. Do you know whether he still has them?
Mr. Carse. I do not think so. There is no indication he has.
Mr. Spear. I understand he does not have them.
MUNITIONS INDUSTRY 257
Senator Clark. Now, Mr. Spear, in this letter from Carse about
the Japanese business to which I referred a moment ago, it winds up
with the statement, " If you see Sir Basil give him my very best re-
gards." Did you see Sir Basil on that trip?
Mr. Spear. Yes, sir.
Senator Clark. Did he have anything to do with the Japanese
business ?
Mr. Spear. Not a thing.
Senator Clark. Did he have any connection with you at any time
except on the Spanish business?
Mr. Spear. Yes ; at one time he did.
Senator Clark. What was that aside from the Spanish business?
Mr. Spear. From 1902 or 1903 to about 1912 he was our general
representative for continental Europe, and about 1912 or 1913 Mr.
Rice, then president of the Electric Boat Co., terminated that, and
thereafter he has had no connection with our business except, as we
already know, the Spanish business.
Senator Clark. I direct your attention to a letter dated August
11, 1933, when you were contemplating a trip to Europe, which I
offer in evidence as " Exhibit No. 164."
(The letter referred to was marked " Exhibit No. 164 ", and appears
in the appendix on p. 432.)
Senator Clark. In this letter, which is from Mr. Carse, on page
1. he says:
There is notliing oi importance for i:.s in Europe except the Lanova develop-
raut at Munich, where Mr. Nibbs will be.
What was the Lanova development at Munich ?
Mr. Spear, That was an improvement on an engine. We had
built up a new engine and it was in a laboratory in Munich and it
was being tuned up under the direction of an engineer named Lang.
Senator Clark. I read further from this letter:
If, however, you should visit Spain, while a rumor was current sometime
ago that Sir Basil Zarahoff had died, I saw an article in one of the papers a
lew days later denying the early statement and declaiming that he was
apparently in very good health ; so that if Sir Basil is still alive, we would
not be at liberty to discuss with either the Spaniards or with the Vickers
any modification of the current agreement with the Spanish concern, as that
is absolutely the business of Sir Basil.
Senator Clark. Did you see Sir Basil on that trip ?
Mr. Spear. I did.
Senator Clark. You found him still alive?
Mr. Spear. He was still alive ; yes, sir.
Senator Clark. Now, in 1929 Mr. Koster proposed to you that he
go to the Naval Conference at London as your representative, did
he not ?
Mr. Spear. He did ; yes, sir.
Senator Clark. I offer a letter from Mr. Carse to you, Mr. Spear,
under date of November 20, 1929, as " Exhibit No. 165."
Mr. Spear. Yes, sir.
(The letter referred to was marked " Exhibit No. 165 ", and appears
in the appendix on p. 433.)
Senator Clark. And Mr. Carse very definitely turned down this
representation ?
Mr. Spear. Absolutely, and told him to stay away.
258 MUNITIONS INDUSTRY
Senator Clark, He said in that letter:
The conference will work itself out in its own way and without any advice,
assistauce or interference, actual or claimtMl, on the part of any of our repre-
sentatives.
Mr. Spear. Yes, sir.
Senator Clark. Mr. Joyner was actually there, was he not?
Mr. Spear. No, sir.
Senator Clark, He was not?
Mr. Spear. No, sir.
Senator Clark. What was your contract with Vickers with re-
gard to paying them for contracts made by your own licensees in
Dutch territory ?
Mr. Spear. Let me see if I get the import of that. Paying them
for contracts? You mean paying them something for work done
by our licensees?
Senator Clark. Yes, sir.
Mr. Spear, That is all covered. Senator, in the agreement which
has been spread upon the record, I thing that is what you refer to.
If 5'ou will let me see the letter I can tell.
Senator Clark, I do not believe it is of any importance; if it is,
I can come back to it. That is all I have.
Senator Vandenberg. I would like to ask Mr. Spear a general
question. Mr. Spear, has there been any commercial utility de-
veloped with respect to submarines?
Mr. Spear. So far as submarines themselves are concerned, noth-
ing of any importance, Senator.
Senator Vandenberg. In other words, the submarine is exclusively
an instrumentalitj^ of war?
Mr. Spear. Yes, sir.
Senator Vandenberg. Then if the Government, either in the
United States or in conjunction with other governments, were to
undertake to control the submarine business, there would be no diffi-
cult question arising as to whether or not there is anything except
a war use involved for the submarine?
Mr. Spear. No; the few applications which have been made in a
very minor way to use it commercially are of no importance, Senator.
Primarily it is a defensive weapon in war.
Senator Vandenberg. It would be the simplest possible thing to
use in the curtailment of war instrumentalities, in that it would not
involve anj^ collateral uses?
Mr. Spear. That is true of all types of war vessels.
Senator Vandenberg. It is not true of airplanes and so forth.
Mr. Spear. No; not strictly of airplanes. It is of war vessels.
Senator Vandenberg, Let me ask you this question : If the sub-
marine production, being the production of a war instrumentality,
were controlled exclusively in the United States, the net result would
simply be to leave this field open in other countries. Is that cor-
rect?
Mr. Spear. Yes, sir.
Senator Vandenberg. Now, will you state for the record what
countries would have to join in an international agreement in order
completely to control a submarine situation ?
MUNITIONS INDUSTRY 259
Mr. Spear. Great Britain. France, Italy. Spain, Russia, Holland,
Denmark, Sweden, Nor\va,v, Finland, Argentine, Brazil, Peru, Yugo-
slavia, Rumania, and Turkey.
Senator Vandenberg. Japan?
Mr. Spear. I should have mentioned Japan if I did not — Japan
and Chile.
Senator Vandenberg. In other words, there is submarine produc-
tion in all of those countries?
Mr. Spear. No, sir; there is not submarine production in all of
those countries. They all possess submarines. Some of them ac-
quire them and some of them have no facilities for building them.
Was your question directed to where they are produced?
Senator Vandenberg. I am asking about the production.
Mr. Spear. Then I will give you a different answer. Great Brit-
ain, France, Italy, Spain, Holland, Denmark, NorAvay, Sweden, Rus-
sia, and I am not sure Yugoslavia, because there was a place down
there wdiich I do not know who got it. I am not quite sure of them,
but I do not think they belong in the picture.
Senator Vandenberg. You have not mentioned Japan in this list.
Mr. Spear. Japan. There are no South American countries which
produce them now. I suppose we should mention Canada, because
they have been produced in Canada in the past.
Senator Bone. Germany has facilities for producing them?
Mr. Spear. They have the facilities, but they are restricted by the
Versailles Treaty.
Senator Bone. I understand that.
Mr. Spear. If that were abrogated, you would have to add Germany
to the list.
Senator Vandenberg. This list which you have now indicated
would include all the countries which at present produce submarines
or have production facilities ?
Mr. Spear. I would not say it includes all the countries which
possess production facilities, but I would say it includes all the
countries which possess the facilities, together with the other things
which go with it, like an organization and some experience. You
might have the facility to do it and could not do it if you did not
have the proper direction and knowledge, but those countries all
produce submarines and have for a great many years past.
Senator Vandenberg. Then an effective, world-wide control of
existing production would require the cooperation of all these
countries which you have indicated?
Mr. Spear. All of these countries which I have mentioned.
The Chairman. I am sorry to have to say to the witnesses that we
have not accomplished our purpose in getting through by 1 o'clock.
We must take a recess at this time until 2 : 15. I have good reason
to believe that an hour more after we reconvene will enable you to
be excused. So, if you will be back at 2 : 15, we would appreciate it.
Until that time the committee now stands in recess.
(Thereupon the committee took a recess until 2: 15 p.m.)
260 MrNITIONS INDUSTRY
AFTERNOON SESSION
UNITED STATES GOVERNMENT RELATIONS
(The committee reconvened at 2 : 15 p.m., pursuant to the taking
of recess.)
The Chairman, The committee will be in order.
The August 4, 1934, issue of The Economist, a British publication,
contains a study revealing the interlocking interests of Vickers, a
part of which I think properly belongs in the record of this hearing,
and I offer it as " Exhibit No. 1C6."
(The statement referred to was marked "Exhibit No. 166" and
appears in the appendix on p. 433.)
The Chairman. Mr. Spear, just a little in furtherance of matters
with which we have already dealt: What is Eear Admiral A. T.
Long doing at the present time?
Mr. Spear. He is in the marine geographic section under the
League of Nations, I believe, and the director of that is elected by
the different nations, and, so far as I know, he has always been a
retired naval officer. It has to do with oceanography and that sort
of thing.
The Chairman. I think you testified that he had been a delegate to
the conference in Geneva.
Mr. Spear. Not a delegate. I think he went as one of the technical
advisors to the delegates. I do not think he was a delegate.
The Chairman. Under date of April 9, 1925, from the State
Department there comes a release to the press announcing as follows :
The President has designated the following as the American delegates to
the conference to be held at Geneva on May 4 to consider the conclusion of
a convention with respect to the control of the international trade in arms,
munitions, and implements of war :
Hon. Theodore E. Burton, chairman.
Hon. Hugh S. Gibson, Am. Minister to Switzerland, v. chrman.
Adm. A. T. Long, Navy Dept.
Allen W. Dulles, Chief of the Div. of Near Eastern Af., Department of
State.
Brig. Genl. Golden L'H Ruggles, Asst. Chief of Ordnance.
In addition, attached to delegation as technical advisors and secretarial
staff:
Mr. Chas. E. Herring, Commercial Attach^ at Berlin.
Mr. Alan F. Winslow, Secy of Legation at Berne.
Maj. Geo. V. Strong of tlie War Dept.
Commander Herbert F. Leary, U.S. Navy.
Does that serve to freshen your memory ?
Mr. Spear. Yes, sir. 1 was obviously mistaken in thinking he was
merely an adviser.
The Chairman. You do not know whether there was any change
from this order at that time?
Mr. Spear. I do not knoAv about any change. It was just a mis-
taken recollection as to his exact status.
The Chairman. Mr. Spear, you have testified that you had access
to the United States Departments of Government in furthering
your negotiations abroad for contracts. In your contact with the
State Department, for example, who there principally was the one
dealing with matters in which you were interested?
Mr. Spear. It depended, Mr." Chairman, upon the country that was
up. I'he State Department is so organized into sections that a
MUNITIONS INDUSTRY 261
different personnel, for instance, would be dealing- with it if it were
Rumania, and another set of gentlemen would be dealing with it
if it were some other country. So that it would depend upon what
country was in question who the personnel would be which you
would discuss it with.
The Chairman. Then, I take it, your contact was not of necessity
directly with the Secretary of State.
Mr. Spear. Very seldom.
The Chairman. Very seldom?
Mr. Spear. I do not know when it ever was personally. A few
letters were written to him, but, so far as I am concerned, I never
myself discussed anything with the Secretary of State.
The Chairman. Through your own contacts with these depart-
ments, is it not true, as a general thing, that those whom you have
had to deal with have been men who have served through various
administrations ?
Mr. Spear. As a rule I think so. They have been gentlemen who
have been connected there for some years with the Department,
although there would be changes from time to time.
The Chairman. Mr. Spear, I offer as " Exhibit No. 167 " a letter on
the stationery of the Electric Boat Co., addressed to Mr. Lawrence
Y. Spear, signed by Luis Aubry.
(The letter referred to was marked " Exhibit No. 167 " and appears
in the appendix on p. 434.)
The Chairman. In that letter, " Exhibit No. 167 ", Mr. Aubry says :
I am glad to know, that you with your extraordinary foresights could see
trouble ahead, by having any contract with Shearer.
Mr. Spear. Yes, sir.
The Chairman. Do you know Mr. Shearer?
Mr. Spear. I have met him ; yes, sir.
The Chairman. I think you have testified that you never utilized
his services.
Mr. Spear. In no respect whatsoever.
The Chairman. Never contributed to his employment?
Mr. Spear. Not one cent.
The Chairman. Wliat is the meaning of this language here which
rather indicates that had you used him, there would certainly have
been trouble ahead?
Mr. Spear. I think that I had probably indicated — I am speaking
by inference now, Mr. Chairman — I should judge from that, that
I had probably indicated to Commander Aubry, in speaking of the
matter, that the thing was obvious to my mind, that employment
by a private concern was a matter that we
The Chairman. This letter is dated the 9th of October, 1929.
Mr. Spear. Yes, sir; I think that was after the episode.
The Chairman. Shearer was in rather bad repute at that time?
Mr. Spear. Yes, sir.
The Chairman. Mr. Aubry's letter goes on to state:
I am afraid that the British-American negotiations, will tend to stop for
some time any activities in regard to armaments in these countries, who are
so emotives, and liable to copy.
Mr. Spear, what is the meaning of that?
Mr. Spear. I think at that time, Mr. Chairman, either the London
Conference was going: on or there were some other neofotiations,
262 MUNITIONS INDUSTRY
public negotiations, relating to the question of the limitation of
armaments, and I think that the thought which he is trying to ex-
press is that the minor countries of that sort, are apt to copy what
the bigger countries do.
The Chairman. I notice the word he resorts to there, that is
" emotives."
Mr. Spear. He means emotional, sir. His English is not always
perfect. He means that they are not governed simply by cold logic,
or some other choice of words.
The Chairman. In other words, these negotiations being entered
into between Great Britain and the United States and other powers
would naturallj'^ be reflected in the action of the other countries,
that is what he has in mind ?
Mr. Spear. Yes, sir; I think that is the meaning.
The Chairman. He goes on in that letter to state :
I am expecting soon the data that you request regarding sea-keeping ability,
and so forth, of the submarines from Burnett, and will send to you immediately.
Who is Burnett, and what is the meaning of that paragraph ?
Mr. Spear. Burnett was a member of the American Mission, an
expert submarine officer with the American Naval Mission to Peru
at that time, Avho had under his charge the submarines which we had
built for Peru, and I wanted to find how those boats were behaving
at sea, and whether they were satisfactory.
The Chairman. I offer for the record a letter dated June 18, 1919,
addressed to Sir Trevor Dawson, in care of Vickers Limited, London,
which is not signed, and on which there is no indication of who the
writer might have been. Mr. Spear, can you identify who was the
writer of this letter?
Mr. Spear. According to this copy I have, apparently Mr. Carse
wrote it.
The Chairman. Mr. Carse wrote it?
Mr. Spear. So it indicates here. It says, " Signed, H. R. Carse."
The Chairman. My copy has nothing to indicate the writer of the
letter. What is the indication on that copy?
Mr. Spear. It says, " Signed— H. R. Carse."
Mr. Carse,. That is written in there.
The Chairman. Is that the letter of June 18, 1919 ?
Mr. Spear. That is Hie letter of June 18, 1919.
Mr. Carse. Somebody wrote on there in pencil. I do not know
whose handwriting it is.
The Chairman. Perhaps it is not so necessary to identify who the
writer of the letter was, as to determine the facts with which it is
concerned.
The third paragraph of the letter states :
We take this opportunity of confirming our cablegram to you extending our
most sincere congratulations upon the magnificent performance of the aero-
plane constructed by your organization, and if it should be your wish to have
this company work in conjunction with you in relation to aeroplane matters
that it is a subject we would also be very happy indeed to discuss with you in
detail.
Evidently a new plane had been developed by Vickers that might
find a market liere in our own country.
Mr. Spear. Yes, sir ; there was.
Mr. Carse. There was.
MUNITIONS INDUSTRY 263
Mr. SuTPHEN. An amphibian. That was the one which first
crossed the Atlantic from Nova Scotia to Ireland.
The Chairman. Had your firm ever been interested in aero-
nautics or related subjects?
Mr. Spear. We never got actively into it, Mr. Chairman. We con-
sidered it at one time.
The Chairman. Was this your first thought, that maybe it was a
field which might be profitable to you?
Mr, Carse. No; we had had the thought before, at the time that
the Wright-Martin patents were bought by some people in New York,
and everybody was talking about seaplanes then, boats, and they had
had a great deal of trouble in building a wooden boat that would
stay tight on striking the surface. Some of the boats up at Ham-
mondsport, the Curtiss boats, had difficulty getting off the water,
after being in a little while, and they got water-logged, and we
thought we could build those boats at our motor boat plant and took
it up with those people at that time, but they concluded to do all
their construction themselves. So that we have never done anything.
The Chairman. You have never gone into that field at all?
Mr. Carse. No. sir.
The Chairman. The negotiations never went much beyond this
point with Vickers?
Mr. Carse. The negotiations never went much beyond this point
with Vickers.
The Chairman. All right, the letter of June 18, 1919, will be re-
ceived in the record as " Exhibit No. 168."
(The letter referred to was marked " Exhibit No. 168 " and appears
in the appendix on p. 435.)
SUBMARINE BUILDING OPERATIONS DOMESTIC AND FOREIGN
The Chairman. I now offer as " Exhibit No. 169 " a letter addressed
to Sir Trevor Dawson. That letter is dated February 5, 1924.
(The letter referred to was marked " Exhibit No. 169 '' and appears
in the appendix on p. 435.)
The Chairman. I take it that the letter of February 5, 1924, " Ex-
hibit No. 169 ", was signed by Mr. Spear. It is not signed, but the
initials "L. Y. S." appear. I would call your attention, Mr. Spear,
to the reference which this letter has to your Finnish business.
Mr. Spear. Yes, sir.
The Chairman. It reads in part as follows:
Referring to your cable of January 22nd reading as follows:
" Many firms will compete Finland including Norman Thornycroft. Stop.
Consider it advisable we should compete as well as you including Finland in
mutual countries. Stop. Please cable."
And you replied to Mr. Dawson at that time as follows :
On account of contract with Sandviken impossible to include Finland in
mutual countries now. Stop. Matter really is not urgent. Will write.
Perhaps I am repeating, but what is Sandviken ?
Mr. Spear. Sandviken is a Finnish shipbuilding company which
then held our license.
The Chairman. So that you were rather duty bound not to bid,
not to offer any proposal in these countries in which you had
extended licenses?
264 MUNITIONS INDUSTRY
Mr. Spear, We could not properly do so. They had the ri<i:ht,
unless they chose to modify it.
The Chairman. On the tliiid page of that letter, Mr. Spear, I
find this language [reading] :
Mr. Carse and I both think that we had bettor postpone discussion of tlie
tinniuial arran.;;'cments between you and us until we know wliat terms can be
made witli Sandviken and have a clearer idea as to price and profit possibilities.
In this connection, I hope it may be possible to arrange the matter so that
any contracts for you wliich may result will pass through us so that we can
avoid the British income tax. Obviously, any saving which we can make in this
way would benefit the whole situation.
What was the difficulty being experienced at that time which occa-
sioned any understanding?
Mr. Spear. I do not know that there was any particular difficulty
at the time, Mr. Chairman, but there was at that time a very high
income tax in Great Britain, and these were technical matters as to
how to handle your business. If it was handled one Avay, it was
made subject to a tax, and, as we understood it, if it were handled
another way it would not be subject to that tax. We were seeking,
if anything did result from it in which they had any interest, that
instead of having the matter go to them and pay a very heavy income
tax, they should come to us and pay a smaller one.
Mr. Carse. On our part.
Mr. Spear. In other words, our part would be taxed in Great Brit-
ain and here also, if it passed through a certain channel.
Mr. Carse. If it passed through Vickers' accounts. If it passed
through our accounts, our portion would be subject to the United
States tax and Vickers' would be subject to the British tax; while if
it passed through Vickers' accounts, both Vickers' and ours would be
subject to the British tax and then the balance which we got would
be subject to the American tax.
The Chairman. On December 28, 1928, Mr. Carse, you addressed
a letter to Capt. L. F. Orlandini, New York city, which I offer as
" Exhibit No. 170."
(The letter referred to was marked " Exhibit No. 170 ", and appears
in the appendix on p. 436.)
The Chairman. In the third paragraph of that letter of December
28, 1928, " Exhibit No. 170 ", you state :
In relation to our arrangement with shipbuilding companies in foreign
countries, our agreement with Vickers Limited in Great Britain dates from
1901 and has many years yet to run. This in general provides that we shall
furnish all information, data, plans, etc. required in the construction of the
subm.irine boats, giving sui)erintendence if so desired, and payment to us is
arranged in different ways. We have or have had agreements somewhat
similar in form to that of Vickers v>ith leading shipbuilding concerns in
Holland, Belgium, Norway. Russia, France, Spain, Italy, and Japan, so that
the Electric Boat Company is able with perfect confidence to enter into con-
tracts for the building of submarine boats in any part of the world which
the buyer may choose, the cost varying in accordant: with the basic price of
labor in the different countries together with facilitie.s of transportation, manu-
facture, etc.
In just wliat respect did your contracts with these others resemble
your contract with Vickers?
Mr. Carse. They were based on Vickers' contract. I think they
were practically the same.
Mr. Spear. They were based on the original Vickers' contract.
MUNITIONS INDUSTRY 265
Mr. Carse. They were based on the original Vickers' contract,
practically, providing that we were to get a certain share that niight
be realized, a certain share of the profits derived from the business,
and we, in exchange, would give them the right to use our patents
and give them advice and supply plans and all that sort of thing.
The Chairman. In this letter I note the fact is raised that you
could build these boats cheaper in some lands than you could in
others. Did that fact largely influence the place where your boats
were built during these years?
Mr. Carse. I am sorry to say that it did not help us any because
we did not build any in any of these licensees' countries. We did
not take any business from"^a place like Argentina to any of these
licensees, because Argentina went direct to Italy.
The Chairman. On December 27, 1926, Mr. Spear, you wrote
a letter to Mr. Carse which I would like to offer as " Exhibit No. 171."
In that letter you stated :
In connection with the inquiry of the Argentine Naval Commission, I am
enclosing you herewith duplicate and up-to-date memorandum sliowiug sub-
marines constructed and under construction by ourselves and licensees.
Very sincerely yours,
(Signed) L. Y. Speab.
Attached to that letter is a statement which I think you have
before you now, and which will be included as a part of " Exhibit
No. 171 ", being a statement of the submarines built by Electric Boat
Co. and its licensees.
(The document referred to was marked " Exhibit No. 171 ", and
appears in the appendix on p. 437.)
The Chairman. I am not going to bother reading all of that
statement, which is a part of " Exhibit No. 171 ", but you contend that
at that time you had built 391 submarines. Does that mean from the
inception of your business ?
Mr. Spear. Yes, sir; that is from the beginning. That included
all we built ourselves and what were built by any concern which
held a license from us.
The Chairman. Of these 391, am I right in understanding that
165 of them were built in the the United States in your own yards ?
Mr. Spear. I observe that there is one thing which is not quite
right there. Great Britain is wrong. That number should have
been 10, and the rest should have been Canada. There "is an error
there, Mr. Chairman.
The Chairman. That should be corrected in the statement, and
where it shows that the submarines constructed by the Electric Boat
Company in the United States for Great Britain were 22, it should
be 10?
Mr. Spear. Yes, sir.
The Chairman. And that would mean 153 instead of 165?
Mr. Spear. That is correct, sir.
The Chairman. This statement shows that in the United States
you constructed boats to the number, then, of 153; for the United
States 115, for Great Britain 10, for Russia 12, for Italy 8, for
Japan 5, for Peru 2, and for Spain 1.
Mr. Spear. By the way, there is another error, I am sorry to say,
Mr. Chairman. Those Italian boats were built in Canada.
266 MUNITIONS INDUSTRY
The Chairman. Built in Canada?
Mr. Spear. Yes, sir; eight Italian boats there were built in
Canada.
The Chairman. Who builds in Canada?
Mr. Spear. We built them.
The Chairman. You have yards there?
Mr. Spear. No, sir ; but we obtained the use of the facilities of a
shipyard, made an arrangement witli them, and we constructed them
ourselves.
The Chairman. The balance of the statement reveals the ships
which were built under your licenses elsewhere ?
Mr. Spear. Yes, sir. That corrects my guess of this morning.
Senator, as to the number.
The Chairman. Did you lease these Canadian yards?
Mr. Spear. We temporarily leased them. We did not enter into a
definite lease with them for any definite period of time, but made an
arrangement with them to use their facilities for the construction of
those particular vessels.
The Chairman. Did you take American labor up there to do the
work ?
Mr. Spear. Very largely; yes, sir. Some local and some Ameri-
can.
The Chairman. Is there skilled labor in Canada?
Mr. Spear. Yes, sir; there is some shipbuilding in Canada and
some shipbuilding trade labor is available there; not very much,
but some.
Mr. Carse. The vital men we took from the United States.
The Chairman. On April 20, 1927, Mr. Craven of the Vickers Co.
wrote you a letter, which I will offer as " Exhibit No. 172."
(The letter referred to was marked " Exhibit No. 172 " and appears
in the appendix on p. 438.)
The Chairman. In this letter, " Exhibit No. 172 ", it makes ref-
erence to the trial of one Mayers on serious charges. Who was
Mayers ?
Mr. Spear. He was an ex-British naval officer who got himself
in trouble. With the consent of the Admiralty he left the Admiralty
and retired and entered into the employment of Vickers. He was
charged by the Admiralty, and I think he was convicted of it, of
taking away when he left the Admiralty information that he had
no right to take. I know there was a public trial about the matter.
Mr. Carse. He came to us and endeavored to persuade us to employ
him, but we considered that we did not want him.
The Chairman. And he pretended to have information that might
be valuable to you?
Mr. Spear. He did not say that he had information, but he pre-
tended to me that he had made, as an operating submarine officer,
studies of the actual United States submarines which demonstrated
to his satisfaction that all submarines ever built weie all built wrong,
and that they should all be radically changed, and if he entered into
our employ he would tell us all about it.
The Chairman. What is Mr. Craven's interest in advising, as he
does, concerning this?
Mr. Spear. He knew that that man had been here to see me, to try
to get employment from me.
MUNITIONS INDUSTRY 267
The Chairman. Wliich accounts for him writing you 20 days
later, on the 10th day of May 1927, keeping you advised ?
Mr. Spear. Yes, sir.
The Chairman. I will offer that second letter as " Exhibit No. 173."
(The letter referred to was marked " Exhibit No. 173 " and appears
in the appendix on p. 438.)
The Chairman. And he advised you in this letter which has been
offered as " Exhibit No. 173 " that he himself had been called as a wit-
ness for the defense in this action against Mayers?
Mr. Spear. Yes, sir.
The Chairman. Was this embarrassing to him or to you?
Mr. Spear. It was not at all embarrassing to me. I do not know
whether it embarrassed him or not, Mr. Chairman.
The Chairman. Was the Lieutenant Commander dimming who
is referred to in that letter of May 10 an American?
Mr. Spear. No ; he was a British naval officer.
The Chairman. I will offer as " Exhibit No. 174 " a letter dated
June 18, 1931, addressed to Mr. Carse by Mr. Spear.
(The letter referred to was thereupon marked "Exhibit No. 174"
and aj)epars in the appendix on p. 439.)
The Chairman. In this letter, Mr. Spear, you say :
* * * we have a free hand all over continental Europe, except in Spain,
and can do what we like.
What is the meaning of that ?
Mr. Spear. Where do we find that, Mr. Chairman?
The Chairman. The last sentence of the letter.
Mr. Spear. If you will refer to the first paragraph, you will see
that I there advised Mr. Carse that the various license agreements
that had existed on the continent of Europe had all been canceled,
except with Spain and those of Cockerill for Belgium and Burger-
hout for Holland. So that outside of that we have no commitments
on continental Europe.
The Cpiairman. Well, speaking of a free hand, did not there
enter into that consideration the thought that you did have the
upper hand by reason of the patent holdings that were yours?
Mr. Spear. No, sir ; all I meant to convey was exactly what I have
said there, that in all those other countries we were not restricted
in what we might want to do by any existing license agreements.
The Chairman. Mr. Spear, something was said this morning about
the possibility of a world monopoly. I think you showed that there
were many concerns manufacturing submarines that would have to
be included to form a monopoly.
Mr. Spear. Yes, sir.
The Chairman. What of the situation here in the United States?
Do you not have what amounts to a monopoly ?
Mr. Spear. At the present time we are the only private builder
who specializes in that work. We are the only private builder who
is now doing any of that business.
The Chairman. How many plants in the world are operating
without licenses from you, in the manufacture of submarines?
Mr. Spear. You will have to give me a moment to try to count in
my mind and you must not take this as an exactly accurate state-
ment.
268 MUNITIOXS INDUSTRY
The Chairman. I hope that you will not include governments
that are doing their own building.
Mr. 8peak. No, sir; I will leave those out. You mean private
concerns ?
The Chairman. Yes.
Mr. Spear. I should say approximately 20.
The Chairman. Approximately 20?
Mr. Spear. Yes.
The Chairman. That are not using your patents?
Mr. Spear. Oh ! — I did not quite understand the question.
The Chairman. Let us get it straight. These 20 to whom you
refer, how do you consider that they are not in any way related
to you?
Mr. Spear. Well, they are not; they have no relationship at all.
The Chairman. No license running between you and them?
Mr. Spear. In the 20 that I gave you as an approximate figure,
that did include 2 or 3 concerns that still have a license — 2, I think.
In other words, in the 20 there would be 2 or 3 which hold a license
from us.
Senator George. How many concerns in foreign countries hold
licenses from you, if you are able to saj^?
Mr. Spear. There are only two who now hold licenses.
The Chairman. Only two?
Mr. Spear. Yes, sir.
The Chairman. Have not most of them held licenses at some time
or other?
Mr. Spear. No, sir.
The Chairman. They have not?
Mr. Spear. No.
The Chairman. What of the situation here at home ? How many
American companies have sought a license from you?
Mr. Spear. I do not think there has ever been any American com-
pany that sought a direct license from us.
The Chairman. You never have had to deny any American re-
quest then for the opportunity to build submarines ?
Mr. Spear. No.
The Chairman. So that if ,vou have what amounts to a monopoly
here in America it is quite strictlj^ so because no one has ever sought
to become competitors ?
Mr. Spear. No. We had a competitor for a good many years.
Then we have had people who sought to become competitors, but
they did not seek to become competitors as licensees of ours; they
did not come to us for licenses.
Senator George. How many American concerns have in the past
manufactured submarines ?
Mr. Spear. Two.
Senator George. Besides your company ?
Mr. Spear. Besides ourselves.
Senator George. When did they operate?
Mr. Spear. One of them continued to operate. Senator, until after
the war. The other one, which was the old Cramp Shipbuilding
Co., a ver^ well-known company — their operations were quite limited
and terminated I think about 1910 or 1912; I could not tell you the
exact date. But it was before the war.
MUNITIOXS INDUSTEY 269
Senator George, When j^ou speak of a license, do you distinguish
between a general license, that is of all your patents, or the right
to apply them and use them, or a licensee that has the right to use
only certain limited appliances?
Mr. Spear. Most of these contracts that we have made where we
have had a submarine license. Senator, have been inclusive of all the
patents that we do own. I do not think we have ever had any case
of an application of a granting of a license on any particular patent.
T do not know of any such case.
The Chairman. How long has Vickers held a license from you?
Mr. Spear. I think the original contract was dated in 1901.
The Chairman. And has continued right through up to date?
Mr. Spear. The licenses •
The Chairman. With the alterations that have been noted?
Mr. Spear. Yes, sir.
The Chairman. Is it not a fact that your control of the patents
which Vickers was using gave you a pretty positive control, in a
measure, over Vickers?
Mr. Spear. So far as the submarine business was concerned, in
the early days, that gave us quite a strong position, because we
were — not I, I was not with the company then
The Chairman. Wliat has happened in more recent years, then,
to alter that element of power or control ?
Mr. Spear. I will tell you, Mr. Chairman. Countries have dif-
ferent terms for basic patents. Seventeen years in the United
States and in European countries most of the patents run shorter
terms. The original basic patents which place quite a good control
in our company's hands begin to expire. That was our case. Then
the patent situation became one of a combination of detailed pat-
ents, which meant not so much of a control, because if a designer
chose to adopt some other method of doing that particular thing it
was possible to do it without infringing the patent. He might not
get such a good result, but he w^ould build a boat which would work.
There is quite a little difference between holding something that is
basic and something concerning which it is possible to use engineer-
ing ingenuitv to iret around it.
The Chairman. This, then, was what we are to understand ac-
counts for the more evident power exercised by Vickers in recent
years, in occasioning reduction in your royalties and in your com-
missions?
Mr. Spear. Yes, sir. If we had in recent years controlled the
patents which absolutely governed their action, unless we thought
that the royalty was so high as to preclude their getting business,
we certainly would have insisted on having more royalties. In
other words, they were not getting so much out of our licenses from
us in recent years as they had in the beginning.
Mr. Carse. I think. Mr. Chairman, I can give you a little explana-
tion there. Their original contract was 50 percent of their profit.
That ran for a period of years. Well, as time passed on and before
the expiration of that period, they thought those terms were onerous
and wished them modified. In arranging a modification, we also ar-
ranged an extension of the agreement. Then, when they wanted
83876 — 34— PT 1 18
270 MUNITIOXS INDUSTRY
another modification, before the expiration of that, agreement, we
assented with the extension of the agreement over to 1937.
Senator George. Do you, in turn, use the patents of Vickers and
of other manufacturers?
Mr. SrEAR. We are entitled to use the Vickers patents.
Senator George. You have the right?
Mr. SrEAR. Yes.
Senator George. In other words, vou have reciprocal arrange-
ments by Avhich they use your patents I
Mr. Spear. Yes, sir.
Senator George. And you have the right to use theirs?
Mr. Spear. Yes, sir.
The Chairman. Hovvever, it has been testified that you pay no
royalties to Vickers.
Mr. Spear. That is correct.
The Chairman. Vickers does pay a royalty to you ?
Mr. Spear. Yes.
Senator Barbour. During this period under discussion, who, in
your judgment, sold submarines in this market besides yourselves?
Mr. Spear. The only people that ever sold any submarines in the
United States, who ever built any except ourselves, were the Lake
Torpedo Boat Co. and William Cramp & Sons, the old shipyard
which is now also out of business.
Senator Barbour. I think this committee is particularly interested
to know who was selling submarine boats at this time when you were
making the effort which has been described here very vividly to sell
them, and if you had not sold them, who else would ?
Mr. Spear. It would have been our foreign competitors in the
foreign business. No foreign competitor could sell here. That is, the
United States Government would not ever place an order for sub-
marine boats abroad. But outside of the United States, all of these
other builders I have just mentioned — that is, I said I thought there
were about 20 — they were our competitors for all business outside
of the United States.
Senator Barbour. Were they your competitors inside of the United
States?
Mr. Spear. No, sir.
Senator Barbour. In other words, if you did not sell the boats one
of the others would have sold them?
Mr. Spear. Not one of them.
Senator Barbour. Who would have sold them?
Mr. Spear. I do not think anybody. I think the Government would
have built them themselves, unless they had some concern in whom
they had confidence, with whom the}'^ could place orders.
The Chairman. Has the United States Government made pur-
chases of submarines from any concern other than yours?
Mr. Spear. Yes, sir.
The Chairman. They have?
Mr. Spear. Yes, sir.
The Chairman. Extensively?
Mr. Spe.vr. Quite a good many.
The Chairman. In foreign countries?
Mr. Spear. No ; not in foreign countries.
MUNITIONS INDUSTRY 271
The Chairman. That is what I was trying to get at.
Mr. Spear. No, no. They have never bought foreign boats.
Senator Clark. What became of the Lake Company?
Mr. Spear. They went out of business after the war, Senator.
Senator Clark. Did not they have a lot of patents?
Mr. Spear. They had a lot of patents, yes; but they were on
features that did not commend themselves to the military people.
Senator Clark. What I was getting at was this. I have seen
Lake referred to as the inventor of the submarine. Is that true ?
Mr. Spear. I think that is a little exaggerated. It was pretty
good advertising.
The Chairman. It was testified this morning, I do not know by
which one of you gentlemen, that there had been afforded in Boston
Harbor a demonstration before some foreign emissary of an Ameri-
can submarine; is that correct?
Mr. Spear. No, sir ; not an American submarine.
The Chairman. Did you give the testimony this morning?
Mr. Spear. I gave that testimony.
The Chairman. What was that, then?
Mr. Spear. Those were the 10 boats that we started in the United
States and completed during the war for Great Britain. Of course,
they could not be delivered. It was known that they could not be
delivered. So when they were completed they were interned in the
Boston Navy Yard. They were the property of Great Britain.
The United States never had anything to do with them. Then when
the United States entered the war, they sent their officers over here ;
took 5 or 6 of those boats to Great Britain. The other 5 were the
ones that we referred to the other day in some deal between the
Chilean Government and the British Government. The British
Government turned over the other 5 — I think it was 5 or 6 — to Chile
after we entered the war.
The Chairman. How many instances do you recall where sub-
marines of the American Navy or being built for the American Navy
were demonstrated for agents for some foreign government?
Mr. Spear. In the very early days, many years ago, thirty or forty
years ago, the Navy Department was not particularly interested in
whether there were secrets. They used to then quite frequently
grant permission to countries to whom they wanted to be courteous,
to see their boat. In recent years they haA^e been very strict about
that. They guard their submarines as something confidential. As
a matter of fact, we do not even permit a foreign visitor into our
works, whether he is going to look at the submarines or not, without
their permission and their consent.
He has to arrange with the Government and be escorted around
by one of the naval officers stationed at our works. It is one of the
matters that they now look on as something they are not going to
give to anybody unless they get something in return.
Once in a while the Navy sends to us some foreign representative
with permission of the Navy to look at certain things. That they
tell me is because they obtain in return for that certain information
from that country which they want. In other words, they occasion-
ally make a trade in information. But that is in the Navy's hands
entirely.
272 MUNITIONS INDUSTRY
The Chairmax. In other words, 3-011 permit of no demonstratiiij*
to or sight-seeing by agents of foreign powers unless they are armed
with credentials from our own Government.
Mr. Spear. Unless they are armed with credentials and escorted by
an American naval officer.
The Chairman. How well attended are your annual stockholders'
meetings ?
Mr. Spear. Mr. Carse can answer that better than I can.
Mr. Carse. There is not a very heavy attendance except by proxy.
We have meetings in our Bayonne office in New Jersey. We may
have a half a dozen people there.
The Chairman. How has Mr. Zaharoff voted his stock?
Mr. Carse. I do not know.
The Chairman. Have you ever held his proxy ?
Mr. Carse. No, sir.
The Chairman. Do you know of anyone who has held his proxy ?
Mr. Carse. No, sir.
The Chairman. Has Zaharoff shown any interest that you know
of in these annual stockholders' meetings?
Mr. Carse. No, sir.
The Chairiman. At anj'^ time?
Mr. Carse. Never.
The Chairman. How m-uch stock do you suppose he might hold in
your company?
Mr. Carse. I have not the faintest idea. I was never able to trace
it. He told me he was interested in the stock and I went over the
stock list to see whether I could analyze the names to find out whose
might be his. I thought I was a little conversant with that business
of analyzing stock lists but I could never check out anything that
gave me an idea of how much belonged to him.
The Chairman. Can you suggest to us any way by which we
might find out how much stock he does hold ?
Mr. Carse. I cannot. I have gone over that list and I cannot see
it myself. So I cannot tell you where you could see it.
The Chairman. Do you suppose Mr. Wiggin or some officer of
the Chase National Bank might have knowledge of that?
Mr. Carse. That I do not know. Whether he is doing business
through the Chase Bank at the present time, I do not know. I really
know nothing about it.
The Chairman. On the stockholders' list, which you have submit-
ted to the committee, there is no ownership openly shown, at least
of your stock, in the hands of any foreign individual.
Mr. Carse. No, sir; I do not think there is. I do not think there
is a foreigner on it now.
Senator Vandenberg. You say now. Was there at one time?
Mr. Carse. Oh, there was back in the early days. There were a
hundred shares here or a hundred shares there. We were talking
the other day about Count Hoyas of Austria, He had a hundred
shares. Koster had some stock. It was not in his name, though.
But he arranged that we receive the proxy on it.
The Chairman. We have had a great deal of testimony concerning
the commissions which were paid by your company to Zaharoff.
MUNITIONS INDUSTKY 273
Would you have any knowledge whether or not Zaharoff drew com-
missions from Vickers?
Mr. Carse. I do not.
The Chairman. Or from the Spanish company?
Mr. Carse. I do not know anything about it.
The Chairman. Mr. Spear?
Mr. Carse. If I might interrupt you. I do not know about
Zaharoff's business, except the payments by us to him of 5 percent
when we received it from the Spanish concern.
The Chairman. Mr. Spear, do you have any knowledge along that
line?
Mr. Spear. I can say something about which may be accurate.
When Mr. Zaharoff was very active, he was primarily directing con-
tinental European business of Vickers. I have been told — I do not
know how accurate this is — that that was another form of an agency
and the sales that he effected for Vickers he was paid a commission
on. This is hearsay, Mr. Chairman, and I do not know that it is so.
I think that it is so. However, I think he has not been active for
some years and I imagine it is not going on now.
The Chairman. Have you any knowledge of stock ownership in
Vickers ?
Mr. Spear. It was reported at one time — this is not definite knowl-
edge, it is hearsay — that he was a very large stockholder and subse-
quently it was reported that he had disposed of his holdings either
entirely or had become a very small stockholder. Those are simply
current reports that you hear about a man of that kind and I cannot
guarantee that they are so. That is what I have heard.
The Chairman. There was testimony yesterday or the day before
by one of you concerning your conviction that the submarine was an
instrument of national defense. How long did it remain an instru-
ment of national defense.
Mr. Spear. I think you could say safely, Mr. Chairman, it remained
solely an instrument of defense up to the World War. Then there
was the use of it made by the Germans. By that time they began
to build somewhat bigger boats that were capable of going to sea
and staying at sea for 2 weeks. You. of course, recall — I do not have
to recall to your mind — the German campaign against commerce and
that could hardly in my mind be regarded as a defensive measure.
The Chairman. Can it not be said that that ability to wage that
offensive that Germany did is traceable to the fact that the United
States Government did not have absolute control over the American
patents relating to the building of submarines?
Mr. Spear. No, sir.
The Chairman. Germany built their own submarines under j'^our
patent, did they not?
Mr. Spear. Germany built many submarines which were designed
by them and it was eventually demonstrated to the satisfaction of
the INIixed Claims Commission, in the case of one patent in a certain
number of boats that they built — not all — there was an infringement
of that patent. Outside of that, we were unable to prove any
infringement of patents and spealdng from the technical standpoint
I can advise you that the designs were entirely dissimilar.
274 MUNITIONS INDUSTRY
The Chairman. You say dissimilar?
Mr. Spear. Absolutely dissimilar, a type of boat that had never
been built or designed by us, a different notion of how to design and
construct submarines, which was entirely done by German engineers.
The Chairman. Mr. Spear, on July 2, 1919, Mr. Carse wrote you
a letter which I offer as " Exhibit No. 1T5."
(The letter referred to was thereupon marked " Exhibit No. 175 ",
and appears in the api^endix on p. 439.)
The Chairman. This letter, " Exhibit No. 175 ", says in part :
Mr. Parker tells me that the performance bond has been fixed at a million
dollars for the six boats and that the preniiinn agreed upon bj' the Department
is 2 percent, or $20,000, for the full term including acceptance. This is higher
than the last rate but as it being paid by the Government and has been
agreed to by the proper officials I do not see that it is of any special concern
to us, except of course in the matter of our proportion of the saving.
What are we to understand the meaning of that? This follows
the grant to you in 1919 of a contract with the Navy.
Mr. Speak. No, sir. The contract was placed by Presidential
order, mandatory order while the war was on, in 1918. The Presi-
dent gave us a mandatory order to build 12 submarines of a certain
design. Then along came the armistice and the order was reduced
to SIX, but no formal contract was entered into until 1919. All those
war-time contracts, as you may recall, were originally placed on
a cost-plus basis.
The Cpiairman. Did this cost-plus basis prevail as it was fixed in
this contract?
Mr, Spear. When this contract was entered into, sir, it was a cost-
plus contract. Ultimately, before the ships were finished, it was
transformed into a fixed-price contract but at the time the bond was
arranged, it was a cost-plus contract.
The Chairman. What United States business have you done since
that contract was entered into?
Mr. Spear. We have completed 1 submarine for the United
States Government and have 2 under construction.
The Chairman. You completed the one when?
Mr. Spear. We completed one this year.
The Chairman. This year?
Mr. Spear. Yes.
The Chairman. From 1919 up to this year there has been no
contract between you and the United States Government ?
Mr. Spear. We received no orders from the United States Gov-
ernment between 1918 and 1931.
The Chairman. You subcontracted this 1919 contract, did you
not?
Mr. Spear. Just the hulls, yes.
The Chairman. Only the hulls?
Mr. Spear. Yes.
The Chairman. To whom?
Mr. Spear. The Fore River Shipbuilding Yard which was a sub-
sidiary of the Bethlehem Shipbuilding Corporation,
The Chairman. Which in turn is a subsidiary of the Bethlehem
Steel Co.?
Mr. Spear. That is correct.
MUNITIONS INDUSTEY 275
The Chairman. Was that arranged entirely on a cost-plus basis?
Mr. Spear. The arrangement between us and the Bethlehem Co.
was entirely on a cost-plus basis. I think there was a little difference
in the terms, Mr. Chairman, between the boats that we built on
a fixed price and the boats that we built on a cost-plus basis. The
arrangement on the cost-plus basis was this, that Bethlehem should
receive whatever the Government paid for that part of the work.
In other words, wdiat was given them to do, the Government would
determine what the cost was, and they were obliged to take it.
The Chairman. And then the Government paid them direct?
Mr. Spear. No. The Government paid them through us.
The Chairman. Did you get a cost mark-up on top of the Beth-
lehem's cost?
Mr. Spear. No, sir.
The Chairman. Would not that be the ordinary course?
Mr. Spear. It was a course that we would like to have followed,
but they were not willing to do it and they did not do it.
The Chairman. In a letter dated Ma}^ 19, 1919, wdiich I offer as
" Exhibit No. 176 " for the record.
(The letter referred to was thereupon marked " Exhibit No. 176 "
and appears in the appendix on p. 439.)
The Chairman. This letter is addressed to H. S. Snyder, vice
president, Bethlehem Shipbuilding Corporation, by Mr. Carse and
savs :
And in view of the fact that this business has been done by the Bethlehem
companies on cost-plus basis, without any risk or responsibility for uncon-
trollable actions of the Department, and giving further consideration to the
fact that in 1917, 1918, and 1919, we paid the Bethlehem companies about
$3,000,000 on account of wage increases directed by the Navy Department,
for which we have not as yet received compensation, and on which we have
lost interest all these years, I must say that I am somewhat surprised to have
received this memorandum from you, as it \\'ould seem to me that your company
would only be too glad to share in some slight degree the burden of arbitrary
rulings over which we have no control.
What is the committee to gather from that ?
Mr. Carse. Why, I think, they probably were dunning us for some
accounts that they had against us in relation to this work. I felt
that they were pressing the thing pretty hard because really in
effect it was more or less of joint account and there should be some
consideration given, so that when w^e did not collect promptly from
the Navy Department the amount expected, there was no reason why
he should insist on having his full paj^ment.
You see, this was connected with that order of the Navy Depart-
ment, the same as the other Departments of the Government, to pay
increased wages to workmen under the Macy Board ruling, with the
agreement that those increased wages would be repaid to us. When
that expenditure on our part ran to about a million and a half, we
suggested the Navy Department make some payment. They said
they were too busy to audit our accounts but they would pay us
50 percent of that if we would give a kind of bond or stecurity,
so we took the $700,000 and deposited with them $700,000 of United
States bonds. Then it dragged along until after the war and we
took it up, and there seemed to be some consideration there as to
whether the officials of the Navy Department had any authority
to make that agreement. The Comptroller took that position.
276 MUNITIONS INDUSTRY
The Chairman. It was decided thev did have the right, was it
not?
Mr. Speak. Yes ; they decided that in the Court of Chiims.
Mr. Carse. We took it to the Court of Claims, and they held they
did have the power to do that.
The Chairman. Mr. Carse, a postscript to this letter says :
Mr. Taylor tells me that since I became connected with this company in
October 1915 we have paid the Bethlehem companies .$42,564,073, all of which
has shown a substantial protit to you.
You did, then, a very large business with the Bethlehem Corpora-
tion during the war?
Mr. Carse. Yes, in the United States and up in Canada. But I
never heard anything more from them, that is, I never received any
more dunning letters after that.
The Chairman. I offer as " Exhibit No. 177 " a letter dated March
28, 1922, addressed to D. J. Murphy, 1024 Connecticut Avenue N.W.,
Washington, D.C., by Mr. Carse.
(The letter referred to was marked " Exhibit No. 177 ", and
ap])ears in the appendix on p. 440.)
The Chairman. Mr. Carse, who is Mr. Murphy?
Mr. Carse. I don't know. This is the time of the contest for the
management of the company — this belongs to the Submarine Cor-
poration, and is the time of the contest instigated by Mr. Frost, who
joined with young Rice, and they got out a circular and sent it to
all of the stockholders accusing the management of all sorts of
things. This was some stockholder who wrote me asking about it.
I don't know who he was.
The Chairman. You knew he was a stockholder?
Mr. Carse. Yes; he was on the list. So I prepared an answer for
liim, and I thought that would be a good thing to send to the other
stockholders, which I did.
The Chairman. In this letter reference is made in paragraph 3,
as follows [reading] :
In regard to no. 2, the ])lant at Newark Bay : It would be a very long expla-
nation hut the directors feel that is the asset of the future of the company.
Then on page 6 of the letter you say [reading] :
Our statement speaks for itself ; we owe no money to anyone except the
Shipping Board for material purchased for the ships and for the purchase of
the plant at Newark Bay. We have been endeavoring to arrive at a modifica-
tion of the amount paid for this material, because of the great fall in the
price at which the Shipping Board is offering its ships which come in competi-
tion with our own, but taking all in all we owe them less than eight million
dollars against which we will have a plant, upon which the Emergency Fleet
Corporation spent $17,000,000, and 32 ships, or 170,000 deadweight tons, which
would cost at least $100 a ton to replace, or a value of $17,000,000 which they
undoubtedly will have in the course of a few years.
Now, Mr. Carse, on the face of this it appears you made a deal
there whereby you came into possession of property at a value fairly
fixed at $34,000,000 at a cost to you of approximately $8,000,000.
Is that true ?
Mr. Carse. That was a dream that never came true. The Sub-
marine Boat Corporation had had a contract with the Emergency
Fleet Corporation to build 150 ships of 5,350 tons, and like all of
the shij) contracts originally it was on a practically cost-plus, and
MUNITIONS INDUSTRY 277
was on an estimated basic cost, which was adjustable by the rise in
labor and material, one of those very complicated methods. We
were going along very well and some of the juniors or representa-
tives commenced to interfere with our people, who were managing
the transaction, in small things.
For instance, they wanted to make it a rule I could not hire or
discharge an office boy without the consent of this representative
at the plant.
So, we took that up with Mr. Hurley and Mr. Schwab, and we
had a meeting over in our yard. It was proposed to us then that
we had done so well, w^e were away ahead of the average on con-
struction ; they had a chart down in the Emergency Fleet Office with
a line showing their progress and our line was about so long [indi-
cating] and the next fellow's about that long and they come down
to about like that [indicating].
Then Mr. Schwab spoke about the progress we had made and
admired it very much and asked us, " Why don't you take it over
on a straight price contract, then you can do as you please?" Then
Admiral Bowles made a proposition, and they urged it upon us. I
told them I would take it under consideration, and we did that and
studied it very carefull}^ At that time our general manager had
been very sick and w^e went doAvn and consulted him, then decided
we would accept their proposition.
Mr. Schwab tried to get other shipbuilders to do the same thing
and he was not successful in any case.
We went along building these ships, delivering them all satis-
factorily until the armistice came; then they sent word to cancel
the construction of the last 32 ships and limited the contract to 118,
although all of the material for those remaining ships was then in
the yard or in nearby storehouses. We thought we ought to go
through with it because there seemed to be a great demand through
the world.
In making this straight-price contract we had agreed to pay a cer-
tain rent for the use of the plant, and then after the armistice they
came around and wanted us to buy the plant and suggested we buy
this material that was in the yard and put it in the form of vessels.
Then, about that time we had word from Koster in Paris that the
Italian Government was very anxious to get merchant vessels, that
they could not get the steel to build them in their own yards, that the
yards in Great Britain were signed ahead for four or five ships for
each way they had, and there was a great demand for vessels.
He stated the Italian Government wanted to buy about 18 with
the probability of 10 more, and at the same time the representative
of a Palermo yard came over to see what they could get in the way
of shipbuilding material, they having a good yard but no material.
We negotiated to sell them the material for 4 ships — they to load
it on some of their own ships and take it over and pay us. The
question was the terms. They sent over half a dozen or more men
who worked on our ships to find out how we put them together.
You see, this was fabricated material, fabricated all over the United
States in different shops and from our plans and templates, and
under our direction, and when brought together in our shipyards it
fitted. So, we were able to construct the ships very rapidly.
278 MUNITIONS INDUSTRY
We negotiated with the Italian Government, and I thinlv some-
whore in the office there is a copy of the contract drawn bv the
Italian Govertiment covering the purchase of these 18 siiips. ^Vith
that in hand the Shipping Board brought up with us the question
of buying the yard and buying the material, and we started negotia-
tions with them on it.
Those negotiations with the Shipping Board were a little slow,
and by the time we got this finished, and we did not yet sign the
contract
The Chairman. Were those the negotiations you were referring to
in this letter in that paragraph we read on page 6?
Mr. Carse. Yes; that was about the case. We agreed to buy the
plant and buy this material, and then we started the ships, and the
Italian Government faded out of the picture. Then the collapse
came in shipping, and there we were.
We tried to use the ships — first in the Cuban trade, then in the
Gulf trade and the Pacific trade, and some ships were chartered
to carry coal to Europe — but the shipping game, as you have seen,
became very depressed, because commerce between nations stopped,
and they turned out a loss.
We separated the two companies in 1925 so as to keep the Electric
Boat business by itself. On the Submarine Boat some outsiders ap-
plied for a receivership in 1929, and these wonderful things we
thought they were at that time, this $17,000,000 vard, the best price
we got for it was $130,000, and the ships at $17,000,000 we sold them
to the Dollar Line at $400,000, and taking notes payable over a
period of 5 years carrying 2 percent interest.
They told us down at the Shipping Board that in our adjustment
with the Shipping Board we had paid them more money than any-
body else, except the British Government.
The Chairman. And with Sir Basil Zaharoff it was about the
same thing?
Mr. Carse. His transactions are very great, very vast.
The Chairman. Mr. Carse, last year you received a contract for
two submarines from the United States Government ?
Mr. Carse. Yes, sir.
The Chairman. At what figure ?
Mr. Carse. The contract did not include certain of the machinery
which the Government is providing, and it is about $2,750,000.
Mr. Spear. It is a little more than that.
The Chairman. The figure I have before me is $2,770,000.
Mr. Spear, That is right.
The Chairman. I offer for the record " Exhibit No. 178 ", being a
letter by the Secretary of the Navy, Claude A. Swanson, to the
Electric Boat Co., revealing that this contract had been authorized.
(The letter referred to was marked " Exhibit No. 178 ", and
appears in the appendix on p. 443.)
The Chairman. Do you have new contracts this year, additional
contracts ?
Mr. Carse. They have awarded us a contract for three boats.
The Chairman. At what price?
Mr. Spear. It is $2,387,000. That contract has not yet been exe-
cuted. It is in the state of an award, but the formal contract has
not yet been executed.
MUISTITIONS IlSrDUSTEY 279
Senator Bone. Was that a bid price on the boats?
Mr. Spear. That was a bid price; yes.
Senator Bone. How does the Government attempt to determine
whether that is a fair price, by offsetting it against a possible simi-
lar cost on business of that kind and through engineering figures?
Mr. Spear. They do two things, of course, they compare that with
the other bids, if they receive any, and on top of that they check it
with their cost in the navy yard.
Senator Bone. Were there other private bids?
Mr. Spear. Yes; there were.
Senator Bone. Were they made by companies in this country?
Mr. Spear. Yes.
Senator Bone. What other companies bid?
Mr. Spear. The Sun Shipbuilding Co. bid on the last two.
Senator Bone. What outfit is that, wdio owns it?
Mr. Spear. It is owned by the Sun Oil Co. They have a shipyard
in Chester. Pa., but hitherto it has confined itself to building tankers
for the oil company which owns it. Their bid was much higher
than ours.
Senator Bone. Did the Bethlehem or any of the other big ship-
building companies bid on these?
Mr. Spear. They did not bid this year. The New York Ship-
building Co. did bid in 1931.
Senator Bone. One of the rather peculiar parts of this picture is
that all of the shipbuilding in this program appears to be going to
four or five big yards on the Atlantic coast, and I wonder if it is
the polic}" of the Government to confine its business to the North
Atlantic coast?
Mr. Spear. I could not speak as to what its policy is, but I think
they are a good deal concerned in the Navy Department to make
sure wherever they place a contract, there is a sufficient organization
to produce the kind of workmanship they want. What their policy
is I do not know.
Senator Bone. They have not made that evident to you?
Mr. Spear. No, sir.
The Chairman. Mr. Sutphen, on day before yesterday as we were
closing, reference was being made to a letter dated November 22,
1930, to Sir Basil Zaharoff. We had not gotten very far into the
letter, and I do not know definitely that it was offered as an exhibit.
My copy is marked " Exhibit No. 50 ", and if it is not a part of the
record we will let it be known as " Exhibit No. 179."
(For the above exhibit see " Exhibit No. 50 ", heretofore appearing
in the record on p. 83.)
You state in this letter, Mr. Sutphen, the following :
Knowing of your interest in the Chase National Bank, upon my returu
I called upon Mr. Wiggin and told him of the very pleasant visit I had with
you in Paris, and he was very sorry to learn of your illness.
Perhaps I asked the other day, but do you know what Mr. Zahar-
off^s interest in the Chase Bank is?
Mr. Sutphen. He told me he was a stockholder.
The Chairman. Do you know how extensive, or did he say?
Mr. Sutphen. He intimated it was quite large.
280 MUNITIONS INDUSTRY
The Chairman. In this letter you have revealed the visit which
you and Mr. Kettering, Mr. Codrington, and others had taken
through Europe.
Mr. SuTPiiEN. Yes.
The Chairman. Mr. Kettering and Mr. Codrington, I think you
testified were connected with the General Electric?
Mr. SuTPHEN. No; with General Motors Corporation.
The Chairman. What was the general nature of your visit in
Europe, wdiat sort of industrial plants were you visiting?
Mr. SuTTHEN. It was an accident that I met on board ship going
over Messrs. Kettering and Codrington, whom I had known some
years. They were maldng a trip through Europe to study Diesel
engines and their progress up to that time, and I informed them
I was on a visit to Germany to discuss matters with our foreign
licensor, the M.A.N., the Maschinenfabrik Augsburg, Nurenburg.
The Chairman. What did you call that M.A.N. ?
Mr. SuTPHEN. The Maschinenfabrik Augsburg, Nurenburg.
The Chairman. Now, you visited at the Sulzer plant?
Mr. Sutphen. Yes.
The Chairman. Where else did you visit?
Mr. Sutphen. We were in Bern, Switzerland, and from there
we went to Zurich, and from there to Munich, then to Augsburg
where they spent a day with me, then they went on visiting other
plants.
The Chairman. Mr. Kettering, you state in this letter, had
reported his visit to Essen, there being in operation a 15,000-ton
press, the largest in the world. In comparing things with each
other, you say we all received the same impression, that the firms
we visited were all engaged in building new war equipment so as
to be ready to supply it when called upon.
Mr. Sutphen. That was the impression we received.
The Chairman. Were you studying munitions plants?
Mr. Sutphen. No ; my interest was only in engines.
The Chairman. But you did observe they were busy getting ready
for more war?
Mr. Sutphen. The inference was in the report made by Messrs.
Kettering and Codrington that they saw the Junkers Airplane
and they saw the Krupp activities and they thought they were pre-
paring themselves in case of hostilities.
The Chairman. Did there not seem to be any secrecy about these
plants that you were observing ?
Mr. Sutphen. There was, of course, I think, secrecy shown by the
engine builders to strangers if they did not know them; but to us,
with my introduction of these two gentlemen with me, they showed
us quite openly the new engines they were building for use in the
German pocket battleships which were not then completed, and they
were a very advanced type of Diesel engine.
The Chairman. In writing Sir Basil, as you did of your trip in
Europe, one cannot help but gather there had been some understand-
ing 3'ou were to report to him concerning this visit.
Mr. Sutphen. None whatever; it was simply a friendly gesture
on ni}'^ part to keep him advised of what we saw in our travels
that might be of interest to him.
MUNITIONS INDUSTRY 281
The Chairman. Were you by any chance designated, or felt, by
Zaharoff to be his personal representative on the board of directors
of Electric Boat?
Mr. Sutphen. None whatever.
united states government BUSINESS
The Chairman. Now, we have had, such as it has been, a glimpse
of the Electric Boat Co.'s relationships with foreign countries, in-
volving in those glimpses the agreement for splitting the field of
activity, and splitting the profits to be derived in the submarine
jnanuf acture : we have had a glimpse of the Electric Boat Co.'s rela-
tionship with Zaharoff involvmg the commissions paid him and his
stock holding in the Electric Boat Co. Senator Clark has very ably
brought out the business methods and the relationship of the Elec-
tric Boat Co. in the South American field and the European field.
And now the question naturally arises, and it is that we will be
interested in, in concluding with the present witnesses, what has
been the interest, the methods, or the activities of the Electric Boat
Co. in obtaining business in the United States — business primarily
with the United States Government. AVhat part of your business
has been American and which one of you feels best prepared to
answer that?
Mr. Spear. I think I am best prepared.
The Chairman, All right, Mr. Spear.
Mr. Spear. The statement we went over this morning, Mr. Chair-
man, and which I corrected two errors found therein, as you will
recall, I think shows, so far as boats are concerned, a large percentage
of our business has been American. That gives you accurately the
number of ships we have built up to that time, that we have built
for the United States Government.
The Chairman. Knowing the manner of help the State Depart-
ment, the Commerce Department, and the Navy Department have
given you in your foreign fields, what help have you had from the
same sources in winning American business?
Mr. Spear. None whatsoever.
The Chairman. It would seem to me the costs and difficulties you
have been up against in obtaining this foreign business have been
extraordinary, and would be really a thing you would like to get
away from.
Mr. Spear. I think there is a great deal of truth in that, I think
we have taken a great deal of trouble with very little return, espe-
cially in recent years.
The Chairman. Why do you stay in that field ?
Mr. Spear. The reason we have been so active in it in the last 10
years was because we had that interregnum between 1918 and 1931,
when we received no business whatsoever from the United States
Government. We had our organization on hand and the expense
of maintaining the organization and keeping it up, and with the
amount of commercial business we could gain in these particular
times, we could not continue to operate without going in the red
all of the time.
The Chairman. Is it not true, Mr. Spear, that your business
abroad has a tendency to boost business at home.
282 MUNITIONS INDUSTRY
Mr. Spear. I don't think that the American Government pays
any attention to that. They judge their proposals b}' the technical
merit of the enterprise, and I do not think what we do abroad has
any influence on tiie judgment of the Navy Department as to whether
or not they should entrust us with a contract. Does that answer the
question ^
The Chairman. Yes; generally. However, there is very good
authority for the belief that the domestic consumption of munitions
is largely dependent upon foreign consumption, and that it is good
business for an American manufacturer to sell his wares abroad if
he wants to sell tliem to the Army or to the Navy at home. It has
less to do with the competition factor that quite naturally enters
into it.
You have testified that Mr. Koster, or it has been testified to,
and there is evidence to support it, that Mr. Koster organized the
Navy League in Holland. Tell us, Mr. Carse, how much has the
Electric Boat Co. or its directors contributed to the support of the
Navy League of America'!'
Mr. Carse. Not one cent that I know of.
The Chairman. Lieutenant Spear?
Mr. Spear. I think not one cent, to my knowledge.
The Chairman. Mr. Sutphen?
Mr. SuTPHEN. Nothing.
The Chairman. Now, we have had testimony revealing that these
commissions you have paid to agents over the world might be com-
missions which were to his own profit, or commissions which he was
paying to others. Can you testify whether or not your Washington
office ever contributed anything to the Navy League of America ?
Mr. Carse. I am quite positive nothing has been paid.
The Chairman. How can you be positive of it?
Mr. Carse. The accounts pass through my office, and no such ac-
count has passed.
The Chairman. Yes ; but accounts to Mr. Aubry and others show
that there have been paid thousands of dollars of commissions to
him, and as you testified, you have no knowledge of what those
commissions went to.
Mr. Carse, That is true, but I think the Washington office is
different. The Washington representative is an officer of the com-
pany.
Mr. Spear. No commissions are paid to anybody in the Washington
office. Does that make it a little clearer to you ?
Senator Clark. Was that true in Mr. Chapin's time, too ?
Mr. Carse. I think so. It was merely a salary and expense ac-
count.
The Chairman. Expenses that are shown for the Washington
office include salaries, rent, office expense, traveling expense, expense
of motor boat used for demonstration, and residential expense. You
feel then that you have never made any contributions to the Navy
League as a corporation?
Mr. Carse. I am quite positive, neither as a corporation nor as in-
dividuals. I have received lots of their circulars and a number of
letters, but I have not contributed in any form.
MUNITIONS INDUSTRY 283
The Chairman. Have you ever been personally solicited for con-
tributions?
Mr, Carse. I may have been, I do not recall, I have been solicited
by a great many.
The Chairman. Mr, Spear, have you ever been personally solicited
for contributions to the Navy League ?
Mr. Spear, My recollection of it, Senator, is that some years ago
I was advised by the Navy League that it was their policy not to
accept even voluntary subscriptions from anybody who was inter-
ested in any way in building ships for the Navy. I think they have
adopted that policy.
The Chairman, Did they receive your advertising?
Mr, Spear, I do not think they conducted any advertising, none
that I know of, I do not think they have any publication.
Senator Bone. Do any of your subsidiary organizations belong
to the Navy League?
Mr. Spear. No, sir.
Senator Bone, Or contribute to it?
Mr, Spear, So far as I know, no individual, or none of our com-
panies, and it is practically all one now, and to our knowledge no
individual in our employ is a member of the Navy League,
The Chairman, Llave you been solicited to make contributions to
the American Defense Society?
Mr, Carse, I do not recall anything, I know we have not done it.
The Chairman. You know you have not done it?
Mr. Carse. No.
The Chairman. How about the National Security League?
Mr. Carse. Same answer.
The Chairman, You never have been solicited and never have
contributed to them ?
Mr, Carse. I do not know, A lot of people come out in the ante-
room and send in their cards, but I do not see them.
The Chairman, Who does see them?
Mr. Carse, The usher at the desk, and tells them that I am some-
where else. I do not know what he tells them.
The Chairman, Mr, Carse, did your company take any part in
accomplishing the passage of the Vinson Naval Bill last fall and
winter ?
Mr. Carse, No, sir.
The Chairman, This had been pending in some measure or other
for a couple of years. Have you ever taken any part in accomplish-
ing its passage?
Mr, Carse. No, sir.
The Chairman. You were, however, interested in its passage ?
Mr. Carse. Certainly, we were interested in naval construction.
The Chairman. Who is Mr. Davison?
Mr. Carse. Mr, Davison many years ago was our engineering
technical officer, up in New London. Lie resigned many years ago.
The Chairman. What is the Davison Ordnance Co, ?
Mr, Spear, That is a company that belongs to Mr. Davison. It
is a company which he has formed, in the hope that he can do some-
thing. This new invention of his, to which I testified I think this
morning.
284 MUNITIONS INDUSTRY
Senator Pope. His anti-aircraft gun ?
Mr. Spear. Anti-aircraft gun.
Senator Clark. That is the one Koster was talking about?
Mr. Spear. That is the one Koster was talking about.
The Chairman. Who is Gregg?
Mr. Spear. That is Mr. Davison.
The Chairman. Under date of December 1, 1932, in a letter which
I ask be identified as " Exhibit No. 1T9 ", Mr. Davison is telling you
about a new gun that he has a large interest in. Had he perfected it
himself ?
Mr. Spear. Under the date of that letter, sir, no gun existed.
This was the design of a gun.
The Chairman. Just the design?
Mr. Spear. That he had gotten out himself.
(The letter referred to was marked '' Exhibit No. 179 " and
appears in the appendix on p. 443.)
The Chairman. In paragraph 3 of that letter, " Exhibit No. 179 ",
the writer declares in the closing sentence :
The only way they —
And that means the Army Ordnance, I expect —
will ever buy these guns is for them to be first manufactured and sold to some
foreign power or to be developed abroad.
In continuation of that he says:
I have made up my mind to go ahead and develop this gun regardless of the
financial situation or outside help.
He was soliciting your help, was he not?
Mr. Spear. He was endeavoring to interest me generally in this
project and get my advice, and so forth. He was endeavoring to
get me to be interested in this matter.
The Chairman. He goes on to state :
When I was in Washington a couple of weeks ago I saw Admiral Larimer,
of Navy Ordnance. We discussed landing equipment for the marines and blue
jackets. He tells me that their present equipment is not what it should be and
showed great interest in the gun. In fact we arrived at an understanding, as
follows : I am to prepare description, specifications, and drawings. These will
be checked over by his experts and unless they discover something impracti-
cable he will order a gun.
Then on page 2 we find Mr. Davison declaring :
From what I hear of Caulkins. his health does not seem to have improved,
and I cannot count on using him to any great extent * * *
"Who is Caulkins?
Mr. Spear. He is a young engineer in Mr. Davison's employ.
The Chairman (continuing) :
He may, however, be able to do some drafting work from sketches and
dimensions I will send him and also to skirmish around to pick up materials.
If he does improve, I will later pick up some young fellow from Annapolis,
West Point, or one of the technical colleges.
Is it possible for business to pick up men from the colleges, from
the Naval Academy and the Military Academy ?
Mr. Spear. They sometimes have graduates, Mr. Chairman, who
do not obtain commissions in the Navy or Army and sometimes
some of these young fellows who do graduate an(i have graduated
MUNITIONS INDUSTRY 285
high enough to be commissioned, sometimes they prefer, at the close
of their agreed term of service, to resign from the Navy and go into
private enterprise.
Senator Clark. The honor man at the last graduating class at
the Naval Academy resigned without serving a day as an officer in
the Navy, did he not, Mr, Spear ?
Mr. Spear. I am not familiar with that.
Senator Clark. That was announced in the public press at the
time.
Mr. Spear. I am not familiar with that.
The Chairman, On the last page of that letter, " Exhibit No.
179 ", the following sentence appears in the closing paragraph :
You will see from the above that I expect to go ahead with this job regard-
less of Mr. M.
Who is Mr. "M " ?
Mr. Spear. Mr. " M " is a private citizen, a banker, to whose atten-
tion this matter had been called, and he said he would like to consider
whether or not he thought it was worthy of advancing some money
to Mr. Davison to endeavor to develop this gun.
The Chairman. Mr. Davison seems to have been very greatly con-
vinced that he had something which was really worth while here
and something which was going to make obsolete Army ordnance
generally.
Mr, Spear. He is very enthusiastic about it.
Senator Pope. All inventors have that same attitude.
The Chairman, Mr. Spear, you were speaking a while ago about
the influence that must at times be brought to bear to sell our goods
abroad, before our own Army and Navy will buy. In this same letter
Mr. Davison declares in the next to the last paragraph on page 2 as
follows :
It will be a very strenuous job to completely redesign the gun to meet General
Summerall's recommendations. But I fear he is right. If I do what he recom-
mends I will not only have an antiaircraft gun with a muzzle velocity equal
to that of the Army's mobile antiaircraft gun, but I will also have a tield gun
far superior in i*ange to their latest 75 M/M.
That was not the exact reference I had in mind as to General Sura-
Tiierall's advice regardino- this.
That IS contamed in another exhibit which I am offering as " Ex-
hibit No. 180 ", being a letter written by G. C. Davison to you, Mr.
Spear, under date of December 23, 1932,"
(The letter referred to was marked "Exhibit No. 180" and
ap])ears in the appendix on p. 444.)
The Chairman. In " Exhibit No. 180 " Mi*. Davison says in part :
Deiar L.iRRY: I have just received from General Summerall a letter signifying
his willingness to come in on the gun business for foreign countries. He can-
not have anything to do with U.S. business on account of the fool law pertaining
to ofBcers of the Army and Navy.
What is this " fool law " to which he makes reference ?
Mr. Spear. What he is referring to there, Mr. Chairman, is the
•existing law, which has existed for a good many years, under which
it is illegal for a retired officer, certainly of the Navy and I think of
the Army, to accept any kind of employment from any corporation,
83876 — 34— PT 1 19
286 MUNITIONS INDUSTRY
firm or person who has business relations, contracts with the Govern-
ment. That has been the law for a good many years.
The Chairman. So that wlien Mr. Davison wanted General Sum-
merall on his retirement to come in with him as a partner, providing
for building and producing this gun, General Summerall could not
do it because the Davison Co. would have relations with our Govern-
ment. Is that the case?
Mr. Spear. The Davison Co. hoped to have, and, of course, if they
did, General Summerall could not be in it.
The Chairman. General Summerall did go in it finally, did he
not?
Mr. Spear. I think not, from the latest information I have. I
think at one time he said he was going in, but I do not think he has
I am quite certain that no arrangements have been made. The last
I heard from Mr. Davison, that was it. General Summerall is a
cousin of Mr. Davison.
The Chairman. In the second paragraph of the letter of Decem-
ber 23, 1932, it states as follows :
In view of this, please do nothing in regard to Vickers, for the present.
Summerall now being my partner in regard to all foreign business I will now
have to work with him.
Mr. Spear. I understand that that has since been changed.
The Chairman. And that he has no connection?
Mr. Spear. I understand not. That is the latest information I
have about it.
The Chairman. In the letter December 1, 1932, "Exhibit No.
179 ", Davison had stated in paragraph number 2 :
Summerall is the only general beside Pershing who wears four stars and
they are due primarily to his work with artillery. He is very hard boiled
and practical. For that reason and the fact that he is not an enthusiast,
statements such as he made to me can be safely accepted at 100 percent of
their face value.
He goes on to state :
As regards my plan to organize a company with a couple of generals and
a couple of admirals on the board, and with a view to starting some real
competition with Army ordnance, he tells me I would get nowhei'e. He says
that Army ordnance first of all will have absolutely nothing to. do with any-
thing which they do not develop themselves. Also that they are so powerful
with the military committees of Congress it would be useless to fight them
there. The only way they will ever buy these guns is for them to be first
manufactured and sold to some foreign power or to be developed abroad.
That seems to be General Summerall's advice to Mr. Davison.
Mr. Spear. I would judge that is substantially what he told him.
The Chairman. Mr. Joyner, one of your vice presidents, whom
we had hoped was going to be liere, but as to which the affidavits
have been afforded showing him to be an ill man — how is he
progressing?
Mr. Spear. I went to see him last evening and he is a very sick
man.
The Chairman. Is there any thine: at all to indicate when he
might hope to be up and around again ?
Mr. Spear. Nothing at all yet. I think he is in a very serious
situation.
MUNITIONS INDUSTRY 287
The Chairman. Has he made available to you any of the corre-
spondence that the committee indicated they would like to have?
Mr. Spear, He gave me all the information that he had, such as
is mentioned in the subpena which I showed you yesterday.
The Chairman. Which correspondence Mr. Raushenbush tells
me is not of any consequence to us. It consisted of two letters?
Mr. Raushenbush. It consisted of two letters.
Mr. Spear. It consisted of two letters, yes, sir; about personal
matters.
The Chairman. "We shall want, of course, to hear Mr. Joyner,
when he is able to be heard, but I think we need not refrain from
offering certain letters that he received or that he has written, and
which were taken from the files of the Electric Boat Co.
Mr. Carse, on December 18, 1928, Mr. Joyner wrote you at your
New York address a letter, which will be offered as '' Exhibit No.
181."
That letter reads in full as follows :
Exhibit No. ISl
Electric Boat Company,
HiBBs Building, Washington, D.C.
December IS, 1928.
Mr. Henby R. Cabse,
President, Electric Boat Company,
11 Pine Street, New York City.
Dear Mr. Caese: Succe.ssfully managed campaign for candidate Rules Com-
mittee, which is most important to us, VNhen any legislation is up.
Brought in some Western States, New England States, New York, Pennsyl-
vania, and Michigan in Fort case, and New Jersey, Michigan, New York,
Illinois, South Dakota, and Pennsylvania in Martin's case.
Candidates successfully elected to Rules Committee :
Honorable Jos. W. Martin, Jr., Mass.
Honorable Frank Fort, New Jersey.
The Rules Committee is the most important committee in Congress. It
absolutely controls legislation.
Thanking you, with kind regards.
Sincerely yours,
A. J. Joyner.
How long has your company been interested in accomplishing the
selection of Members of Congress to these important committee
assignments?
Mr. Carse. I have had not had anything to do with it, and I did
not know anything about it. Whether Mr, Joyner had anything
to do with it or not, I do not know.
The Chairman. He says here he did.
Mr. Carse. I know he says that.
The Chairman. And he is a vice president of the company, is he
not?
Mr. Carse. Yes, sir.
The Chairman. And addressed this letter to you as president of
the company?
Mr. Carse. A lot of people down in Washington think that they
run everything. I do not know.
The Chairman. I know that is true, and every member of this
committee knows it is true, that there are men parading around
288 MUNITIONS INDUSTRY
Wasliington, .scraping acquaintance with Members of Congress and
officials generally, and then going out in the business world and
selling their services because of that acquaintance, and in selling
themselves they always happily reveal how close they are to this
one or to that one. But surely Mr. Joyner would not report to you,
the head of the corporation, in such a way, he being a vice president.
He had no purpose to serve by any such representation, no gain to
be made.
Mr. Carse. I do not like to make a criticism, but he might wish
to show how important he was. It did not interest me at all. I do
not know the members of any committee of Congress. I do not
think it is any of my affair.
The Chairman. What could be Mr. Joyner's interest in wanting
to have friends on that committee?
Mr. Carse. Perhaps he was personally acquainted with those gen-
tlemen, and would see a good friend here and there when they were
candidates. He did not consult me about what he was doing or
anything of that kind.
The Chairman. Having placed men in important positions
Mr. Carse. Did he place them?
The Chairman. He says he did.
Mr. Carse. I know he does.
The Chairman. He says:
Successfully mannged campaian for candidate Rules Committee, which is most
important to us, when any legislation is up.
What does that mean ?
Mr. Carse. You gentlemen know a good deal more about that
thing. You know about these committees. You know how they are
selected. Do you gentlemen on this committee believe that Mr.
Joyner could pick up a candidate and have him elected a member of
that committee?
The Chairman. It would depend entirely upon what connections
and how influential Mr. Joyner was with the leaders of the Congress.
Mr. Carse. I do not know. I would not be able to answer that.
Senator Pope. That was not your part of the work, was it?
Mr. Carse. No, sir; I do not believe in those matters at all. I
just believe in letting things take care of themselves.
The Chairman. Did you ever observe that there was any return
to the Electric Boat Co. that was traceable at all to any of these men
in these influential places?
Mr. Carse. No, sir ; not a particle.
The Chairman. Mr. Joyner reported to you, did he not, from
time to time, such success, or lack of success, as was being made with
regard to legislation in which you would be interested?
Mr. Carse. He may have; but nothing definite that I have in
mind. I do not think that any legislation which was passed could
in any possible way be traced or charged to any activities of this
company. You take the naval bill, for the reconstruction of the
Navy. Why is that? It is because the old boats are being worn
out. For instance, the London Naval Treaty gave life to subma-
rine boats of 13 years, and that would leave the United States with
only about 5 or 6 submarine boats within that time. That would
explain why there was an increase in the submarine program, be-
MUNITIONS INDUSTRY 289
cause they have to have them. Some people may ^o and talk to
somebody and come around and say they accomplished wonders,
but I never take any stock in it.
The Chairman. JSIr. Carse, Mr. Joyner, in addition to being vice
president of the Electric Boat Co., was also in charge of your
Washington office, was he not?
Mr. Carse. Yes, sir; he was.
The Chairman. And on March 11, 1929, about three months after
the writing of this letter marked " Exhibit No. 181 ", in which he
advised how successful he had been in managing the campaign for
election of a certain man for the very influential Kules Committee,
he reported to you further in that regard, and I offer that letter
as ^' Exhibit No. 183." ^
The Chairman. That letter of March 11, 1929, was addressed to
Mr. Henry R. Carse, president, Electric Boat Co., 11 Pine Street,
New York, N.Y., by Sterling J. Joyner. I will read the lecter in
its entiretj' :
Dear Mr. Carse: Now that the session of Congress is closed and our legisla-
tive activities are tenuDorarily held in abeyance, it is a pleasure indeed to
report to you and to the board of directors that all of our legislative efforts
have borne fruit.
The Cruiser bill is passed, the submarine appropriations have been passed,
and as I sincerely promised you the day we lunched together in New York,
we did manage after overcoming a number of handicaps and jumping some
hurdles to get the second deficiency bill through, and in doing so we succeeded
in getting our claim through, and we expect to receive payment at two o'clock
this afternoon or early tomorrow morning.
Mr. Carse, what was " our claim " ?
Mr. Carse. A judgment of the Court of Claims.
The Chairman. What did that amount to?
Mr. Carse. That amounted to about 3 million dollars, and a sur-
render of the $700,000 of bonds that were held by the Navy Depart-
ment. We needed the money.
The Chairman. 1929 was a good time to get money.
Mr. Carse. Yes; but they should have paid it to us in 1918 and
1919.
Senator George. That claim had gone through the Court of
Claims?
Mr. Carse. That claim had gone through the Court of Claims.
The Chairman. I continue to read from Mr. Joyner's letter:
Slembers of the Navy Department have seen fit on several occasions lately
to not only write, but to personally express their appreciations and congratula-
tions on the success of such parts of the program as we were directly interested
in and for the help we gave the Navy Department. I am not prepared to
write you. however. I shall be glad to verbally tell you what really happened
with reference to the deficiency bill, and the part this office played in getting
the bill through. I absolutely and positively believe and feel safe in making
the statement that if it had not been for actions taken in this office on the
day before the bill was passed, and the day the bill was passed, that the second
deficiency bill would have gone over until next session ; or, in other words,
until the special or extraordinary session, which is called for the 15th of April.
My reason for not putting this in writing is out of respect for those who
helped, and who were so powerful and so friendly. The code of honor between
men makes it unethical to name persons. However, my words and belief
stand, and today we have succeeded again in having our claim and papers and
^ No exhibit was marked no. 182. ^ ...^
290 MUNITIONS INDUSTRY
certificates moved up ahead of over three thousand some hundred other claims,
and inasmuch as our claim is the very larj^est, you can quite readily under-
stand the Treasury Department would naturally hesitate at any advancement,
particularly at this time when there is a threatened deficit. There is no
question but what the situation could have been maneuvered for the next
three months because of the right of the Treasury DeiJartnient to rechecli
and check, audit and do a number of other things, which while they are not
doing it in our case, they are actually engaged in doing so in a number of cases.
Our designs are meeting with approval. Our advice and specifications are
being received favorably, and generally speaking, little is left to be desired
up to this time, except that all important part, the actual signing of an,'?
contracts that we might receive.
With good will and a friendly attitude existing in the Army and Navy, in
Commerce and the Shipping Board, and the Treasury Department, and a good
will does exist, which is true, as is the statement of pleasant friendly rela-
tions, we may well feel that a brighter future has opened up for this Com-
pany, with less sales resistance, and pleasant hours free from the past worries
and cares.
In the final, the writer wishes everyone in tlie organization without excep-
tion to feel and to know that all have played a part in loyalty, kind considera-
tions and cooperation, aud that they are entitled to share the pleasure and
delight in a final victory, and in my humbleness desire to express my sincere
thanks to all.
Sincerely,
(Signed) Sterling J. Joyner.
Mr. Carse, that letter cannot be read without the reader knowing
that there has been, and had been up to this time, March 1929, a
great deal of interest on jour part in connection with the passage of
legislation; that you had run into obstacles, and now the last ob-
stacle had iDeen overcome and it was a day for rejoicing, and Joyner
was rejoicing, and assuming that j'ou were rejoicing with him.
Mr. Carse. I think that the manner in which you read that indi-
cates just your opinion of the aspect of the man making that state-
ment.
The Chairman. Is not that his attitude ?
Mr. Carse. That is just it. I do not know what he did. I did
not give him any instruction to do anything.
The Chairman. Do you think, Mr. Carse, that that letter could
be read by anyone and that they could draw any dilferent conclusion
than I seem to have drawn?
Mr. Carse. But your tone of voice sort of indicated that you
considered it somewhat bombastic.
The Chairman. Not knowing Mr. Joyner, I could not under-
take to in any way know precisely his own manner.
Mr. Carse. You did very well.
The Chairman. Surely I could not read this, as I have read it
just now, without gathering something of the spirit that must have
been Mr. Joyner's when he wrote that letter.
Mr. Carse. That is just it.
Senator Clark. Mr. Chairman, you could not read a general order
congratulating all the troops on a great victory in any other way.
Senator Bone. Just taking the whole text of the letter, what do
you think he means in saying " our legislative efforts ", using the
plural ?
Mr. Carse. I made no effort. I gave no instructions to him.
Senator Bone. He may be a host in himself and have used the
term in tlie plural, as editors say •' we ", and I was wondering what
he meant by that term.
MUNITIONS INDUSTRY 291
Mr. Carse. He knew that we needed to get that money, which had
been awarded to us by the Court of Claims. We had been 10 years
out of that, and had spent interest, and had had a mighty hard strug-
gle to get along, and that was included in this second deficiency
bill, as he stated.
Senator Boxe. I am not interested in your Court of Claims case.
Mr. Car.se. That was up to be passed, and I do not know any-
thing about Washington, and I have never been down there trying
to do anything in Congress or anything of that kind, but I do read
the papers and find out that very often very important bills are lost
or passed in the last hour of the session, and so I judge he was down
there and was probably going around seeing different people he
knew and urging that they try to expedite that deficiency bill and
see that it went through.
Senator Bone. He refers to political activities in Western States.
Being a westerner, I am particularly curious about that. Who do
you suppose he meant when he referred to work for candidates in
Western States ? Can j-ou enlighten us on that ?
Mr. Carse. His acquaintanceship in Congress is very broad.
Senator Bone. Undoubtedly. I imagine that is why you keep
him in Washington, because of his wide acquaintance.
Mr. Carse. No. That is one of the reasons, of course. For in-
stance. Senator Bone, if he knew you pretty well, I think he might
stop and say that so and so is a candidate for the Rules Committee,
how do you feel about him ?
Senator Bone I understand. But he is referring to his activi-
ties in Western States. I am not aware of Mr. Joyner's work out in
my State, but if there is any connection out there with any political
outfit, I would be interested in knowing about it. If they are politi-
cally active in my State, I would be interested in knowing that.
Mr. Carse. No; that is not what he meant. What he meant was
that he had talked to Representatives from Western States.
Senator Bone. He says in the letter something about —
Successfully managed campaign for candidate Rules Committee which is most
important to us. Brought in some Western States.
He does not designate whom he is talking about. He says he
brought in some Western States.
Mr. Carse. Well, Representatives from Western States.
Senator Bone. That is the same thing. When he brought in a Rep-
resentative, he brought in a State.
I believe there is an indication here that he has a yacht or a cruiser
on the river; is that so?
Mr. Carse. No.
Senator Bone. What sort of a boat is that?
Mr. Carse. Back, I think, 3 years, our sales department of the
Elco works were very ambitious of extending their sales. I did not
very much agree with them, but there was some idea around at that
time that the motor-boat trade was going to develop like the auto-
mobile trade.
Senator Bone. Was that one of these Elco cruisers?
Mr. Carse. Yes.
Senator Bone. I have seen them.
292 MUNITIONS INDUSTRY
Mr. Caese. We sent it down here and it was down here for 3 years.
We had an agent in Washington.
Mr. SuTPHEN. It was only one year; was it not?
Mr. Carse. Not according to that list. The expenses are down
there for 3 years. We had that down there as a demonstration boat,
on the Potomac. The total expense involved in that demonstration
was $10,000. Just before I left I asked what the sales of boats had
been in Washington at that time and I was told that the direct sales
had been over $45,000, and there might have been some collateral
sales caused by this demonstration on the Potomac River.
Senator Bone. Of course, you can understand, Mr. Carse, that
everybody out West — if these gentlemen of the press send out this
story — must be interested in who that Congressman from the West-
ern State was on the Rules Committee. Of course, all of these West-
ern States were brought in, so to speak.
Mr. Carse. That is not the way I read it. He got the votes of
some Representatives of Western States for those two members of
the Rules Committeee. I do not know how it was constituted. There
was one from Massachusetts and one from Jersey.
Senator Bone. Is there any possibility of this gentleman coming
here so we can ask him how he brought in these States; what his
technique was?
Mr. Carse. I hope there will be. He is a very sick man just now.
I think he will come back. He has snapped back two or three times.
He has not been well for 3 or 4 years.
The Chairman. Again I remind you, Mr. Carse, that Mr. Joyner
is a vice president and he has been in charge of the Washington office
and presumably is in charge of it today. Why do you have a Wash-
ington office?
Mr. Carse. Well, Mr. Spear can tell you that.
The Chairman. Mr. Spear, why do you have a Washington
office ?
Mr. Spear. Because practically our onl}^ customer of any impor-
tance is the United States Government,
Mr. Carse. There has to be somebody here who will keep in
touch with the Navy Department, find out what they want and get
in touch with Mr. Spear, have him draw up the plans and specifica-
tions and take those plans and specifications back and forth
constantly.
Mr. Spear. I used to do all of that personally, traveling down
here all the time to discuss these matters, but I am getting a little
aged for that now, so I do not do it any more.
The Chairman. Since 1919 you have spent $7,000 a year and up-
wards maintaining Washingon offices and up until 1927 you had a
C. S. McNeir in charge.
Mr. Spear. Yes.
The Chairman. Where is he now ?
Mr. Spear. I do not know.
M. Sutphen. He is dead.
Mr. Spear. Mr. Sutphen says that he is dead.
The Chairman. From that time on, in 1927, Mr. Joyner had been
here?
Mr. Spear. Yes.
MUNITIONS INDUSTRY 293
The Chairman. He is here for some good reason; you have con-
fidence in him, do you not?
Mr. Spear. Yes.
Mr. Carse. Well, Mr. Spear explained that yesterday. They keep
in touch with the Navy Department and with the different legations
in Washington. He has been in very close touch with the Turkish,
with the Japanese and he has discussed things with the Argentine
and Brazilian representatives, different work of that kind.
The Chairman. How much salary does Mr. Joyner receive as vice
president ?
Mr. Carse. $15,000 now.
The Chairman. Is that included in this statement that was sup-
plied covering the salaries and expenses of Mr. Joyner?
Mr. Carse. Yes.
The Chairman. It was a salary of $18,000.
Mr. Carse. That is what it was. It is $15,000 now.
The Chairman. It was reduced in 1932 to $16,250 and in 1933 to
$15,000?
Mr. Carse. Yes.
The Chairman. That is what he is drawing now?
Mr. Carse. Yes.
The Chairman. Is he a large stockholder in the Electric Boat
€o.?
Mr. Carse. I do not think he owns a share; not that I know of.
The Chairman. Does he have such influence as would enable him
to force you to employ him in Washington ?
Mr. Carse. No, sir.
The Chairman. Then why do you employ him here, if you do not
have large confidence in him?
Mr. Carse. Oh, I have confidence in him, but sometimes one gets
a little exaggerated opinion of what he may have done or his
^ability to do certain things.
The Chairman. In addition to his salary, he is allowed clerical
help which in 1931 amounted to $2,200. It has ranged from that
down to $1,500; office rent of $1,092 a year, office expenses w^iich
in one year, amounted $3,405, and it has ranged from that "down to
$1,700; traveling expenses of various items, $400, $600, $400, and
$1,000 in a year.
Mr. Carse. Some of those were European trips. Those are a little
larger amounts.
The Chairman. Then you paid his residence expense here.
Mr. Carse.. When he first came here, his residence was in Brooklyn.
He maintained a home in Brooklyn, at the Hotel Bossert and it
seems that an expense account of $500 a month was a proper sum
to allow for his expenses, living in Washington.
Senator Vandenberg. Who was he before you picked him up?
Wliat was his job before you picked him up?
Mr. Carse. I would not say, picked him up.
Senator Vandenberg. I do not mean that invidiously.
Mr. Carse. When I was over in Berlin in 1924, I met an officer
of the Submarine Signal Co. In talking about matters, he said he
thought that there was a very good opportunity for our company
to do business in Japan, that he had done some very good business
294 MUNITIONS INDUSTRY
there. When I came back, I took up the subject with the other
officers and discussed it back and forth as to whom we might send,
because this man said, " Now, do not send any foreigner, because
the Japs won't care to talk with anybody except an American."
So we discussed it and Mr. Spear said he thought he knew a man
who had been to Japan and was acquainted with the people and he
brought in Mr. Joyner. He came with us at that time solely on a com-
mission basis on business that he might secure from Japan. He would
not take a salary or anything of that sort. We were to advance
his expenses which would afterwards be deducted from the commis-
sions we might pay him. He made two trips to Japan and showed
that he had a wonderful acquaintance with the Japanese and I think
that he has been very useful here in Washington in connection with
unofficial communications between the two Governments.
Senator Vandenberg. Had he had any previous Washington rela-
tions ? That is what I was getting at.
Mr. Carse. I never had heard that he had any here at all.
Senator Clark. Do you know what his business was at the time
you first employed him on a commission basis?
Mr. Spear. I think at that time he was connected with Lockwood,
Green & Co., which is a large construction company in Boston, and
which was also largely engaged in the textile business.
Prior to that connection — he seemed to have had a number of
different connections — prior to that connection, he had been con-
nected with the New York Shipbuilding Co. at the time that that
was owned by the American International Co. It was a subsidiary
at one time.
In that connection, while he was stationed — his office was at the
shipyard or in New York — he used to visit Washington in con-
nection with the naval contracts that that company had, and it
was my understanding from a mutual friend that it was Mr. Joyner
who used to be in the steel business, cast-iron collier business and
it was my understanding that on account of the connections that
he had made with people in Japan while he was in that business
he had proven useful to the New York Shipbuilding Co. in pro-
curing a contract for a collier in Japan. In other words, he was
the only American we knew at the time who knew the Japanese
and also knew at least the bow of the ship from the stern. He had
had some connection in the shipbuilding business.
The Chairman. In any event, in his last complete jesiv of service
for the Electric Boat (^o., he received a total of compensation,
salaries and expenses, of $30,533.44. Now, did Mr. Jojmer's ability
to show how influential he was have a tendency to increase his salary
or extend his employment in the Washington office, at your hands?
Mr. Carse. Do yon mean in relation to Congress?
The Chairman. Yes.
Mr. Carse. No ; I do not think so.
The Chairman. So that then he would have no purpose in trying
to make himself any bigger or any different than you knew him to
be, would he? You w^ould have nothing to gain by it?
Mr. Carse. He would have nothing to gain by it.
The Chairman. It appears in the years, leading up to the dates
of the correspondence that we have just read, Mr. Joyner was laying
MUNITIONS INDUSTRY 295
something of a foiinclation, for whatever purpose it might have
been,
I offer in evidence as " Exhibit No. 184 " a copy of a letter dated
August 30, 1928, addressed by Mr. Joyner to Mr. Carse.
(The letter referred to was marked " Exhibit No. 184.")
The Chairman. The letter reads as follows:
Very Dear Mr. Carse: For your information on Saturday and Sunday Ad-
miral A. T. Long, U.S.N., and party used Sumcnt.
By the way, is that name right, A. T. Lang?
Mr. Spear. I think it was Admiral Long.
Senator Clark. Just on that point, Mr. Spear, I was asking you
this morning about the notes 1, 2, 3, 4, 5, and 6 at the end of Mr.
Joyner's letters. They referred to Admiral H. A. Long.
Mr. Spear. Yes ; I think it was Admiral A. Long.
Senator Clark. It should have been A. T. Long. I understand
the Navy sajs there never was an Admiral H. A. Long. Evidently
the admiral mentioned was A. T. Long.
The Chairman. What is the Su^meru?
Mr. Carse. That was the name of the motor boat.
The Chairman. What motor boat?
Mr. Carse. That we had in Washington here for demonstrating
purposes.
The Chairman. Eeading this letter to Mr. Carse, it says :
For your information Saturday and Sunday Admiral A. T. Long, U.S.N, and
Z)arty used Sumeru.
What is it, a sort of a launch?
Mr. Carse. Yes ; a 50-foot launch.
The Chairman (continuing reading) :
Today the Turkisli Ambassador is to use it. Tomorrow the Acting Japanese
Ambassador has arranged to use it. Probably on Sunday Admiral Hughes,
Chief of Operations, will use it. Monday I am inclined to believe some of
the Shipping Board are using it, Commissioners, I mean. Friday to Saturday
will be given over to painting it up. On Saturday, some of the Hoover people
will use it for two days — meaning Saturday and Sunday next week if clear.
This party will cover several Members of Congress of importance. I am told
today that Mr. Charles wUl buy another boat soon. He showed a check to
Captain Coggswell as a part payment. I believe he has some complaint on the
one he did just buy and wants to see me — something about the paint coming
off. Captain Coggswell tells me his complaint is apparently justified. I will
not say anything until I see him (Mr. Charles).
You can see from the schedule that I am not sailing on the boat or joy-
riding on it. These parties are entirely on their own. I am not with them,
" purposely so."
I do want you to know you can be proud of your guests and it shows con-
fidence in us by using the boat.
Cordially and obediently,
Sterling.
The copy from which I was reading was copied from a letter writ-
ten in pen.
Mr. Carse. I might say that they all supplied their own provisions.
The Chairman. On May 23, 1929, Mr. Joyner wrote you a letter,
or wrote Mr. Spear a letter, which I now offer as " Exhibit No. 185."
(The letter referred to was thereupon marked " Exhibit No. 185 ",
and appears in the ajopendix on p. 445.)
296 MUNITIONS INDUSTRY
The Chairman. In this letter Mr. Joj'ner refers to a Turkish
matter and says he had —
two talks with the Ambassador today, one just a few minutes ago. The net
of the situation is that he is moving every power reasonable to believe possible
to see that we get the other three boats, and these on a basis of no competition,
no bonds, or guarantees, no more dilly-dallying, but a straight proposition from
his Government
He met the Cabinet officer in New York, and has been vi?;iting with him up
to last night. The Cabinet officer will be in this city in a fortnight or so. If
I understand the situati(m correctly, they are both in accord, and are making
a united elfort in our favor.
Who might that Cabinet officer be?
Mr. Spear. He was an officer in the Turkish Cabinet.
The Chairman. An officer in the Turkish Cabinet?
Mr. Spear. Yes, sir; I do not know his name.
The Chairman. You have, of course, used the services of your
Members of Congress in what you considered was legitimate l3usi-
ness in which Members could interest themselves?
Mr. Spear. Whenever there has been any matter before Congress
I considered it interested me personally or interested the company,
I have never hesitated to call upon the gentlemen from my State
where I reside and ask them if they considered it consistent with
their duty to support it.
The Chairman. And you got pretty thorough cooperation from
the Members of Congress in Connecticut?
Mr. Spear. I always got very polite answers and I think in most
cases they thought my requests were reasonable. Where they did
not agree with me, they did not do anything.
The Chairman. Are you employing at the present time any former
Members of Congress?
Mr. Spear. No, sir.
Mr. Carse. No, sir.
The Chairman. Are you turning any law practice to former
Members of Congress?
Mr. Carse. No, sir.
The Chairman. I offer as " Exhibit No. 186 " a letter by Mr. Spear
to Mr. Carse, the letter being written from Groton, Conn.
(The letter referred to was marked " Exhibit No. 186.")
The Chairman. The letter, " Exhibit No. 186 ", reads :
Exhibit No. 186
Electric Boat Company,
Ch-oton, Conn., October 22, 1929.
Confidential.
H. R. Carse, Esq.,
President, Electric Boat Company, 11 Pine Street,
NciD York at]/.
Dear Mr. Carse: Riglit after I talked with you this afternoon, I called
Joyner and found that his friend ATL was then in the office, which gave me
a chance to chat with him a little over the phone. He confirms just what I
said to you today and repeats the advice previously given, this advice being
based partly on what he thinks is good for our interests and partly on what
he thinks the people in the Department are entitled to from us.
We understand that the departmental people are all to be very busy with
some special business tomorrow, and accordingly Joyner is figuring on Thurs
day for his interview.
MUNITIONS INDUSTEY 297
I have marked the letter " Confidential " because I thuik it would rrnt be
wise for us to reveal to anyone, including the board, the names of any of the
peiiple who have been kind enough to assist us with information in an unofTicial
way.
Very truly yours,
L. Y. Spear.
Admiral Long was giving you information?
Mr. Spear. He was giving advice, presumably. I do not know
that he says information. This related to a question, Mr. Chair-
man, of design, what would be more likely to meet the approval of
the Department people among a number of alternatives. As I re-
call, that question was up then, and I was preparing some designs
for submission to the Department.
The Chairman. What was Long's position at this time?
Mr. Spear. I think he was on the general board.
The Chairman. Chief, was he not?
Mr. Spear. Yes; he was the senior member, I think.
The Chairman. I offer in evidence " Exhibit No. 187 ", a letter
dated September 23, 1930, by Mr. Joyner, to the Honorable John Q.
Tilson, Hotel Roosevelt, New York City.
The Chairman. This letter reads:
Dear Congressman Tilsox : (Confidential) Replying to your communica-
tion of September ISth. The subject of work in New London for the Electric
Boat Company Shijjyard in New London has been under discussion in the De-
partment many times during the last year or more, in the effort to see what
could be done to award to that company some of the Government's work of
building submarines.
This is in the interest not only of the workers to whom you specifically re-
fer, but also in the interest of the technical staff of the company. As this is
the only private company at present in America specializing in the design and
construction of submarines, the Department considers it necessary to do every-
thing possible so far as it is permitted by the laws of Congress to give that
yard its reasonable share of sul)marine construction. Therefore you may be
assured that I will do everything in my power to further that result.
In accordance with the terms of the London Naval Treaty, we are permitted
to build a definite amount of submarine tonnage in the immediate future and
we can by the terms of that treaty start construction of two submarines during
the present fiscal year. So it will work out that these submarines be assigned
to the private .ship building company at New London as understood.
With best wishes.
Sincerely j'ours,
Signed by Ernest Lee Jahnckb,
The Assistant Secretary of the Nav^j.
Now, what understanding existed relative to where these ships
were to be built, if and when they were authorized ?
Mr. Spear. At that time it was the intention of the Department
apparently as revealed in their conversation with me to place those
tw^o ships in private yards. Subsequently they changed their mind
about that policy. They did not carry out the policy they then
were discussing and they decided to build one in the navy yard and
open the other to competition by private firms.
The Chairman. Appended to this letter which I have just read
and which I understand is a copy of a letter taken from the files of
the Electric Boat Co., was a sheet in longhand, carrying this infor-
mation :
Read the enclosed and don't let your right hand know what the left is
thinking.
298 MUNITIONS INDUSTRY
This is a copy of a letter to John Q. Tilson. I saw the copy through Mr.
Jahncke.
Note blue slip that explains how.
This should be really a fair confirmation of past chatter.
S. J.
Very confidential.
To whom was this note sent?
Mr. Spear. I do not know.
The Chairman. Do you recall having seen it, Lieutenant Spear?
Mr. Spear. I recall having seen some letter which I take to be
this letter that is appended. I do not recall anything about this slip
that is on here, and to whom that was sent I could not tell you.
Senator Clark. You know Mr. Joyner's handwriting?
Mr. Spear. I think this is in his handwriting. It looks like it to
me.
Mr. Carse. I think that was found in our office, was it not?
Mr. Raushenbush. I think so.
Senator Clark. Do you know to what that refers ?
Mr. Carse. What?
Senator Clark. That handwritten memorandum?
Mr. Carse. It refers to that letter of Mr. Tilson's which the chair-
man has just read.
The Chairman. The reference here is that this is a copy of a
letter to John Q. Tilson and " I saw the copy through Mr. Jahncke."
Mr. Carse. Yes. Mr. Jahncke showed it to him.
The Chairman. Who was Mr. Jahncke?
Mr. Carse. Assistant Secretary of the Navy at that time.
Mr. Raushenbush. Mr. Chairman, the first letter that you read
was signed by Mr, Jahncke.
The Chairman. The exhibit 187 has a note on it " Signed by
Ernest Lee Jahncke, the Assistant Secretary of the Navy."
Mr. Carse. This copy Mr. Jahncke allowed Mr. Joyner to take.
The Chairman. What understanding existed that would enable
Mr. Jahncke to advise you when the ships were authorized that
would be built in private shipbuilding yards ?
Mr. Spear. I do not Imow that I could say there was any under-
standing. We were soliciting them to give us some work. We had
not had any work from them in many years.
Senator Bone. Mr. Tilson was one of the majority leaders in the
House at that time.
Mr. Spear. Yes; he was.
Senator Bone. One of the most energetic majority leaders.
Mr. Spear. He was a majority leader in the House from Con-
necticut.
Mr. Carse. Yes; from the Groton district.
Mr. Spear. We had been dealing with the Department, submit-
ting designs endeavoring to get in a position where they would be
willing to place some contracts with us, because we had not had any
in many years. At the time that communication was dated, there
remained two authorized submarines in the old 1916 program and
we were given to understand that — no formal agreement — but we
were told by various people in the Department, that the Department
would contemplate awarding those two vessels to private firms.
Subsequently they changed their mind and did not award any con-
MUNITIONS INDUSTRY 299
tract until 1931. By the time they decided to award a contract, they
changed their mind and decided their policy would be to build one
of the vessels at the Portsmouth Navy Yard and award the other
to a private concern on competitive bidding. We were the low
bidder on that ship and obtained the contract, and the ship has now
been delivered to the Government.
The Chairman. Now, recalling the best you can at the time of the
receipt of this, what did the blue slip, that was explaining how
Joyner came to get a copy of this letter through Mr. Jahncke, say?
Mr. Spear. I have no idea. I don't think it ever came to me.
The Chairman. Mr. Carse, do you recall the blue slip?
Mr. Carse. I do not. That pencil copy I think was found in the
desk of the treasurer of the company, and I have no recollection of
it. It was some years ago — when was that ?
The Chairman. September 23, 1930.
Mr. Carse. That is 4 years ago.
The Chairman. The fact remains you got, in 1931, two submarine
contracts, did you not?
Mr. Spear. One, not two.
The Chairman. I think the Chair should say for himself, if he
is not speaking for the committee, that there is not any pleasure
in the revealing of this correspondence, and I have not any doubt
but what Mr. Tilson, Martin, and Mr. Fort will want to be heard
on this, and that there is an explanation for it. But I cannot feel,
and I do not think the members of the committee feel it within their
province to refrain from offering into the record this information
which we have gained by reasons of our studies, which the Senate
by resolution instructed us to make.
Mr. Carse, what are your relations with Mr. duPont?
Mr. Carse. None at all. I don't know him.
The Chairman. Does Joyner have any relation with Mr. duPont?
Mr. Carse. Not that I know of.
The Chairman. Has he ever reported to you any relation with
Mr. duPont ?
Mr. Carse. I think he has stated that years ago he superintended
the construction of one of duPont's homes.
The Chairman. I have here a letter dated October 21, 1930, ad-
dressed to Mr. John R. Macomber, 24 Federal Street, Boston, Mass.,
and signed by Mr. Joyner, which I oifer as " Exhibit No. 188."
(The letter referred to was marked " Exhibit No. 188 ", and ap-
pears in the appendix on p. 447.)
The Chairman. Do you know Mr. Macomber?
Mr. Carse. Yes, I have met him.
The Chairman. Who is he?
Mr. Carse. He was the head of Harris, Forbes & Co. that was
absorbed by the Chase Securities Co. and I think since the separa-
tion of the Chase Securities Co. from the Chase Bank there has
been organized another corporation which includes perhaps the
Chase Securities Co. of Boston as I understand, although I do
not know that Mr. Macomber is the head of that organization.
The Chairman. In this particular letter Joyner advises Mr.
Macomber that the Italian commercial attache, one signor Romolo
300 MUNITIONS INDUSTRY
Angelone, will call on him next Friday at your New York office, and
he says further:
The fjentlemun will visit me here today, Tuesday, at whirh (iuie I will advise
him to make an eugagemeut, aieaiiiug to communicate with yuu in order to
learn your convenience.
Then he said further :
In order that you may be .somewhat informed in advance I wish to state
our experience with Italians has not always proven attractive. However, do
not let that deter you.
I have a tentative week-end engagement with Du Fonts at Wilmington,
Del., which I will pass over to the week following if you could dine witli us
Friday. In that ca.se I would run up to New York Friday afternoon. 1 hope
you can accept.
Did Mr, Joyner make any rejDort to you concerning this visit with
duPont?
Mr. Carse. No.
The Chairman. "Exhibit No. 189 ", which I offer in evidence, is a
copy of a letter written by Mr. Spear to Mr. Carse dated January
21, 1931.
The Chairman. This letter, " Exhibit No. 189 ", says :
I received word this morning from our New Haven friend that he would
see the Secretary this afternoon or tomorrow morning, probably the latter, in:
which case we should know a little more about the true inwardness of the sit-
uation tomorrow afternoon or Friday morning.
What was that situation, Mr. Spear?
Mr. Spear. That was the situation where these contracts we have
hien recently discussing were pending in the Department, and it
was a question of whether or not they were going to give private con-
Cf3rns an opportunity to bid on them. I don't think that had been
tiottled at that time but eventually, as I told you, they told me, or
give me to understand they would probably give out 2, and they
eventuall}' gave out 1. But it was always uncertain up to the last
moment what they would do about it.
The Chairman. Was the President going to have any hand in that
matter ?
Mr. Spear. I have always understood that in the Navy Depart-
ment, when they wanted to know what they would do in the Navy
Department, they would finally take it to the President for his
approval before it was done.
The Chairman. Under date of January 2, 1931, you were found
'vsriting Mr. Carse again a letter v^-hich I offer as "Exhibit No. 190."
The Chairman. In this letter, " Exhibit No. 190 ", you say:
This morning, I have a note from our friend in New Haven suggesting that
our meeting in Washingtcm be held on Tuesday instead of Monda.v, because
ho has been asked to breakfast at the White House Monday morning. As a
matter of fact. Tuesday would suit me better than Monday because it gives
us a chance to present the new designs Monday and to get a last checkup on
the departmental situation.
I plan to go to Washington Sunday and, so far as I can see now, will have
tf) stay there from three to five days.
What was the aAvard after that conference at the White House;.
did you get your contract at that time?
Mr. Spear. No, sir; I am trying to recall if I can. It is very
difficult to remember these things. I cannot say I have any exact
MUNITIOXS INDUSTRY 301
recollection of what happened then, but I do recall I felt that the
matter was still open, that there had been no adverse decision with
regard to placing anj^ of these contracts in private yards, but that is
merely my impression. I did not tell you exactly what was said,
because I caimot remember it. I know up to the time the contracts
were actually let it was always my impression, from all of the in-
formation I got, that at least one of them would be given out to
private industry in open bidding.
The Chairman. I offer as " Exhibit No. 191 ", a memorandum
dated February 10, 1931, from C.E.M. for Mr. Joyner.^
(The memorandum referred to was marked "Exhibit No. 191",
and appears in the appendix on p. 447.)
The Chairman, In that memorandum the writer discusses the
tariff on oil and the delegation of 70 men with $1,000,000 at their
disposal coming to Washington on the oil tariff, and then the
memorandum declares :
The sole resistence of any effective character is coming from the Standard
of Indiana.
I note this memorandum is signed C. E. M. Who is C. E. M.?
Mr. Raushenbush. That was from Mr. Joyner's files, Mr. Chair-
man.
Mr. Spear. I cannot place him at all.
The Chairman. Then in its closing paragraph this memorandum
declares :
My guess is that the Navy Department would very much prefer to have
this measure defeated since it wants to buy its oil purely on the basis of
price and strategic location. I venture the suggestion that you ascertain
whether it would not be regarded as a considerable service on your part to
use your extensive influence with Mr. Tilson and others in effectively blocking
the measure if that is what they would like to have done.
Mr. Spear. I don't know anything about that.
The Chairman. Has Mr. Joyner apparently been always in thor-
ough accord with the company, or have joii had differences of opinion
regarding administration and methods of getting business?
Mr. Carse. I should not be surprised that we have. It is one
of these families where we all have our opinions and voice them,
and the majority decides what to be done.
The Chairman. I offer " Exhibit No. 192 ", being a letter marked
" Confidential ", from Jovner to Sir Basil Zaharoff, dated March
7, 1931.
(The letter referred to was marked " Exhibit No. 192 ", and ap-
pears in the appendix on p. 447.)
The Chairman. In this letter Joyner says :
I am not in accord and never have been in accord with the methods which
this company adopts and sees lit to carry through in their endeavor to handle
or obtain new business.
That is on page 2. the fourth line in the second paragraph. And
you will notice later on in that paragraph he advises Sir Basil that —
The Secretary and the Assistant Secretary of the Navy, Admiral .Tones,
and other admirals in the Navy D?partnient, Colonel Tiison, leader of the
Republican Party, the party in power, the White House, and other people
brought me into conference and asked me to remain in the organization iu
83876 — 34— PT 1 20
302 MUNITIONS INDUSTRY
order that they might have faith in an honest construction of any program
they favored us with and also that their dealings might be without conflict or
confusion, enmity or doubt.
Did he ever threaten to resign ?
Mr. Carse. That is the first 1 ever heard of it. Why he is writing
to Sir Basil Zaharoff I do not know.
The Chairman. You think he is selling himself to Sir Basil
Zaharoff now?
Mr, Carse. It kind of sounds that way. He never saw Sir Basil.
I gave him a letter of introduction to Sir Basil, but Sir Basil was
down at Monte Carlo when Joyner was over there, and he did not
see him. I think that was in 1926. This is rather amusing to me.
Now, don't you see what I said before, that sometimes there existed
an exaggerated ego.
The Chairman. I have known that type, but I don't know Mr.
Joyner.
On page 3, in the second paragraph, Mr. Carse, Mr. Joyner is
declaring :
'to
I wrote you with reference to Sir Henri Deterding of the Shell organization,
whom I am informed is a personal friend of yours. We ought to be doing
some of his business in the United States. They have a large powerful and
successful organization, and aside from tliis, they are now deeply interested
in the present embargo controversy.
Have you had any knowledge at all of any relation with oil mat-
ters with Deterding?
Mr. Carse. Absolutely nothing.
The Chairman. I offer in evidence " Exhibit No, 193 ", being a
letter dated April 23, 1931, and addressed to Sir Basil Zaharoff.
(The letter referred to was marked " Exhibit No. 193 " and appears
in the appendix on p. 449.)
The Chairman. This letter, " Exhibit No. 193 ", is to serve as a let-
ter of introduction of the Honorable Mrs. Ernest Lee Jahncke and
Miss Adele Townsend Jahncke, of Washington, D.C., and New Or-
leans, La., the wife and daughter of the Honorable Assistant Secre-
tary of the United States Navy Ernest Lee Jahncke, and we find
Mr. Joyner saying :
I shall sincerely appreciate, and I can assure you that the Secretary and his
family will dwell in a long life of gratitude for any favors you may find it your
pleasure and convenience to extend.
Mr. Carse, the approach to Sir Basil here is rather that of one who
knows him intimately.
Mr. Carse. That is what he might be saying to everybody. He
probably knows you very well.
The Chairman. I would not be surprised.
I offer in evidence " Exhibit No. 194 ", a letter confidential and
personal to Admiral Andrew T. Long, signed Mary and Sterling.
(The letter referred to was marked "Exhibit No. 194", and ap-
pears in the appendix on p. 449.)
The Chairman. Mr. Joyner's name is Sterling, is it?
Mr. Spear. Yes, and his wife is named Mary. They are very close
friends of Admiral Long.
The Chairman. Who is Mr. Johnstone, was he a foreign repre-
sentative of yours ?
MUNITIONS INDUSTRY 303
Mr, Spear. He was one of our engineers who was abroad for a
number of years.
The Chairman. I am rather amused to find in this letter this
language :
Strictly and absolutely confidential to you, it is now definitely decided, and
very definitely, that 1 am going to Japan via Europe in June. As a matter
of fact I neglected sending out for the transportation today but I am going to
do so this afternoon.
Mr. Carse. What year was that?
The Chairman. This is April 1931. Then the letter proceeds as
follows :
Nobody has been informed of this fact except you and a couple of members
of our organization with whom it has been arranged. For business reasons
we are keeping it very, very secret. I dislike taking the long route in the
hot weather, but there are reasons why I should go to Europe first, and there
are further reasons why I should not tell anybody of my intentions.
Andrew T. Long was connected with the International Hydro-
graphic Bureau at Monte Carlo, was he?
Mr. Spear. Yes.
The Chairman. Anything as secret as this mission seems to be
here, why should Admiral Long know anything about it?
Mr. Spear. He was an old friend of Joyner's.
The Chairman. They were really very close friends?
Mr. Carse. Very close. I don't know anything about the trip,
and the trip was never taken.
The Chairman. In this letter Mr. Joyner speaks very intimately
of Admiral Hughes, Admiral Blakely, and Admiral Shag Taylor,
and then he says :
Now for a very, very important and absolutely secret communication. Mrs.
Ernest Lee Jahncke and Miss Adele Townsend Jahncke will arrive in Paris on
the Golden Arrow the afternoon of May 20, and I have instructed our Euro-
pean manager, H. H. Johnstone, 48, Avenue de la Bourdonnais, Paris, France,
cable address code word Retsok, to meet the steamer at Calais, and to ac-
company these splendid ladies, your friends, to Paris, and arrange for their
hotel accommodations, likewise to give them such of his time as they may
require.
Johnstone was a former United States naval officer?
Mr. Spear. I do not think he was ever a commissioned officer.
He was in Annapolis once, but I do not think he graduated.
Mr. Carse. He was in JRussia doing some work for us, and got
caught by the revolution.
The Chairman. Mr. Joyner says in his letter that :
Secretary Jahncke, as you know, is an old friend of mine, and a very loving
friend of yours. He is one of the keenest and one of the finest companions
a man can have on this earth, a prince of men among men. He is not aware
of this letter being written. However, I am sure he would not disapprove of
me writing you because of his great friendship and admiration for both you
and Vi.
Yet, I notice there was typed on this same copy of the letter a
notation, " Copy for Hon. Ernest Lee Jahncke."
Likewise in this letter Mr. Joyner says :
I am having some trouble fighting against any wage reduction. On Tuesday
last the board of directors voted to make a very serious reduction, and to put
it into effect covering everybody excepting, strange to say, " Yours truly ",
and I fought that out this morning and saved that.
304 MUNITIONS INDUSTRY
Mr. Cakse. The records sliow -when the reduction Avcnt into effei-t
and he told me that he was perfectly satisfied with anything I might
determine to be right.
The Chairman. He goes on and savs the following :
There is a general feeling all over this country to cut wages. My feeble
effort will not avail much generally speaking, but it does amount to some-
thing in the organization. In other words, about <JO,(KK» yhares in one block,
and possibly another 100.000 in another block. These two blocks -and the
stock that I can command outside by proxy makes it possible for me to speak
up occasionally out of turn. In doing this, I am supporting the hand, in my
limited way, of President Herbert Hoover.
Does he hold that much stock ?
Mr. Carse. No.
The Chairman. Did he at that time hold that much stock?
Mr. Carse. Oh, no ; not that much stock.
The Chairman. Could that by any possible chance indicate that
Joyner was holding and voting the Zaharoff stock?
Mr. Carse. No.
The Chairman. Not a chance?
Mr. Carse. He never saw^ Zaharoff.
The Chairman. I offer, merely for the record, " Exhibit No, 195 ",
the same being a copy of a letter written by Joyner to Sir Robert
McLean, care of the Vickers-Armstrong Co., Ltd.. London, England,
dated April 28, 1931.
(The letter referred to was inarked " Exhibit No, 195 " and appears
in the appendix on p. 451.)
The Chairman. In this letter, " Exhibit No. 195 ", Joyner says,
after speaking of Mrs. Jahncke and her daughter, the following :
After their arrival in London you will read much about them. I cannot
write you why I make this statement, however, you will be charmed when
you read it, just as you will be supercharmed when you meet them. Any help
or assistance that you can give them will be sincerely appreciated by all parties
concerned.
"Was Mr. Joyner something of a press agent, do you know?
Mr. Carse. He is a very affectionate writer.
Mr. Spear. I think Mrs. Jahncke was to be presented to court,
and I think that is the news he had in mind.
The Chairman. I offer in evidence " Exhibit No. 196 ". being a
letter headed " Personal and Confidential ", dated May 22, 1931, from
Joyner to Sir Basil Zaharoff.
(The letter referred to was marked " Exhibit No. 196 ", and ap-
pears in the appendix on p. 451.)
The Chairman. In that letter, " Exhibit No. 196 ", Joyner says :
I nin in a position today to tell you that I kept my promise to you made some-
time ago, but. nevertheless, not forgotten. I succeeded in restoring the company
to tlie old respected position it enjoyed some twenty-five years ago.
We were tlie low bidder and succeeded in securing the building of the SG5
today. Bids went in May 19th, and I was assured by the Acting Secretary
of the Navy today that we would be given the contract. Being low bidder did
not me;:n what it seems, because the navy yard still had the privilege of com-
ing in and offering a price much under ours, which I believe they did. How-
ever, the honorable position which we have taken through all of this situation
and the helpfulness which we have rendered to the Department in various
manners and various ways has borne fruit, "Where we had nothing but dis-
respect we today have great respect.
MUNITIONS INDUSTEY 305
Was there conveyed to you at all an}' knowledge concerning this
transaction — did the Navj^ offer to do the job for less?
Mr. Spear. Not to my knowledge.
Mr. Cakse. Perhaps Mr. Spear can explain how the Navy esti-
mates are made lower than the contractors bid.
Mr. Speak. The only figures I saw really that came from the navy
yard are not bids at all. They are estimates, and they do not in-
clude all of the items which are included in a private contract, and
cannot be comparable to the bid. They make them up in the navy
yard and the tv,'o dockyards that are concerned they use them and
finally decide on what is the final estimate, and they say they have
got to be built inside of that figure. I was told at the time the final
estimate from the yard was made that the estimated cost to them of
building this duplicate boat in the Portsmouth Yard was some-
what higher than our bid figure.
Senator Vandenberg. You don't know anything about this state-
ment he made that after you made your bid they let the navy yard
come back and make another bid which was lower than yours, but
still let the contract to you through the influence of the Assistant
Secretary of the Navy.
Mr. Spear. I don't know anything about that.
The Chairman. In this letter Joyner further says :
Chase National Bank stock sold at 70 or under today. I secured some, I
think. At least I put in a bid through a brokerage house. I know that you
are one of the largest holdei's of Chase National stock in the world, and I
believe Chase is one of the finest institutions in the world.
I now offer in evidence " Exhibit No. 197 ", being a letter by Joyner
to Mr. Lyman S. King, of the King-Knight Co., Balboa Building,
San Francisco, Calif.
(The letter referred to was marked "Exhibit No. 197", and ap-
pears in the appendix on p. 454.)
The Chairman. In this letter, " Exhibit No. 197 ", Mr. Joyner
says :
If the Shipping Board is to take part in any financing we are in a better
position than any other organization to help the owners.
This was evidently in connection with the Electirc Boat Co.
Mr. Spear. These gentlemen in San Francisco are agents for
Diesel engines. The Harvard which is referred to there, as I recall
was a ship that was on the Pacific coast and she wrecked or something
happenecl to her sometime and the question arose of building a
ship to replace her. We w^ere interested if it was going to be a
Diesel engine ship to see if we could g^t the order.
The Chairman. Mr. Spear, has j^our company shown any pro-
nounced leaning in a political way?
Mr. Spear. No.
The Chairman. Are you as a private citizen interested in politics?
Mr. Spear. I am not at all active in politics. I vote.
The Chairman. Mr. Carse?
Mr. Carse. I vote, that is all.
Mr. Spear. I vote and have occasionally contributed to various
candidates in my town and in the State when requested to. You
know we all get these requests, but my contributions have not been
very large, and not large enough to make much difference.
306 MUNITIONS INDUSTRY
The Chairman. Are your contributions dependent upon whether
the candidate in whose behalf they are made is of one party or
the other ?
Mr. Spear. I have not contributed to anyone recentl}^, because I
could not afford it, but I was brought up in what they used to call
a " black Kepublican State " where we thought a Democrat ought
to be put in jail. You know you inherit those feelings, so for many
years my allegiance, such as it was, has been Republican. I have
never contributed, as I can recall, to any Democratic candidate,
although I came close to it once or twice because they happened
to be personal friends of mine.
The Chairman. In correspondence we touched upon here a little
bit ago reference is repeatedly made to our friend in New Haven.
Who was that ?
Mr. Spear. Congressman Tilson.
The Chairman. Mr. Carse, have you made contributions to politi-
cal campaign funds?
Mr. Carse. Not in a long while. I served my apprenticeship
back in 1892 in the Twenty-third Assembly District of New York,
when they made me chairman of the finance committee; but after
I found we were defeated two or three years, I think I had enough
of it.
The Chairman. Without casting any reflection upon the propriety
or impropriety of it — and I see nothing to show that it was not
proper — I want to call your attention, Mr. Spear, to the fact that
you did make contribution to the campaign fund that was raised in
behalf of Senator Bingham.
Mr. Spear. I did.
The Chairman. And professed a very decided interest in his
welfare.
Mr. Spear. I did.
The Chairman. In a letter dated November 5, 1932, which is
offered as " Exhibit No. 198 ", you say in part as follows [reading] :
You are correct in thiuking that I am very much interested in the election
of Senator Bingham. * * *
I am enclosing my check for $50 as a contribution to your fund, which is
additional to other contributions.
Mr. Spear. Yes, sir.
The Chairman. What were these other contributions?
Mr. Spear. I think there was a local. I think I made a contribu-
tion to the local town committee, if I remember correctly.
The Chairman. Senator Bone, I handed you some exhibits to
look at, which I thought you would be interested in perusing and
might want to pursue the matter further.
Senator Bone. I do not think it is material.
The Chairman. This letter of June 2 has already been introduced
as an exhibit.
Senator Bone. I do not think the other amounts to anything. It
only dealt with some small stuff out there.
The Chairman. Very well.
Senator George. Mr. Carse, I would like to ask one question which
I think is pertinent to a matter which has gone in the record. How
long was your personal case, the case of the company, the claim
MUNITIONS INDUSTRY 307
against the Government, pending in the Court of Claims before you
finally had favorable decision?
Mr. Spear. I think, Senator, that the decision was handed down
on the third or fourth year after the suit was filed.
Senator George. And then how long after the decision before the
appropriation was made to cover it?
Mr. Spear. It was made at the next session of the Congress.
Senator George. It was made at the next session of the Congress ?
Mr. Spear. Yes, sir.
Senator George. Did you have an attorney here representing
you?
Mr. Spear. Yes, sir; McKenna, Flannery, and somebody else,
three names, in the Hibbs Building, Washington. They were our
attorneys who prosecuted this case in the Court of Claims,
Senator George. Did those attorneys represent you before the
Appropriations Committee, or do you know ?
Mr. Spear. I think they did. I think they took charge of it, and
it was part of their duty to follow it through until we received the
award which the court made to us.
Senator Pope. I have one question I want to ask. In a recent mag-
azine article, a magazine issued in September, I find this statement,
it being taken from a national magazine [reading] :
So during the third week in June another sort of conference was held in
Switzerland. It was not a disarmament conference. It was an armament
conference, and it was held in the utmost secrecy among representatives of
the American munitions manufacturers, the Vickers-Armstrong group of Eng-
land, and the Schneider-Creusot interest of France. Not a word was published
in any newspaper about this conference despite the importance in financial and
industrial affairs of the men who attended it. Probably no American news-
paper was aware of it. Mo«t significant.
Do you know anything about this conference held in June ?
Mr. Carse. This is the first I have heard of it.
Senator Pope. Was your company represented?
Mr. Carse. It was not represented.
Senator Pope. Do you know, Mr. Spear?
Mr. Spear. I never heard of it before, and our company was not
represented in any way. This is the first I have heard of it, of
any such conference being held.
Mr. Carse. We never consider ourselves a munitions company in
any way.
The Chairman. I will offer the letter I referred to from Mr. Spear
to Mr. W. H. Putnam, Hartford, Conn., as " Exhibit No. 198."
(The letter referred to was marked " Exhibit No. 198 ", and
appears in the appendix on p. 454.)
The Chairman. Gentlemen, I thinly we are through. For my
own part, and from what I have overheard, I know I am speaking
the mind of other members of the committee, and I will say that I
think you have been mighty decent with us, I think you have been
mighty clean in the way you have dealt with the committee, and I
can only express the hope that others who are going to have to follow
in your footsteps are going to be as frank with us as you have been.
In anj^ event, we do very, very much appreciate the manner in which
you have cooperated with us.
308 MUNITIONS INDUSTRY
With the expression of our thanks to you, the committee will stand
in recess until 10 o'clock tomorrow morning, and you are excused
to go about your work.
Mr. Spear. Thank you, Mr. Chairman.
Mr. Carse. We only regret that all this detail in relation to other
people had to be made public.
The Chairman. I can understand fully that you would, and I
think the members of the committee feel a sense of regret that that
needs be done too, but we have been instructed to do a given work.
Mr. Carse. We appreciate that.
The Chairman. There is not any other way for us to do it except
in the manner in which we are proceeding with it.
Thank you, Mr. Carse, Mr. Spear, and Mr. Sutphen.
(Whereupon the committee took a recess until tomorrow, Friday,
Sept. 7, 1934, at 10 a.m.)
I
APPENDIX
EXHIBITS
ELECTRIC BOAT CO.
Exhibit No. 1
Electric Boat Co. — Henry R. Carse, president
Salary
Extra
compen-
sation
Commis-
sion
Expenses
Dividends
Total
1919-
$30, 000. 00
30, 000. 00
30, 000. 00
30.000.00
30, 000. 00
30, 000. 00
30, 000. 00
30,000.00
30, 000. 00
30, 000. 00
30. 000. 00
30, 000. 00
30, 000. 00
26, 562. 50
26, 250. 00
16, 406. 25
$98. 00
$30, 098. 00
1920
30, 000. 00
1921
193. 00
30, 193. 00
1922
30, 000. 00
1923
100. 80
1, 354. 00
324.07
125. 55
534. 15
30, 100 80
1924
European trip
31, 354. 00
1925
30.324 07
1926..-
30, 125. 55
1927
30, 534. 15
1928.
30, 000. 00
1929
30, 000. 00
1930
30, 000. 00
1931
30, 000. 00
1932
26, 562. 50
1933.
26, 250. 00
1934 (to 8/15)
16, 406. 25
None ...
459, 218. 75
None
None
2, 729. 57
461, 948. 32
Exhibit No. 2
Electric Boat Co. — L. Y. Spear, vice president
»
Salary
Extra
compen-
sation
Commis-
sion
Expenses
Dividends
Total
1919
$25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
25, 000. 00
30, 000. 00
30, 000. 00
30, 000. 00
30, 000. 00
26, 562. 50
26, 250. 00
16, 406. 25
$25, 000. 00
1920
25, 000. 00
1921
7, 645. 69
3, 513. 62
999. 25
1, 031. 83
1, 579. 67
2, 900. 25
1, 269. 66
1,831.41
1, 446. 07
1, 888. 50
1,436.88
1, 182. 31
1, 125. 72
645. 68
European trip
32, 645. 59
1922
28, 513. 62
1923
25, 999. 25
1924
26, 031. 83
1925
26, 579. 67
1926.
27, 900. 26
1927 .
26, 269. 66
1928
31,831.41
1929.
31, 446. 07
1930
31, 888. 60
1931
31,436.88
1932
27, 744. 81
1933
27, 375. 72
1934 (to 8/15)
16, 951. 93
414, 218. 75
None
None
28, 396. 44
None
442, 615. 19
309
310
MUNITIONS INDUSTRY
Exhibit No. 3
Electric Boat Co. — II. R. Sutphen, vice president
Salary
Extra
compen-
sation
Com-
mission
Expenses
Dividends
Total
1919
$12, 000
20, 000
20, 000
20,000
20,000
20, 000
20,000
20, 000
20,000
20, 000
20, 000
20,000
20,000
20,000
20,000
12,500
$2, 402. 18
48.28
3, 357. 81
20.00
59.53
119.70
146. 20
European trip
$14, 402. 18
20, 048. 28
1920-
1921 . . .
European trip
23.357 81
1922
20, 020. 00
1923...
20, 059. 53
1924
20. 119 70
1925
20, 146. 20
1926...
20, 000. 00
1927 . .
230. 00
20.230 00
1928
20, 000. 00
1929
76.00
1, 552. 73
4.45
193, 75
437. 00
20, 076. 00
1930
European trip
21,552 73
1931
20, 004. 45
1932
20, 193. 75
1933
20,437 00
1934 (to 8/15)
12, 500. 00
304, 500
None
None
8, 647. 63
None
313, 147. 63
Exhibit No. 4
Electric Boat Co. — H. A. G. Taylor, secy.-treas.
Salary
Extra
compen-
sation
Commis-
sion
Expenses
Dividends
Total
1919
$5,900.00
4, 900. 00
4,900.00
5, 500. 00
6, 500. 00
7, 166. 64
7,500.00
7, 500. 00
7, 500. 00
7,500.00
7, 500. 00
7, 500. 00
7, 500. 00
7, 041. 66
7,000.00
4, 374. 90
$5, 900. 00
1920
$3,035.46
European trip
7, 935. 46
1921
4, 900. 00
1922
5, 500. 00
1923 -
6, 500. 00
1924 .
7, 166. 64
1925
7, 500. 00
1926 -
7, 500. 00
1927 --
7, 500. 00
1928 . . - -
7, 500. 00
1929
7, 500. 00
1930
7, 500. 00
1931
7, 500. 00
1932
*=
7, 041. 66
1933
7, 000. 00
1934 fto 8/15)
4, 374. 90
None .
105, 783. 20
None
None
3,035.46
108. 818. 66
Exhibit No. 5
Electric Boat Co. — G. C. Davison, vice president
Salary
Extra
compen-
sation
Commis-
sion
Expenses
Divi-
dends
Total
1919 . . .
$20, 000. 00
17, 500. 00
10, 000. 00
3, 333. 32
$285. 24
397. 23
78.64
$20, 285. 24
1920
17, 897. 23
1921
10, 078. 64
1922 (resicned)
3, 333. 32
1923
1924
1925
1926
1927
1928
1929 ....
1930
1931
1932
1933
1934
50, 833. 32
None
None
761. 11
None
51, 594. 43
MUNITIONS INDUSTEY
311
Exhibit No. 6
Electric Boat Co. — Washington office expense
Exhibit No. 7
JElectric Boat Co. — Statement of contracts for naval vessels, ammunition, etc.,
Jan. 1, 1919, to Aug. 15, 1934-
United States Navy Department :
July 1, 1919:
6 submarine boats, S-.i2 to S-47 $11, 430, 000. 00
Changes 129, 250. 60
$11, 559, 250. 60
Government of Peru :
April 11, 1924 :
2 submarine boats, Rr-l, Rr-2, with
extras 2, 473, 100. 00
24 mark x by 5 M. by 21"
24 mark x 5 M. x 21" torpedoes 264.000.00
2 3" guns VPith mounts 42, 000. 00
500 rounds of 3" ammunition 23, 400. 00
Torpedo-testing apparatus 16, 337. 00
Submarine base 458, 450. 00
Furniture for base 8,700.00
3, 285, 987. 00
Argentine Government :
January 21, 1925 :
Y guns, arbors, and eases, and depth charges 18, 800. 00
Government of Peru :
October 13, 1926:
2 submarine boats, R-3, R-4 2,500,000.00
United States Navy Department :
June 29, 1931 :
August 3, 1933 :
1 submarine boat. Cuttlefish 3, 297, 000. 00
2 submarine boats, Shark and Tarpon @ $2,770,000— 5, 540, 000. 00
Government of Peru :
October 9, 1933 :
October 25, 1933 :
2 river boats with extras 462, 840. 00
1,200 rounds, 8", 50 cal. ammunition. 50, 000.00
512, 840. 00
Government of Peru :
January 10, 1934:
1,300,000-gallon fuel tank with fittings 8,275.84
26, 722, 153. 44
312
MUNITIONS INDUSTRY
Electric Boat Co.
ExHiniT No. 8
-Statement of royalties received during calendar years
as shoirn
191C to 1921, foreign
currency
1916 to 1921,
dollars
1922
for-
eign
cur-
rency
1922,
dol-
lars
1923, foreign
currency
1923,
dollars
Vickers, British
£516,800 18 08
2, 194, 480. 67
None
None
None
None
None
None
None
None
None
None
None
None
Vicker.s, Mitsubishi
fl920-l-2-3)
£31,3.50 0 0
142, 053. 50
Vickers, Dutch. .
Vickers, Australian...
Vickers, DeSchelde.. .
£235 18 0
940. 3a
S.E.C. Naval
DeSchelde
Fl.91,433 77 0 (1917)
Fl. 12,256 48 0 (1920)
Fl. 2,108 57 0 (1921)
37,281.86
4, 085. 49
673. 66
1924, foreign
currency
1924,
dollars
1925, foreign
currency
1925,
dollars
1926, foreign
currency
1926,
dollars
Vickers, British .
Vickers, Mitsubishi
£3,800 0 0
17,361.25
£3,800 0 0
£9,600 0 0
18,401.50
46, 488. 00
£3,800 0 0
£1,560 0 0
£4,219 8 2
18, 430. 00
Vickers, Dutch
7, 572. 00
Vickers, Australian.-.
20, 464. 13
Vickers, DeSchelde
S.E.C. Naval...
Pts. 6,257,936
Fl. 231,502.43
951,206.27
DeSchelde
Fl. 472, 871. 57
184, 504. 28
92, 809. 79
(To October 31st)
1927, foreign
currency
Vickers, British
Vickers, Mitsubishi.
Vickers, Dutch
Vickers, Australian.
S. E. C. Naval
£5,727 6 12
£840 0 0
£6,475 19 8
Pts. 421, 967. 25
Total, 1916 thru 1927 $3,869,637.38.
1927, dollars
27, 777. 54
4, 074. 00
31,408.51
69, 624. 60
$3, 869, 637. 38
Exhibit No. 9
Electric Boat Co. — Capt. Paul Koster
Salary
Extra compensation
Commis-
sions
Traveling
expenses,
rent, taxes,
clerical,
office main-
tenance,
etc.
Dividends
Total
1919
$4, 000. 00
4, 000, 00
4, 000. 00
4, 000. 00
4, 000. 00
4, 000. 00
5, 000. 00
6, 000. 00
10, 000. 00
10,000.00
10. 000. 00
10,000.00
5, 833. 32
$9, 955. 21
6,215.61
6, 038. 23
7, 392. 33
4, 873. 80
6,654.12
8, 298. 18
8, 906. 09
4, 334. 94
4, 395. 56
5, 019. 69
5, 308. 21
878. 63
$13,955.21
1920
10,215.61
1921
10, 038. 23
1922
11,392.33
1923
$3, 522. 00
9, 471. 82
12.395.80
1924.
20, 025. 94
1925
13, 298. 18
1926
4,639.31
19, 545. 40
1927....
14,334.94
1928
14, 395 56
1929..
15,049.09
1930
15.308.21
1931
6,711.95
1932
1933
1934
None . .
80, 833. 32
17, 633. 13
78, 200. 60
None
176.667.05
MUNITIONS INDUSTRY 313
Exhibit No. 10
April 20, 1925.
Capt. Paul Koster.
J/S. Av. de La Bourdonnais, Paris, France.
Dear Captain : Your favor of the 9th instant at hand, and the United States
Government had never entered into an agreement with us to pay a royalty on
boats built in its arsenals, although we understand that they did pay the Lake
people a royalty on one or more boats of the Lake type built in the navy yard.
We have never assented to the United States Government building our type
of boat in its navy yards and have never given them a permit to cover the
use of our patents, but in the contract entered into on July 17, 1917, for sub-
marine boats 8-18 to S-^l, inclusive, and contract entered into on the 1st of
July 1919 for the construction of submarine boats /S-//2 to S-Jp, inclusive, by
this company in its own plants or the plants of subcontractors, clause 5 of the
twenty-second paragraph of said contracts reads as follows :
" In addition to the payments hereinbefore stipulated, the Department will,
at the time of the condition at acceptance of the vessel, pay the sum of forty
thousand dollars ($40,000) covering the use in any and all patented devices
which are or may be incorporated in each vessel, its machinery, appliances,
and appurtenances as specified in the eighth clause of this contract : Provided,
That the payment of such sum shall not be held to be an acknowledgment by
the United States of the validity of any specific patent right or license owned
or acquired or to be owned or acquired by the contractor, nor shall it be takeu
to fix a maximum value of the use of any or all such patented devices in any
other vessels theretofore or hereafter built for the Department by the con-
tractor or by others."
In relation to submarines built in England, our arrangement is direct with
Vickers, we never having had any negotiations direct with the British Gov-
ernment. The conditions of our agreement vidth Vickers is that on any type
of submarine boat built by that firm for the account of the British Government
we shall receive a certain percentage of the net profit accruing to them on such
business, and during the entire period of such construction, running over 20
years, our average profit has been £28,467 per boat, and the profit of Vickers
accruing on this business has been larger than our proportion.
April 20, 1925.
Capt. Paul Koster,
Paris, France:
I trust this statement will fully answer the purpose you have in mind, but
if it should be necessary to have a notarial afiidavit in relation to the facts,
kindly let me know, giving full detail as to the form that may be required, and
I will give it the best of attention.
With kind regards and trusting that you are enjoying good health, I remain.
Yours very truly,
(Signed) Henby R. Carse,
Pres.
Exhibit No. 11
An agreement made in London on the 21st day of October, one thousand nine
hundred and thirteen, between the Electric Boat Company, a company consti-
tuted according to the laws of New Jersey, in the United States of America
(hereinafter called the American Company), of the one part, and Vickers,
Limited, of Vickers House, Broadway, Westminster, in the County of London
(hereinafter called the Vickers Company), of the other part, supplemental to
an agreement (hereinafter called the main agreement) made between the same
parties and dated the twelfth day of December, one tliousand nine hundred and
two. Whereas the parties have agreed that the main agreement should be
modified in manner hereinafter appearing, now it is hereby agreed by and
between the parties hereto as follows :
1. The main agreement shall, as regards clause 7. be modified, first, that the
factory costs shall, instead of the fifteen percent (15%) therein mentioned, be
as follows :
(1) In respect of shipbuilding and the ordinary engineering part of the work,
such as is carried on at present at the shipbuilding works of the Vickers
Company at Barrow, twenty percent (20%) on material and labour.
314 MUNITIONS INDUSTRY
(ii) In respect to the ordinary engineering part of tlie work as is carried on
at present at the engineering works of the Vickers Company at Barrow, 12^^
percent on material and labour.
(iii) For gas-engine work carried out at the yards of the Vickers Company
put into submarine boats, twenty-tive percent (25%) on material and labour,
(iv) On rniished material purchased not made by the Vickers Company, five
percent (5%).
And secondly that in place of the present wording of the last sentence of such
clause, beginning " the balance of the said moneys " to the end of the clause, the
following words shall be substituted as indicated in the new arrangement come
to between the parties, namely, " the balance of the said moneys shall be
divided in the proportion of sixty percent (00%) to the Vickers Company and
forty percent {40%) to the American Company."
2. The provisions of the clause of the main agreement except as modified by
the present agreement shall apply as if restated in this agreement.
3. Should any dispute or difference arise between the parties hereto under
or with regard to this agreement such difference or dispute shall be decided
by arbitration in accordance with the Arbitration Act ISSO, or any then
subsisting statutory modification thereof.
In witness whereof the respective companies have caused their respective
common seals to be affixed the day and year first above written.
The common seal of Vickers Limited was hereunto aflixed in the presence of :
[seal] a. T. Dawson, Director.
John T. Coffin, Secretary.
Exhibit No. 11-A
[Copy]
Messrs. Vickebs Limited,
Vickers House, Broadway, Westminister, S.W.
London, 21st October 1913.
AGREEMENT OF 12TH DECEMBER 1002
Deae Sirs : With reference to our recent negociations regarding modifica-
tion of the above agreement, the terms arrived at will, so far as regards British
business, be embodied in the supplemental agreement to be signed today.
With respect to continental business, the Electric Boat Company holds that
the proposed transfer of this business to Vickers Limited cannot become either
practicable or legal until Vickers Limited have been given complete freedom
of action in this respect by the British Admiralty. At the present time, there-
fore, the Electric Boat Company cannot see its way to agree to any modification
of the main agreement in this respect. It. however, agrees to bind itself to a
modification in the future, having for its main purpose an arrangement under
which Vickers Limited can for the whole period of the above agreement deal
exclusively with the continental business except in the countries where the
Electric Boat Company has already granted exclusive licenses covering such
business.
The Electric Boat Company will also agree to the following disposition of any
profits which may be gained in the continental business conducted by the Vick-
ers Company, viz :
1st. In the event of any boats being constructed for continental countries
in tlie Vickers yards in Great Britain, 60% to Vickers Limited and 40% to
the Electric Boat Company.
2d. In the event of such boats being constructed in any other yard In
Great Britain or Ireland approved by the Electric Boat Company, 50% to
Vickers Limited and 50% to (he Electric Boat Company, after deducting the
profits allowed to the building firm.
3rd. In case such boats are built in continental Europe, or patents or licenses
thereunder are sold 50% to Vickers Limited and 50% to the Electric Boat
CompaK.Y.
While the Electric Boat Company considers it impracticable at the present
time to enter into the new arrangement with regard to continental business,
it nevertheless realizes that Vickers Limited can render important assistance
to the Electric Boat Company in the conduct of the continental business of
the latter. In consideration of such assistance the Electric Boat Company
MUNITIONS INDUSTRY 315
is willing to waive certain of its rights in respect to priority of payment
under the existing arrangement, as agreed to by Vickers Limited in their let-
ter of August 19th, 1911. This waiver, however, will not apply to Holland,
Russia, or Sweden, but would specifically apply to Spain, Portugal, Austria-
Hungary, Italy, and Turkey.
The Electric Boat Company is also willing to waive this right in any other
continental countrj^ for business in which no licenses have been granted by
the Electric Boat Company, as soon as Vickers Limited can demonstrate, to
the satisfaction of the Electric Boat Company, their ability to assist materially
in securing orders for the Electric Boat Company.
The Electric Boat Company will further agree to waive this right with
respect to Russian business, wlien, and in the event of an arrangement being
ma!de satisfactory to the Electric Boat Company, which, while respecting the
rights of the Newsky Company in full, will enaljle Vickers Limited to partici-
pate in the Russian business.
It is, of course, understood that if and when the Electric Boat Company's
continental business, or any part thereof, is transferred to Vickei's Limited,
the details of the working arrangements shall, when circumstances permit,
be generally approved by the Electric Boat Company.
Yours faithfully.
On belialf of The Electeic Boat Company,
(Sgd) Electeic Boat Co.,
By Isaac L. Rice, President.
We agree to the above,
ViCKEES, Limited,
(Sgd) A. T. Dawson, Director.
Exhibit No. 11-B
[Copy]
NovEMBEaj 3, 1913.
Messrs. Vickeks, Ltd.,
Vickers House, Broadway, Westminstet-,
London, S.W.
Gentlemen : Although our agreement of October 21st, modifying previous
agreements has of itself, in my opinion, no retroactive effect, nevertheless, I
beg to take occasion to call your attention to our memorandum of August 21st,
1913, in which it is expressly stipulated as follows :
"(1) Agreement to be modified as follows for future business, but not to affect
in any manner boats now building."
The agreement as drawn, however, contains a reference to factory charges
which is outside of the memorandum and as to those it was my understanding
with Sir Trevor Dawson that the new arrangement should go into effect as
of January 1st, 1913. I would therefore request you to confirm the following:
1. That the modification as to division of profits applies only to future
orders ;
2. That the modification as to factory charges goes into effect as of January
1st of the present year.
Very truly yours,
(Sgd) Isaac L. Rice.
Exhibit No. 11-C
[Copy]
ViCKEBS House,
Broadway, Westminister, London, S.W. No. IJf, 1913.
Isaac L. Rice, Esq.,
President, The Elcc. Boat Co.,
New York.
Dear Sib: We have your letter dated the 3rd inst., with regard to the new
agreement of the 21st ulto., and as requested we beg to confirm :
1. That the modification as to division of profits applies only to future
orders.
316 MUNITIONS INDUSTRY
2. That tbe modification as to factory charges is to take effect as from the
1st January of the present year.
Yours faithfully,
For ViCKERs, Limited,
(Sgd) A. T. Dawson, Director.
Exhibit No. 12
[Strictly confidential]
EXECTRIC BOAT CO. WITH VICKEES, LTD., AGREEMENT
Agreement made in the city of New York, on the 4th day of March, one thou-
sand nine hundred and twenty-four, between Electric Boat Company, a corpo-
ration organized and existing under tlie laws of the State of New Jersey, in
the United States of America, and now having its principal office at no. 11
Pine St., in the Borough of Manhattan, city of New York, in the State of New
York, in the United States of America, hereinafter for convenience designated
as " E. B. CO.", of the one part, and Messrs. Vickers, Ltd., a corporation duly
organized and existing under the laws of the British Empire and now having
its principal office at Vickers House, Broadway, Westminster, in the county of
London, in England, hereinafter for convenience called " Vickers ", of the other
part.
Witnesseth : That for and in consideration of the mutual promises, covenants,
and agreements herein contained, and of the sum of one dollar, and other valu-
able considerations, each to the other in hand paid, the receipt whereof is hereby
ackowledged.
This agreement witnesseth :
First. That from all of the covenants and agreements herein contained, as to
the territory therein included, there is and shall be excluded and excepted there-
from the following territory: Spain, Japan, France, Italy, Belgium, Holland.
Norway, Finland, Brazil, Argentine, and Peru and all territory colonies, and
dependencies of each of said countries and of all communities and places that
are subject to the government and/or suzerainty of the respective governments
of the respective countries above set forth. The business of manufacturing,
building, and/or selling submarines to each of the above-mentioned countries
shall be and is hereby declared to be governed, managed, or controlled by a
series of agreements either heretofore made and entered into or to be hereafter
made and/or entered into, and Vickers hereby agrees that it will not attempt
to do nor seek business in or for the aforesaid countries just mentioned, except
in accordance with such special agreement as have been or may hereafter be
made with E. B. Co.
Second. Under this agreement, from which the countries listed in paragraph
" First " hereof are and shall be excluded, as between the parties hereto, there
shall be the following division of territory, to wit :
(a) Territory reserved exclusively for Vickers; that is, Great Britain and
her colonies and dependencies, including self-governing territories such as
Canada, Ireland, Australia, and India.
(6) Territory reserved exclusively for E. B. Co., viz, the United States of
America, the colonies and dependencies thereof, and the Repul)lic of Cuba, and
all communities and countries governed by or under the suzerainty of the
United States of America.
(c) Common territory in which both parties shall be free to act; namely, all
countries of the world, but eliminating therefrom all countries and territory
included in any of the subdivisions set forth in paragraph "First" herenf.
and tlie countries and territories set forth in subdivisions " a " and " & " of this
paragraph " Second " of this agreement.
Third. All agreements and understanding between the parties hereto with
respect to the territory included in subdivisions "a", " ?; ", and "o" hereof
be and the same hereby are terminated and they and each of them are
superseded by the agreements herein contained.
Fourth. In territory " a ', Vickers shall have and is hereby granted the exclu-
sive right to manufacture submarines under E. B. Co.'s designs, and submarine
patents, and also the exclusive right to sell to the Government of Great Britain.
her colonies and dependencies. Vickers agrees to pay to E. B. Co. a sum that
MUNITIONS INDUSTRY 317
u;
shall be equal to three per centum of the gross contract proceeds of all subma-
rines or machinery, appurtenances or parts thereof sold to the Government of
Great Britain, her colonies and dependencies, irrespective of whether or not
such submarines, or any of them, are constructed either in vphole or in part to or
from the designs or under the patents of E. B. Co., it being understood, how-
ever, that guns and aniniunitiou for the submarines, and also torpedoes and
mines sohl wit]i or for use on submarines, shall be excluded from such payment.
In territory " b " on all sul)marines that E. B. Co. shall build to or under
its own designs and/or patents, or any of them, Vickers shall have no interest
or claim theretm or from such business, and E. B. Co. shall have the exclusive
right to manufacture submarines to and under Vickers' designs and/or Vickers'
patents, or any ol.' them, and also the exclusive right of sale of such .submarines
ti) the respective governments of the territory included in territory " 6 ", and
E. B. Co. agrees to pay to Vickers a sum that shall be equal to three per centum
of the gross contract proceeds of all submarines built to or under Vickers'
designs and/or patents, and also all machinery, appliances, and parts therefor,
exclusive, however, of guns and ammunition there cor and torpedoes and mines
sold with or for use on such submarines.
In territory " c " Vickers shall be free to make tenders for construction
witiiin Great Britain, to its own designs and submarine patents, and likewise,
E. B. C«). shall be free to make tenders fur the construction to its own designs
and/or submarine patents, either in the United States of America, or by any
licensee of E. B. Co., not domiciled in territory " c."
In territory " c " the two parties hereto shall be free to enter into competi-
tion the one with the otlier. Vickers agrees that it will reserve for and pay
to E. B. Co. the sum that shall be equal to four and three-quarters per centum
of the gross proceeds of contracts and/or orders for submarines or machinery,
appliances, or parts therefor, exclusive, however, of guns and ammunition
tlierefor and torpedoes and mines sold with or for use on such submarines, in
territory " c ", manufactured or built or supplied to the governments of any
of the countries included in territory " c " ; when such work shall be executed
In Great Britain, reciprocally E. B. Co. agrees that it will reserve for and pay
to Vickers the sura that shall be equal to four and three-quarters per centum
of the gross proceeds of contracts and/or orders for submarines, or macliinery,
appliances or parts therefor, exclusive, however, of guns and ammunition
therefor and torpedoes and mines sold with or for use on such submarines, in
territory " c ", manufactured or built or supplied to the governments of any
of the countries included in territory " c ", when sucli work shall be executed
in the United States of America. Any work of the kind in this agreement
provided for in territory "C" that shall be required to be done either than
as in the two preceding subdivisions of this paragraph of this agreement shall
be subject to special agreement between the parties to be entered into at that
time.
Fifth. So far as conditions will permit, E. B. Co. will reserve for and pay
to Vickers up to the same percentage last above mentioned on all such work
that siiall be executed for any of the countries or governments included in
territory " c " by any foreign licensee of E. B. Co. not domiciled in territory
'' c " ; E. B. Co. agrees that the minimum percentage that shall be reserved for
Vickers in the circumstances last above stated shall in no case be less than
three per centum of the gross proceeds on such work, without having first
obtained the written approval of Vickers.
Contracts entered into and orders taken by E. B. Co. in territory " c " may,
at the option of E. B. Co., be required to be executed in whole or in part by
Vickers in accordance with the terms, covenants, and conditions set forth in
the construction agreement entered into by the parties hereto and bearing
date the fourth of March 1924.
If at any time Vickers shall desire to have contracts entered into by it
or orders received by it in territory " c " executed by any foreign licensee
of E. B. Co., not domiciled in territory "o", E. B. Co. will give its written
assent thereto and will use its best efforts to secure advantageous terms
from such foreign licensee for such construction for Vickers, it being under-
stood and agreed that four and three-quarters per centum of the gross
pro(.'eeds of such construction shall be, and hereby is, agreed to be paid by
Vickers to E. B. Co.
Sixth. The above-mentioned compen.sation shall be due and payable by each
of the parties hereto to the other under the circumstances above recited, ir-
83876— 34— PT 1 21
318 MUNITIONS INDUSTRY
respective of whether the submarines or the machinery, apparatus, or parts
tlierefor are manufactured and/or sold directly by the parties hereto or by
corporations or firms or persons controlled by either of the parties hereto.
Seventh. Neither of the parties hereto shall on its own initiative negotiate
for the sale of plans or licenses or designs in territory "c", and if such nego-
tiations are inaugurated with either of the parties hereto on the initiative
of any government within territory " c ", the other party hereto shall be
promptly in writing advised tlieroof. No offer or tender shall be made for
such plans or licenses or designs by either party without the written consent
and approval of the other, which consent or approval shall extend to, include
and cover the price or charge to be made, the distribution of the proceeds and
other conditions of the offer.
Vickers shall promptly in writing advise E. B. Co., of any negotiations
which may be opened or negotiated for the sale of plans, desit;ns, and/or
licenses In territory " a " and Vickers shall not, of its own initiative or free
will, make any such sale without the written consent of E. B. Co., and the
apiiroval by the latter of the price, terms, and conditions of such sale, it being
understood and agreed that unless otherwise at the time specifically agreed
to, the net proceeds of such sale shall be divided and distributed between
the parties hereto in the proportion of two-thirds thereof to Vickers, and
remaining one-third thereof to E. B. Co.
Eighth. Vickers agrees that it will keep E. B. Co., fully informed and
advised as to all negotiations, inquiries, orders, and arrangements with re-
gard to manufactures and sales in territory " a ", except when such information
will be violative of secrecy obligations imposed by the i)urchasiug government.
Each of the parties hereto agrees that it will keep the other fully advised
and informed of all negotiations, inquiries, orders, and arrangements for or
with regard to sales in territory " o ", except when the disclosure of such
information shall be violative of secrecy obligations imposed by the Govern-
ment with whom such negotiations, inquiries, and arrangements have been
made or are under way and/or from whom such orders shall be received.
Ninth. Technical information with respect to submarines and parts thereof
shall be freely and fullj' exchanged between the parties hereto, subject al-
ways, however, to such secrecy obligations as may be imposed by any
government.
Tenth. All proceeds and collections from past and present construction in
Continental Europe shall be and is hereby declared to be for the sole account
and benefit of E. B. Co., and by the execution of this agreement the liei-etofore
existing agreement between the parties hereto, which latter has been desig-
nated as the so-''alled " European account ", he and the same horeby is can-
celled and annulled. Collections and receipts from the British Government
on account of infringonents of E. B. Co.'s patents either now or hereafter
pending, unless otherwise specifically agreed to, shall be handled directly by
E. B. Co. for the joint account of the parties hereto, and the parties hereto shall
share equally in the expenses and proceeds, it being undei-stood and agreed,
however, that any collections that shall be made by the New London Ship &
Engine Cornjiany, or by E. B. Co., on account of the construction of engines
in Great Britain, are to be for the sole account of E. B. Co., or the New
London ghiji & Engine Company, as the case may he.
Eleventh. The term "Submarine patents", as used in this contract, shall
be deemed and shall include all patents relating to the hulls of .submarines
and also to machinery, api)liances. and fittings used exclusively in and/or on
submarines, but shall not be deemed to include, nor shall it include any pat-
ents on types of engines, electric motors, and other machinery, apiiaratus, and
appliances, th(; use of which is not confined exclusively to submarines.
Each of the parlies hereto shall exercise its own discretion and judgment
as to whether or not patents for submarines, or patents relating to submarines,
shall be taken out and/or maintained b.v it in territory " c."
In territory " « ", E. B. Co. shall take out and/or maintain, at its own ex-
pense, such submarine piitents as it may deem proper, provided, however, that
before abandoning any submarine ]iatent in territory " a " it shall first, in
writing, notify Vickers of such intention and afford Vickers reasonable op-
portunity to elect whether it, Vickers, will maintain, or seek to maintain the
patent than in question at its, Vickcr.s', own expense, and provide<l, further,
that whenever E. B. Co., shall apply for new or additional submarine patents
lu the United States of America it shall either apply for an analogous patent
MUNITIONS INDUSTRY 319
in territory " a " or alternatively advice Vickers thereof and afford Vickers
opportunity to have such patent taken out and maintained at the expense of
Vickers.
The above provisions wih regard to the submarine patents, present or future
of E. B. Co., in territory " a " shall apply reciprocally with equal force and
in the same manner and to the same extent in territory " b " with respect to
submarine patents present and/or future of Vickers in territory " & ", and
each of the parties hereto, with respect to the other, shall take such steps and
have such rights with respect to Vickers submarine patents in territory " b "
as are hereinabove set forth with respect to E. B. Co.'s submarine patents in
territory " a."
Each of the parties hereto agrees that it will, insofar as it can, inform and
keep informed the other party hereto with respect to any submarine patents or
patent rights owned or that shall be owned by third parties, which it has reason
to believe can be acquired, and neither p;irty hereto shall acquire any such
patents or patent rights for its sole account to the exclusion of the other party
thereto, except in cases where the other party hereto in writing refused tO'
join in the acquisition of patents or patent rights for joint account. Whenever
any such patents or patent rights shall be acquired for joint account, as here-
inabove provided the parties hereto shall share equally in the co.st of acquisi-
tion thereof, and also in the cost of maintenance thereof, and each of the
parties shall have the right to use, manufacture, and sell articles manufac-
tured and used in accordance with such patents or patent rights so acquired
for joint account. And neither party hereto shall use any such patents or
patent riglits acquired from third parties for the sole account of the other party
hereto, except upon terms and conditions that shall in each instance be agreed
upon. During the life of this agreement and for a period of three yeai's here-
after, neither party hereto shall question, nor call into question, nor cause to
be questioned, the validity of any submarine patent or patent right that is or
shall be owned and/or controlled by the other party hereto.
Twelfth. Each party hereto will undertake to inform tlie other of any ad-
verse action (including infringements) which may come to its notice resjiecting
any submarine patent hereunder or referred to herein that shall be taken or
threatened by any third party. The party hereto that shall own or control
the patent then in question w-ill consult with the other party hereto with re-
si)ect to measures and steps to be taken to protect the same, and each party
hereto will undertake to render to the other all reasonable assistance in the
protection of its submarine patents, it being, however, understood and agreed
that neither party is to be obligated by this agreement to incur out-of-pocket
expenses in connection therewith.
Thirteenth. Nothing in this contract shall be construed as affecting and/or
involving patents or patent rights of either of the parties hereto on guns and
ammunition therefor, and torpedoes and mines, it being understood and agreed
that the use by either of the parties hereto of any such patents or patent rights
belonging to the otlier, whether in connection with submarines or not, shall be
the subject of a special agreement at the time upon terms then to be agreed
upon.
Fourteenth. This contract and the provisions thereof shall commence on the
day of the date hereof and shall continue in full force and effect to and includ-
ing the 31st day of December 1937, and the terms and provisions thereof sball
automatically continue and be renewed and extended from year to year there-
after (each such annual continuation to run for a full calendar year), until
either of the parties hereto shall give to the other party hereto not less than
one year's notice in writing of its election that this contract shall terminaio
at the end of such calendar year as shall follow the date of the giving of such
notice. Such notice may lie given by serving the same either personally upon
one of the executive officers of the party intended to be notified, or such notice
may be sent by regi.stered mail addressed to the party intended to be notified,
at the last known post-ofBce address of its principal office.
Fifteenth. Settlements hereunder and payments by each of the respective
parties hereto to the other shall be made quarter annually, and accounts ad-
justed qunrter annually, the first adjustment to be made hereunder to be made
on and of the first day of June 1924.
Sixteenth. Each of the parties hereto shall keep complete records, details,
and accounts of all transactions had hereunder connected with and/or growing
out of any of the provisions hereof, and the records, books, and accounts ta
o20 MUNITIONS IXDUSTKY
ea<h of the parties hereto with re^ipect to the several and respective trans-
actions herein set forth sliall bo oiien to the inspection of the respective
parties hereto at the place where sm-h books and records are kept l)y the
respective parties hereto and/or the thereunto duly designated and autliorized
agents and representatives of the respective parlies, and extracts and excerpt-
may l)o taken therefrom. The several amounts that shall respectively becom.
due and payable to the respective parties hereto shall, with each quarter-annua
settlement include all sums so received by the respective parties hereto upoi
whi<h compensation shall up to that Lime have been received by the accountinj
party, ;ind the compensation herein provided for shall be paid thereon with eacl
such quarter annual settlement.
Seventeenth. Each submarhie manufactured by Vickers in territory " cr ''
under this agree;*>ent, shall be marked with a correct description and a running
number and shall bear a description showing th;;t Vickers are the builders and
shall also Iiear the name of E.B.Co., unless the goverament authority or other
pa-fy to such contract shall object thereto.
Eighteenth. Except insofar as is otherwise herein expressly provided by
this aj;reement, the capital and properly of each of the parties hereto shall
remain entirely separate, independent, and distinct and the respective results
and profits of their respective accounts and for their respective benefits, it
being agreed and declared that as regards submarines to be manufactured under
this agreement there is and will be no partnership between the parties hereto,
but simply a v/orkiiig agreement with regard to the manufacture and dis-
posal of submarines and only to the extent expressly provided by this agree-
ment, and neither party shall be responsible for the acts or defaults of the
other, or liable for any looses incurred by such other party in relation to or
in connection with or done by the other of them under this agreement, except
insofar as is otherwise herein specifically provided.
Nineteenth. In the event that any dispute or difference shall arise between
the parties hereto, under or with regard to this agreement or any of the pro-
visions thereof, or the interpretation thereof, or any act be done or omitted
thereunder, or any payment to be made thereunder, insofar as such dispute or
difference shall arise with respect to any matter or thing growing out of any
act done or omitted to be done in territory " a ", such dispute or difference shall
be decided by arbitration in London in accordance with the British Arbitration
Act of 1889, or any then subsisting statutory amendment or modification
thereof, and if any dispute or difference shall arise between the parties hereto
or hereunder with respect to any of the matters or things in this paragraph
set forth with respect to any matters or things arising in territories " ft "
and "c", then such dispute or difference shall be decided by arbitration in
accordance with the Arbitration Law of the State of New York, or any then
subsisting New York State statutory modification thereof, and the same shall
be decided and arbitrated in the City of New York ; and further, in such
latter event each of the parties to such dispute or difference shall appoint
an impartial arbitrator and the two so appointed shall appoint an umpire,
and the decision of the two arbitrators and/or a majority of the arbitrators
and umpire shall be decisive, final and conclusive between the parties, and
if the parties hereto and/or the said arbitrators or umpire shall be unable to
agree upon time, method, or procedure, then, such items shall be determined
by then existing arbitration law of the State of New York, and if such law
sliall not set forth such detail, then in accordance with the practice had in
arbitrations when conducted under-, by or pursuant to the plan or scheme then
in force by the Chamber of Commerce of the State of New York.
Twentieth. The provisions and coveaants hereof shall be binding upon the
respective parties hereto and the successors of each of them, but this agreement
is i)ersonal to the respective parties hereto and shall not and may not be
iissigned nor transferred, either in whole or in part, by either of the parties
hereto, without the written consent of the other first had and obtained.
In witness whereof tbe respective parties hereto have caused this instrunient
to be executed by their respective executive officers and their respective cor-
porate seals to be hereunto affixed the day and year first above written.
In presence of:
Electeic Boat Company,
[corporate seal] By- ,
President.
Vickers, Ltd.,
[corporate seal] By .
MUNITIONS INDUSTEY 321
State, City, and County of Nkw York, ss:
On this 4th clay of March 1924 before uie personally came Henry R. Carse
to me known who being by me duly sworn, did depose and say that he resides in
S^ew Rochelle, Westchester County, State of New York ; that he is the presi-
"dent of Electric Eont Company, the corporation desciibed in and wliich exe-
. iuted the above instrument, and that he knows the seal of said corporation;
fhat the seal affixed to said instrument is such corporate seal; that It was so
jiffixed by order of the board of directors of said corporation and that he signed
his name thereto by the like order.
Kingdom of Great Britain,
' at!/ of London, ss:
On this — day of IMarch 1924 before me personally came to me known
who being by me duly sworn, did depose and say that he resides in ;
that he is the of Vickers, Ltd., the corporation described in and which
executed the above instrument, and that he knows the seal of said corporation ;
that the seal affixed to said instrument is such corporate seal ; that it was so
-affixed by order of the board of directors of said corporation and that he signed
his name thereto by the like order.
[Strictly confidential]
ELECTRIC boat COMPANY WITH VICKEHS, LTD., CONSTUTJCTION AGRJEEMENT
Agreement made in the city of New York, on the 4th day of March, one
thousand nine hundred and twenty-four, between Electric Boat Company, a
corporation organized and existing under the laws of the State of New Jersey,
in the United States of America, and now having its principal office at no. 11
Pine Street, in the borough of Manhattan, city of New York, in the State of
New York, in ihe United Slates of An:etica. hereinafter for convenience
(losigtiated as " E.B.Co.", of the one part, and Messrs. Vickers, Ltd., a cor-
poration duly organized and existing under the law.s of the British Empire
and now having its principal office at Vickers House, Broadway, Westminster,
in the county of London, in England, hereinafter for convenience designated
as *' Vickers ", of the other part.
Witnesseth : Whereas Vickers owns and operates a plaiit fully equipped for
the economical construction of submarines, and also the machinery and parts
and appliances therefor; and
Whereas E. B. Co. may, under certain conditions, desire to place orders or
contracts with Vickers for the construction, either in whole or in part, of
submarines or the machinery or the parts or appliances therefor :
Now, therefore, for and in consideration of the mutual promises, covenants,
and agreements herein contained, and of the sum of one dollar, and other
valuable considerations, each to tl'e other in hand paid, the receipt whereof
is hereby acknowledged, it is hereby agreed, and this agreement witnesseth ;
First : Vickers agrees to accept and execute in accordance with the terms
hereof all orders for the construction, either in whole or in part, of sulnnarines,
or the machinery therefor or the parts thereof or the appliances thereof,
within the capacity of its plant, which E.B.Co. may elect to place with it
hereunder.
Second : In the event that E.B.Co. shall desire to place any order with Vickers
hereunder it shall first supply Vickers with such plans, specifications, and
other data and information as may be necessary to enable Vickers to estimate
the cost of construction. Vickers shall within thirty days thereafter submit
tenders to E.B.Co. for such construction at a fixed price, it being optidnal
with E.B.Co. to place th.e order at a fixed price to be mutually agreed upon,
or if E.B.Co. shall so elect the v/ork shall be done on the basis of cost as
hereinafter defined plus either a fixed fee or a percentage of the defined cost.
Third: The cost shall include the following, and only the following items, viz:
(a) The net cost of material delivered at Vickers' plant, incltiding the sub-
marine machinery, fittings, parts, and appliances purchased in completed form
ready for installation.
(b) Necessary direct expenses, such as insurance and items of like or kindred
character incurred solely for the benefit or account of tiie work, and directly
chargeable thereto.
(c) The net cost of prodtictive labor expended directly and exclusively on
the work.
322 MUNITIONS INDUSTRY
(d) A fixod iiercftntage of " c *' to cover all indirect, overhead, or establish-
ment charges of every character.
The cost of each order shall be duly credited with the fair value of all
scrap or surplus material originally charged to cost, but not incorporated into
the completed work.
The percentage on direct labor to be included in cost in lieu of overhead
charges is fixed at fifty per centum, Vickers, liowever, reserving the right to
alter this percentage upon due notice to E.B.Co. E.B.Co., Ijefore sultmittiiig any
tender for wcrk to be done by Vickers hereunder, shall secure confirmation of
the prevailing rate from Vickers, and after being so confirmed surli rate shall
hold good for all ordei's which E.I*. Co. may receive under such tender within
six months from date of .such confirmation.
Fourth: Should E.B.Co. elect for construction on the basis of cost, Vickers
shall i)roceed with the work as soon as it receives the necessary information
from E.B.Co., and the parties hereto shall endeavor to agree upon a fair esti-
mate of the cost of the work to be done by Vickers. In the event of their
agreement upon such estimate within four months after placing the order, the
fee or compensation to be paid to Vickers, in addition to the cost as above
defined, shall be twelve and one-half per centum of such agreed estimate, and
if the returned and audited cost is less than the said estimate, the saving
under the estimate shall be divided equally between the parties hereto, it being
understood that in comparing the estimate with the audited cost, for the
iturpose of determining savings, the former will be adjusted to take due and
proper accouiit of the net cost of all chaiiges in the design or quantity of the
vpork made subsequent to the estimate and not included therein.
In the event of the parties being unable to agree within said four months on
a fair estimate of the cost, Vickers shall receive as and for its fee or com-
pensation ten per(!ent upon the audited cost as above defined, instead of the
lee or compensation above referred to of twelve and one-half percent of the
agreed estimated cost.
Fifth : The cost of the work shall be distributed over job orders approved in
advance by E.B.Co., and such information as may be required by E.B.Co. to
enable its rep^resentatives to maintain a current check and audit of the cost
account shall be supplied by Vickers. it being understood and agreed that
E.B.Co. shall at all times during business hours, have access to all books,
accounts, vouchers, records, etc., relating to the cost, together with the right
to make copies thereof and extracts therefrom.
Sixth. Vickers shall provide, without cost, suitable oflSce facilities for the
representatives of E.B.Co., and separately for the customers' inspectors, such
facilities to include space, fvirniture, light, heat, water, and telephone service.
Seventh. Vickers agrees to execute the work in strict accordance with the
plans, .specifications, instruc.icns, and directions of E.B.Co. and shall endeavor
by the exercise of due diligence to secure economical construction and prompt
deliveiy.
Eighth. Vickers hereby guarantees that all material and work herein re-
ferred to and undertaken hereunder shall be of suitable quality and kind and
in strict accordance with the plans and specifications as interpreted by the
authorized I'epresentatives of E.B.Co., and/or the chief inspector for the cus-
tomer, and Vickers shall replace or lepair, as directed by E.B.Co., any depar-
ture frtun the plans and/or specifications or other defective or improper ma-
terial or vv'ork that shall be discovered prior to the final acceptance of the work
by the customer.
In all cases where defects are properly ascribable, to lack of due diligence
on the part of Vickers, it .shall bear the whole cost thereof, it being under-
stood, hov.-ever. that the ordinary risks of material and workmanship unavoid-
able by (he exercise of due diligence on tlieir part, shall be borne by E.B.Co.,
and the cost thereof shall be absorbed into the cost of the work, provided,
however, that the total of such extra costs so absorbed shall not in any case
exc(H'd two percent of the total cost of the work hereunder.
Ninth. No penalty shall be exacted by E.B.(Jo. frctm Vickers on account of
late deliveiy, unless the same .shall be exacted by the customer from E.B.Co.,
and then oidy to the extent to which the delay is properly ascribable to the
acts or omissions of Vickers, who hereby reserve the right to decline any order
hereunder, unless the delivery term and the conditions of the same are satis-
factory to Vickers.
Tenth. Payments to Vickers hereunder sliall be made as may be mutually
agreed upon in each case. It is, however, understood and agreed, in principle,
MUNITIONS INDUSTRY 323
that from each payment that shall he received from the customer hy E.B.Co.,
the E.B.Co. shall earmark for financing the work hereunder, a proportion equal
to the proportion which the estimated cost of the work liereunder heai's to the
contract price, and further, that E.B.Co. shall withhold from Vickers the same
proportion of any reservations that shall he withheld from E.B.Co. by the
customers.
Eleventh. In the event that any dispute or difference shall arise between the
parties hereto, under or with regrard to this agreement, or any of the pro-
visions thereof, or the interpretation thereof, or any set to be done or omitted
thereunder, or any work to be done thereunder, or any payment to be made
thereunder, or by reason thereof, such dispute or difference shall he decided by
arbitration in London in accordance with the British Arbitration Act of 1889,
or any then sulisisting statutory amendment or modification thereof.
Twelfth : This contract and the provisions thei-eof sliall commence on the
day of the date hereof and shall continue in full force and effect to and in-
cluding the 31st day of December, 1937, and the terms and provisions thereof
shall automatically continue and be renewed and extended from year to year
thereafter (each such annual continuation to run for a full calendar year),
until either of the i)arties hereto shall f^ive to the other party hereto not less
than one year's notice in writing of its election that this contract shall termi-
nate, and thereupon the contract shall terminate at the end of such calendar
year as shall follow the date of the giving of such notice. Such notice may be
given by serving the same either personally upon one of the executive ofiicers
of the party intended to be notified, or such notice may be sent by registered
mail addressed to the party intended to be notified, at the last-known post-office
address of its principal office.
Thirteenth : Except insofar as is otherwise herein expressly provided by this
agreement, the capital and property of each of the parties hereto shall remain
entirely separate, independent and distinct, and the respective results and
profits of their respective enterprises shall remain and he and belong entirely
to their respective accoiints and for their respective benefits, it being airreed
and declared that as regards submarines to be manufactured under this agree-
ment there is and will be no partnership between the parties hereto, but simply
a working agreement with regard to the manufacture and disposal of sub-
marines and only to the extent expressly provided by tins agreement, and
neither party shall he responsible for the acts or defaults of the other, or liable
for any losses incurred by such other party in relation to or in connection with
or done by the other of them under this agreement, except insofar as is other-
wise herein specificall.v provided.
Fourteenth : The provisions and covenants liPreof shall be binding upon the
respective parties hereto and the successors of each of them, but this agreement
is personal to the respective parties hereto and shall not and may not be
assigned nor transferred, either in whole or in part, by either of the parties
hereto, without the written consent of the oth'>r first had and obtained.
Tn witness whereof the respective parties hereto have caiT^ed this instrument
to be executed by their respective executive officers and their respective cor-
porate seals to be hereunto affixed the day and year first above written.
In presence of:
Electric Boat Company,
By
President.
[cobporatb seal]
Vickers, Ltd.,
By
fCORPORATE SEAL]
State, City, and County of New York, ss:
On this day of March 1924, before me personally came Henry R. Carsb,
to me known, who being by me duly sworn, did depose and say: That he
resides in New Rochelle, Westchester County, State of New York; that he is
the president of Electric Boat Company, the corporation described in and
which executed the above instrument and that he knows the seal of said
corporation ; that the seal affixed to said instrument is such corporate seal ;
(hat it was so affixe<l by order of the board of directors of said corporation
and that he signed his name thereto by the like order.
324 MUNITIONS INDUSTRY
Kingdom of Great Britain,
City of London, as:
On this day of 1924, before me personally came to
me known, who being by me duly sworn did depose and : Thai he resides
in , that he is the of Vickers. Ltd., the corporation described in
and which executed the above instrument and that he knows the seal of said
corpuratiou ; that the seal affixed to said instrument is sinh corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by the like order.
Exhibit No. 13
An agreement made in Loudon on the eleventh day of June One thousand
nine hundred and twelve between the Electric Boat Company, a company con-
stituted according to the laws of the State of New Jersey in the United States
of Ameiica, hereinafter called the "American company ", of the one part, and
Messrs. Whitehead and Company, Limited, of Flume, Hungary, called the
" Whitehead Company ", of the other part.
Whereas the American company is the owner of certain letters patent,
secrets, and designs relating to the manufacture of submarine boats and has in
contemplation the perfecting or carrying dut of inventions relating to sub-
marine boats or nearly submerged boats, which latter under normal conditions
of navigation are capable of having the upper part of their hulls awash but
their turrets or conning towers above the water line, all of which boats are
hereinafter included in the expression " Submerged boats ",
Now it is hereby agreed by and l^etween the said parties hereto as follows:
1. The American comitany hereby grants to the Whitehead Company for the
term of twenty (20) years from the d;ite hereof the exclusive right during
the continuance of this license to manufactui-e submerged boats in Austria-
Hungary' in accordance with the said patents, secrets, and designs, or any
other letters patent now or hereafter belonging to the American company or
W'hieh may either directly or indirectly come under its control relating to or
connected with submerged boats, ail of which are hereinafter referred to as
"the Ameriiiau company's patents" and to sell the same exclusively in Austria-
Hungary, Greece, Turkey, Roumania, and Bulgaria, for the use of the respec-
tive Governments of those countries.
2. If the Whitehead Company shall, during the continuance of this agree-
ment, mtmufacture any submerged boats not comprised in and covered by
the American Company's patents and whether manufactured in accordance
with any other letters patent or not, then tlie manufacture and sale of such
boats shall in all respects be subject to the terms and conditions contained
in this agreement as if the boats so manufactured had been manufactured
under the American Company's patents.
3. Tlie Whitehead Company shall set up any necessary apparatus for the
manufacture of submerged boats as and Avhen the same is required.
4. The Aii:erican Company undertakes to pay the legal and otlier expenses
in connection with any action which may lie brought against the Whitehead
Compan.v for an.v infringement of any patents in c(msti'uction of submergeil
boats and undertakes to idemni'fy them against any damages which may be
recovered against them in any such action, and in the event of an in.iunction
being obtained whicli would prevent the continuance of any construction the
American Company agrees to pay one-half of the cost incurred and will be
entitled to one-half of the net amount realized by the sale of the material
which had entered into such construction.
5. The American Company shall at its own expense supply the Whitehead
Company with such copies of complete working drawings of submerged
boats comprised in or covered by the patents, secrets, and designs held by
the Anjerican Company as may be necessary for the construction of any
boat and shall also give all information and assistance in their power with
respect to the manufacture of any boats referred to in this agi-eement. If
any drawings are required by the American Company to be undertaken by
the Whitehead Company, the same shall be prepared by the Whitehead Com-
pany at actual cost. If any material is required by the submarine depart-
ment from the torpedo department of the Whitehead Company, the same
shall be furnished at reasonable prices.
MUNITIONS INDUSTRY 325
The followins items shall be considered as business charges:
(a) Legal charges arising under clause 18 hereinafter and in general all
charges in connection with the registration of documents and stamp duties.
(b) Insurance of boats at the most reasonable rates.
(c) Travelling expenses of the personnel of the Whitehead Company neces-
sitated by the construction of the boats.
(d) Expenses of trials, including expenses of mother ship and other
incidentals.
(e) Expenses of governmental inspecting officers.
if) Dry-docking expenses.
iy) Transport of boats to destinatitm.
(h) Salary of yard manager for submarine works.
(i) Agents' commissions.
All business charges shall be considered as separate from and in addition
to manufacturing charges provided under clause 8 hereinafter. Such busi-
ness charges shall be paid from time to time in equal parts by the American
Company and the Whitehead Company as they arise.
7. Any monies received by the Whitehead Company for the sale or use of
patents, pliins, or like disposal of partial rights shall be divided equally between
the parties, it being understood that the prices and conditions in connection
with such disposals shall first be mutually agreed upon by the parties.
8. All monies received during the continuation of this agreement by way of
payment for the said boats referred to in this agreement shall be applied as
follows, namely :
The Whitehead Company shall, in the first pliice, pay thereout the cost of
manufacture, which shall be reckoned and taken to be the actual cost of mate-
rial and labour for building the hull and the cost of machinery and other appa-
ratus to be installed in the boat and the cost of such installation and the usual
factory charges. The factory cliarges shall not exceed in any one year 75%
(seventy-five pei'cent) of the amount actually paid in wages for manual labour
in tlie construction of the boats by the Whitehead Company, and in the event
of it being ascertained from the accounts kept by the Whitehead Company that
the percentage applicable to the construction of submerged boats for any year
less than 75%, then the percentage to be charged upon (he wages shall be at
the lower rate as ascertained for the year, it being understood that the factory
charges shall be at actual cost. The balance of the said monies shall be divided
equally between the parties hereto.
9. The selling price of the boats and agents?' commissions shall be fixed by
agreement between the parties hereto, either in writing or by cable.
10. The Whitehead Company shall immediately advise the American Company
of all enquiries and orders received for submerged boats, together with full
details as to the type of the boats and prices.
11. The Whitehead Company shall keep full and detailed accounts of all
receipts and payments in respect of orders for submerged boats and shall deliver
to the representatives of the American Company at the Whitehead Works a
weekly statement of the total amount of material supplied and wages paid and
shall also give full access to the books of the Whitehead Company so far as they
relate to the construction of submerged boats to any authorized agent of tlie
American Cimipany at ail reasonable hours. Payment to the American Com-
pany shall be made immediately after acceptance of any boat under each order
upon receipt by the Whitehead Company of the money due under such order.
For the purpose of such payment 75% m<iy be added to the cost of actual manual
labour for factory charges, but if at the end of the year the accounts of the
Whitehead Company should show that the factory charges are less than 75%
on the amnunt actually paid for the manual labour during the coixrse of the
year, then one-half the excess of the said 75% over the actual cost sliall be paid
to the American Company as soon as ascertained,
12. The Whitehead Company shall manufacture all the submerged boats of
the best workmanship and the best and most suitable material and v/ith all due
diligence and despatch and careful regard to any special condition imposed in
each order and to the periods of delivery and other arrangements agreed upon
with the Government or other party for whom the order is being executed.
I'.i. The American Company shall at their own expense for tlie purpose of
superintending the manufacture of submerged boats provide a resident engineer
who shall have full charge of construction and the American Company shall
also appoint such assistant or assistants for said engineer as in their opinion
326 MUNITIONS INDUSTRY
may be required for the proper execution of the work. The Whitehead Com-
pany shall appoint a yard manajjer wlio sliall carry out the instruction of the
resident enjiineer and the Whiteiiead Company shall also furn.sh reasonable
ofDce facilities for the resident engineer and his assistants.
14. Every boat manufactured by the Whitehead Company under this agree-
ment shall be mai'ked with some correct description or trade mark and a
running number, and shall bear an inscription showing that the Whitehead
Company are the builders, and shall also bear the name of the American
Company.
15. Each party hereto shall communicate to the other all patentable in-
ventions and improvements to submerged boats which either of them shall
during the continuance of this agreement invent or acquire, and shall, without
any further special remuneration allow the other party to incorporate such
inventions and improvements in the boats constructed by it.
Provided always that neither company shall be bounil to divulge any in-
ventions, improvements, or alterations made either entirely by or with the aid
or at the suggestion of any government and communicated to either of the
parties on condition that the same shall not be divulged.
16. It is further agreed that all patents relating exclusively to submerged
boats, whether on inventions or improvements made or acquired by the Ameri-
can Company or by the Whitehead Company shall be taken out by the American
Company, who shall bear the expenses of taking out and keeping up such
patents; but nothing in this clause shall be construed to require the American
Company to take out or keep up any patents which in their opinion are not of
sufficient value to warrant the expense. In the event that any invention made
by or acquired by the Whitehead Company be applicable to submerged boats but
not exclusively, then in such event a patent or patents may be taken out and
kept up by the Whitehead Company at their own expense and a license there-
under shall be granted to tiie Electric Boat Company for submerged boat pur-
poses from the Whitehead Company. Should the Whitehead Company desire
at any time to abandon a patent of this kind then before doing so it shall give
an opportunity to the Electric Boat Company to keep up such patents and
thereupcn such patent shall be assigned to the Electric Boat Company and a
license thereunder granted to the Whitehead Company.
17. It being the intention of the parties hereto that the American Com-
pany's patents shall be admitted to be valid without question so far as re-
gards construction of submerged boats, the Whitehead Company will not at
any time during the continuance of this agreement contest the validity of the
patents so far as the same may be applicable to such construction as afore-
said, but this clause shall not be construed to prevent the Whitehead Company
from contesting any patent of the American Company which they may use not
relating to the construction of submerged boats. The Whitehead Company
aiso agrees during the life of this agreement to refrain from manufacturing
submerged ))oats or selling the same or offering the same for sale either di-
rectly or indirectly to or for use in all coiuitries not expressly conceded in this
agi'eement, although such countries, or any of them, may fail to afford patent
protection to the said submerged boats either by absence of patent laws or by
reason of the failure of the American Company to have obtained patents
therein or through lapse of same.
18. Except insoi'ar as is otherwise expressly provided by this agreement, the
capital and property of each of the said parties shall remain entirely separate,
independent, and distinct, and the respective results and profits of their respec-
tive enterprises shall remain and be and belong entirely to their respective
accounts and for their respective benefits, it being expressly agreed and declared
that as regards the submerged boats to be manufactured under this agreement
there is and will be no partnership between th.e said parties hereto, but simply
a working arrangement with regard to the manufacture and disposal of sub-
merged boats, and only to the extent expressly provided by this agreement, and
neither party shall be responsible for the acts or defaults of the other party.
19. Each of the parties hereto shall grant or execute or apply for or do or
procure to be granted, executed, or applied for and done all documents, instru-
ments, acts, and tilings requisite for giving full legal validity to this agreement
or any of the pT-ovisions tlieveof.
20. The Whitehead Company will not assign this agreement without the
previous consent in writing of the American Company.
21. Should any dispute or difference arise between the parties hereto under or
with regard to this agreement, such difference or dispute shall be decided in
MUNITIONS INDUSTRY 327
England according to the English Arbitration Acts, and the decision shall be
final, and both parties agree not to contest the decision either in America or
elsewhere.
22. If at any time during the course of this contract the Whitehead Company
shall desire to discontinue the manufacture of submerged boats, then, .upon six
months' notice in writing to the American Company, this agreement shall termi-
nate, and the license given hereunder shall become null and void, and ttie
Whitehead Company shall return to the American Company all drav/ings,
specifications, and models applicable to the manufacture of submerged boats
then in their possession. The Whitehead Company shall also, as a consideration
for such termination, enter into an undertaking with tlie American Company to
cease manufacturing submerged boats of any kind until June 1U32.
In witness whereof the respective parties have executed this agreement the
day and year above written.
Electeic Boat Co.,
By (Sgd.) Isaac L. Rice, President,
For Whitehead & Company, Limited,
Aktiengesellschaft (Fiume),
Director.
(Sgd.) Saxton W. a. Noble, Director.
Exhibit No. 14
Electbio Boat Company,
Affaires Continentales,
Paris, 2nd August 1919.
To the Electric Boat Company,
Nasy.nu d Pine Streets, New York Cifj>.
Gentlemen : Now that we are on the pcint of gettii;g peace with Austria
Hungary, or with what politically may be left of these countries, it undoubtedly
will interest you to know that during the war two submarines have l)een
built in Fiume. Before going further into this matter, I herewith call to
your attention the agreement which we arrived at with Messrs. Whitehead &
Co., on June 2Sth, 1913. This agreement is as follows :
Fiume. 28th June 1913.
Messrs. The Electric Boat Company, New York,
Continental Affairs,
6 rue Marcel Renault, Paris.
Delae Sles : With reference to your favour of 24th June 1913, and to that
of the Electric Boat Company, New York, dated Gth June 1913, we herewith
declare that in consideration of the termination and cancellation of our agree-
ment with the Electric Boat Company, New York, dated lA)ndon, 11th Juno
1912, we undertake to cease manufacturing submerged boats of any kind xmtil
June 1932.
It is, however, understood and agreed upon, that this undertaking shall not
apply to the boats now in construction, or fitting out for Danish and Dutch
Governments, nor to the Forschtmgsboot.
We furthermore agree not to take out any patents on submarine boats on
their detailed construction from now until the end of June 1^(32.
Should the occasion arise, we shall communicate tu you any patentable
ideas concerning submarine boats during the afore-mentioned time.
Yours faithfully,
Whitehead & Co., Ltd.
(Signed) S. Dankl. p.p. C. Hassentenfel.
Now here is what happened : The entire torpedo factory of Whitehead's bad
gradually been moved from Fiume to St. Polten, but when it was considered
desirable to build a few submarines for the Austro-Hungarifin Navy, the pieces
for two boats were prepared in Linz, and these boats were mounted in Fiume
under supervision of a shipyard established in Triest, who, however, had never
built anything but cargo boats, and who balled up the work in a horrible way.
There had been constituted a special company to execute this program, which
was called ttie Hungarian Submarine Company, known in daily life as the
" Ubog ", of which company Mr. Meisner was the director. This gentleman
328 MUXITIOXS INDUSTRY
was a Whitehead employee, who used to be in charge of the Administratitm
of Messrs. Whiichcad & Co., who looked after the accounts, personnel, etc.,
etc. This man is now dead.
Messrs. Whitehead were very active though in assisting this — what I
would call — "bogus company", to execute the work, and supplied skilled work-
men. a)id most prohal)ly the plans, etc.
Tlie two boats that wore Ituilt, were of the type of the Danish boats, and
its cost over three million la-oner for each lioat to hnild. I suppose that
you will consider this information as interesting as I do, because it seems to
me that in time to come, when normal conditions have arrived, Messrs. White-
head's role in this matter may be cleared up, and that it may be made to
cost them a pretty per.ny.
The boats were as rotten as possible, and one of them has never returned
from a trip they made. They were both equipped with wireless. I am going
to find out all possible details about this matter, and will report again.
Please let mo know what position you wish to take in the matter, as far
as you can judge from the afore-going.
Yours faithfully,
KOSTEB.
Exhibit No. 15
July 12, 1921.
Capt. Paul Kostee,
28, Ave. De LaBourdonnais, Paris, France.
Dear C.\ptain : We have your letter of June 23. enclosing copy of letter which
you have written to Count Hoyos under date of June 22 in regard to our claim
against Whitehead.
I might say in this connection that we were recently served with a demand
from the Alien Property Custodian to issue to him a new certificate for 100
shales of Electric Boat Co. in place of the 100 shares of stock now standing
on our books in the name of Count Hoyos, but we declined to obey such demand
on the ground that it would create an overissue of stock, and the laws of the
State of New Jersey as well as the bylaws of the Electric Boat Co. prohibited
the officers from issuing a greater number of shares than authorized, and re-
quired them to cancel a certificate for a like number of shares before issuing a
new one.
A .voung relative of Count Hoyos was making inquiries here some time ago
in relation to the dividends and I do not know how far he may have gone in
stirring up the matter which we thought had been passed upon some time ago.
Very truly yours,
Carse.
The Alien Property Custodian had advised us he will bring action against us
to require us to cancel the stock in name of Count Hoyos and issue it to him.
[Pen notation.]
Exhibit No. 16
[Copy!
Nav.'^l CoN^STRUcrioN Works.
Bakrow in Fxtrness,
VicKEKS, Limited. 29th January 1026.
Strictly private.
Lieut. L. Y. Spear, U.S.N.,
Electiuc Boat Company,
Groton, Connecticut.
My Dear Spear:
We have .iust tendered to Australia for two submarines, and we shall very
shortly be asked to tender for a number of sister boats to our own admiralty.
I think that there will be six or eight boats in this year's programmes, includ-
ing the two Australians.
MUNITIONS INDUSTRY
329
I have put forward a price to Australia wliich leaves me a bare 6% profit
after keeping down the estimated cost of wages and material to the very limit,
and I am writing to you to ask you if Mr. Carse would consider halving your
royalty for this year's programme, including the two Australians. The con-
tract price will be approximately £300,000 each, on which you would receive
say £9,000, as per the new agi'eement; but I think you will agree with me that
it is of such vital necessity for both the Electric Boat Co. and Vickers that
we should get, if possible, all the boats of the programme, and I am prepared
to recommend to Sir Trevor Dawson that for the admiralty boats we should
put forward a still lower price than that quoted to Australia, if you would
meet us with regard to the royalty.
For your strictly private information, I believe we shall get the two Aus-
tralian boats, as our tender is one of the lowest submitted.
I feel that it is up to my company to make a bit of a sacrifice on submarine
work for the next year or two, especially because of tlie tenible state of
merchant shipbuilding and the scarcity of warship orders ; and, while I feel
this, I also feel that you will sympathetically consider the matter and discuss
it with Mv. Carse on the lines I have suggested.
If we obtain the order for eight boats in all, you would thus get £36,000, and
when I tell you that I have quoted on a 6%-profit basis to Vickers, I think
you will consider this a reasonable return to the Electric Boat Co. in such a
special case.
I dislike very much having to ask your company to meet us in a matter of
this kind so very soon after the new agreement has been made, but times are
really terrible here, and I think that if for a year or two we can obtain all
the submarine building that there is about, we may be able to freeze out a
lot of the wartime builders, who are relatively much more favourably situated
now to compete with us than they would be if times were good, as the ?>%
to the E.B.Co. weighs heavily when one is putting on practically no profit for
one's self, whereas in proper times we should not feel it to anything like the
same extent.
I should be extremely obliged if you could let me have your reply to this
matter by calile, if possible, as it might be necessary to make a slight reduc-
tion even for the Australian boats, and if it is po.-5sible to c.ible to me, I should
be all the more grateful.
Yours sincerely,
[s] Craven-
Exhibit No. 17
Electric Boat Co. — Payments to B. Zaharoff
Salary
Extra com-
pensation
Comruis-
sions
E.xpenses
Dividends
Total
1919
$27, 995. 94
None
60.21.5.19
52, 432. 30
74,852.11
106, 958. 63
139, ?93. 99
67, 309. 58
33, .'^27. 44
90, 086. 79
35, 744. 65
77,883.12
None
None
None
None
$27, 905. 94
None
1920 .-
1921
60 215 19
1922
52, 432. 30
74 852 11
1923 --
1924
106 958 63
1925 -
1?9 903 99
1926
67 309 58
1927
?■?, 327 44
1928
90 086 79
1929 _
35,744.65
1930 .. .
77 8S3 12
1931
19.32
19.33
None
1934
_
None
None
766. 099. 74
None
None
766. 099. 74
330 MUNITIONS INDUSTRY
Exhibit No. 18
[Copy]
VicKiais Limited,
Bareow-in-Fukness,
7th October, 1927.
Absolutely persoual & confidential
L. Y. Spkae, Esq.,
MtssKS. Electbic Boat Company,
Groton, Conn., U.S.A.
]My Deae Speab: By the time this letter resicht s you it is possible that wc
may have come to an arrangemeut with Armstrong's whereby a new company
is formed to taice over tiie shipbuilding & armament sides of Viclvers and Arm-
strongs. Tliis opens up an interesting question regarding our agreement with
you, and it would be necessary to have a discussion when next we mL^et. In
the meantime, however, we have just received an enquiry for one, two, or
three boats for the Admiralty. Armstrong Whitworth's have also received a
similar enquiry. My present feeling is that we should quote for one, two, or
three from Armstrong's, who have agreed to put in whatever price I tell them,
and that we should also quote for one, two, or three boats from Barrow. I
would keep the Armstrong price very slightly above ours, the idea being that
whatever boats were ordered froai either party would be built at Barrow, so
effecting considerable economies. I also think that perhaps it would be worth
while putting forward a tender for six boats, tlie total number to be built.
I have had a wofd with the director of contracts at the Admiralty, who is a
friend of mine, and who would like this. He, I know, tried to get us the order
for all five submarines last year.
Whatever happens, will you give me authority to make the same reduction
in your royalty as we did last year. According to my pocketbook.we reserved
for you £9,000 for one, £7,200 for each of two, £5,600 for each of three. £4,375
for each of four, and £3,600 for each of five, and I suggest to you that we should
put in £3,200 for each of six.
I do not know if I have made the matter as clear to you as I should. At the
moment the two firms are not combining in any way and, therefore, if nego-
tiations break down, Armstrong Whitworth's will, of course, be free from us,
but the tenders Imve not to be in until the middle of November, so we should
certainly know one way or the other before then. Needless to say, we do not
wJat anything to come out about the proposed fusion until it is all clear, and
I am just sending you this letter so that you can think over the situation.
I have not yet procured a definite list of the firms who have been asked to
tender this tiiiie, but I am told the same lot are in, I am genuinely afraid this
time of Cammell Laii-d's, as their managing director told me some months ago
tliat he really must get into the submarine business. He very nearly did last
time, and it was only by a margin of £2,000 that we managed to collar the
three boats.
By the way, Sim, the seci'etary of Vickers, and who was put on the board
yesterday, is leaving in the " Mauretania " on Saturday to see Sheridan and
Roberts. I do not suppose he will be getting in touch with you, but if you
happen to meet him I know you will be kind to him. He is a very good chap
and used to be in the Indian civil service but knows practically nothing about
our submarine negotiations.
All good wishes to Mrs. Spear and yourself.
Yours sincerely,
C. W. Craven.
Exhibit No. 19
30th November 1927,
Strictly private.
L. Y. Spear, Esq.,
Messrs. The Electhic Boat Co.,
Groton, Conn., U.S.A.
My Dear Spear: Thank you very mucli for your lett(>r of the 18th No-
vember, confirming the cables that pnssed between us the same day, regarding
royalties. Of course, there were further cables between us which no doubt you
will be confirming in the usual way.
MUNITIONS INDUSTRY 331
I have been able to obtain the enclosed information from an absolutely
reliable but very secret source. The only three tenders receiving serious con-
sideration are Vickers', Beardmore's, and Cammell Laird's, and we were the
only firm who tendered lor more than three boats.
The attached statement shows the state of affairs in the order of cheapness
from the Government's point of view. The hitch in the enclosed is that
Beardmore's are most unpopular, owing to their bad progress and financial
condition, and I do not think for one moment that they will receive three boats.
I do know that one of the important Admiralty departments is recommending
that Vickers should have four and Cammell Laird's two, and it would there-
fore appear that we stand a good chance of at any rate three or four boats,
because if Beardmore's are to have three, then we should go in for three. If
Beardmore's get two, we should go in for three. If Beardmore's are to have
one, we again go in for three. If, however, it is decided that Beardmore's
are to have none, the cheapest thing for the Admiralty would be to give
Vickers four and Cammell Laird's two.
When you are next over here I will show you my estimate, but you can take
it from me now^ that I knew there was going to be keen competition; and I
cut my price to under 5% profit, because I felt that with your support it was
up to me to get the work and starve out competitors for another year or two.
For your private information, I was in a position to look after Armstrong's and
keep them out of the picture on this occasion.
You will understand that the figures in the enclosed statement do not include
what we call " Separately priced auxiliaries " nor any parts supplied to us by
the Admiralty. They just cover for that part which is strictly competitive.
I will wire you when I know how we stand, but it will not be before January
at any rate.
If you would not mind deferring the whole question of our relations under
the new arrangement for a little wbile, I should be pleased, because I have such
a lot to deal with at the moment, and I really do not know my own position in
the new organization. However, the enclosed cutting regai'ding the meetings
will give you the main points in the business, and you will appreciate from this
that the new company is very much controlled by Vickers. I am trying to
arrange things so that with the admiralty we count as two shipyards and can
therefore put forward two tenders, but this, of course, will be rather diflScult.
I think perhaps later on it will be very desirable for you to come over here so
that we can square up all outstanding points which may arise in connection
with the new company.
Yours sincerely,
(S.) C. W. Ceaven.
P.S. You will notice in the enclosed report of the meeting that Armstrong's
had to make a terrible fuss about the Merchant Shipyard, etc., which they are
retaining, and which will continue to be operated by the old company quite
apart from the new anjalg.imation. This, it will be obvious to you, is for the
benefit of their debenture and shareholders. For your own private information,
the only works they are retaining are the ones v?e refuse to have anything to do
with.
C. W. C.
Exhibit No. 20
[Copy]
Naval Construction Works,
Barrow-in-Furness,
10th September, 1930.
Private.
L. Y. Spear, Esq.,
Messrs. Electric Boat Compimy,
Groton, Conn., U.S.A.
Mt Dear Spear : Just a line to let you know that we have received the
order for the special vessel, after most diflicult negotiations.
I still hope your company will meet me regarding the amount due to you,
because there was certain action I had to take which involved expenditure,
and which I am sure you would have agreed with. I cannot possibly say
332 MUNITIONS INDUSTRY
any more in writing, but wlien the long promised visit talies place we will
have a talk.
Many thanks for the good wishes from Mrs. Spear and yourself. We both
send you all kind messages.
Yours sincerely,
(S) C. W. Ceaven.
Exhibit No. 21
vickers-aumstrongs, limited,
Naval Construction Works.
Barroiv-in-Furness, 30th July, 1932^
H. R. Carse, Esq.,
The Electric Boat Company,
^0 Wall Street, New York.
My Dear Mr. Carse:
Very many thanks for your telegram which, being decoded, reads as follows :
" Referring to your telegram of the 25th and to your letter of the 18th
ultimo, the directors will accept £10,000 settlement of 'Thames', 'Porpoise'
'S' engines, also agree to £7,500 'Thames', £3.000 'S' boat your tender (s).
Stop. We cannot now decide about possible business next March."
First may I suggest that even in code it is better not to mention any names
of ships, as I am rather afraid that such telegrams might get into the hands of
our clients, and it would be awkward if they asked me about our agreement
with you. I am sure you will appreciate what I mean.
I note that you cannot quite accept the offer I made. However, I am grate-
ful to you for meeting me so far, and I enclose herewith a cheque for £10.000
in final settlement of the " Thames ", the " Porpoise ", and the " S " class
engines. In accordance with your telegram I will cover you for £7,500 for
one " G " (repeat " Thames ") class of Violescent, and £3,000 for one " S " class.
I note that you do not want to commit yourself for the tenders due in March.
I can quite understand your point of view, but the reason I was anxious to
arrange for both programmes now is that it might be possible at the very last
minute I may think it prudent to make an offer to our clients for the second
one of each class v^hicb I know they intend ordering in March, but for which
they cannot issue enquiries at present. Obviously I could offer them a
certain " bait " in price. I do not want you to think that I have made up
my mind at this moment to do this, but things are extremely " tricky " just
now, and it is just possible that I might think such an idea desirable. If, on
thinking further over the matter, you feel justified in repeating the offer for
the second programme, would you very kindly send me a telegram? If .vou do
not feel so justified, 1 shall quite understand, but, as I say, it might help me
if you were to agree to my proposal. I can assure you I shall be very dis-
appointed if I am not in a position to send you a further cheque within the
nest few weeks.
With every good wish to you all,
Yours sincerely,
C. W. Craven.
Exhibit No. 22
[Strictly private]
Naval Construction Wouks,
Bnrroio-in-Furnes'<, SOth October, 1932.
Henry R. Cakse, Esq.,
President, Electric Boat Company.
JfO Wall Street, New York.
Dear Mr. Carse: Very many thanks for your telegram reading as follows:
"Referring to your letter of the 17th inst., we (I) accept your proposal."
1 arrived back from Madrid yesterday aiid at once called at th(> admiralty.
While I have been aw;;y, a good deal of terhnical information has been made
available for my people, so I hope in a week or so to be able to requote. As a
matter of fact, I should probably have quoted sooner but the director of con-
MUNITIONS INDUSTRY 333
tracts is away and I want to hand my figures In to him personally. I think,
the position will turn out as follows :
(1) We shall receive a firm contract for one submarine about the third!
week in November.
(2) At the same time we shall receive a letter telling us that the admiralty
accept our price for the second submarine on the distinct understanding that
if any circumstances arise between now and say March 1933 they can have
the right to cancel the second one without any payment.
All that you and I gain by the transaction will be that we shall know that if
the ship is built Vickers will get the order. If, on the other hand, Geneva or
some other fancy convention decide that large submarines have to be abolished,
no definite contract will be placed and the admiralty can retire gracefully
without having to pay us anything. I cannot, of course, commence spending
any money until say March, but, at any rate, our competitors will not receive
the enquiry.
I much appreciate the prompt way you have met my request and all I can
do now is to hope that we shall both have good fortune.
I had a very interesting visit to Spain. It was chiefly in connection with a
large sum of money owing to my company by the sociedad. The political
situation in Spain seems very confused but there seems a considerable pros-
pect of our friends receiving orders for small craft on the pretext that they
are purely defensive.
With all good wishes.
Yours very sincerely,
(S.) C. W. Craven.
Exhibit No. 23
[Confidential]
Naval Construction Woeks,
Barroiv-in-Furness, 6th January/, 1933.
Henry R. Carse, Esq.,
Electric Boat Company,
40 Wall Street, Neiv York.
My Del\r Mr. Carse: You will be glad to know that I have now received a
letter from the admiralty, saying that the contract for the H.M.S. Severn (the
Thames rejieat) will l)e placed with us, and I expect to receive it within a few
days time. Immediately I do, I will credit your account here with the sum of
£7,500 and send you a cable.
At the same time, the admiralty also promise us the order for H.M.S. Clyde
(another repeat of the Thames), but in this latter case they will not give us a
contract until after the end of March. In other words, they will have the
right to withdraw their promised order for the second ship if Geneva or any
other troublesome organization upsets the large submarine. In view of this, I
am not saying anything publicly about the Clyde, and I would suggest that it
Would be wise that Spear should not let the information get into the hands of
your Navy Department until after I can tell you that we really have a proper
contract. Cammell Lairds will get the two small S boats. On the whole, I am
very pleased, because it is impossible in these days of starvation of ship-
building to get all the submarine orders.
With every good \^'ish for 1933.
Yours very sincerely,
(S.) Charles W. Craven.
Exhibit No. 23-A
[Copy]
A meeting was held in London in June 1912 at which an agreement, dated
ISth June 1912. was drawn up betvv'een the Electric Boat Company of New
York and the Sociedad Espanola de Constrnccion Nnval of Madrid. At this
meeting there were present Mr. Albert Vickers, chairman of Messrs. Vickers.
Limited, and vice president of the Sociedad Espanola de Construccion Naval ;
Mr. Isaac L. Rice, now deceased, but at the time of the meeting president of
83876 — .34— PT 1 22
334 MUNITIONS INDUSTRY
the Electric Boat Company, New York; Mr. Basil Zaharoff, director of the
Sociedad Espanola de Construccion Naval.
Clause 9 of the above agreement reads as follows :
" For the purpose of niaintuiniug the American Company's business in
Europe it is agreed that 5% of the selling price of each boat shall lie paid by
the Spanish Company to the American Company and that these payments will
be made pro rata as and when the money is received by the Spanish Company
under the order for such boat or boats."
As to the applications that had to bo given to the amount representing the
said 5% of the selling price of each boat and how it was to be dealt with, it
was decided and agreed by the three above-named gentlemen that these commis-
sions be paid to and distributed by Mr. Basil Zaharoff.
We, the undersigned, hereby confirm the accuracy of the above statement.
(Sgd.) Albert Vickkbs.
(Sgd.) Basil Zaharoff.
("Exhibit No. 24" appears in text on p. 37.)
Exhibit No. 25
nth September 1923.
Dbak Mn.. Cahse:
Your letter of the 30th ultimo gives uie great pleasure, because it brings
me in direct communication with you, which has been my desire for some
considerable time, but I did not care to impose myself upon your notice.
What you say about Mr. Spear being the acknowledged authority on sub-
marine boats is not new to me, for I had indeed the pleasure of knowing him
personally, you made his acquaintance, and it has always been a pleasure to me
to be associated with him, and, to use an American expression, " he knows his
job ", besides which he is very pleasant to deal with, and, from a business
point of view, he certainly grasps matters intelligently.
I quite agree with you that the era of submarine boats is now opening all
over the world, and I trust it will bring much business to your company, and
you may count upon my little efforts always working in your direction.
Reiterating my pleasure at making your acquaintance by correspondence,
and trusting that we may meet at no distant date, I am, dear Mr. Carse,
Sincerely yours,
Basil Zahaeoff.
("Exhibit No. 26" appears in text on p. 46.)
Exhibit No. 27
1st March 1925.
Dear Mr. Carse: Mr. Daniell arrived yesterday, and handed me your pleasant
letter of 11th ulto. and I have read with much pleasure your report on the state
of your markets, which certainly have been excellent now for some time past.
Yours is the only country which can live on, and off itself, without relying
upon other states.
I submitted my plan of operation to Mr. Daniell, which is the following, viz:
On my arrival in Madrid on 12th April I convoke your representatives and those
of the Constructora Naval to state their claims to me, when I will examine,
cross-examine, and endeavour to fathom the exact position, and this will enable
me, I hope, to give my decision during my stay in Madrid.
May I ask you to kindly present my homeage to Mrs. Carse, and with a "good
morning" to your boy.
I am dear Mr. Carse,
Sincerely yours,
Basil Zaharoff.
MUNITIONS INDUSTKY 335
Exhibit No. 28
Hotel De Paris,
Monte Carlo, 27th March 1925.
My Dear Mr. Carse: The, to me, important part of your letter of 14th inst.
is the enclosure from your boy, and I really cannot find words to express ade-
quately the pleasure and satisfaction it has given me. You and I have been
boys, and we know what it used to cost to write six and a half lines, and this makes
me especially appreciate the letter.
As I surmise that his dear mother had something to do with its composition,
may I ask you to convey to her my homage, and will you tell your little boy the
great pleasure his letter gave me.
Having attended to the principal part, I now come to the rest of your letter,
and reassure you that on my arrival in Madrid, two weeks from nov/, I will
immediately deal with the differences between your goodselves and the Construc-
tora Naval, and your Mr. Daniell is already informed of my intentions, and will
meet me in Madrid.
It is good to know that Congress has passed a bill in your favour, which I hope
will be very satisfactory to you, and I must congratulate Lieutenant Spear on the
diplomatic way in which he has handled this matter and has obtained such a
result.
You are wise not to raise the question of the infringement of your patents
until you have received full satisfaction on the previous paragraph, but then you
should certainly claim, and I have no doubt your claim will meet with the same
good result.
I feel confident that Mr. Daniell will communicate to you the result of our
meetings in Madrid and the decision, and
I am, my dear Mr. Carse,
Cordially yours,
Basil Zaharoff.
Exhibit No. 29
May 8th, 1925.
Sir Basil Zaharoff,
53 Avenue Hoche, Paris, France.
Dear Sir Basil: 1. Please accept my thanks for your notes of the 14th, 24th,
and 28th ultimo, all relative to the Spanish business, and my congratulations
upon the results which you have secured with respect to the new contract. It
goes without saying that we are all pleased with the outcome and grateful to
you for your successful intervention in the matter. I note that the new arrange-
ment will not become effective until after the next Constructora Naval Board
meeting, which I assume will be held before very long. In the meantime, I
should like to prepare a draft of the necessary form of agreement between the
Constructora Naval on the one hand and Messrs. Vickers and ourselves on the
other, as well as of the necessary agreement between Messrs. Vickers and our-
selves, and in order to do that I shall require to know whether or not under the
new arrangement we shall continue to receive and pass to you a certain percent-
age of the contract price. Perhaps you will be good enough to let me know about
this at your convenience.
2. Referring now to the other questions which are pending between the Con-
structora Naval and ourselves, Mr. Daniell, in accordance with your suggestions
and advise, is refraining from any pressure about these matters and will continue
to do so until he is otherwise advised by us. While it is of course unfortunate that
any feeling of irritation should have arisen in any quarter, it seems to me, after
all, not very surprising in view of the radical psychological difference between
the Spanish and American minds, which, so far as I have been able to observe,
are very apt to draw diametrically opposite conclusions from a given set of facts.
While we are on the subject, I cannot refrain from saying, for your personal
information, that our polic}' has always been to try to make due allowance for
this difference in outlook and that in consequence we have been much more
conciliatory than we would have been had we been dealing with an American or
British firm; consequently, we are the more concerned over the fact that any of
the Constructora officials feel that they have any just grievance against us. As
you are in a position to keep your finger on the pulse perhaps you will be good
enough to let me know when you think the time has come for us to take any
further action v/hich, in the absence of your personal intervention, might perhaps
best first take the form of a purely personal discussion between Colonel Fuster
and myself.
336 MUNITIONS INDUSTRY
3. Mrs. Spear joins me in kindest regards to the Duchess and yourself, to which
I wish to add my renewed thanks for your very effective action about the new
contract and your continued interest in the Spanish situation.
Very sincerely yours,
L. Y. Spear.
(Exhibit No. 30 is a list of stockholders in the Electric Boat Co. and is ou
file with the committee.)
Exhibit No. 31
[Copy]
Carlton Hotel,
Pall Mall, London, 19th May 1925.
My Dear Spear: I am in London until the end of this month, and am naturally
discussing the Spanish question with Messrs. Vickers, and I have just received
your valuable lines of 8th instant, which I have read carefully and with interest.
I deserve no thanks for v/hat I have done, because I am bound to attend to
the interests of my firm of Vickers, and of my friends, the Electric Boat Company,.
in both of which I am a shareholder.
Regarding the questions still pending between the Electric Boat Company
and the Constructora Naval, I believe there will be no harm whatever in Mr.
Daniell opening the question shortly after the general meeting of the Constructora
Naval, which will confirm the arrangement between you, and concerning this
arrangement, you will of course continue to receive and pass to me a certain
percentage of the contract price.
I quite agree with all you say re the difference of what you call "diametrically
opposite conclusions from a given set of facts", and this is natural when one
considers the difference of mentalities of you across the ocean, and our Spanish
friends in the south, but I have always believed that, with a little pa,tience and
tact, even mountains of' difficulties can be amicably settled, and indeed my
e.Kperience of our Spanish friends is that, if we talk to them nicely instead of
writing to them strongly, we always attain our object.
You are quite right in referring to the necessary agreements between your
good selves, Messrs. Vickers, and the Constructora Naval, and you will do well
to prepare your ideas re same, and submit them to Messrs. Vickers, and also
to the Constructora Naval through your Mr. Daniell, of whom I cannot say
too much in his praise.
My long e.xperience has always made me pay great attention to any opposition^
however small or insignificant, and there can be no doubt that the Germans
and Italians are boiling to get the wedge end in, especially as Spain is spending
money on her Navy, and the proposals they make to the Spanish Government
are carefully considered by the junior Spanish naval officers, who (I tell you in
the strictest confidence) are working to persuade the superior officials that the
Electric Boat Comi)any, Vickers, and the Constructora Naval, are all old-
fashioned, and that the time has come for a new departure.
Our Spanish associates and I have been watching events carefully for a con-
siderable time, and have succeeded this time in overcoming competition, but we
must keep our eyes and ears open, and never relax our activities in order to
overcome a competition which is daily becoming stronger.
Will you kindly present my homage to Mrs. Spear, and a little bonjour from
me to Mr. and Mrs. Carse, and believe me, my dear Spear,
Always yours cordially.
(S.) Basil Zaharofp.
("Exhibit No. 32" appears in text on p. 61.)
Exhibit No. 33
Hotel de Paris,
Monte Carlo, 2nd February 1926.
Dear Mr. Carse:
The Duchess and I were pleased to have good news of you from Mr. Albert
Roberts, who was here with us for a week and is now returning home to the
United States.
MUNITIONS INDUSTRY 337
Mr. Roberts also spoke well of the Electric Boat Company's position, which he
thinks will soon declare itself.
Will you please tell Lieut. Spear that it is not advisable for your Paris office to
know anything whatever of your Spanish business, and will Mr. Spear give the
necessary instructions on this point to your Mr. Daniell who is in Spain.
Please present my homage to Mrs. Carse, and trusting that she, you, and your
nice little boy are all in the best of health, in which wish the Duchess joins me,
I am, dear Mr. Carse,
Sincerelj' yours,
Basil Zaharofp.
Exhibit No. 34
14th August 1926.
Dear Mr. Carse: I am pleased to know by your letter of 4th instant that
Mrs. Carse, the heir, and your good self are in excellent health, and thank you
for the complimentary remarks you made about my intervention with the
Sociedad.
As a rule, when matters are allowed to slide, it becomes difficult to pick up the
threads, and join them together, and I am more than happy that all pending
matters between yourselves and the Sociedad have been satisfactorily settled.
I had a very important Spanish official here the week before last, and from our
conversations there can be no doubt that good business will continue for you and
all of us in Spain, and we need not fear Krupp nor anybody else for a long time
to come.
Referring to what you say about the Argentine Government, you know of
course that they have been negotiating for some considerable time with the
Constructora Naval for naval and war material, in w"hich the King of Spain
himself takes a great interest, and is using all his endeavours for Argentine
business to go to Spain.
I believe that the Constructora Naval has a fair — though not a big — chance,
because foreign officers prefer living in Paris or London to being isolated in Spain,
and consequently they generally put spokes in the wheels of the Spanish, much
to the detriment of their country's interests.
Lieutenant Spear is embarking for Europe while I am dictating this letter, and
you know that I will always be at his disposal, and support any valid ideas he
may put forward.
Will you please present my homage to Mrs. Carse, and with a little "good
morning" to your heir, I am, dear Mr. Carse,
Always cordially yours,
Basil Zaharofp.
("Exhibit No. 35" appears in text on p. 67.)
Exhibit No. 36
12th July 1927.
Dear Mr. Carse:
I have to acknowledge receipt of your letter of 1st instant, bringing me copy
of one you had written to Lieutenant Spear, both of which refer to Mr. Koster.
I am sending on these letters to Spain, with a view to alleviating the bad
impression caused there through Mr. Koster's intervention, and as I have all
along expressed my views regarding that person, I will not refer to him again.
I repeat that the only reason I attend to the Constructora Naval is that it is
a pet child of m.y own creation, but if spokes are put in ray wheels, I must not
be expected to intervene between your company and my Spanish one.
Should you utilize Captain Aubry in Europe, I will always be at j^our and his
disposal.
It pleases me to know that Mrs. Carse, you, and Master Carse are well, and
I remain.
Always yours cordially,
Basil Zaharoff.
It has just occurred to me that Monsieur Michel Clemenceau, son of the
great Clemenceau, and who represents the Vickers Company on the European
Continent, and also keeps in touch with all the South American naval and
military commissions in Paris, might be useful to your company under my
supervision.
338 MUNITIONS INDUSTRY
Exhibit No. 37
August 27, 1928.
Dear Sir Basil: I have received yovir esteemed favor of the 14th instant in
regard to King Alfonso making the trip on one of the submarine "C" boats,
an(i your judgment that important business is developing in Spain in connection
with the building of submarine boats, which advice we very much appreciate
and thank you for your kindness in sending us word.
In regard to our other business, about wliich I have previously written to you,
while there has been no definite closing of a contract, our representative states
that he has received advices from very important people in Japan that the matter
has not been dropped in any way but is progressing as well as existing conditions
will permit and tliat expectation is had of closing the contract with us in a short
time. The delay in this matter has been very trying, because we have to a
certain extent been holding our facilities in abeyance, but when certain situations
are cleared we believe the order will be ultimatelj' received.
As you no doubt p^re aware, considerable friction developed between our staff
and the officials of the Navy Department in Washington some six or seven years
ago, and the officials endeavored in every way to make it as difficult for the com-
pany as possible. I am glad to say that we have apparently eliminated that
animosity, and I have reason to believe that the design of the Department at
Washington of submarines has proven unsuccessful. At present our relations
are sucn that we have been invited to present our idea of the proper type and
design of submarine to be built by the United States Navy Department, and the
plans and specifications we have submitted have been approved and accepted,
and the expectation is that we will in the future divide witli the Navy Department
the building of submarine boats for this Government.
I am very frank to say that the business done with our Government officials
has never been of a satisfactory nature, quite different indeed from the result of
our work here and abroad for other nations, but is is necessary for our prestige
that we build boats for this Government, and therefore we must manage to get
along with the excessive supervision and interference.
In connection with the work done for this Government during the war period,
we received instructions from the Department to increase the wages of tlie work-
men, with the written agreement and promise that we would be reimbursed for
such expenditures.
They did reimburse us in part on account, for which we deposited United States
bonds as securit}^ pending an accounting, but later the Department endeavored
to repudiate the obligation on the ground that the Secretary of the Navy had no
authority to make such an agreement and promise with the contractors. We
were obliged to take our case to the Court of Claims, and that court and the Su-
preme Court of the United States held last year that the Secretary of the Navy
had such authority and that the Government had received value for the payment
of such increase in wages. On this basis we had confidently expected a decision
in our case early this year but, because of vacancies in the Court and the retire-
ment of the Chief Justice for age he declined to give consideration to the large
cases, so that upon the appointment of two new members of the Court the old
members of the Court remanded our case for reargument on October 9th of this
year. This delay is inexcusable, placing the burden on us of carrying this load
for an additional time, but our counsel confidently expects a judgment for about
four million dollars from the Court, because the Supreme Court has alreadj' ruled
upon the principles involved in the case.
Our claim against Germany for infringement of our patents on submarine boats
built by them during the war has reached the final chapter, we having filed our
final brief, to which the Germans promised to put in their reply during this month,
to which if we desire we can answer any new matter they may bring up, so that it
appears as though this matter would also be decided within a short time and we
should receive a substantial sum on account.
I have given you this resume for the reason that I believe you have an interest
in the stock of the company and I trust that it has not been without interest to you.
Mrs. Carse and the boy have been very well and send their deep respect and
trust that you also have enjoyed the very best of health, in which I cordially
concur.
I remain,
Yours very sincerely,
(SOICarse.
Sir Basil Zaiiaroff,
Chateau de Balincourt,
par Arronville, S. Et. 0.
MUNITIONS INDUSTRY 339
Exhibit No. 38
[Copy]
Chateau de Balincourt,
PAR Arronville S. et O.
llTH September 1927.
My Dear Spear: I have your letter of 29th August, with copy of one you have
written to Colonel Fuster, and I should tell you that as the matter was getting
delicate in Madrid, I rushed down there last week, and am happy to say that
steps have been taken which will keep the submarine business to ourselves without
any others being allowed to put their nose in it.
i am very happy about this because the matter was taking a very disagreeable
turn.
I also have to acknowledge receipt of your letter of 26th August about the
Argentine business, in which I much regret I cannot intervene for social reasons,
and also for my personal standing in France, which obliges me to be absolutely
neutral.
I am sure you will quite understand, and with my friendly homage to Mrs.
Spear, I am.
Always your cordially,
/s/ Basil Zaharopf.
Exhibit No. 39
Chateau de Balincourt,
Par Arronville, S. et O.,
ISth September, 1927.
My dear Mr. Carse: I have your letter of 1st instant, announcing the arrival
in Paris of Commander Luis Aubry, and I have instructed my Paris secretariat
that, should the Commander call there, they are to teU him how pleased I would
be to have him come here with his wife to luncheon, and you may rest assured,
my dear Carse, that we vv'ill look after them properly.
I entirely approve of what you say regarding the difficulties of obtaining business
from foreign countries by your representatives in Europe, and I must frankly
tell you that I have never approved of your heavy expenditure in Europe for a
useless purpose, but on the contrary I believe that this rather cheapens your
position, whereas, if people want to communicate with you, you can always send
a special representative to meet them, in which case the expenditure would be
moderate.
I will continue keeping Monsieur Michel Clemenceau in view, and we might
utilize him in case of need- without our going to any expense.
You will have noticed from all my letters how very opposed I am to useless
expenditure, and my more than 50 years' experience in war material has convinced
me that the only successful way of treating such business is by paying commis-
sions on work done and on payments received.
I trust that you and yours are all well, and am, my dear Mr. Carse,
Cordially yours,
Basil Zaharoff.
Exhibit No. 40
(Copy sent to Spear)
Paris, November 12, 1927.
My Dear Mr. Carse: Thank you for your letter about Senor Luiz Aubry,
who has not yet arrived at the Peruvian Legation here, but you may rest assured
that if he arrives in Paris during my stay here, I will look after him properly,
and show him every hospitality.
You will see by the enclosed cutting from La Nacion (Buenos Aires), which
you may have already seen, that the prices quoted by the Italians for sub-
marines are exceedingly low, and our friend Colonel Fuster, of the Constructora
Naval Espanola, says that Galindez, the Peruvian representative, has written
to the Spanish Minister of Marine sending him plans and details of the Italian
submarine boats with their prices, and recommending them strongly as the very
best in existence.
340
MUNITIONS INDUSTRY
Our position in Spain is undoubtedly very good, because the Spanish Minister
of Marine sent the whole package to the Constructora Naval Espanola.
English and other newspapers have been saying lately that you have obtained
a very large order from Jai)an, and if it be true t congratulate you heartily thereon,
and suppose that it will considerably improve the financial position of your
company.
Please present my homage to Mrs. Carse, and with a little pat on your boy's
back, I am, my dear Mr. Carse,
Cordially yours,
Basil Z.\haroff.
Enc.
53. Avenue Hoche.
Exhibit No. 41
Electric Boat Company — Capt. Luis Aubry
Salary
Extra
compen-
sation
Commis-
sion
Expenses
Dividends
Total
1919
1920
$4, 000. 00
$4, 000. 00
1921 .
1922
$700
1,200
1,200
4,100
7,200
6,400
3, 470. 00
5, 854. 50
6, 133. 50
6, 470. 00
930. 00
1, 600. 00
4, 170. 00
1923
7, 054. 50
1924 .
$32, 671. 45
42, 581. 24
46, 174. 43
38, 847. 50
IS, 720. 00
19,111.16
18, 731. 86
5, 616. 00
1, 800. 00
17, 700. 00
11, 720. 40
40, 004. 95
1925
53, 151. 24
1926
54, 304. 43
1927 - -
45, 847. 50
1928 -
18, 720. CO
1929
6,000
6,000
6,000
1, 385. 00
1, 009. 02
1, 102. 43
869. 40
1, 703. 10
200. 90
26, 496. 16
1930 - -.
25, 740. 88
1931.
12, 718. 43
1932
2, 069. 40
1933
19, 403. 10
1934 (to 8/15)
11,921.30
37,800
None
253, 674. 04
34. 727. 85
None
326, 201. 89
Exhibit No. 42
November 23, 1927.
My Dear Sir Basil: I am in receipt this morning of your letter of the 12th
instant from Paris, enclosing the clipping from La Nacion. I also received your
cablegram of the 14th instant that you were entert.iining the Aubry family,
which pleased me very much and I thank you for letting me know that Mr. Aubry
had gotten in touch with you. I also received your note from Madrid, of October
^5th, with assurance that matters in Spain were in satisfactory shape.
In relation to the article from La Nacion, I see that the prices mentioned are
the equivalent of $1,012,000 and SI, 000,000, while Mr. Spear in August 1926
tendered to the Argentine commission in London prices for the construction of
boats, according to the specifications then submitted, of $1,100,000 for construc-
tion in England and $830,000 for construction at the Cockerill plant in Belgium,
and the latter price was lower than the price that Galindoz had then obtained
from the Italians, and the price at which the matter was subsequently closed was
higher. Undoubtedly you are aware, however, that Admiral Galindez' wife is
the niece of Orlando of Italy, and the admiral apparently had sufficient power to
overcome other influence used by Aubry at Buenos Aires. Tlie data which our
company has leads us to the conclusion that the Argentine Government will be
greatly disappointed in the boats that will be delivered to them, and our Spanish
friends are undoubtedly fully advised as to the deficiencies of the Italian
construction.
In regard to our negotiations with Japan, I would have written you fully if
there had been any definite contract. We have been working very closely on
this subject for practically two years, and our representative, who has shown
very clearly that his relations w'ith Hayashi, Saito, and other leading men of
Japan, are very close, advises us that he has complete assurances that the business
will come to us, but during the last year, as you know, many matters have
MUNITIOlSrS IISTDUSTRY 341
happened in Japan to delay the closing of such negotiations. Our advices are
that these different troubles are being adjusted and that the closing of the propo-
sition with us may occur very soon. As soon as there is anything definite in
relation to this matter it will give me great pleasure to cable you specifically.
There have been many rumors, and our Government has endeavored to obtain
details from us, and the British Government recently has been endeavoring to
get information from us through our friends Vickers, but all discussions on the
project under negotiation are fraught with danger and we have endeavored to
keep the matter absolutely confidential, although information has undoubtedly
leaked from the other end.
I thank you for your kind remembrance to Mrs. Carse and the little boy, and
we all look forward to having the pleasure of meeting you again very soon,
Very sincerely yours,
(S.) Carse.
Sir Basil Zaharoff,
Chateau de Balincourt,
Par Arronville, S. et 0., France.
Exhibit No. 43
[Copy]
Chateau de Balincourt,
Par Arronville, S. Et O.,
14th August 1928.
My Dear Mr. Carse: Although I have no doubt that your Spanish repre-
sentative has told you of the King of Spain's going down in your boot I send
you herewith an extract of a letter just received from Spain, which reads as
follows:
"You will be glad to know that King Alfonso had a little trip on board the
submarine boat C-l off Santander and while on her way they went to some 29
meters of depth. This is one of the latest boats we have delivered to the Navy
of which type we are building six (two already delivered). The King was very
satisfied with his visit to the boat and telegraphed to the Minister of Marine
saying that he felt proud of having such fine boats. I am sending you by this-
same mail a number of the "A.B.C. " and you will see a photo of the boat with
King Alfonso on board."
I also send you the photograph of said submarine as published in the Madrid
newspaper "A.B.C."
I feel confident about your business in Spain, and believe that still bigger
things are being cooked, though matters in that country take long to materialize.
I trust that all your little family is well, and with my homage to Mrs. Carse,
and a kind little word to your boy, I am,
Cordially yours,
Basil Zaharoff.
Exhibit No. 44
[Copy]
Chateau do Bolincourt,
Par Arronville, S & O, France,
2nd Se-ptemher 1928.
My Dear Spear: I have your letter of 20th ultimo, with one from Mr. Daniell,
about the Spanish Navy accepting the Echevarrieta offer to import all parts of a
submarine boat to be assembled at Cadiz, and should tell you that we have for
years past strongly opposed all offers made to the Spanish Government, but we
were advised by good naval friends not to interfere in this case, because they did
not want the authorities to think that they had got into a monopoly with us
re submarines.
We are advised that the clique that have been opposing our boats will now keep
quiet, and the proof of this is that we are just negotiating most satisfactorily
for a new lot of your submarines, and hope to conclude shortly.
You say that if any of your patents are infringed by the material to be imported
into Spain, you will take steps to protect your patents, but I should tell you that-
342 MUNITIONS INDUSTRY
I do not know now how your Spanish or European patents stand for the following
reason: When the late Mr. Rice asked me to attend to his European patents,
I put the business into the hands of the Office Picard, who for many years have
protected successfullj' all the Vickers patents, and in this waj' I kept my eye on
your patents, and my friends — Clarke, Modet, and Company, or Madrid — very
scrupulously attended to your Spanish patents.
Without informing me you took all your European patents out of the hands of
the Office Picard, and to please Captain Koster you put them in other hands,
over which I have had no supervision or control.
You will, of course, do well to take legal action on Spain against any infringe-
jnent of your patents, and this would be a test case, as to the well-being of them.
I hope that you are always keeping well, and with my homage to Mrs. Spear,
I remain,
Cordially yours,
(Signed) Basil Zaharoff.
("Exhibit No. 45" appears in text on p. 78.)
Exhibit No. 46
November 16, 1929.
My Dear Sir Basil: It is some time since I have had the pleasure of corre-
sponding with j'ou, but I trust that your health is good and that your affairs are
satisfactory to yourself.
I regret exceedingly that I have been unable to visit Europe again to see
you, but the many details and uncertainties have kept me tied to my desk.
One of our friends in the Navy Department, Rear Admiral Andrew T. Long,
has been nominated by President Hoover as Director of the International Hydro-
graphic Bureau, located at Monaco, a position formerly held by the American
Admiral A. P. Niblack. Admiral Long has been promised the support of a num-
ber of the countries represented in the League of Nations, and in talking over the
matter with him the names of Spain and Greece have been mentioned and,
without making any statements to him, it has occurred to me that it might possibly
be agreeable to you to recommend to your friends in Spain and Greece, if they
have no other candidate for the position, to support the nomination of Admiral
Long who, you will no doubt remember, has been naval attach^ at Brussels,
and at Paris, and commanded the European Fleet of the American Navy, and was
one of the members at the different Geneva conferences. You have probably
met Admiral Long and have formed your own judgment as to his capacity' and
ability.
In regard to our matters, things have been progressing very slowly indeed.
As to the claim against Germany for the infringement of our patents, the entire
evidence and arguments were completed last June, and we had expected a deci-
sion long before this time, but we fear now, with the death of Judge Parker,
the umpire, there may be further delay. It has been my intention as advised
you previously, that as soon as this German claim matter is decided we would
discontinue our present European office.
In Washington we have been making substantial progress. Our design of
new submarine has been accepted by the Department and we are promised an
order for two out of a present program of three submarine boats, but I should
say in the abstract that such order could hardly be given to us pending the
London conference to be held in January. As, however, it is generally conceded
that no adverse action will be taken in connection with submarines at that con-
ference, we expect to receive this order as soon as it can be properly given.
The business that we have been working on in the Far East has also been
delayed by these numerous limitation conferences, but we are advised that the
decision there to proceed is as definite as ever, but that also will undoubtedly
have to wait until after the London meeting.
This patient waiting is certainly very trying and difficult, but we hope that
ultimately things will come through and the company will be in prosperous con-
dition and prove satisfactory to its shareholders.
It would give me great pleasure and satisfaction if it were possible for you to
drop me a line as to the opinion, as you see it in Europe, in relation to the con-
struction of submarine boats.
MUNITIONS INDUSTRY 343
"With kindest regards and remembrances, in wliich Mrs. Carse joins me, as
•does also the very young man who had the pleasure of seeing you in 1924, I
remain.
Very sincerely yours,
Henry R. Carse, President.
Sir Basil Zaharoff,
53 Avenue Hoche, Paris, France.
Exhibit No. 46-A
January 22, 1930.
My Dear Sir Basil: Your letter of November 29 was duly received, and I
communicated to Admiral Long that pp.rt concerning him and understand he
has written to you, word coming to me that he has been promised 65 votes out
of 69 necessary to elect. I appreciate and thank you for your kingly interest.
Acknowledgement was deferred waiting to hear from our Mr. Joj^ner, and I
have since received your letters of December 27 and 31 ; also Mr. Joyner has
returned, it being considered necessary that he should be here to advise the
Secretary as to what he had learned abroad before the Secretary left for London.
Mr. Joyner endeavored to see you prior to going to Augsburg, but it was not
convenient to you on that day and he understood you expected to stay in Paris
until the end of the year, but when he came back to Paris there was not sufficient
time for him to go to Monte Carlo because of the necessity of promptly returning
to the United States. I regret that he was unable to have had the pleasure,
honor, and benefit of meeting you.
Mr. Joyner apparently smoothed out the differences which had grown up
between M.A.N, and ourselves, caused largely by the varying opinions of the
technical people.
While it has not been possible to expect contracts from the United States
Navy for submarines from the time the London conference was arranged, we have
been definitely promised an order for two boats and have been working on plans
and specifications for months, and v/e are far from believing submarines will be
abolished by the nations now represented in London.
Mr. Joyner reports that M.A.N, are very active in endeavoring to introduce
their Diesel engines in Spain, and the trouble which has been experienced with
the Vickers type of engine has greatly improved M.A.N.'s opportunity. That
company has undoubtedly made substantial progress in the development of
light-weight engines desirable for use in submarines. As the Vickers company
is a licensee of M.A.N, they might be able to meet the situation by furnishing
M.A.N, design of engines.
Although such matters are very tedious, it does seem that decision will soon
be reached in our claim against the German Governinent for infringing our sub-
marine patents, and as soon as that is determined we will be in a position to act
in regard to our Paris office. Sir Trevor Dawson visiting us for a few days,
passing through here from South America to London, and we discussed with
him the matter of our European representation and I understood he intended to
talk over the subject with you, and we would be very glad indeed to hear from
you through him if that is your pleasure.
We separated the Submarine Boat Corporation from the Electric Boat Com-
pany in 1925, so that the receivership of the Submarine Boat Corporation does
not in any way affect the Electric Boat CompanA^ which company is the builder
of submarine boats and Diesel engines. Submarine Boat Corporation had only
the fleet of steel cargo vessels, some barges and tugs used on the New York State
Canal and the interest in the terminal property at Newark, and the operations
of the cargo vessels had been at a loss for some time.
It is verj^ kind of you to remember our boj^, who is now about 12, but his
studies are siill elemental and his mother's chief concern is to keep him in good
health as a foundation for his future. Mrs. Carse joins me in sincere wishes for
good health, and with kindest regards remain,
Very sincerely,
(S) Carse.
Sir Basil Zaharoff,
Monte-Carlo, Hotel de Paris.
344 MUNITIONS INDUSTRY
Exhibit No. 47
[Copy]
20th September 1930.
My Dear Spear: I am always pleased to hear from you, and now beg ta
acknowledge receipt of your letter of 8th instant about the Cartagena 1,000-ton
boat, and as you say the details of same are en route addressed to you, you
will have the whole matter before you for consideration.
I quite agree with you that everything should and must be done to keep out
the Germans, French, and Italians, and with your tact and that of Colonel
Fuster and Cervera, I believe that the matter will be quietly piloted our way.
The Spanish officers, like many others, endeavor naturally to show that they
are inventing, and we should always seem to encourage such ideas while we are
sticking to real safety.
My homage please to Mrs. Spear, and I remain.
Always yours cordially,
(S.) Basil Zaharoff.
Exhibit No. 48
11th August, 1930.
My Dear Spear: I have your letter of 28th July, and cannot understand
how it is that Madrid or London, or both, did not keep you, the principal. interested
party, regularly informed of the Spanish Government's ideas, but since you have
telegraphed for this information, I have no doubt it is now well enroute to reach
you.
You know that the Germans are using every imaginable trick to get a footing
in Spain, also the Italians and French, but we are keeping our vigilant eye open,
yet they may one day get hold of an interested official, and thus cause us much
trouble.
I trust you are keeping well, and that we may see you here with Mrs. Spear
shortly, to whom kindly present my homage, and believe me, my dear Spear^
Always cordially yours,
Basil Zaharoff.
Exhibit' Nol 49
Paris, October 25, 1930.
My Dear Spear: Your letter of 15tn instant just received clearly indicates
that you do not approve or recommend the ideas of certain members of tne Spanish
Submarine Commission, wiiicn you do not consiaer absolutely safe, and I quite
approve of your inaepenaent view.
Your object .n making money is to make it safely, and to encourage your
customers to return to you, and if you accept every proposal, your reputation
runs risks.
In my opinion, Spain — and I know Spain very well — is the richest country in
Europe, exporting more than $50,000,000 of oranges and lemons; the largest
copper-producing country in Europe; the largest lead and silver producer and
certainly the largest good iron-ore producer in the world.
The peseta has suffered through the speculation of the Spaniards themselves,
without any Government supervision, and the simple idea of attending properly
to their finances has already made tlie peseta gain five points.
In order to improve the value of the peseta the Spanish Government may think
it advisable to issue loans abroad, ond in all probability the United States may
participate, tliough it would not be necessary for the money to be spent in your
country, and indeed the business you could offer would be verv small indeed.
It is very long time since I have seen Mrs. Spear and yourself, and I trust you
are both well. I had the pleasure of entertaining here Mr. Sutphen, with some
directors of General Motors.
Believe me, my dear Mr. Spear,
Cordially yours,
Zedzed.
MUNITIONS INDUSTBY 345
Exhibit No. 50
Nov. 22, 1930.
Sir Basil Zaharoff,
53, Avenue Hoche, Paris, France
Dear Sir Basil: I trust that you received our Radiogram sent from the
" Majestic" inqiuring about your health, as Mr. and Mrs. Kettering, Mr. Codring-
ton, and myself were distressed to learn of your illness when we left Paris.
Knowing of your interest in the Chase National Bank, upon my return I called
upon Mr. Wiggin and told him of the very pleasant visit I had with you in Paris,
a,nd he was very sorry to learn of your iJlness. During the conversation, he
mentioned a book that has recently been published entitled "They Told Barron",
which he was then reading and in which your name, as well as his, is referred to.
I am forwarding you under separate cover a copy of this book, which I trust you
will find of interest.
I had a very interesting trip, Messrs. Kettering and Codrington accompanying
me, stopping first at the Sulzer plant at Winterthur, where they were very busy
but found a falling-off of new orders. As you know, they have a company in
France which builds engines for French submarine boats, and they seem to be very
proud of the results the French Government has obtained from their engines,
recent boats having been equipped with two engines of 4,500 H.P. each, giving a
speed of 22 knots. They intimated that they were about to build engines up to
6,000 H.P. for French submarine service.
We visited the M.A.N, works at Augsburg, and all of us were very much
impressed with the new development shown us in Diesel engine design and con-
struction. In fact, it is the most advanced in Europe.
Our Navy Department has shown great interest in the latest M.A.N. Diesel
engine developments and has requested us to supply these engines in the new
submarines which we expect to build for our Government and, as I found so many
things of interest at Augsburg, I remained there ten days, while Messrs. Kettering
and Codrington continued on to Kiel, Essen, and Berlin.
I was finally shown at the M.A.N, works all their latest improvements, and one
of the greatest advances they have made has been in reducing the v, ight of the
engines and increasing their revolutions, so that one of the 10,000-ton cruisers now
building by Germany will be equipped with eight 7,000 H.P., total (50,000
H.P.?) M.A.N., double acting, two-cycle, Diesel engines.
In building a cruiser with these light-weight engines the Germans are confident
that these cruisers will be superior to all other types in armament and radius of
action and, as you know all other Naval Powers are watching the experiment
very closely.
All the foregoing is generally known, but it was at the end of my visit when
they took me into their confidence and showed me a new engine design for the
French Government to be used in cruisers, each Diesel engine developing 34,000
H.P., four engines to a ship, totalling 96,000 H.P. I was informed that the design
was well advanced and that before building a complete engine they would build
one of three cylinders, developing 6,000 H.P., to test out the design in every
particular.
In reference to airplane engines, I saw on test a 660 H.P., double-acting,
two-cycle, Diesel engine weighing 2.1 pounds per H.P., and in the drafting room
a design of an airplane Diesel engine which will develop 1,200 H.P. on a w^eight
of about two pounds per H.P. Mr. Kettering, who is well informed on airplane
development both here and abroad, believes that the future airplane, to be
successful, will have to have at least 1,000 H.P.
In reviewing the new developments at M.A.N., it was admitted to me that the
German Government had subsidized them very largely in the cost of these
developments. M.A.N, shops are quite busy, running about seventy percent
capacity, and to my amazement, a number of engines were being built for Russia,
paj'ments for which had so far been regularly received.
Mr. Kettering, who returned with me on the "Majestic", reported visiting
Essen and seeing in operation a 15,000-ton press, largest in the world, and par-
ticularly adaptable for gun manufacture but now being used for building chemical
equipment. In comparing notes with each other, we all received the same im-
pression, that the firms we visited were busily engaged in planning new war
equipment so as to be ready to supply it when called upon.
Trusting that this letter finds you in verj' much improved health, and thanking
you again for the kindness you extended to my friends and myself when in Paris,
and with kind regards, in which Mr. Carse joins me, I am,
Yours very sincerely,
Henry R. Sutphen, Vice President.
346 MUNITIONS INDUSTRY
(" Exhibit No. 51" appears in text on p. 85.)
Exhibit No. 52
Electric Boat Company,
March 24, 1920.
Your Excellency: Referring to the negotiations inaugurated by you witb
respect to the sale to your Government of the four torpedo boat destroyers ^vhicb
we have on hand for prompt deUvery, we take pleasure in advising you as foUowsr
While we have a number of inquiries for these vessels, we shall be glad, as &n\
accommodation to you, to hold them at your disposal until June 1, 1920.
The price for the four vessels will be $400,000, or $100,000 each, in New York
funds for delivery here. This price inciudes the overhaul and repairs now con-
sidered to be necessary to place the vessels in good running condition as per
memorandum I attached hereto, and also includes the supply of equipment as-
per memorandum II attached hereto. The repairs contemplated and included
in the price are in general based upon the survey of the United States Govern-
ment. It is, however, understood that if upon the opening up of the machinery
or other detailed examination, work in addition to that covered by our present
proposal is found to be necessary or desirable, such additional work shall not be
included in the above-quoted price, but shall be performed under a separate
order on terms to be agreed upon.
The above price does not include the armament, for which we have under
preparation a separate quotation.
In view of the good condition and excellent quality of these boats, we trust that
the extraordinarily low price quoted wiil lead to an immediate and favorable con-
sideration of this matter by your Government.
With every assurance of our desire to serve you in every possible way, we haver
the honor to remain,
Yours very respectfully,
Electric Boat Company,
Vice President.
His Excellency, Signer Don Federico Alfonso Pezet,
2131 Massachusetts Ave,, Wash., B.C.
lys/am-encls.
Exhibit No. 53
Electric Boat Co.,
April 1, 1920.
Frederick E. Chapin, Esquire,
Hibbs Building, Washington, D.C.
Dear Sir: In accordance with the arrangements made by and through you,,
we nave made the following quotations to tne Peruvian Government:
Four t()ri)cdo boat destroyers, $100,000 eacn, including overhaul and equipment
as per list previously supphed you.
Armament for these destroyers, consisting of five 3" guns, three twin deck
torpedo tubes, two small caliber machine guns, and one Y gun, $130,000 per boat.
We have also supplied approximate and preliminary prices for submarines on
the basis of an order for six boats, including gyroscopic compasses, but exclusive
of guns, ammunition, tori^edoes, submarine signals, and wireless telegraphy
equipment as follows:
Design 602-S $900, 000 each
" 806-E 1,315,000 "
" 707-D 1,410,000 "
" 307-H 2,100,000 "
Our understanding of our agreement witli you is as follows: Viz, that you are
to defray all selling expenses out of your commission and tliat your conjinission
in tlie event of srJes at tl\e tendered price and under the stipulated conditions is-
to be as follows, viz:
On tl;e destroyers, $14,000 per boat.
On the armament for destroyers, $10,000 per boat.
On the submarines. Design 602-S, 40,000 "
" 80G-E, 55,000 "
" 707-D, 60,000 "
" 307-H, 100.000 " "
MUNITIONS INDUSTRY 347
The above commissions will be paid pro-rata as and when payments on account
are received from the Peruvian Government.
We should be glad to have at your early convenience a confirmation of this
arrangement.
Very truly yours,
Electric Boat Company,
(no signature), Vice President.
LYS/AM
Exhibit No. 54
Electric Boat Co.,
Groton, Conn., June 1, 1920.
Mr. H. R. Carse,
President Electric Boat Co.,
New York City.
Dear Mr. Carse: Mr. Chapin informs me that the Ambassador has received
several communications from Commander Aubry. It appears that our sub-
marine proposals are receiving favorable consideration but that the destroyer
proposition has not made the progress expected, partly because Commander
Aubry's government has been counting upon purchasing some modern oil-
burning boats direct from the United States Government and partly because they
are making a special point of having our boats converted to oil burners. The
Ambassador is cabling the Government that the United States has definitely
decided as a matter of policy not to supply anything either to them or to Chile
on the score that this might be encouraging an outbreak of war between them.
It is reported on good authority that the British Government is going to help
the Chileans out; and if this is so or believed to be so by the other Government,
it ought to influence them in favor of our proposals.
Very truly yours,
LYS/AM (Signed) L. Y. Spear.
Exhibit No. 55
Frederick E. Chapin,
HiBBs Building,
723 Fifteenth Street, Washington, D.C. June 3, 1920.
Dear Larry: As I wrote you the other day, the Ambassador will attend th©
convention in Chicago, return here for a short stay, and will then leave via New
Orleans to attend the convention in San Francisco. Of course, we are placing
our great reliance upon the activities of Commander Aubry, supported as they
Vill be by the Ambassador. In another letter I have mentioned the fact that
Peru cannot hope to obtain the assistance of the United States in getting im-
mediate transfer to Peru of six oil-burning destroyers. Of course, I remember
most distinctly that Commander Aubry stated the change could easily be made
by Peruvian workmen, or at least could be made at less expense than if made in
this country. I am in some doubt as to whether the remodeling would be done
inexpensively, and perhaps it would be best to rest our case as presented by
Commander Aubry. I know the Ambassador is quite earnest about the whole
program, and when I last saw him he said the prospect of getting submarines in
this country was extremely good. As set forth in my letter of this morning
Chile's acquisition of a fleet of submarine destroyers and warships has disturbed
the whole antonomy of South America.
I will take up with the Japanese naval attach^ the question of submarines and
let you know more about it later.
I am enclosing copy of a letter which I sent yesterday to Commander Azevedo
after I had talked with Mr. Carse about the activities of the Bethlehem. My
conversation over the telephone with Mr. Carse was inspired by the activities of
Mr. Smith, a vice president of the Bethlehem, who tried to see Commander
Azevedo in New York last Thursday, and, I think, succeeded. Mr. Smith was
most persistent, and called the Commander up two or three times by telephone,
saying they could build submarines and that they had an agent in Rio and had
they been building submarines for many years. Of course, I told Commander
Azevedo that they were our subcontractors and only built the hulls and some
minor parts, but everything was under the direction and supervision of the
348 MUNITIONS INDUSTEY
Electric Boat Co. It would seem to me that Bethlehem is not proceeding in
what I would call an ethical manner by trying to butt into our province as
builders of submarine boats, and it looks to me as if there might be rather stiff
competition if they pursue this course.
What progress are you making with the Navy Board on Changes? I have
not heard from you relative to that matter. There is no prospect during the
present session of the Britten bill going through. Therefore, we must make the
most we can out of the findings of the Board.
Yours truly,
(Signed) F. E. Chapin.
L. Y. Spear, Esquire,
Vice President Electric Boat Co.,
Groton, Conn.
(Copy to Mr. Carse.)
Exhibit No. 56
Frederick E. Chapin,
HiBBS Building,
728 Fifteenth St., Washington, D.C., June 3, 1920.
Dear Larry: I have just left Admiral Niblack,' talked with him about send-
ing a fleet of submarines to South America to visit Rio, the Argentine, through
the Straits and up the west coast. He has given directions to Captain Gal-
braith to agitate this subject and see if it cannot be consummated. He believes
in it. I brought the topic up by asking if the Department had under considera-
tion the sending of a fleet; if it did, why it could not send a submarine.
He said the Department was opposed to sending a fleet, for the reason the
ships were not in good condition and it would take them away from service in
the Atlantic or Pacific, but they had thought of sending a division of four ships.
Nevertheless, he has taken up the question of sending submarines independently.
He tells me that the whole balance of power has been destroyed by Chile
getting six submarines and two warships from England, and that it has caused
a good deal of uneasiness on the part of the Argentine, while Peru is absolutely
helpless. He said in this connection the Department had recommended that
six destroyers be released by the Department, but the Cabinet had sat down
most emphatically on the proposition, so there is no chance of that being done
at the present tiine. He said that in his talk with Pezet he told the Ambassador
that it had occurred to him it was now a matter of Peru going into the market
and buying outright not only with respect to destroyers, but also as to sub-
marines. The Admiral said that possibly the Department could be of assistance
by releasing one of the submarines now building and substituting therefor another
to be built by the contractor later on. This would insure quick delivery, but
I do not favor the plan very materially because I think the price named by the
Navy would be much lower than the one we have quoted to the Peruvian Gov-
ernment. And perhaps even this proposed act on the part of the Department
in releasing one of the submarines now under construction would be objected
to quite as vigorously by the Cabinet as the proposition to release destroyers.
Yours truly,
F. E. Chapin.
L. Y. Spear, Esquire,
Vice President, Electric Boat Co.,
Groton, Connecticut.
Exhibit No. 67
Frederick E. Chapin,
HiBBS Building,
723 Fifteenth Street, Washington, D.C., July 16, 1920.
Dear Larry: Captain Aubry arrived in this countrj^ on Monday. His mission
has been very successful, particularly with respect to the submarines. The
President of Peru, the Minister of Marine, and other members of the cabinet
have agreed to order four submarines of the 912-ton type, that is, the largest size.
MUNITIONS INDUSTRY 349
In addition to this number they will order another boat. Captain Aubry is most
anxious that you proceed at once with the preparation of plans and specifications,
so that they may be ready for signature in connection with the contract as early
as possible, say about September first when the Minister of Marine will arrive in
this country to sign the papers. In the meantime, however, the captain is most
desirous of obtaining specific figures as to the cost of the submarines, including
full equipment, i.e., armament, torpedoes, submarine signal apparatus, etc.
He also wants a figure upon the mother ship which will be built according to speci-
fications which you would suggest and which I suppose will be in line with the
ship you have already furnished the Navy of that character.
Captain Aubry is also authorized to negotiate a loan in this country of fifteen
million dollars, but this program is not dependent entirely upon the floating of
the loan in this country, although the captain informs me the prospect for its
flotation here is extremely good. But should the loan be rejected in this country,
there is no doubt about its being floated in Peru, although as a matter of finance
and economy it should be floated here rather than in Peru on account of the rate
of exchange, etc.
As to the destroyers, the captain tells me that is a matter which is in abeyance.
The Navy Department has offered six destroyers of the newest type with arma-
ment, etc., fully equipped, at $100,000 per boat. These destroyers are oil
burners. The offer came through Admiral Niblack, Chief of Intelligence, but I
think it is condition upon the action of Congress in authorizing a sale to be made
to Peru. I may say this offer was made prior to the time the captain sailed for
Peru. In the meantime, Admiral Niblack has informed me that the cabinet has
acted upon this matter and has determined that the Navy should not make a sale
of any war vessels to any one of the South American countries inasmuch as it
might disrupt pleasant relations. I do not know that the captain has been in-
formed by Admiral Niblack as to the action of the cabinet. I have mentioned
the matter to him, and he states that he will make further inquiry of Admiral
Niblack and if it is ascertained that the Navy cannot part with these ships, he
then will report that matter to his government by cable and state that the only
destroyers available are the four which your company owns. Under the cir-
cumstances, perhaps it would be well to await this action. The further delay of
ten days would not materially interfere with your plans.
Captain Aubry is quite desirous of seeing you either in New York or New
London, and will go to either place any time you may name during the next week.
Kindly wire me when you can see him.
When you meet Captain Aubry, he may tell you something about the lecture
he made in one of the largest theaters in Lima about the merits of the Electric
boat as compared with other submarine boats. The captain tells me that he
had an audience of about three thousand people. His lecture was illustrated by
pictures and films which you had furnished him. The President, the Minister
of Marine, and other members of the cabinet were present, as well as the members
of the Pro- Marina which is a society composed of citizens who are deeply interested
in the welfare of the country but more particularly with relation to naval affairs.
It appears that Captain Aubry arrived in Lima at a most opportune time. The
Minister from Italy had been active with the Society of the Pro-Marina, and a
contract had been prepared and was ready for signature, calling for the purchase
of three of the Laurenti boats. If the contract had been signed it would undoubt-
edly have committed the country to that particular type of boat, but owing to
the representations made by Captain Aubry the contract was not signed and I
judge a good deal of hornet's nest was started which resulted ultimately in the
action of the President and his Cabinet determining to order four submarine
boats from the Electric Boat Company. It is rather interesting to listen to
Captain Aubry about his campaign, and I know you will thoroughly enjoy the
difficulties and obstacles he encountered and the manner in which he overcame
them.
The captain further informs me that this lecture which he prepared and which
contained fifty-two pictures is now being printed in Lima. Copies will be sent
here later. It occurs to me that it would be a very gracious thing to do to order
a couple of thousand of these booklets for distribution among the Spanish people
of the world. However, this is a way of advertising which you alone can de-
termine. Before arriving at any conclusion in the matter, of course it would be
well for you to see the booklet. I think the cost of printing will amount to about
two dollars a copy, but I will leave this matter to you for discussion with Captain
83876 — 34— PT 1 23
350 MUNITIONS INDUSTRY
Aubry when you see him. I can readily see the benefit which might be derived
from the circiUation of a paper of this character in the naval circles of the
countries in South America.
I tried several times to reach j'ou over the telephone today, but without success.
I shall try to talk with you over tlie telephone Monday morning.
Sincerely yours,
F. E. CiiAPiN.
L. Y. Speak, Esquire,
Vice President, Electric Boat Company,
Groion, Connecticut.
Exhibit No. 58
Frederick E. Chapin,
HiBBs Building, 723 15th Street,
Washington, D.C., September 21, 1920.
Li. Y. Speab, Esquire,
Vice President, Electric Boat Company,
Oroton, Connecticut.
Dear Larry : I saw Commander Aubry this morning. He is very much
pleased that Mr. Carse, as well as yourself, approves the proposed purchase
of his article at two dollars per copy. He tells ine that by October 20th, and
perhaps earlier, he will deliver to you one thousand copies, and by November
10th eight hundred and forty copies additional. Perhaps these deliveries can
be made earlier, but in the meantime he would like to have you send him a
check for two thousand dollars, so that he can remit to the printers in Lima.
The remaining two thousand dollars may be forthcoming when the final copies
are delivered.
The commander tells me that he left Instructions in Lima for the distribution
to the members of Congress and Government officials of possibly one thousand
copies. In addition to that number he sent several hundred copies to his
friends in Buenos Aires. Of course, he is not making any charge for those
copies.
Yours truly,
(Signed) F. E. Ch^vpin.
Copy to Mr. Carse.
Exhibit No. 59
Electric Boat Company,
Groton, Cmin., July 22, 1920.
Mr. H. R. Carse,
Redwood, N.Y.
Dear Mb. Carse: Commander Aubry spent yesterday with me here, ac-
companied by Conunanders Freyer and Causey, of the United States Navy.
The l.itter two gentlemen are going to Peru, probably next week, to practically
take charge of the Peruvian Navy.
Commander Aubry seems to have made a great success of his visit. The
Government has decided to order from us four 900-ton submarines and one
submarine tender of about 3,200 tons displacement. Their Minister of Marine
plans to be here in September to sign the contracts. I understand they have
some financing to do, but they seem perfectly confident of being able to take
care of that, so that we will not be called upon to extend any credit.
They want as soon as possible final and fixed prices for this construction,
including guns, ammunition, torpedoes, and everything else that goes with
the ships.
Owing to the presence of the United States officers during our conference
here, I was unable to get details as to the situation with regard to the de-
stroyers, but I expect to secure these tomorrow when I shall meet Commander
Aubry again in New York. My understanding is that the United States Navy
Department gummed this game by making a written offer to supply four modem
oil-burning destroyers with complete armament at $100,000 each. Subsequent
to this foolish proceeding, I understand that the Cabinet took the matter
MUNITIONS INDUSTRY 351
under consideration and revoked this action. Our friends, however, were
not officially informed of this Cabinet action, and so of course the offer served
to prevent a deal with us on our boats. As I understand it, Aubry now pro-
poses to get official coutirmadon as to Cabinet action and hopes then to be
able to push this deal through by cable.
I am arranging to meet the Newark Bay people in New York tomorrow
to go into the question of the cost of the tender. Present indications are that
the price for this will be somewhere between two and a lialf and three mil-
lion, so that the total order siiould run between eleven and twelve million.
Very truly yours,
(Signed) L. Y. Spear.
LYS/AM.
Exhibit No. 60
July 29, 1920.
L. Y. Spear, Esq.,
Vice Presidvnt, Electric Boat Company,
Gruton, Connecticut.
Dear Spear : Fred Chapin, Commander Aubry, and the Peruvian Ambassador
called at the office this morning and we had a long talk and took lunch
together.
1 conferred -with Mr. Cochran after luncheon regarding the loan situation
and he turned me over to a Mr. Monroe who is secretary of the South American
banking group here in New York, of which the Morgan firm acts as cliairnian,
and which includes the City Bank, the First National Bank, and Kuhu &
Company, etc., etc.
Mr. Monroe did not give me any encouragement whatever. He said some-
time ago Peru had made a similar request of the City Bank, he thinks within
a month or two. At that time they intended to buy some of he American war
vessels such as destroyers, submarines, etc., and tlie City Bank turned it
down, as they were not interested in the matter due to Peru's poor financial
position. Its national debt is approximately $34,000,000, and as Mr. Monroe
explained, to add 50% to the national debt to purchase war vessels would be
considered very inconsistent, considering the financial position of Peru and
how she has hocked almost everything she owns.
I got the impression from the Ambassador at the beginning of our conversa-
tion that we would not receive much encouragement from the New York group
of bankers, and his deductions were certainly correct.
As you are going to see Chapin tomorrow I think you ought to tell him that
in the opinion of the American bankers it is not a very opportune moment to
present the mater and that unless something unexpected turns up I think it
would be better not to go further with this banking group. Upon Mr. Carse's
return, we Cu.n all talk it over and see if we have any new plan to suggest.
In the meantime I do not think we should present the matter further to the
bankers. Mr. Monroe will reitort to Mr. Cochran, and, I, in turn will have a
talk with Mr. Cochran the first of the week.
It appears tlure has been quite an agitation in Bolivia, as you know, and a
revolution occurred there recently and in the opinion of the bankers it has
been instigated largely by Peru to have Bolivia join with her in opposition to
Chile.
So far I can only report that the banking situation does not look at all
promising to float a loan for Peru of $18,000,000 in the United States for the
purchase of submarines.
Mr. Cochran personally would like to see anything accomplished that would
help us along, but from what Mr. Monroe said it appears to me that Peru's
financial position is not an attractive one to the banking houses in New York.
Fred might report to the Ambassador when he sees him in Washington that
we are working on the case and will know something more definite when Mr.
Carse returns.
I will be very glad to do anything further than you can suggest.
Yours very truly,
(No signature),
Vice President.
(Signed) H. L. Sutphen.
352 MUNITIONS INDUSTRY
Exhibit No. 60-A
Law Offices Frederick E. Chapin,
HiBBS BxnLDi.NG, 723 Fifteenth Street,
Washingtmi, D.V., Auijust 7, 1U20.
Henry R. Carse, Esquire,
President Electric Boat Company,
New York City.
Dear Mr. Carse: I have read with a great deal of interest your letter of
August Gth which clears up in my mind the Peruvian situation. You liave
looked at this matter in a calm, impartial way, and I now can see the diflfi-
culties which will confront the ambassador in trying to float a loan in this
country.
I i-emember most distinctly the negotiations concerning the previous loan
and the objections raised by the New York bankers on account of the Dreyfus
claim. An award had been made in this claim after the Peruvian Government
had submitted the matter to arbitration, but notwithstanding the sanctity of
the award, Peru denied its obligations, hence the position taken by the French
Government in refusing to permit Peruvian bonds to be listed on the Paris
Bourse. I do not recollect whether the Peruvian Corporation was responsible
for this action or not, but assume it was. At the present time I do not know
what influence is exerted by that corporation, but shall make a point of
ascertaining its status from the Ambassador.
Nevertheless, it is quite apparent from what you have said and the facts
which are familiar to me that the Peruvian Government does not stand very
high with financial interests throughout the world, and the Ambassador will
encounter opposition from almost every side, and I am sure will not be suc-
cessful unless he can give substantial guaranties acceptable to bankers who
might purchase Peruvian bonds. Of course, the Ambassador has stated (and
I think he is sincere) that the armament which his Government purposes to
obtain will be used merely for defensive purposes and not as belligerent menace
to adjacent countries. As he lucidly stated to Mr. Sutphen and myself, it was
most embarrassing to be supplicating for mercy in every instance and not being
able to repell unjust and unfair demands.
I think, however, the Peruvian Government is insistent upon obtaining sub-
marine boats, and if the loan cannot be floated in this country, the people of
Peru will take the loan. This seems to be the firm conviction of Commander
Aubry, who has come back from there after carrying on the campaign to
get the order for the boats.
I believe we should do everything we possibly can to encourage and aid the
Ambassador and should keep him advised from time to time of the progress
made and the nature of the objections raised, so that he may see that we
are dealing fairly and openly with him.
I shall take occasion to see the Ambassador at the earliest possible moment.
I think he ought to be told your viewpoint as to the attitude of the bankers
and the reasons which probably control them, also the influence which W. R.
Grace & Co. may exert. I can readily understand from what you have written
that W. R. Grace & Co. would fail to exert their present influence were they
controlled by biased or partisan motives. At the interview which I hope to
have with the Ambassador very soon I shall sound him out with regard to
the possibility of American companies obtaining oil concessions and as to
whether the revenues arising from such concessions could not be devoted to
the purposes of our impending contract.
Sincerely yours,
(Signed) F. E. Chapin.
Exhibit No. Gl
Aug. 6. 1920.
P. E. Chapin, Esq.,
Hibhs Jiuilding, Washmgtoti, D.C.
Deau Mr. Chapin : On my return this morning I have read carefully the
sev(>ral letters you have written in relation to the Peruvian matter.
Whenever a borrower is not able to secure the funds he wishes he is apt to
ascribe bis non-success to adverse interests, but while undoubtedly any group of
l)ankcrs :ip])r()ached in relation to a loan on the west coast of South America
would consult the members of W. R. Grace & Co., and would undoubtedly be
MUNITIONS INDUSTEY 353
influenced by their opinion, if W. R. Grace & Co. did not give an unbiased
business opinion that could be substantiated by facts they would very quickly
lose their status in the business and banking world. Undoubtedly that organi-
zation is better acquainted with affairs on the west of South America than
any other organization in this country, and while they have their own in-
terests to protect there is no question that their minds are open to take on
any new business that indicates a safe return.
The difficulty here, as pointed out by Mr. Monroe to Mr. Sutphen, is the
lending of a large sum of money to a comparatively weak country to prepare
for conflict with a much stronger country, and the armament which this
money could purchase would not insure victory, as the other nation has nmch
stronger armament and would tend more to bring conflict to a point than if
they did not purchase the armament.
Naturally, if Peru were badly defeated, the persons who advanced them
money for the armament could not expect any great liberality from the victor.
Our business, of course, is to sell armament, but we have to look on the
other side of the (luestion as well.
In regard to closing a contract and stai'ting work, we might find that a very
losing proposition, for you will remember the previous experience of the Elec-
tric Boat Company in the contract it had with Peru for the building of sub-
marine boats, we received an advance payment of $2.'30,000 in a non-negotiable
note, at first payable six montlis after date, which non-negotiable note (prac-
tically of no value because all sorts of defenses could be brought against this
payment) \yas exchanged for regular Treasury bills, the same in effect as the
certificates of indebtedness that have been issued during the last year or so
by the United States Treasury, payable at a fixed date ; but they did not even
make any motion toward paying at that time, but sent an emissary to this
country, and Mr. Rice surrendered them at ten cents on the dollar.
At that time I did everything I could to help Mr. Rice arrange a loan for
Peru and we made a very close study of their linauciai position. We thougiit
at one time the loan had been arranged through Seligman and Schroeder but
it was turned down in Paris because of the Dreyfus claims.
The analysis at that time showed that the finances of Peru were liandled
by the Peruvian Company, which practically controlled everything, collecting
all the customs, etc., paying interest on obligations and turning the balance
over to the Government, but the obligations of the Government outstanding
were constantly being scaled down and some new readjustment being made,
scaling down the principal or reducing the rate of interest, so that Peru has
gained the reputation all over the world of not meeting its obligations ; and
as a bank is a trustee for the funds of its depositors it, of course, is adverse
to taking any undue risks.
There is one thing that occurs to my mind, and that is the oil in Peru, and
whether some arrangement could be worked out with some of the large oil
companies in this country for concessions in Peru, for which they would be
willing to advance money. If you could find out from your friends the status
of the oil lands I would be glad to broach this point to some people here who
might be interested.
Yours very truly.
(Signed) Cabse, H. R.
Exhibit No. 62
Cable Address ;
Fredchapin
LAW offices
FREDERICK E. CHAPIN
Hibbs Building, 723 Fifteenth Street
washington, d.c.
October 25, 1920,
Henky R. Caese, Esquire,
President Electric Boat Company, Neiv York.
Dear Mb. Caese: Confirming my telephone conversation of this morning, the
Ambassador on Saturday, October 23rd, 1920, signed a contract with the Ship-
ping Board and received eleven hundred thousand dollars in cash and a further
354 MUNITIONS INDUSTRY
check for nine Imndrod thousand dollars to be held in escrow by a local bank
until title to the ship sold shall have been determined. This may take several
months.
In tlie meantinio, however, there is available eleven hundred thousand dollars
which is now on deposit in a Washhigton bank drawing three percent interest.
The Ambassador has cabled his Government that he has made the deposit in a
Washington bank. The sum will prolwbly not be touched until the Minister of
Marine arrives in this country to sign the contract for the boats we are to
build.
I fliiidv the Ambassador has in mind that this deposit could be placed with
some New York bank which might be>ome instrumental in floating the loan
needed for the carrying out of the naval program. The Ambassador is to be in
New York on Friday and may find time to call upon you and talk over the whole
matter. It would seem to me things are proceeding very satisfactorily.
Sincerely yours,
Copy to Mr. Spear.
(Signed) F. E. Chapin.
Exhibit No. G3
[Copy]
EsouELA Naval del Peru.
La Punta, Peru,
16 Novemier, 1921.
In reply address :
Comandante Director.
Electric Boat Company,
11 Pine Street, New York City, N.Y.
Gentlemen : I am taking the liberty of sending to you, under separate cover,
one c(spy of Revista de Marinn, a professional naval publication, similar in
its aims and the purposes it serves, to the United States Naval Institute Pro-
ceedings. The Revista is published under the direction by the officers of the
Peruvian Navy, at the Naval Academy of Peru, which I command.
The Revista has never solicited any foreign advertising, for the reason that
it is maintained by subscription and Government appropriation. As a matter
of fact, foreign advertising has much more value in this publication than has
domestic advertising (I am writing as a resident of Peru), because the Revista
is read with keen interest by the naval officers of all the Spanish- and Portu-
gese-speaking countries and by members of technical and scientific societies of
these races. I should add that advertisements are closely scanned, since the
ships and lieadquarters of foreign navies attach significance to the appearance
of foreign advertising matter in professional naval magazines. At the present
time many governments and their officers are watching Peru and her navy
closely. This interest is occasioned by the fact that our Government has
recently sent a naval mission, of which I am a member, to Peru to assist the
latter in modernizing and developing an adequate navy. Negotiations for a
large loan from private sources in the United States are being successfully
concluded by Peru ; I have every reason to believe that a considerable sum wiU
be allocated to the navy.
We h;ive no better friends in the world than Peruvians, and they regard us
in the same light. I can attest to this after more than one year's close associa-
tion witli Peruvian officers in my work. They are enthusiastic about all
things in America and, of course, I am keen to see their enthusiasm not only
maintair.ed, but augmented. For our own ends (I speak as a member of the
naval mission), I wish to hear the Peruvians speaking of American goods
only, and see them buying American goods and equipment in preference to all
other foreign-made products. Our late allies (and foes as well) are driving
hard here, and in other parts of South America. I am soliciting no advertising
whatsoever fi'om them.
The Revista is issued approximately each two months. I am giving you
below a special scale of rates, in U.S. dollars, which represents to us the
bare costs of running the advertising, calculated on the basis of a slight amount
in our favor due to the current rate of exchange. I want American advertis-
ing. In view of our being maintained by appropriation and subscription the
MUNITI01!^S INDUSTRY 355
quoted rates will appear absurdly low to you, aud I trust you will not gauge
the real value of tlie advertising by the small scale of rates we are able to
offer.
To pay for this advertisiug a U.S. checque on your banker is all we ask;
we can save you, in this way, the trouble of negotiating foreign exchange.
Cheques should be made payable to " Revista de Marina." The scale follows :
One page one issue, $12.00; six issues, $48.00
Half page one issue, $8.00; six issues, $32.00
Quarter page one issue, $5.00; six issues, $20.00
We can print your advertising in either Spanish or English, as you desire.
Leave the translation to us if you desire it in Spanish. However, our readers
all read English. We can run any cuts you may wish to send us.
I have talked this matter over with our commercial attache in Peru and
with my other American friends and they assure nie that we are going to
hear from you. American prestige demands.
Yours very truly,
(S.) Charles Gordon Davy,
Commander, U.S. Naval Mission to Peru.
Exhibit No. 64
May 22, 1924.
MiNisTRO DE Marina,
Miiiisterio de Mari/na,
Lima, Peru.
Sir : We have the honor to advise you that we have duly received from
onr representative, Commander Louis Aubry, executed copies of the contract
between us for two submarines, 24 torpedoes, and a submarine base, which
contract is dated April 11th, 1924.
We also have the honor to acknowledge the receipt through Commander
Aubry of the draft for Lire 10,349,000. We realized from the sale of this
draft the sum of $461,254.15 (four hundred sixty-oue thousand two hundred
fifty-three dollars and fifteen cents), in accordance with the accounting for-
warded by us under date of May 20th to La Caja de Depositos y Con-
signaciones.
As Commander Aubry advises us that this draft was handed him on April
19th, we accordingly have taken that date as the effective date of the con-
tract from which the deliveries of the material and future payments are to be
reckoned. In accordance therewith the next payment will be due in New York
on October 19th, 1924, from which payment the sum of $1,253.15 (one thousand
two hundred fifty-three dollars and fifteen cents), now to your credit as excess
of the first payment, may be deducted.
We have the honor to remain,
Yours very respectfully,
Electric Boat Company.
(Signed) By L. Y. Spear,
Vice President.
Exhibit No. 65
[Copy]
Lima (Peru), October 27, 1924.
Mr. Lawrence Y. Spear,
V.-President The Electric Boat Company, Groton, Conn.
My De:ar Mr. Spear : 1. Messrs. Wellington and Thayer went away by the
Santa Teresa on Wednesday the 22d after discussing with Admiral Wood-
ward the completion and detailed specifications that Mr. Wellington had pre-
pared for the naval base ; such specifications were approved throughout by
Admiral Woodward two days after his arrival from Iquitos.
2. I have been able to settle, in principle, the extra cost of the naval base
up to the full amount of $50,000 that Mr. Wellington wanted to obtain. I
succeeded in this after a conversation with the President and a little discussion
356 MUNITIONS INDUSTRY
with Admiral Woodward, in wliich the latter helped Mr. Wellington and myself.
Tomorrow, Tuesday, I expect to have the decree signed, and then I will have a
little additional contract for this extra payment.
3. In this adjustment it has been essential to depart from clause 10, which
says : "Any change in compensation due the contractor by reason of any such
alteration, addition, or commission shall be adjusted in the payment install-
ment next succeeding the date of the order by the Government for such change."
The way we have arranged the payment to suit conditions and obviate diflB-
culties is the following : $19,000, to be paid from the Navy budget for the pres-
ent year before the 31st December, 1924; $25,000, to be paid in 10 quarterly
installments of $2,500 each, the first installment to start on the 15th of Jan-
uary ; and the remaining $6,000, that the Government deduct for the work of
grading in the island, which they undertake and execute in conformity with
our drawings. (This work, if done by us, was estimated by Mr. Wellington
at $8,000.)
4. Once this is signed and delivered I will consider it a pretty good work,
because Admiral Woodward, although having excellent dispositions towards
us, is a little bit anxious about seeing the work of the base moving faster and
will prefer to have the construction of two or three buildings cut away for the
$50,000, giving it to a local contractor here who could have started immedi-
ately, and, therefore, show something at the island soon.
5. I hope to send you by next mail original copy of this extension of the
contract, and also a copy of the decree authorizing it.
6. Now, I must inform you that Ackerson wired to Admiral Woodward on
the 21st, saying that Mr. Harriman was willing to reopen negotiations for a
loan based on national defense taxes and for naval construction. In his wire
Ackerson requests Admiral Woodward to communicate to the President in order
to have his personal opinion, and in case he should approve lie will come by
first steamer.
7. President Leguia's answer, communicated by Admiral Woodward to Acker-
son, was to the effect that President Leguia was willing to reopen the negotia-
tions with a view of obtaining a loan up to $12,000,000 to carry on half of
the proposed naval scheme.
8. We are expecting Ackerson to come any moment, and I think this time
something will be done in regard to the loan. The sad point is that if the
scheme is carried through and Harriman provides the money, they will be
the ones to get the largest share of the $10,000,000 which will be allotted to
the Navy, getting, therefore, his three destroyers, leaving only a margin for us,
if we fight well, for one more submarine; because the remahiing money will
have to be taken for more submarines ; because the remaining money will have
to be taken for the completion of the payment of the two submarines, base,
and also mines and aeroplanes that Woodward wanted. I am looking forward
for a pretty good scrap, and at least if the worst come, I must get one sub-
marine and 50 torpedoes.
9. I received your wire regarding future payments and have made ari-ange-
ments which I consider as effective, and trust that neither the Government nor
we will have to suffer by any delays in payment.
10. Sometime ago I wired you in regard to the permission for publishing
the news of our order whenever you deemed it advisable. I omitted to confirm^
that cable by letter, and as I have seen no publication from the States what-
ever, I am wondering if you ever received my wire ; whicli I hereby confirm.
11. It is very important that you should let me know the date at which
you are going to launch the subs, for many reasons, the main one being
that Admiral Woodward is very much interested for obvious reasons ; either
myself or my wife will have to take the sponsors to the States; and then I
am planning to be appointed by the Government, if you permit, delegate for
Peru in the Disarmament Conference that is going to take place in Geneva in
June 1925. I feel that I can do something good for Peru there, as well as for
the cause for the submarines in South America. My fiag will be " No quotas
in submarines " constmction in South America, and classify it as a " de-
fensive weapon."
12. In this respect, not only do I require your opinion but also your authori-
zation I request in this respect as soon as possible, because I will have to make
some initial work here outlining a plan for the Government in case I decide
to go ; which, otherwise, I will not have to make.
MUNITIONS INDUSTRY 357
13. The best arrangement for me, of course, will be that the launching should
take place at the end of May, or were it possible at the end of July. In either
case, I could arrange to attend to the spousals as Woodward wants me to.
With best regards from Madame Aubry to Mrs. Spear, believe me, dear
Mr. Spear,
Very sincerely yours,
(S.) Luis Aitbry.
Exhibit No. 66
NOVEMBEIR 19, 19 14.
L. T. Spear, Esq.,
Vice President, Grotoii, Conn.
De-vk Mb. Spear: Your favor of the 17th instant to hand in regard to
Peruvian busines.s, and I can see no objection on our part to Aubry serving
as delegate to the disarmament conference, only I hardly think we should
pay his traveling expenses plus $15 per diem.
In regard to the bond matter in relation to Harriman, I had a talk this
afternoon with members of the firm of White Weld & Company, who brought
out the last Peruvian loan, and their man, who has been in Peru for some
lime, is expected in New York next week, and they would like to have us go
over the matter in detail with him, and I told them that if they would let
me know a few days in advance you no doubt could probably arrange to be
present to go into the details. They have gone into this Peruvian loan mat-
ter very thoroughly and think all the revenues of Peru, except the customs,
are pledged to other loans ; that obligations of Peru in the form of loans
or otherwise which are secured by specific income, have been working along
in very good shape, but if the obligation is not secured by any particular
revenue the Peruvians let it go by default, and in two instances they have
been obliged to force them to clean up their defaults before making them
fresh loans.
Yours very truly,
(Signed) Henry R. Carse, Pres.
. Exhibit No. 67
[Copy]
Lima, Peru, 22 March, 192Jf.
Mb. Lawrence Y. Spear,
Vice President, The Electric Boat Company.
Groton, Conn.
My Dear Mr. Spear: Since my addressing you last, on the 26th February, I
have only written you a letter of introduction which will be handed you by
Mrs. Acker son ; and if I have not written to you afterwards it is for the
single reason that the events that have developed have been communicated
to you by cable, and also to the fact that Mrs. Ackerson first, and Mr. Ackerson
af tei^wards, went both away ; and, therefore, such letter is quite effective.
Both of them, and Mr. Ackerson especially, knew so well the situation that
I deemed it best to abstain myself from writing until everything was about
settled, being confident, in the mean time, that you would be well acquainted
with the state of tifCairs through my cablegrams and also the conversation which
Ackerson promised me to have with your good self upon his arrival, which is
due on the 24th inst., Monday ; when you will know the exact state of affairs.
As you already know, the combination that consisted of Harriman financing
the business failed throughout, and perhaps it is better so because, as you
very wisely say in one of your cables they were too cautious in regard to the
financing and, besides, they were absolutely powerless to do anything outside
of the Guaranty Trust, and such an institution with White and Weld are
hopeless of doing anything with the Government. We were, for a few days,
indirectly associated with them for all intents and purposes and, therefore,
in a very bad position which was considerably aggravated by the offer made
358 MUNITIONS INDUSTRY
by the Sweden firm named Kockus of six submarines complete ; 2 of 800 tons
and 4 of 530 tons, built for the Germans duriup; the war and which are, at
present, in the Swedish yards of Maol. Thoy have been offered l).v the Charg6
d'Affaires of the Swedish Government here on the name of his Government
for the sura of £1,000,000, payments to be made in any way the Government
would choose. Of course, I felt a good deal excited then about this, and that
is the reason of my cablegram of the 8th inst., as the President liad told
me, on my explaining to him that that was very unfair and bad for Peru due
to the fact that we did sign the Treaty of Versailles, that he would buy those
units because Peru needs to have some sul»marine>> and he could not obtain
them advantageously in the States nor in England. Of course, such a purchase
could not liave eventually been consummated because I would have planned the
same methods that we did plan in Argentine and "Woodward, who had been
very nice throughout all these proceedings, would have stopped it ; but any
how, it did come in a very unfortunate moment as the President was quite
upset due to the interference of the Guarantee Trust in all his schemes.
Fortunately, I gave him as an option to buy the two submarines that we
are willing to construct for him with facilities of payment, that is in 3 years
as proposed in my cable of tlie 6th inst. to you and aiiprovcd by your cable
of the 10th to me. On my proposing this to the President with Woodward
and the Minister of Marine, on the 5th March, it met with his approval
and he told me that he will take that in appreciation as a good service I'en-
dered by the Electric Boat Co., stating further it is the best he can do now,
but you may be sure that if your company take this they will certainly get
more orders in future. So, let us start.
Now that I have your long cable of the 19th accepting the proposal as per
my detailed cable message of the 14tb, I feel quite at ease. Nevertheless, there
has been for Woodward a very sore point and that is the one regarding the
partial construction in England to which the President agrees entirely ; but
that Woodward did not look up with sympathy because — as I explained in my
previous letters — he wanted to have all done in the States. You can suppose
that I did not consult with Woodward as to this point, but in his presence I
told the President that for the financing aspect of the matter we have to make
the hulls at our associates' yards in Barrow, of course, very much to the
surprise of Woodward. So when Woodward wrote with his own hand the cable
that I sent you on the 14th inst., he put " Partial construction in England
permitted but not preferred." Of course, that is all we needed. I have to do
my best to give him the chance of getting even because he has been of great
help altogether.
Now in your cable of the 19th inst., you quote as a price for the 2 subma-
rines and the 24 torpedoes, $-2,700,000. As the subs were considered at a maxi-
mum price of $-1,200,000 each, and as you told me that there will be a difference
of price in view of having the hulls built in England, say approximately
$-75,000 each, sum which I never mentioned but only the fact that they will
be cheaper, and considering that the torpedoes could not cost more than
$-10,000 each in accordance with the figures that Woodward has from the
American Navy list prices, the maximum that Woodward reckons for the whole
thing ought to be $2,640,000. Therefore, here is a sore point for me which I
will try my best to shuffle through. Yesterday, that Woodward wanted me to
wire you in regard to it, I told him that I thought that that difference of price
was for the interest of the money considered during the last year of payments
to which we naturally were entitled to. He asked me anyhow to wire you
requesting that we should be provided, included in this price of $-2,700,000, with
60 contact mines that he has down for $150 per mine. He said to me : "I shall
not object any longer if those mines are included." In my wire of today I am
suggesting this procedure to you.
I received yesterday morning your wire of the 20th in which you asked me
for certain alterations in the contract forms that have been sent to me by the
steamer of yesterday, that is sailing from New York yesterday ; to which I
shall certainly be pleased to attend in the way as pointed out by you. The
only thing that I cannot attend, or better arrange at all as you desire is that
relating to the local commissions, I have not dared to propose it to the inter-
ested parties because I am sure that this would be even dangerous at this
special stage of the negotiations. I have to give commission to three persons
and two of them, whom I have consulted with, have accepted as a great con-
cession to receive the commissions distributed in three equal parts: The first
MUNITIONS INDUSTKY 359
from the first payment, the second from payment no. 6, and the third from the
hast payment. As I think this perfectly fair, I am going to wire to you
accordingly. The commissions that I have distributed according to your
authorization are $-15,000 per boat ; that is to say, after you receive your first
payment of $^00,000 you will please send me $10,000 to attend to this.
The President has agreed to put aside £300,000 a year, which is equivalent
to $-1,200,000 per annum for the new constructions from the law of " Defensa
Nacional." Of course, they are going to enter into contracts also for the pur-
chase of hydroplanes, and also for the repairing of a couple of cruisers in
Panama, and as we have to add this $-1,200,000, $-800,000 from " Pro-Marina "
which is already at the disposal of the Government, I will be paid properly and
in time in New York funds.
Regarding the basis, you can rely upon me that we will obtain a good profit
because we shall not be required to have but the indispensable. The only
thing that is essential is a marine railway to be able to put the subs on shore,
and perhaps of larger displacement than the one we order. It will have to be
uone by in the cost-plus basis, due also to erection of a few light buildings
that we will have to construct here. Of course, the machinery will be all
fixed prices.
I will not compromise myself to anything definite here but shall wait until
I have a proper talk with you over there. I will certainly carry with me a
chart v/ith a site of San Lorenzo Island showing the place where we will erect
it, so that I will be able to come back here with a definite and specific plan. I
presume that I shall have to come back here within one or two months from
the yards and eventually will have to keep my eye on this job in future.
All this will be discussed with you over tiiere. By the way, I have promised
a local commission of $-5,000 on this job, which I will explain there how we
will arrange for.
Regarding my friend Rodriguez Larrain, his help l;as been effective and
will be very much so in future. He is a lawyer of hi.-h standing here; also
an intimate friend of the President and a friend of all my trust and confidence.
His powers will have to act in my capacity when I am not in Peru to attend
to our regular payments as well as to payments for the station that we will
have to attend here. I will have to enter for that matter with subcontractors
here for works and, therefore, as a local adviser he will be very necessary.
He will be responsible to me and myself responsible to the company. I will
take care of his commission and tees as per my contract with yours. In order
to give him a higher standing in connection with our representation I suggest
that you should send him a letter advising him that he has been appointed
our auditor, with the understanding that he will have to refer everything
to me here, excepting during my absence; and in case of strict urgency, direct
to the company; also that his fees should be attended by me direct.
As matters stand, I feel absolutely confident that by tiie middle of April I
will have this contract executed. I am expecting the forms of contract by
the steamer due to arrive here on the 2nd April, and so, my powei'-of-attorney.
Therefore, on the 9th or 10th April, I hope will be the maximum delay for
having all through.
I want to add that our company stands in a high esteem on the part of
the President, as he does not forget that his interests were attentively taken
into consideration in 1912 ; and it is a pleasure for him, as he told me the last
time I had a conference with him, to start business again, and he said, smiling :
" We will fix everything in such a way that there will be no chances of can-
celing contracts."
I had a wire, 3 days ago, which I enclose, from my friend Boettcher from
Brazil, telling me that my presence in Brazil will probably be necessary. He
promised me to telegraph me definitely this week. Naturally, I am not going
to leave for Brazil but for the States when I have settled matters here, and I
will in the meantime entertain Boettcher. All depends on the arrangements
in regard to my moves that I will have to make when in the States. Boettcher
has written to me explaining tliat the situation there is very acute and that
they are going to order next May or June. I hope so, but I cannot decide
anything about my movements before we discuss the matter properly in the
States, as we have also to complete the Argentine problem.
I in due course received your letter of the 18th February, which is very
welcome, and I thank you very much for the kind terms contined in paragraph
32, which are encouraging.
3G0 MUNITIONS INDUSTRY
Hoping to be in tlie States by the end of April, and tliat my next letter
will be definite, I remain, my dear Mr. Spear,
Very truly yours,
(S) LXJIS AUBRY.
P.S. — Woodward was greatly surprised regarding the quotation of the Davis
antiair and 3" guns, because he has prices from the United States Navy,
according to which the Davis, complete with mount, only costs $2,000. Kindly
write about this.
My friend, Rodriguez Larrain's address is as follows:
Dr. Emilio Rodriguez Larrain,
Bajada Balto, Mira /lores, Lima, Peru.
Mr. Chester, the gentleman who signed the contract in behalf of the com-
pany in 1912, is here. He arrived by the steamer of yesterday. I will find
what he is after.
L. A.
("Exhibit No. 68" appears in text on p. 118.)
Exhibit No. 69
[Copy]
Lima (Peru), March 31, 1924.
Mr. Lawkence Y. Spear,
Vice President, the Electric Boat Co.,
Groton, Conn.
My Dear Mr. Spear : My last letter was dated the 22nd March.
Peru. — I am anxiously awaiting the documents which I expect will come to
my hand on or about the 3rd of the incoming April. There are many things that
I have in my head in regard to this subject, and I much hope that they will not
cause any delay :
(a) I suppose that you are taking the advantage of building the hulls in
England ; therefore, the ships will be completed there as per your letter of
the 14th December. This procedure, although permitted by the President and
Woodward, has given rise to one point of great importance for Woodward, and
some concern to me. i.e., where vrlll the subs be delivered, in England or in
tbe States? Woodward put me this question the other day, to which I replied
that in case the hulls were built in England the subs will have to be delivered
in England. He then answered me that he will not agree to this for many
reasons ; the expenditure for Peru, the risk at not having trained people for
a long voyage like that. He categorically stated that he will not accept
any other alternative than that the subs must be delivered to Peru in the
United States, where he will have crews to be trained in advance, as contem-
plated in the contract. I have not wired to you about this because I do not
want to act regarding this point as long as I am not with the particulars
at my hand — that is, until when T receive the new forms of contract which
you sent by the steamer sailing thence on the 20th inst. He further stated
tbat whatever expenditure that may be incurred by bringing them to the
United States will be taken care of by the Electric P.oat Company, adding
that this is absolutely the just way, as, being you the ones that take the advan-
tage of it. I'eru has no reason to suffer for. I hope that this has been con-
templated by you under the same light, for, should it be otherwise, the matter
would be very embarrassing for me as I have not any fair arguments to change
Woodward's attitude. Of course, I do not doubt that that will entail some
expense upon the company, especially in insuring the boats across the Atlantic.
(b) The reduction of the submarines' speed to a minimum of 8% miles
also is a sore point because Woodward told me that he could not understand
improving the qualities of the boats by reducing the main features.
(c) The question of a considerable increase in the price having been permitted
to construct the hulls in England, I have explained to Woodward, in accord-
ance with your wires, that the form of payment entails a new expenditure.
He said even though putting the interest for those three last payments and
allowing $.'')0.000 per boat for the low price of construction in England, you
are increasing the prices over the ones they have been given.
MUJSriTIONS INDUSTRY 361
I think I will be able to get over the difficiilties enumerated at para, (b)
and para, (c) and I will maintain the fnU quoted price of yours — i.e., the
$2,700.000 — but I am very much afi-aid that what I cannot do is to get the
President and Woodward to agree to having the ships delivered to Peru in
England ; so, once I have the documents I shall presumably have to exchange
wires with you, I anticipate this letter so as to enable you to exactly know
the situation. I feel like as if Woodward will insist so much on this as to
eventually going so far as to even stop the transaction.
Another point with him that he has not mentioned in regard to this but
that I can easily perceive is that he hates the idea that Great Britain will
get the credit for an American type which the mission is very proud of; that he
wants the ships to start on voyage from the United States yards where he
also wants to send the crews three or four months before. He even contem-
plates to have an arrangement, by that time, according to which the boats
will come up to Panama, partially with Peruvian crew and partially with
Electric Boat's crew. This last, of cour.se, is a secondary matter.
In regard to the specification, I do not doubt you have made the indis-
pensable allowance in regard to the radius of action to 6,000 miles as mentioned;
by my cables and letter.
I will hurry on all I can to have this finished in time so as to enable me
to take the steamer " Orcoma " that sails from Callao on the 11th April to
Europe, calling at Havana, where I will take another steamer via Key West
to New York, because there is not any other steamer available but on the 9th
April; and that of the 23rd April which is due to sail direct to New York.
The former one is too early and the latter too late. However, my going to
the States direct from here is imperative for many reasons :
1st. To bring the contracts, report to you all the details of the business, and
settle the question of the base at San Lorenzo Island ;
2nd. To discuss the proposed business of A. and B. ; and
3rd. The fact that if I bring with me the contracts for Peru, as I expect
I will, it would be a great blunder going to Argentine, for instance, via Chile
(in this business we will have to be tactful and a little diplomatist) ; and
so in regard to Brazil as well as to the Argentine now that the affairs are
going to take place at the same time. I will have to be very careful con-
cerning my activities with any one of these countries respecting the others ;
and as my points of view and experience acquired in the lapse of the last
two years is of much value will probably require to explain, this ought to be a
matter of conversation between .vour good self and me.
Regarding the gun. Woodward has not quite made up his mind about it,
and as T have no literature with me of the Davis submarine gun, he prefers
to wait until I can sent him all the particulars; and he also prefers deciding
in a year or so. Therefore. I think I shall be able to manage so as to have
the gun not included in the price.
Unless somethmg really unforseen happens, we will have this contract exe-
cuted in the month of April, and if everything goes on smoothly, before the 11th
April; and you can be sure that I will in every means and way do my utmost
to see that the interests of the Electric Boat Company are safeguarded to
their ful'est extent.
Argentine. — I was very much surprised by your cable no. 2 of the 27thv
regarding the tenders and prices being requested from Vickers. and not from
ns. • s Admiral Fliess, as well as Capt. Galindez, and my friend and ar/ent
Ribero, brother-in-law of the present Minister of Marine Admiral Domecq
Garcia, promised me very seriously, when I was, last October, in B.A., that
we wculd be duly considered in regard to the proposed construction of sub-
marines. Besides, Flies told me frankly that he was a great advocate of our
design and type.
T wired the same day to Carlos R. Ribero, and he answered me, on the 28th,
as per enclosed original cable, that request had been simultaneously sent to
the Electric Boat and Vickers for tenders, and he suggested to me that I should
wire the company advising to interview Admiral Irizar in New York in regard
to the matter.
The next day I was informed, by your cable no. 4, dated the 29th, that
you had not yet been asked for tender and that you were entertaining some
fear that Irizar might not be friendly to the matter.
I wrote a detailed and extensive letter to Ribero on the same day 20th, and'
replied to you, by cable, quoting Ribpro's cable-message, as I feared there
*nlght have been an incomplete perception of my previous message. My
362 MUNITIONS INDUSTRY
opiiiion is that Admiral Irizar is probably too damned important as the
majority of my ArgcMitine friends and is waiting for some courtesies or atten-
tions from tliB Electric Boat Company: but lie certainly will carry on his
orders : which is just what we want. If he has, by the time you receive the
present, not acted, the letter that I have written to Ribero in which I ask him
to get the Miiiist(>r of Marine the cablegraphic acknowledgment of his having
executed those instructions will be effective.
I do not quite understand the arrani,'ement with Vickers in regard to Argen-
tine, but I was under the impression that we were working indirectly together.
Of course, I leave that part to talk to you over in the States.
Brazil. — In ray last letter dated the 22nd March I informed you about the
cable received from Boettcher. of which I sent you the original. On the 26th
March I received another message from Boettcher, of which I also send you
the original herewith ; and you will see therein that he urged me to go there ;
thence the reason — that is my being so much engaged at the present time —
why I advised you by cable to send Mr. Battle. After I got your reply, I
wired Boettcher requesting to refer essentials to you, informing him that you
are preparing the dispatch of an engineer there, where I was unable to go at
the time. By ycair cable no. 5 I have been informed of the activities of
Boettcher are somewhat premature and I have also observed with great
surprise that he pretends that authority should be given him to tender. He
no doubt intends taking advantage of the situation, and especially of the fact
that I was not going.
Boettcher knows his position very well. His standing in Rio, commercially
and socially, is nil after his bankruptcy. He has himself expressed to me,
on several opportunities, that he was unable to appear for any business
directly inasmuch as he is very intelligent and, of course, knows the ways
and means in Rio marvelously, knows everybody, how to aproach people as
well as the opportune time. I consider him, therefore, as an excellent aid, and
in that capacity I have used him effectively. My arrangements with him
are to that effect, as otherwise I could not recommend him. Any business
presented by him directly will suffer. Besides, it would not be safe to put a
delicate manner like this one of ours in his hands. In my cable I mentioned to
send Mr. Battles for that very reason because Battles could work there effec-
tively with a man like Boettcher to help him. But Boettcher, by himself, not
under any circumstances.
I infer from your cable no. 5, that not being so very urgent you prefer me
to go to Brazil, and that is the reason of your enquiring about the date of my
departure from Peru. I am of the same opinion. If I can get away from
here in time, the right course for me to follow will be New York, Rio, B. A. and
Lima ; and I say " Lima ", because it is essential that I should be back here
for fixing the details of the base. If this problem of construction of submarines
develops seriously in Argentine and Brazil, as I forecast it will, I shall have
to decide which place where my presence is more essential and more convenient
for the company, as this depends on many factors. I will have to discuss
the matter with you in the States.
Hoping that before this letter reaches you I shall have to wire you that
the business in Peru is executed, believe me, my dear Mr. Spear,
Yours very sincerely,
(s) Luis Aubbt.
Exhibit No. 70
Electric Boat Company,
Groton, Conn., July 29th, 1924.
H. R. Carsb, Esq.,
President Eleotric Boat Company,
11 Pine Street, New York City.
Dear Mr. Carse: 1. I am planning to spend Friday in New York to talk over
with you a number of things which require attention before you sail. Will
come down Thursday night and stop at the Belmont.
2. As the questi(m of the construction of hulls for the two Peruvian boats
w'ill have to be settled next week, I am giving you below the essential facts
so that you can turn them over in your mind in advance of our meeting.
3. Bethlehem has quoted us $310,000 per hull. Vickers' quotation on the
same work for delivery at Baroow, taking the pound at $4.40, is $257,000, to
MUNITIONS INDUSTEY 363
which we have to add $22,000 for delivery, making the price here $279,000.
Our estimates, which have been carefully checked with the returned costs on
R-boats previously built, indicate $35,000 for material, $105,000 for labor at 70(J
an hour. Sixty percent would be a liberal normal overhead for this class of
work, which, added to the above, would give $203,000 as cost. In a normal
market I should expect to I)e able to contract for these hulls at $220,000 each,
and in the present distress market they ought to come cheaper. Both Bethle-
hem and Vickers have been advised that their bids are prohibitive and have
been allowed until next week to submit revised quotations. I think they will
come down a little, but I do not think that either of them will come down to
what I would consider a proper figure.
4. In view of the above situation, I have been investigating the question of
doing the whole job here. I have had a lay-out made of the additional plant
required, which can be put in veiy economically ; first, because we already
have tlie required runways and cranes located at Fore River; and. second,
because we can buy excellent tools at almost scrap prices. $80,000 would
cover the total cost of the plant required and the aMitional overhead involved
would certainly not exceed $25,000 per boat and would probably be less. On
the basis of these figures, including the total cost of the plant, the hulls would
cost us $205,000 each. In addition, there is a margin of safety of from $10,000
to $15,000 each derived from the economies which can be made in the installa-
tion work if the hulls are done here, thus permitting this work to be done on
the ways instead of in the water.
5. Of course, in the face of the above figures, there is only one answer so far
as this particular job is concerned. Insofar as future competition from Beth-
lehem is concerned, I have been treating them in this matter with the greatest
consideration, and there would be no possible excuse for hard feelings if thoy
do not get the job, and certainly they would be less disturbed by our doing it
than if we gave it to some other American yard. Moreover, with this equip-
ment in hand, I would not fear their competition in the future, and if necessary
I think we could keep them in line by arranging to give them any excess of
Atlantic coast work over our own capacity as well as all Pacific coast work.
Our experience so far with our friend from Keaniy, N.J., does not indicate to
me that we are likely to be able to establish ourselves in that family on a
proper footing.
Very sincerely yours,
L. Y. Spear.
Exhibit No. 71
[Copy]
Lima, Peru, Oct. 19, 1925,
Avenida del Progreso, No, 603.
Mk, Lawrence Y. Spear,
V. -President, The Electric Boat Co.,
Groton, Conn.
My dear Mr. Spear : I acknowledge receipt of your letters of September 22nd,
23, and 24th with enclosures ; also of yours of Sept, 15th, with enclosures ; and
cables 14, 15. 16, 17. 18, 19, and 20.
1, Peru. — On Monday, October the 12th, I had luncheon with President
Leguia, and after luncheon I conversed with him at length, and he told me
definitely that he had made up his mind not to do anything at present in
regard to armaments, and leave everything in abeyance until April or May of
next year, when the international situation created by the question of Tacna
and Arica will be solved. He promised me that by then he will reopen and
settle the whole matter for contracting the complete naval programme, and with
my sole cooperation. He mentioned many things in regard to financing that
he has in mind, and he also asked me to be prepared for then with some ideas
in regard to obtaining appropriations for the whole matter, and to be in Lima
by that time.
2. I communicated this determination by wire to you and, under the circum-
stances, requested permission to arrange to proceed to Argentine by the end of
the iiresent month. Authorization which has been granted.
Admiral Woodward has decided, due to the fact that there is not any appro-
priation for acquiring any material, to waive the question of extras, and it has
364 MUNITIONS INDUSTRY
been a very difficult task to me to obtain from him the order for the suns and
ammuuitioii, which I expected to sign today. By the way, in this respect I
have been unable to obtain the terms of payment that you ordered me, and I
have to ciiange them for the following:
$21, 800. on the 20th November next ;
21,800. on the 20th February, 1926; and
21, 800. on the 20th IMay, 1920.
the total price, as you will notice, is $65,400.00; that is to say, the same price
with the $900 error that you mention in your correction cable no. 20. When I
received your cablegram no. 19, I presented the right figures to Admiral Wood-
ward and rushed to him and changed it, becau.se the weekly meeting of the
Navy took phice that same day, when the thing was di.scussed with the President.
Thereforo, it would not look proper for me to acknowledge error and have to
change again my proposal. So I left the figures of $65,400, for Vvhich I am glad,
because it will compensate to the company for the change of terms which I had
to accept.
3. In this respect, I may state to you that the Bethlehem proposal by wire to
the Minister of Marine for the same guns and ammunition was $67,000. I
have the cable in my hands, so the figures that they have given to you, as per
your letter of Sept. 17th, para. 2, differ very much from the ones they quoted
direct to the Government. The $3,000 local commission authorized by you were
necessary in order to do away with some sore feeling of some political friends
of the Department that are trying to introduce Bethlehem into our small Peru-
vian market.
4. Regarding now para. 5 of your letter of the 24th September, please be in-
formed that Admiral Woodward gave to Commander Monge a set of instruc-
tions to govern the inspection of the submarines as per your letter of November
12th, 1924, which copy Admiral Woodward has given me and I herewith enclose
to you. Tlie Admiral tells me that he does not see any reason why Commander
Monge has not shown you these instructions, and that you can show to him the
attached ones and consider same as the official and formal ones.
5. I was informed, before I received yours of the 24th Sept., of the internal
situation arisen between Commander Monge and Commander Saldias. I think
it was very foolish, indeed, for Commander Saldias to behave himself as he has
done. The result is that having tinished bis commission of inspecting the
torpedos as those are finislied. Commander Saldias was recalled home.
6. Now% regarding your letter of the 22nd Sept., to Admiral Woodward, the
Admiral sent a wire immediately to the Navy Department asking if he could
obtain an expert for the mission. He has not yet received any reply, but the
admiral authorized me today, to wire you asking for the names you mention at
para. 3, in order that, as soon as he lias a reply from the Department, he will
request by cable the expert whom you will recommend. For your guidance, the
admiral is intent to have that expert as the real inspector ; that is to say, his
technical authority will be above the one of Commander Monge.
7. My personal opinion in regard to Peru is the following. The international
situation will be adjusted absolutely in a fair way to Peru, and under any
circumstances, by April or May, if the Government can finance it, we will obtain
a substantial order. All depends upon, in my opinion, the question of finance.
8. Argentine. — I have been in communication with Rihero, who is very con-
fident of our possibilities. I sent him a wire transmitting the importance of
your suggestions that the Mission in the States should be the one to receive
the submarine tenders, and he answered me that no steps will be taken yet
until the bill is through in the House of Deputies, or returned to the Senate
for sanction, mentioning that he was perfectly aware of the importance of
such a procedui-e ; the extraordinary sessions of Congress in Argentine will
take place from the 30th October on; probably they will take all November,
and Congress will close on the 23rd December. Let us hope that by that time
the Deputies will have passed the bill. I am leaving from here on tlie 28th
of the present month, and going by via Bolivia, I will be in Buenos Aires by
the 12th of November. I consider it advantageous for us tliat Vickers refuses
to divide tlie order with us. I very nuich doubt it today that they have any-
thing arranged in regard to financing the order. I understand the financing
of Argentine, in general, is all done in the States. In this particular case,
they .-ire going to appi-opriate $7,500,000 per annum in their Navy budget, for a
period of 10 years, and they are going to arrange with a syndicate of bankers
for a revolving credit to meet those conditions. The credit of Argentine, today
MUNITIONS INDUSTRY 365
is so good that the different banks in the States are at present all ready mov-
ing to oI)tain for themselves this operation ; I know that the Chase National
Bank with the Guaranty Trust are moving in this direction ; and, on the other
hand, also Morgan with the National City Bank are trying to be the ones that
offer this money. So, I do not think we ought to put much emphasis to the-
question of financing, and I shall be gre.'itly surprised if the English are able-
to produce, today, for any other nation, this amount of money, unless they
arrange that themselves in the States.
9. I expect to receive in Buenos Aires your definite instructions ; also your in-
formation as to how we stand with Vickers.
Mrs. Aubry joins me in kindest regards to Mrs. Spear and to your good self.
Believe me, my dear Mr. Spear,
Very sincerely yours,
[s.] Luis Auery.
Exhibit No. 72
New York, N.Y., October l^th, 1925.
Minutes of a regular meeting of the board of directors of Electric Boat Com-
pany, held at the ofiice of the company, 11 Pine Street, city of New York, on
Wednesday, October 14th, 1925.
Present : Messrs. Carse, Lanier, Marx, Peabody, Roberts, Sutphen, and
Taylor.
The meeting was called to order by the president and the minutes of the
meeting of the board of directors held on October 6th, 1925, were read and oa
motion duly made and seconded approved as read.
The usual financial statements were submitted.
The power of attorney issued to Commander Luis Aubry by authority of the
board at a meeting held March 18, 1924, authorizing him to negotiate contracts
with the Republic of Peru on behalf of this company, having expired, it was on
motion duly made and seconded.
Resolved, That a power of attorney be issued to Commander Luis Aubry au-
thorizing him to negotiate contracts and agreements with the Republic of Peru^
as follows :
Know all men hy these presents:
That Electric Boat Company, a corporation organized and existing under
the laws of the State of New .Jersey, in the United States of America, and now
having an ofiice at 5 Nassau Street, in the Borough of Manhattan, city of New
York, State of New York, in the United States of America, hereby nominates,
constitutes, and appoints Commander Luis Aubry, now temporarily in Lima,
Republic of Peru, attorney in fact for and in the name of and on behalf of
Electric Boat Company, to make and enter into, execute, acknowledge, and
deliver contracts and agreements with the Republic of Peru for submarine
boats, torpedoes, armament, and submarine base and any and all other articles,
items, and things that are dealt in or dealt with by Electric Boat Company,
provided that the substance but not necessarily the verbiage of such contracts
and agreements has first been approved by Electric Boat Company either by
cable, letter, or otherwise.
Electric Boat Company hereby ratifies and confirms all that its said attorney
in fact shall or may do or cause to be done by virtue hereof but reserving to
itself full power of revocation of this power of attorney at any time after
January 1st, 1927.
In witness whereof. Electric Boat Company has caused these presents to be
executed by its president and its corporate seal to be hereunto affixed this 14th
day of October 1925.
Electric Boat Company,
, President.
Attest :
, Secretary.
In the course of the meeting the affairs of the company, financial and other-
wise, were presented to the board and discussed and the acts and doings of the
officers in that regard were ratified and approved.
No further business l)eing presented on motion the meeting was adjourned.
(s) H. G. TAYX.OR, Sec.
83876— 34— PTl 24
366 MUNITIONS INDUSTRY
Exhibit No. 73
memobandum
contract with commander aubrt
January 24th, 1929.
1. Duration.— January 1, 1929, to December 31st, 1931.
2. Comtiensation. — Salary, $6,000 per year, plus an allowance of $1,000
per year for office expenses (both payable monthly in arrears) plus commis-
sions as agreed upon, plus traveling expense from New York to Lima.
3. Representation, for the time being, to be confined to Peru with the under-
standing that Commander Aubry will, as soon as possible, investigate and
report on the situation in Venezuela, it being the intention that if, in the
company's opinion, the conditions are suitable, the arrangement shall be
extended so that Commander Aubry will also be interested in our Venezuelan
representation under terms and conditions to be agreed upon.
The company to be privileged to call upon Commander Aubry for advice
and information about all South and Central American countries. Commander
Aubry also to hold himself in readiness to pei-form, for the company, a rea-
sonable and limited amount of travel in South America. When such travel
is undertaken at the company's request and for the sole account of the company,
Commander Aubry is to be reimbursed for all the actual and necessary expense
thereof. No other additional compensation on account of such travel is to
be involved except such commissions as may be agreed upon in each particular
case.
4. Commander Aubry's personal commission on Peruvian business in sub-
marines, torpedoes, and ammunition shall be three percent (3%). Commissions
on the other business in Peru as may be agreed upon — in advance in each
case. On Peruvian Submarines R-5 and R-6, the company has accepted and
now confirms the following additional commissions (payable through Com-
mander Aubry) based on a price of one million two hundred fifty thousand
dollars ($1,250,000) per boat, viz:
$20,000 per boat to J. L. $5,000 per boat to Senor Larranaga. $5,000 per
boat to a certain third person agreed to with Mr. Spear. If found necessary in
order to secure the business an additional $5,000 per boat will be made
available. This mnkes the minimum commitment per boat, in addition to the
3%, $30,000, and the maximum, $35,000, it being understood that if any mate-
rial reduction in the price of $1,250,000 should be necessary, the special com-
missions may be correspondingly reduced and also that the commissions shall
be payable prorata as and when payments are received by the company.
5. The company agrees that Commander Aubry may simultaneously repre-
sent Vickers-Armstrongs in Peru insofar as such representation does not
conflict with the company's interests in Peru.
Exhibit No. 74
(Copy)
Battle CREEac, July 10, 1926.
Mr. Lawrence Y, Spear,
Vice President, Electric Boat Company,
Groton, Conn.
My Dear Mr. Spear: 1. I am just in receipt of your letter of the 7th inst.
and am glad to say that Luisa and I are getting on very well, and I think that
by the 22nd or so of this month we will be able to leave the sanitarium.
2. I am glad you cabled Captain Koster asking him to get in touch with
Admiral Galindez. I have received more detailed information from Argentine
and everything points to the fact that the Galindez Mission will be the one
that will ask for tenders and make the recommendations to B. A. I will give
you a letter of introduction to my friend, Commander Paston, and who is very
pro American. His wife is an American from one of the New England States.
MUNITIONS INDUSTRY 367
I will also give you a lettei* of introduction to Admiral Galindez. I know him
but not so well as Pastor. You could probably meet them in London. I think
your idea of tendering for building in Cockerill, Belgium, is a very good idea.
I hope you will be able to arrange those things while you are in Europe,
because I don't see any prospect of building here for Argentine, neither do I
see any prospect for Vickers.
3. Now, regarding the most interesting part, in my opinion, of your letter,
I am very glad, that you are pushing this question of financing the new
Peruvian orders with the assistance of the Chase Bank. Your understanding
that the President is willhig to enter into a form of contract with the com-
pany under which all receipts under the National Defense Act will be turned
over to the company until the Government's obligations to the company are
discharged, is correct. The only thing that we must consider is that the present
status of those funds are under obligation toward the caja for an amount more
or less of f 1G6,000 (Peruvian) and therefore some arrangement must be made
with the caja for them to collect the interest and amortization in that partial
loan. I know that the caja does not want to have the money refunded, because
they are getting the interest by law of 8 percent. What will be a very suitable
arrangement and easy to effect with the caja will be to make them the trustees
for the company, that is the collectors as they are at present. Naturally we
will get the notes that you mention covered by this security. Three of these
notes will be noninterest bearing to cover the last three payments on the pres-
ent contract, but I understand they will be post dated. I don't think it will be
any inconvenience whatsoever, and I will have no difficulty in obtaining the
notes for the new contract with interest, and if necessary with a discount, but
always limiting the Government obligation to only the receipts of the national
defense loan and with the right of the company to collect them. I don't think
either that I shall have any difficulty in obtaining the notes at the time of
signing the contract. Naturally all will be post dated except the one for the first
payment. That we can make as you suggest, 20 percent of the contract price.
If all this is put in a good clear scheme in black and white for me, I think I
can put it over easily in Lima. The only thing we iiave to contemplate seri-
ously is the question of arrangement with the caja. I do not know at present
whether the caja arrangement with the Government is for quick amortization
of the present loan or a long term, but anyhow I think it could be arranged
something like 8-percent interest and 8-percent amortization, or less amortiza-
tion. I do not think that I ought to wire to Lima in regard to this at all.
It will not help matters, but on the contrary. Have things arranged for me
with a little margin or option, I should say, so I can get the thing settled one
way or the other. I think that a sort of contract will have to be right with
the Government to provide for the handling of the funds, beside the contract
for the building of boats contemplating the payment with notes of certain
dates, and another contract that will refer to the previous one authorizing
the company to collect the funds and release the Government from the obliga-
tion of paying the notes in full when they are due, but that obligation limited
to the extent of the amortization of the notes to the full capacity of the
receipts of the national defense loan. I think that will have to be the general
outline to be presented to the President in Lima, and I feel sure I can get it
through to be best advantage of the company.
I am beginning to make plans, and think I shall be able to take the steainer
that sails on the 31st of July. If not that one, I will take the one that sails
on the 12th of August, because the Santa Anna that sails on the 5th of
August, Luisa who is a poor sailor does not care for. She has traveled on it
before. Any of those steamers will suit me, and I think by being with you and
Mr. Carse and Sutphen for a week or eight days will be ample to cover these
questions of the Peruvian business. I am sending you the telegram you request
but this is a little more explicit I think.
With best regards from Mrs. Aubry and myself to Mrs. Spear, believe me,
Yours very sincerely,
Luis AUBRY.
P. S. I am enclosing a wire for Rivero for you to send.
368
MUNITIONS INDUSTRY
Exhibit No. 75
Lima, Oct. It, 1926.
Elecboatco, NYK. :
RUFYOUMYMO GAWUKDIVCO UVYATKISBO TYDYCALAVK HYAL-
BltUDUX IMYJAGDIBEF DIVCOPUJOII TIUJNYHYALB CUZOVEKDAC
VYNCEFINEM TUGNYIGVOK UKLYGCYCLO OZHEKBISOK BIYMEM-
ITUS EPUSDMYSTO MISURUGBIG RAOLKALAVK BDZACPASSA
RAPELALAVK MIAGZGIFOB FOWGYIGIIAZ DIZIFAUBRY.
Elecboatco, NYK. :
RUFYG Signed
UJNIYMO today
GAWUK financial
DIVCO contract for
XJVYAT two
KISBO more
TYDYC submarine
ALAVK and
HYALB I will
RUDUX siffn
MYJAG 13th October
DIBEF construction
DIVCO contract for
PU.TOH same.
TUGNY Stop
HYALB I will
CUZOV communicate
EKDAC details (of)
VYNCE on Wednesday
FINEM evening.
TUGNY Stop
IGVOR Indispensable
Lima, October 11, 1926.
UKLYG
CYCLO
OZHEK
BISOK
BIYME
MITUS
EPUSD
MYSTO
MISUR
UGBIG
(my)
RAOLK
ALAVK
BDZAO
PASSA
RAPEL
ALAVK
MIAGZ
GIFOB
FOWGY
IGHAZ
DIZIF
(me)
to in our
that the
company
remit us
by
calile
12.000
dollars
of which
10,000
referred
teleg
14th September
and
your
reply (ies)
ISth September
and
2.000
for
expense (s)
incurred in (on)
contracts.
AUBRY Aubry.
(Pencil notation; $12,000 remitted Aubry Oct. 14 through National City.)
Exhibit No. 76
[Longhand Note — Confidential]
April 21st, 1927.
Mr. Pedro Larranaga
Caja de Depositos y Consiffnaciones, Lima, Peru.
My Dear Sir: I have received from you today cablegram reading as follows
in reply to my cablegram of the 16th instant :
" Referring to your telegram April 16th Calderon has not been asked ojiiniou
yet. Will telegraph when he does."
and. the intention of my telegram was that you on our belialf should jisk
Calderon or some other lawyer, conversant with such matters, to give the
opinion on the points indicated that we might deliver it to the bankers.
When Commander Aubry left here to go to Pern to negotiate this contract
I understood from him in discussing the snb.iect that he should consult with
Senor Calderon in relation to all the legal aspects of this matter and socnre
his written opinion that all the steps taken were in regular legal order,
because it was our desire and intention at that time to interest bankiiig houses
in handling the notes which we were to receive from the Peruvian Government,
and in this way develop a market for short-time obligations of the Government
and you will appreciate that this would be most desirable not only from our
point of view but from the point of view of your Government.
We have finally arranged with a very reliable firm here. Messrs. A. G.
Becker & Company, of Chicago, for a loan to this company for one year of
?1,000,000 secured as collateral by $1,300,000 of the Peruvian notes in onr
possession, .-md their lawyers drew up very elaborate papers, trust deeds, etc.,
in connection therewith, and they wished a lawyer's opinion as to the legality
of all the steps taken in relation to the loan and the a.spect of the notes. We
had our counsel give his opinion, which the hankers accepted with the under-
MUNITIONS INDUSTRY 369
Standing, liowever, that we had cabled j'ou and that we would receive this
lawyer's opinion and file it with them, so that they would be able, in selling
our'notes to small bankers thron.^hout the country, to state that they had this
legal opinion, which seems necessary in connection with all bond and note
issues. The commission we paid to the bankers was fairly substantial, some-
what more than the interest which the notes carry within tliemselves. But
we considered it well to develop the market for these so that in the future
such obligations might be more readily disposed of.
I thank you very much for your kind attention in the premises and trust
that we may hear from you further within a short time.
I understand that Commander Aubry may be returning to Peru before very
long.
With kind regards. I remain I
Very truly yours,
(Sgned) Henry R. Carse.
Exhibit No. 77
[Copy]
Lima, Peru. Maij 12, 1027,
AvenMa del Progreso, No. 603.
Mr. Lawrence Y. Spear,
V. President, the ELECTRIC BOAT COMPANY, GROTON, CONN.
My Deiar Mr. Spear. I arrived here, from B.A. via Chile, on the 5th of May,
and also received, upon my arrival, your cable #1 simultaneously with a
cablemessage from Rihero informing me about the situation in B.A.
1. ArfjeAitine Mslness. — I acknowledge receipt of your letters of the following
dates: April the 21st and April the 26th. It is now evident that wo are going
to have a definite action. The Minister of Marine had to realize that it was
of no use to continue this fight with Ribero and he had to adopt the only
attitude possible under the circumstances. We will have the order for the
three submarines to be built in France and I entirely agree with the suggestions
contained in your letter of the 26th April to Sr. Ribero. especially as regards
paragraph No. 2. where you refer about how exceedingly difficult it is to
deal with the French firms, especially when they think that the Government
has designated any particular yard for the construction. The selection of
the building yard. I hope, is going to be left entirely in our hands and I have
sent, today, a very impressive wire to Ribero to that effect in order that our
friend Capt. Kost'er will not suffer the same ordeal as in the past in Buenos
Aires. I am in touch by wire with Ribero all the while and I have also re-
ceived already letters from him. In his last letter of the 27th April he sent
a copy of the wire he had forwarded to you on that date, in which he pointed
the specifical commission of £5,000 per boat for the friends and, besides the
special commission agreed with me sometime ago ; and he said to me that
everything is in order in regard to this matter excepting that he had noticed
that" in his document covering his personal commission the expiration date
is the 9th of June, 1927, and although he felt sure that morally he is absolutely
well covered because any contract that will be signed weeks or even months
after the 9th of June will be the result of our work and efforts and recog-
nized so by the company, he would very much prefer to have everything legally
in order. So. he requested me that the company send him a wire stating that
he will receive his commission irrespective of the date in which the pending
contract will be signed by the Argentine Government and The Electric Boat.
I think that this request is perfectly in order, and. incidentally, I request
you also to send me a letter extending my Contract rights and obligations
until the 9th of September, because my contract expires on the 9th June,
and this extension of three months I request and I consider necessary to satis-
factorily conclude the business in Argentine as well as here ; and although
I am perfectly sure that the company will always recognize my rights on
what will be the result of my work, I think it is more businesslike to have
everything as it is in writing. So, I will highly appreciate if you will kindly
send me a letter signed by you or ]Mr. Carse extending my contract for 3
months.
370 MUNITIONS INDUSTRY
I hope that by September, or before that date, I shall be able to go to the
States after concluding the business in Argentine and adjusting here something
new and hence to talk over with you there about my future services, if they
are wanted, with the company.
No. 2. Peruvian husmess. — I acknowledge the receipt of yours of the 12th,
14th, 18th, 19!h, 21st, and 26th April.
Regarding yours of April the 12th, about Juan Leguia's visit to you and the
construction of the hirger btiats for Peru, I spoke last night, at length, with
the President and he told me that he has not instructed, commissioned, or
requested his suu Juiiii Legnia to act in any capacity wliatever in regard to
this and whatever he might do w ill be entirely in harmony with what he prom-
ised me in October iast : that is, to increase the national defense funds and
buy armaments for the Army, wliich are required very badly, and order two
more " R " boats. He promised me that at the end of June next he will be
entirely prepared to discuss the matter thoroughly with me, as he expects to
have by that time the financial scheme acoomplished, which will very likely
permit the withdra^^•al of the bonds issued by the National Defense Act (that is
our bonds) and then contract two more boats on a cash basis.
He told me that he has not discussed the matter over with Admiral Howe
because lie was perfectly aware that the Admiral did not want any more subs
but destroyers, and he added, smiling : " But you and I, we do not want any
destroyers but subs, and, therefore, why should we discuss the matter with
Howe when we have the opinion of his predecessor whicli is in line with ours.
My opinion, my dear Mr. Spear, is that I shall be able to do something here,
probably in July, that is I shall be able to obtain, I think, an order for 2
more R boats ; now what I request is that you should send me a price on
cash basis, that is, an independent contract entirely from the last one, including
50 torpedoes and ammunitions, guns. etc. You can quote a price only a little
lower than the last ones, and I will also try, as we are speaking about available
cash, that the first payment should be very large, say, 40% of the total con-
tract price. You have also to consider the usual commissions plus the one for
J. L.
I am sorry that this prospect will not fit entirely your desire expressed
in your letter of April the 14th, but in case it should come at the meantime wtih
the other larger expected orders, we always can apply to some other yards
for the building of the hulls. Of one thing I can be sure, and that is that I
will do my best to get the most advantageous price, terms, and conditions for
the company, and also that it will not be any change in the design because not
only the President is absolutely satisfied with the " R " boats, but also everyboay
in Peru.
No. 3. Regarding your inquiry about the Callao Port improvements, before
having a talk with the President upon my arrival I went through the different
departments of the Government and obtained all the data concerning the past
and present projects of improvements, but I stopped this activity as soon as 1
spoke with the President last night. He told me that this matter is already
committed with a gentleman named Mr. Clark, in which our old friend Ciiester
has a hand to accomplish such an undertaking; and, therefore, he could not
promise anything at all in this respect. In other words, my dear, Mr. Spear,
there is nothing to do in regard to this matter. Somebody else will have the
job, whatever Mr. Juan Leguia may liave told you.
Referring to the letters of the 2Gth as regards tlie bills sent to Admiral Howe,
I spoke with him this morning and he told me that the bills will be ordered
paid as soon as O.K. by Captain Jordan ; but he told me that there were
some items which we have sent that have already been paid. Of course, I
suppose both sides will have documents in regard to such a thing ; so I do not
anticipate any diflSculty, but on the contrary.
No. 4. Mr. Carse has written to my uncle Pedro Larranaga, in regard to
obtaining from Dr. Alvarez Calderon a statement about the legal aspect of
the last contract that I made in October 1926. My uncle has passed the re-
quest over to me and I am attending to it and expect to be able to send the
requ(>sted document to the company by next mail.
I want to mention in regard to this that I did not consult Dr. Alvarez
Calderon at the time of the contract for the obvious reason that Alvarez Cal-
deron at such time was not here but in the United States, and I am not sorry
for that neither, because at such time, tliat is other contracts, his opinion and
MUNITIONS INDUSTKY 371
intervention would have cost the company a 25%, that is nearly $9,000 cash.
Now his bill, of course, will be quite different.
With very best regards to you and Mrs. Spear from Mrs. Aubry and myself,
believe me, my dear Mr. Spear,
Yours very sincerely,
(S.) Luis AUBET.
Exhibit No. 78
Feb. 6, 1928.
Commander Luis Aubey.
48, Av. de La Bourdonnais,
Paris, Fi-ance.
Dear Commander Aubky : I have your letters of January 20th and 24th to
Mr. Spear in regard to the Peruvian notes which we hold on account of the
construction of submarine boats.
"We never suggested in any way the prepayment of these notes by the
Peruvian Government as we were very pleased to have them, but Juan Leguia,
in discussing with us the negotiation which he was conducting in New York
City with Seligmans and the City Bank about the new bond issue, stated
that he had made it one of the conditions that the notes which we held were
to be taken up from the proceeds of the loan so as to release the lien on the
designated taxes. This he explained was for the reason that the new loan was
to be based upon the faith and integrity of the Peruvian Government and not
to be secured by a pledge of any taxes, but that outstanding securities which
were secured by tax pledges were to be retired. We stated that if it was the
desire of the Peruvian Government to retire these notes we judged it would
be with the idea of canceling the note plan and reverting to the original basic
cash plan, for you remember that the contract was specifically made on the
idea cf payments of cash at certain dates and then the dates of those cash
payments were used in calculating the amounts and dates of the note payments.
When the announcements appeared of the proposed flotation of the bonds
by Seligmans and the City Bank, we communicated with them to ascertain
what their views were in relation to the retirement of the notes, so that there
would be no misunderstanding, and after some consultation they stated they
would communicate with Lima. They advised their instructions were as
follows :
" Minister wishes at present only provide funds to take up boat notes matur-
ing through and including not due November 11th this year which is delivery
date new submarines. If submarines delivered on time Minister has in mind
an additional credit preceding issue second series which credit would include
funds pay balance then due under contract. Minister is negotiating question
payment now of notes maturing through November 11th with boat represen-
tative here."
As this proposal was not very clear to us because of the limited amount
involved we cabled Carlos Larranaga on January 10th as follows :
" Referring to your letter of the 28th ultimo we understand Peruvian Govern-
ment wishes to cancel notes, plans payment reverting to cash terms provided
for in agreement. In accordance with their cash terms there would be pay-
able to 11th January 2,462,500 interest 153,468.70 Peruvian Government will
have paid 11th Jan. 780',000 allowing interest according to their calculations
34,125 indicates .$1,801,843.70 balance payable for which payment we will
return all of the notes received including no. 265, after January 11th. In ac-
cordance with our cash terms there would be payable to us $85,000 cash
February 11, March 11, April 11, May 11, June 11, July 11, August 11, Sep-
tember 11, October 11. If the Minister Finance agrees vpith this understand-
ing request him to telegraph instructions their bankers New York.
" President Carse."
To which we received reply on January 22nd as follows :
" Government is only willing to redeem now notes due up to dates delivery
boats, namely November next, $520,000 less respective interest offering to cancel
balance up to 1932 on that occasion when he will count on fresh resources as
parts of present loan. If you accept Government will instruct bankers
accordingly.
" Cement."
372 MUNITIONS INDUSTRY
And at the same time we al^o received a cablegram from Juan Leguia,
reading :
"Have had talk with Lopez Larranaga and he agrees with me that it's best
to receive payment on notes up to delivery of boats, balance after delivery to
be whole amount outstanding regards.
" Juan Leguia."
In the meantime Mr. Spear had received your cablegi-am of January 20:
"In view of information just received do not act about Peru until my letter
20th January received. In the meantime leave everything as it is now as you
may obtain very favorable terms.
" AUBEY."
And have now received your letters of the 20th and 24th January.
We have gone very carefully over ydur letters and are still undecided what
action it is best for us to take. While the original contract does not give
the Peruvian Government any right to redeem the notes before maturity, it
does provide that if the notes should be disposed of by us at a better interest
rate than 71/:.% the difference shall be paid by us to the Government which,
in effect would be that the Government would have the rigb.t to pay off the
notes less the 71/2% which has been incorporated in the principal amount due,
and we would not raise any objection to handling the matter in any way that
would best please the Government. It would seem to us, however, that prob-
ably the New York bankers a.nd the Treasury Department at Lima had in
mind the retirement of the outstanding bonds and it was only by the interven-
tion of Juan Leguia that the matter of redeeming our notes came up, and if
that were the case perhaps they would be better pleased if we did not accept
their proposition of redeeming the notes up to the November maturity. We
xinderstand Juan will be in New York this month, and so perhaps we had
better allow the matter to remain open until we can discuss it . freely
with him.
With kind regards and trusting we shall have the pleasure of seeipg you in
April, and that Mrs. Aubry and family are enjoying very good health, I
remain.
Very truly yours,
Exhibit No. 79
[Copy]
(Signed) Henry R. Carse.
Lima, November 2S, 1928.
Electric Boat Co.,
11 Pine Street, New York.
Dear Sirs: With the arrival of submarines R-3 and R-4, I liave started to
get to work on the question of the order for two additional boats, acting in
accordance with the previous statement of the Minister of Marine, as trans-
mitted in one of my telegrams. I had an interview with Commander Juan
Leguia lately, and he told me to inform you that his father had assured him
repeatedly that not only would an order be placed for two more submarines,
but for several additional units by and by, since the Government's scheme is
eventually to complete a flotilla of ten sul)marines.
In connection with this, I have discussed with Commander Leguia the vei7
important f|"Ostion of funds to take care of the construction of these first two
additional units, and I have agreed to furnish him with complete data as to
the present total annual revenue accruing from the Defensa Nacional, as this
point will constitute an all-important factor in enabling us to arrive at a
satisfactory financial solution.
The official figures I have been able to secure in connection with this are
the following :
In the course of the year 1926. the proceeds of the Defensa Nacional amounted
to Lp. 194.338.7.20 ($777,354.88). For 1927, the total proceeds were Lp.
207,569.3.r.9 ($830,277.43). and for the first ten months of the current year, the
total returns were Lp. 238,669.163 ($954,676.65), at the rate of exchange of
$4,000 per Lp.
As the amount of this revenue set aside in accordance with the terras of
the contract entered into between you and the Government, was $624,000.00
MUNITIONS INDUSTRY 373
yearly, und<^r the assumption that the total proceeds from 1927 on would
figure out at this latter amount, you will admit that judging from the proceeds
during the tirst ten months of the current year, an annual revenue of $1,000,000
can be safely anticipated. This estimate is very conservative indeed. I am
giving you these figures which I trust will prove to be of some value to you in
preparing some tentative agreement for financing the new contract, and with
regard to this point, I would be greatly obliged if you would submit your
points of view.
Yours very truly,
Capxos Lopez Laeranaga.
Exhibit No. 80
Dec. 11, 1928.
Dear Mr. Larkanaga : Your favor of November 28th was I'eceived at this
office on the 10th of this month at the same time that other of your letters,
dated November 24th, were received showing a gain by the use of the air
mail.
I have read with great interest your letter with the details therein given
and, as I advised vou in my last letter, we have recently been given a judg-
ment by the Court of Claims at Washington for $3,780,000 for money expended
in 1917, 1918. and 1919 by the direction of the United States Government,
with their agreement to reimburse us, but for some reason certain technical
objections were raised as to the authority of the officials to make such agree-
ment, which obliged us to take the case to the court and the court has now
rendered an opinion, giving us a judgment for the entire amount in question.
This will replace in the company's treasury working capital which has been
tied up for over ten years and we will be able more freely to handle business
that may be offered to us.
I am advised that Commander Aubry expects to leave Paris the latter part
of this month, returning home to Peru via New York, and when he is here
we will go over with him the entire question of finances.
We believe that we have done a great deal to extend the credit of Pern
in banking circles in the United States, because the notes, which we issued
and secured by the deposit of a portion of the Peruvian notes in one of the
trust companies in New York City, were in different denominations, so that
they were sold not only to large institutions in cities like Chicago, St. Louis,
New York, and Boston but also to some of the small banks throughout the
country. To do this, however, has cost us more than the interest which was
included in the notes.
Without wishing to make any definite commitment, I should say now that
we would be willing to undertake to build additional submarine boats to be
paid for with notes secured in the same manner as the present ones, that is
from the income from taxes accruing to the Defensa Nacional, but that it
would be preferable to -have notes made payable to certain periods in the
future, but having coupons attached instead of having the accriied interest
incorporated in the face of the notes, for the reason that bankers in this
country are not accustomed to obligations of this nature; and they do not
like to take, even as collateral, obligations which mature four or five years
in the future without the possibility of collection of interest in the interim.
This matter, however, we will discuss in detail and very fully with Comman-
der Aubry, but it may be very well for you to give an indication of the desira-
bility of the issuance of the obligations in such form. But this is a detail
which we believe there will be no difficulty of working out to the satisfaction
of both parties.
I note what you say about Commander Juan Leguia, and I trust that he
Is enjoying very good health and especially request that you convey to him ray
kindest regards, also those of Mr. Spear and Mr. Sutphen.
I remain,
Very truly yours,
(Signed) Henry R. Carse.
Senor Carxos Lopez Laeranaga,
Casilla #834, Lima, Peru.
374 MUNITIONS INDUSTRY
Exhibit No. 81
March 14, 1930.
Deab Mr. Aubry : Your letter of February 2Gtli \A"as received by me on the
12rh instant, and we bad already received payment for the March 11th
notes, of which I wired you on that date. We have also received from the
Contabilidad a copy of tlie budget of the Peruvian Government for 1930 in
which the amount to be paid to us on the notes is included, and we appreciate
your attention to this matter.
We have heard rumors of a new loan to be made by your Government but
have not been able to trace it down as to whom the principals here uiiglit be.
It, however, is and will be entirely agreeable to us to hold the notes we have
and accept payment on their respective due dates rather than to have them
cashed at a discount, because we have full faith in the stability, the good
faith and integrity of the Peruvian Government.
With kind regards, and trusting that Mrs. Aubry and your family are enjoy-
ing good health and are free from \\orries of any kind, I remain.
Yours very truly,
(Signed) Henry R. Caese, Prcs.
Captain Luis Athjey,
Edifioio Italia, Oficina No. SOS, Lima, Peru.
Exhibit No. 82
Electric Boat Company
HiBBS Building
Washington, D.C, July 10, 1931.
Re Peru.
Mr. Henry R. Carse,
President Electric Boat Co., J/O Wall Street, Neiv York, N.Y.
Dear Mr. Carse : In the absence of Mr. Thurston, who is on his annual vaca-
tion, I conferred with Mr. Wilson and Mr. Gruen today at State Department.
They will take such action as is believed best at once. They are most grateful
for the full details forwarded to them by you.
We will be informed of any developments promptly. They are not l^.opeful
of anything favorable for some time but believe an honest attempt will be
made by Peru to pay its obligations in time.
Peru is running behind about $2,000,000 (two million dollars) a mouth at
this time according to information they have recently received.
With kind regards, Aours sincerely,
(Signed) Sterling J. Joyner.
SJJ-HAF.
Exhibit No. 83
Minutes Electrio Boat Company No. 4,
Neio York, N.Y., January 17, 1933.
Minutes of a regular meeting of the board of directors of Electric Boat Com-
pany, held at the office of the company, 40 Wall Street, city of New York, on
Tuesday, January 17, 1933, at 2.15 o'clock p.m.
Present: Messrs. Varse, Marx, Roberts, Sisto, Sutphen, and Taylor.
The meeting was called to order by the president, and the minutes of the
meeting of the board of directors held on January 10th, 1933, were read aud,
on motion duly made and seconded, approved as read.
The usual financial statements were submitted.
The president advised the board that in relation to payments to be made to
Captain Luis Aubry as commission on amounts collected from time to time
from the Peruvian Government on account of ccmtracts secured through him
for submarine boats, as set forth in our letters to Captain Aubry dated Decem-
ber 2d, 1931, and the amendment thereto of March 11th, 1932: That as nego-
tiations are now pending for the issuance by the Peruvian Government, or a
MUXITIOXS INDUSTRY 375
corporation representing said Government, of S-year 1% bonds to the extent of
■but not to exceed .$3,000,000 secured by the proceeds of certain taxes to be
■designated by the Congress of Peru 'for the national defense fund, the payment
of which bonds with interest is to be guaranteed by rhe deposit of an equal
amount of gold in escrow in a bankinfj institution in New York City (and also
reciting understanding with the Remington Arms Company, Inc., the Colt's
Patent Fire Arms Mfg. Co., and the Elco Works of Electric Boat Company, for
■certain materials to be furnished, the payment for which is to be made with
part of the above-mentioned 1% bonds) ; that a letter had been addressed to
Captain Luis Anbry and accepted by him under date of January 6th, 1933, in
which it was agreed to pay him for his services in connection with such busi-
ness, if concluded, 4% of the bonds as and when received on such contracts,
and in addition thereto to pay Captain Aubry ,4% of such bonds as and when
received by the Electric Boat Company in payment for the notes of the Peru-
vian Government now held by this company, which had been received in pay-
ment for submarine boats built by this company for tliat Government ; this 4%
of bonds to be delivered to Captain Aubry to cover his commission and any
and all expenses that may be incurred in connection with this business, includ-
ing any sums that may be considered due from the Electric Boat Company to
Dr. Jose Varela Orbegozo as indicated by letter of the Electric Boat Company
to him dated February 9th, 1932, and also the amount of commission due to
Captain Aubr.v according to our agreements and any amendments thereof at
any time made in relation to the construction of the four submarine boats built
by the Electric Boat Company for the Peruvian Government above referred to.
Upon motion, duly made and seconded, it v/as
Resolved; That the action of the president as set forth in his letter to Cap-
tain Luis Aubry dated January 6th, 1933, be and the same is hereby ratified,
confirmed, and approved in all respects.
In the course of the meeting the affairs of the company, financial and other-
wise, were presented to the board and discussed, and the acts and doings of
tlie officers in that regard were ratified and approved.
No further business being presented, on motion the meeting was adjourned.
(Signed) H. A. G. Tatt-OR, Secretary.
Exhibit No. 84
January 15, 1934.
Mr. L. Y. Spear,
Vice President Electric Boat Company,
Grot on, Conn.
Dear Mr. Spe-VK : In the January issue of "Marine Progress" Gerish Smith
in an article on page 20 makes reference to " 2 river boats for Peruvian
owners ", and on page 21 refers to " 2-145' river boats, Electric Boat Company,
for Peruvian Owners."
I understand it was our intention to camouflage this transaction so as to
avoid any complaints being raised in Washington by the Colombian authorities,
whieli might prevent delivery of the vessels.
• I did not understand that any plans and specifications had to be filed with
any authority similar to the procedure necessary in office building, etc.
How did Mr. Smith obtain this information?
Yours very truly,
(Sgd.) Henet R. Carse.
Exhibit No. S5
Maximo Abril 596,
Lima, Peru, March J, lOS'f.
Mr. Heinry Carse, j
President, Electric Boat Company,
33 Pine Street, New York City., N.Y.
Dblvb Mr. Carse : I am keeping in touch with the " Caja " regarding the pay-
ment of 500,000 soles on our old debt.
I hope we will not be disappointed at the end of this month because we
vpill then have come to the conclusion that the only way to secure payment
376 MUNITIONS INDUSTRY
will be by not delivering the patrol boats to the Government. I hope that i»
not going to be the case.
Commander Ontaneda has v^'ritten to the Minister and to me in re;;ard
to appointing a sponsor and having a ceremony for the launching of the boats.
Kindly tell him that nothing of such a nature is wanted. Those boats do not
require a ceremony to alarm the qua leers in the States. They are so small
they can easily leave the United States without any press news and the wise
thing should be to arrange tliat the guns will be stored in the holds. Tiiis is
the way the authorities feel about it here.
I have been informed that they have forwarded to the company the amount
of the contract for the tank. I am glad because I do not believe in any
credit after our experience.
With kindest regards, I am. as ever,
Yours sincerely,
(Sgd.) Luis Axtbey.
Exhibit No. 86
Feb. 28, 1928.
L. y. Spears, Esq.,
Vice President, Groton, Conn.
Dear Me. Spear: I have your letter of the 27th insant, and in relation tO'
the inquiry of Admiral Howe it would seem as though President Leguia was
trying him out to find how well he kept posted, because the natural place
for the President to make his inquiry would be either the Minister of Finance
or the Caja.
The contract with the Peruvian Government was for two boats on a cash
basis, payable $460,000 on signing the contract and $85,000 each month for
24 months, but it provided that if the Government elected to pay in promissory
notes it shouL^. divide them up as indicated, maturing monthly, $52,000 a
month, not only for that contract but for the balance due on the old contract
of $727,500, interest to be computed at the rate of 7V2% from the date that each
cash installment would have been due. up to the maturity date of the notes.
The matter that Admiral Howe refers to is covered by paragraphs 5, 6, 7, 8,
and 9.
"We have today paid for the cabin accommodation for Mrs. Howe and
son on the " Leviathan ", and note that the other outlay will not be called
for imtil next month. Is the money we have just paid a part of the agreed
outlay or is that something extra V
Yours very truly,
(Signed) Henry Carse, Prcs.
Exhibit No. 87
May 17, 1927.
L. Y. Spear, Esq..
Vice President, Groton, Conn.
Dear Mu. Spkar: Referring to yours of May 16th, enclosing copy of letter
from Koster regarding torpedoes for Peru, as the torpedoes we furnished ini
connection with R-1 and R-2 were made by Bliss, I had understood that that
type would be stnndard in Peru, but if the French company can make a tor-
pedo that would be satisfactory to the Pei'uvian Government we have no
special interest, as I understand it, in Bliss, especially considering the way in
which they acted regarding the last shipment.
Aubry undoubtedly has a full understanding of matters in Peru and if he is
willing to undertake the handling and sale of the French torpedo on the basis
mentioned by you, that is, this company to receive one-half of the commission,
I see no objection to taking the matter up with him and letting him decide what
is the best thing to do.
Yours very truly,
(Signed) Heney Carse, Pres.
("Exhibit No. 88"' apjjears in text on p. 161.)
MUNITIONS INDUSTRY 377
[Copy]
Exhibit No 89
1278 (LYS)
Peruvian business.
January 16, 1924.
Sir Trevor Dawson",
Vickei's Limited, VicTcers House,
Broadivay, Westminster, London.
DE.VE Sir Tre]\'or: 1. I beg to acknowledge with thanks the receipt of yours
of December 12th, enclosing extract of a letter to you from Captain Deane,
and as I am now also in receipt of a full report from Commander Aubry dated
December 10th, we are now, I think, in a position to arrange a policy for the
conduct of the Peruvian submarine negotiations.
2. Our present position in Peru, which is a very special and strong one, is
the result of many years of effort. In fact, it dates back to the first Presi-
dency of the present President, Senor Leguia who then entered into a contract
with us for submarines which was dishonored by his successor. Commander
Aubry, who is a Peruvian naval ofiicer, was intimately connected with the
restoration of President Leguia to power in Peru and prior to his retirement
from active service was entrusted by President Leguia with many important
missions, among which was the arrangement with the United States Govern-
ment under which the American Naval Mission was sent to Peru. Under
these circumstances, he is naturally on the best of terms not only with the ad-
ministration but with the American Naval Mission. It seems clear to me
from Captain Deane's letter that he did not fully understand the actual situa-
tion since he speaks of the propinquity of the American Naval Mission as a
difficulty confronting us. My impression is strengthened by the conception
which he appears to have formed with regard to the " ProMarina " fund. The
balance of this fund, which is £166,000 and not £300,000, is now by decision of
the Supreme Court of Peru at tlie direct disposal of the Government without
obligation to the Italians. The commitments of the private management of the
ProMarina to an Italian firm did, in the past, constitute a very serious obstacle
which our friends finally succeeded in removing as indicated above.
3. In December, the President called an extraordinary session of Congress
for the purpose of considering the adoption of a naval program including six
submarines of our design. The cost of the whole program would be in the
neighborhood of $25,000,000, and the only thing standing in the way of its
immediate adoption and orders is the question of finances which is a very im-
portant one. They have been discussing the question of levying special taxes
in connection with the naval program and floating a loan with such taxes
as security. "We fear that their financial ability would prove inadequate to
the handling of this whole program at once and consequently we are trying
to arrange so that the program will be distributed over a number of years and
will begin with two submarines. It is of course quite on the cards that the
builders of the submarines will be called upon for active assistance in financing
the construction.
4. Our quotations on submarines have been outstanding in Peru for a long
time past, and in fact our submarine proposals to them were pending there
last summer at the time of my discussions with you relative to modifications
in the E.B.C.-Vickers contract. So far as I can remember I did not, at that
time, discuss with you the special conditions existing in Peru, an oversight on
my part for which I now ask your indulgence.
5. Under the special circumstances of this case, we feel that we cannot at
the present time include Peru in the list of count^ries where our policy will
be friendly competition with compensation to the loser, and I must, therefore,
ask you not to make any submarine proposals to the Peruvian Government,
direct or indirect, except as may be agreed to in advance by us. We do not
feel that the position which we are obliged to take in this matter will neces-
sarily result in excluding you from participation in this business and, in fact,
■we are endeavoring to arrange the matter so that the hulls can be constructed
at Barrow to our design. I cabled this suggestion to Commander Aubry on
December 3rd and in his report of December 10th, he advised me that the
American mission did not take kindly to this suggestion. I do not, however,
think that we need to take this preliminary objection too seriously since, in
378 MUNITIONS INDUSTRY
the end, financial consifleratioiis will govern. Accordingly, after the receipt
of his report of December lUth, 1 iigain cabled him that it was very desirable
in our interest to retain the right to construct the hulls in England and I
have hut little doubt but what he will be able to remove any obstacles which
now stand in the way of that procedure. Under all the circumstances, I am
sure that you will agree with me that it will be to the interest of us both to
adhere to the policy just outlined under which, in return for your coopera-
tion in solving the problem of finances, we will be able to place orders for
hulls with you.
Very sincerely yours,
LYS : B
P.S. — I should add that the program was approved by Congress last week.
Exhibit No. 90
Electeic Boat Company
Groton, Conn., Sept&tnher 13, 1920.
Mr. H. K. Cakse,
President, Electric Boat Company,
New York City.
Deab Mr. C.'JJSe : On my last visit to Washington, I had a talk with Captain;
Azevedo, the Brazilian Naval Attache, and found him considerably disturbed
about the activities of Bethlehem, both here and in Rio. He seems to think
that they have formed some kind of a combination with Vickers and Arm-
strong to go after everything in sight in Brazil, and in any case they have
approached him here and he understands that the Rio agent has been en-
deavoring to discuss submarines with the Minister of Marine.
I explained the situation to him and promised that we would wi-ite him an
official letter which he would send down to the Minister. I enclose a pro-
posed letter, prepared for your signature. Captain Azevedo wants the original
and a duplicate, and the third copy is for your files.
I cannot see any legal or other objection to this letter, but thought it best
that it should go through you so that if any such exists, the letter could be
modified as necessary.
Very truly yours,
LYS-AM. Encl.
(Signed) L, Y. Spear.
Exhibit No. 91
December 22, 1921.
Sir Trevor Dawson,
Mesms. Vickers, Ltd., London.
Dear Sir Trevor: Referring to the cables which have passed between us in
relation to bidding for submarines for the Brazilian Government, we today
cabled you as follows :
" Considered matter thoroughly, but still believe Brazilian quotations too
low. Unwilling to approve except upon allowance 40% of profit with
guarantee of not less than 20 pounds per surface ton compensation for us."
As advised you in one of my previous letters, we have been working very
closely in Brazil for several years, and on receipt of your first cablegram that
tenders had been requested we cabled to our representative at Rio, who replied
that there is nothing definite in the matter at the present time but there
probably would be after the turn of the year. We have also made inquiries
from Brazilian authorities here, and wliile there is not at the present time a
naval attache at Washington, the deceased incumbent not having been replaced
as yet, we were advised that they did not understand that Congress hud as
yet provided for the building of submarine boats, and that the next session of
Congress would not occur until May 1922. It was for these reasons we
expressed to you our view that the matter could not be very urgent.
In regard to our cablegram of today, from our analysis it seems that the-
price indicated is very low, much lower than the i)rice quoted to Argentine
MUNITIONS INDUSTEY 379
which we approved and lower than the difference in construction and prepara-
tion of plans would seem to indicate.
As we liave been working on this matter ourselves and believe that any
builder of submarine boats in the future should figure on obtaining a reason-
able profit we do not believe it ^A'()uld be for the best of the business to quote
very low figures, and the figures indicated by you are lower than we could
see our way to quote for boats built in the United States, and have thought
that perhaps your people might have been anxious to secure work to maintain
the operation of your plant and have not been very greatly concerned about
any profit that might inure, and it was for that reason that we indicated
that while we wish to help you in every possible way, if you wished to put in
the price quoted we should be guaranteed something approaching what would
ordinarily come to us on the usual division, that is to say, 40% of the profit
which .you might make, with the guarantee that such profit would not be less
than £20 per surface ton for any or all vessels built by you fur the Brazilian
Government.
It has not seemed to us that any of the foreign governments would be
willing to place orders with other British concerns at a price approaching the
one they would be willing to pay to you because of your greater knowledge
and experience in the building of submarine boats, and the consequent
assurance that any boats built by you would be superior to those furnished
by any other British yard.
With kind regards, yours very trul.v,
(Signed) Henry R. Carse, Pres.
Exhibit No. 92
December 28, 1921.
Captain Paul Koster.
48, Avenue de LaBourdonnais, Paris.
Dear Captain : We are in receipt this morning of your telegram about
Brazilian inquiry for submarines and the granting of a license to a French
concern to build from our designs and submit a tender, but as we propose to
submit a tender ourselves in conjunction with the Bethlehem Steel Corporation,
and have authorized Vickers to submit a tender for the work to be done in
England at prices which they submitted to us and which we approved.
We do not see how we could go further and grant licenses to a French yard
to pur in another competitive price.
We believe this business will probably come to the United States because
the financing of South American countries is now being handled in New York,
but if for any reason they would prefer to go to Europe we think that "Vickers
would have preference because of their great experience and record in the
building of submnrines.
I think you v/iil appreciate that too many bids for the same thing might
prove very inconvenient.
As I have before written you, we have given this matter very careful study.
and we feel that the only license we could grant to a French yard would be
for France and the French colonies, or if they were to come in touch with
some other particular business in Europe or the East we would be very glad
if they were working under agreement with us, to give careful consideration
to any matter they might wish to propose.
We are also in receipt of your letter of December 20th in regard to the
progress of the negotiation with Penhoet and we would be very glad indeed to
continue this negotiation to the utmost, although our experience in the past
has not let us to believe that we can expect to do very much business with the
French companies.
France is a self-contained country and the French believe they are capable
of doing everything themselves as well or better than people from other coun-
tries and they undoubtedly desire to keep all the work and money in France
that they possibly can ; of course no one can complain of this spirit on their
part but it prevents the joint cooperation which is so usual with other
countries.
AVe also have your cal>legram of the 26th in regard to Admiral Debon at
Washington and Mr. Spear is going to Washington this afternoon has a copy
of your cablegram and will see what he can accomplish while there.
Yours truly,
(Signed) Henry R. Carsb.
380 MUNITIONS INDUSTRY
Exhibit No. 93
September 13, 1920.
Captain Marquis Azevedo,
Naval AttacM, Brazilian Embassy, Washington, D.C.
Sie: It has come to our notice that the Bethlehem Shipbuilding Corporation
has endeavored to open negotiations with your Government for the construction
of submarine boats. This makes it our duty to advise you as to the status of
that firm with respect to the construction of submarines.
In the past, under an arrangement which has now terminated, the Bethlehem
Shipbuilding Corporation has constructed for us and as our subcontractors the
hulls of a considerable number of submarines. They have never designed a
submarine, nor done any submarine work except as subcontractors to us,
working to our plans and under our patents and directions. Their experience
is consequently limited to the practical work of constructing the hull and they
have no submarine staff or submarine designs of their own, nor any license to
use our plans or patents.
In addition to the above, our contract arrangements with them, which are
still in force,, specifically prohibit them from constructing submarines for any
one except ourselves, and possibly the United States Government.
In view of the above circumstances, you will readily see that the Bethlehem
Shipbuilding Corporation is not in a legal position to accei>t submarine con-
tracts from your Government for its own account. Yoy will also understand
that if they should attempt to undertake any such construction, the Electric
Boat Company would, in the protection of its interest, be obliged to prevent
that construction by injunction or other suitable legal remedy. In order words,
the Bethlehem Shipbuilding Corporation could not without our consent fulfill
any submarine orders which it might obtain on its own account.
We have to request that you forward this communication to the Minister of
Marine, in order that your Government may be advised in the premises.
Very respectfully.
Electric Boat Company,
President.
Exhibit No. 94
Januaby 26, 1922.
E. G. Grace, Esq.,
President Bethlehem Steel Corporation,
111 Broadioay, Neic York.
Dear Mr. Grace: I enclose a letter from our representative at Washington,
which explains itself.
The Bethlehem and Electric Boat Companies are in many respects prac-
tically partners and are so looked upon by the Navy Department in relation
to submarine boat construction, and I think you will agree with me that it is
not advisable that either partner act in a manner to indicate any want of
confidence in the other partner.
Yours truly,
(Signed) Henry R. Carse, Pres.
Exhibit No. 95
Sir Trevor Dawson,
C/0 Messrs. Vickers, Limited,
Broadway, Westminster, London, Eng.
Dear Sir Trevor : Mr. Roberts communicated to me your cable of the 16th
instant, reading:
" Please inform Carse that we are again reliably informed that Italian compe-
tition Brazilian submarines very serious and feel necessary to press for his early
consent to our reducing our price by 3 percent if we find it necessary to do
so at any moment."
and I replied on the same date as follows :
" Have sent special representative Brazil report exact conditions consider
inadvisable quote any price until Government prepared purchase and definitely
MUNITIONS INDUSTRY 381
determine type. Italian competition special nature not related to price or type
but believe not successful as Government will insist upon best product
obtainable."
Tbis subject lias received very thorough study and consideration here, and
Commander Aubry, formerly attach^ at Washington of the Peruvian Govern-
ment, who has been engaged by us to represent our interests in South America,
sailed for Buenos Aires on the 10th instant, with the arrangement to stop over
at Rio Janeiro for two weeks to study the situation and report to us and then
continue his voyage to Buenos Aires where he has arranged to purchase a home
and move his family, becoming a permanent resident of that place, and not only
looking after our submarine matters but also the sale of motor boats, Diesel
engines, and electric apparatus.
Our local representative in Rio Janeiro was here in the office some days
prior to the departure of Commander Aubry and all aspects of the situation
were freely canvassed. He was of the opinion that it would not be desirable to
quote any price at the present time, for such price would be used with other
people considering the business. His opinion, in which Commander Aubry con-
curred, was that the work at present to be done was to bring about a decision
as to the type of submarine to be purchased by the Brazilian Government.
In relation to the Italian competition, to which your several cablegrams have
referred, the experience that we have had there has been of a character to lead
us to form the opinion that the Italians base their efforts more upon the securing
of personal influence to award the contract rather than to any superiority of
workmanship or design, and after they once accomplish the purpose they have
in view of securing influence they will agree to any form of contract providing
for any trial qualities desired and for delivery in any space of time, no matter
how short, with the idea that the peculiar influence which they have secured
will enable them to change and modify the contract from time to time to suit
them. This we understand was done in the case of the submarine boats which
are now owned by the Brazilian Government, but owing to a change of adminis-
tration, etc., these boats are not looked upon with a great deal of favor, and we
do not believe that personal influence will operate in the same manner again.
If it is going to operate, we are all helpless against it, but we believe that the
Government will insist upon the best product obtainable, and in considering the
figures mentioned by you we do not believe it advisable or proper for you to
quote any lower figures, because at the present time they are considerably less
than any figures which we would quote, and as explained to you in our former
letters we consider South America our special field for this work and believe it
should be retained by us, except if it should be determined by the authorities
to place orders in England rather than in the United States that we should
assist you to secure the business against your British competitors.
With kind regards,
Yours very truly,
(Signed) Heney R. Caese,
Pres.
Exhibit No. 96
Law Offices, Frederick E. Chapin,
Hidbs Building, 723 Fifteenth St.,
Washington D.C., November 28, 1922.
His Excellency, Edwin A. Morgan,
Ambassador to Brazil,
Rio de Janeiro, Brazil.
Dear Mb. Ambassador: I have been informed the Brazilian Government is
contemplating entering into a contract for the purchase of submarine boats
and that an Italian firm, whose interests are favored by the Italian Embassy
at Rio, has been assured of obtaining the award, notwithstanding the efforts
made on the part of American representatives to have the award made to
an American concern. The condition as I understand it is similar to that
which existed some ten or eleven years ago.
At that time the Brazilian foreign office had been in communication with
Ambassador Dudley and an understanding had been reached that Brazil
would award to the Electric Boat Company of New York a contract for the
building of submarines. It was understood the relations between the two Gov-
83876— 34— PT 1 25
o
82 MUNITIONS INDUSTRY
ernmonts were of tlie most amicable and pleasant character and tlia* only a
question of detail about the buililin;; of submarine boats for Brazil in this
country. Notwithstanding this perfect understanding, this same Italian firm
was awarded the contract, as I learaed subsequently, four days before I
sailed from New York for Brazil for the puri)()so of carrying out the under-
standing which had been previously made. After remaining over two months
in Kio, I abandoned my mission and returned to this country with a most
disappointed impression of the steadfastness and integrity of the Brazilian
officials.
As you may know, an American Naval Mission will be sent to Brazil at
the request of the latter Government. Its purpose is to advise the Brazilian
naval authorities as to the desirability of various projects it may have in mind
for the development of its Navy. My understanding is that this mission will
not interest itself in the placing of contracts, but will simply pass upon the
desirability from a naval point of view of the general scheme for the develop-
ment of the Navy. I have no doubt if the members of the mission were asked
to give an opinion as to the merits of the submarine boat built by the Electric
Boat Company as compared with the submarine boat built by the Italian firm,
it would unhesitatingly speak in favor of the American manufacturer. Pos-
sibly they may be called upon for such an opinion, in which case the awarding
of the contract to our company would follow as a matter of course.
It is my hope that if the contract for submarine boats has not yet been
awarded, you will be able to use your good offices to have it deferred until the
naval mission arrives, so that the opinion of that mission may be obtained.
It is my belief that the naval authorities in Rio will not be precipitate in
entering into a contract for a naval project which has not been passed upon by
the mission which it has invited to advise them in this respect.
I believe that a great deal of good can be accomplished through your good
offices if you should find it within the scope of your duties to recommend an
award of contract to the Electric Boat Company for the building of submarine
boats. My understanding is that under the pact of the Disarmament Con-
ference, South American Republics are at liberty to make purchase of submarine
boats. At least in this respect I feel sure that the Italian firm has no doubt
whatever, and if there were any doubt, the Italian Ambassador would not
be offering his services to promote the consummation of a transaction of this
character inasmuch as Italy, as well as the United States, are both signa-
tories to the pact entered into at the Disarmament Conference. I have had a
talk with officials in the State Department as to the policy of our Government
along the lines above indicated, and I have been informed that there would be
no objection in pursuing the course I have indicated above.
The boats built by the Electric Boat Company rank as the highest type
built. During the War, the Italian Navy purchased directly from the Elec-
tric Boat Company a number of these boats and the criticism pronounced by the
high officials of the Italian Navy was that they were the best boats then
built. We firmly believe that the type now being built for the United States
Navy is superior in excellence to any boat in operation during the late war,
notwithstanding it was reputed the German submarine boat possessed the latest
ideas in points of excellence and workmanship. ITie officers of the U.S. Navy
disclaim the superiority of the German boat over the American type except in
the building of the diesel engine, in which Germany has made marked advances.
But any excellence which Germany made in this direction has since been
overcome by American builders and it is now claimed that there is no type of
submarine boat built which excels the type no\v being built under the plans
and specifications of the Electric Boat Company.
Of course, I am merely talking as a layman and cannot talk with any degree
of assurance about various details which an expert might dwell upon. I
feel sure, however, that Commander Aubry, the representative of our company
in Brazil, is fully familiar with all the engineering details. I have been in-
formed that he has had the pleasure of meeting you. I can only state that
he is a young man of the highest capabilities and intelligence and a most
pleasant companion. I commend him to your very best consideration.
The purpose of writing this note is merely to ask you to do what you can
see your way clear to do in aiding and abetting Commander Aubry to obtain
this contract. Of course, I am not familiar with the financial condition of
the Brazilian Government, nor can I at this time make any suggestions with
respect to the financing of the contract itself, but I feel sure the Electric Boat
MUNITIONS INDUSTRY 383
Company will do all within its power to promote anj' feasible plan wLicli
may be proposed by the Brazilian Government.
I have most pleasant i-ecoUections of my visit to Rio and Petropolis, which
are much more alluring now than they were at the time I departed from the
city in great disgust. It would please me very much if affairs should so shape
themselves that I might be called to Rio.
With best wishes, I remain as ever,
Sincerly yours,
F. E. Chapin.
Exhibit No. 97
[Copy]
Embassy of the United States of America,
Rio cle Janeiro, December 22, 1922.
Mr. Fkederick E. Chapin,
Hibbs Building, 123 Fifteenth St.,
Washinyion, D.C.
Deak Mr. Chapin : I received today your letter of November 28th, relating
to future orders for submarine boats for the Brazilian Navy. For the last
three months or more, I have been in conference with Commander Aubry and
took steps with the late President to check the signature of a contract for
boats of Italian manufacture. Before Commander Aubry returned to Monte-
video at the beginning of November, it was evident that no order would be
placed at once.
The present conditions of the Brazilian Federal finances make it unlikely
that any units will be added to the Navy during the next year. Before a
decision regarding such an increase is reached, the American naval mission,
which arrived yesterday, will be considered.
Your letter will be kept on file for the interesting information which it
contains, for which please accept my thanks.
Thanking you for writing me so fully as you have done, I am.
Yours very sincerely,
(Signed) Edwin T. Morgan.
Exhibit No. 98
[Copy]
Rio DB Janeiro, March 11, 1923.
Mr. Laurel Y. Speae,
Vice President, Electric Boat Co.,
Groton, Conn.
Mt Dear Mr. Spear: I acknowledge receipt of your cable of date March 9th,
as per copy enclosed, whose contents I have duly noted.
You surprise me by stating that you have at that date received my letter of
February 4th, which should have gone forward by the steamer of February 9th,
Also, I note that you are going to send me definite instructions about our
relations to the British. The most important thing that j^ou tell me in your
cable is in relation to the financial aspect of the business, because this is the
most important thing at this state of affairs ; in fact, I was going to cable you in
regard to this very question.
Last Thursday I had a long interview with the Minister of Marine, Almirante
Alejandrino. I went to see him because Boettcher, together with the crowd
that is around him most intimately, gave me warning to go there in the
morning at his residence. The Minister started out by telling me that if we
could arrange a loan in the States to cover the price for the submarines he will
give us the order at once without delay, providing Admiral Vogelgesang will
give his O.K. as to the technical aspect of the thing. Of course, I answered
the Minister that I would have to cable you (I had already before me by
that time your letter of Feb. 8th) with the precise data and therefore it
was essential that I should know the amount of money required — that is
to say, the number of units decided upon and the models ; also what guarantees
will be given by the Government for the loan. I suggested to him that the
384 MUNITIONS INDUSTRY
most suitable guarantee for a loan will be the Brazilian consular fees in the
U.S. (I understand that they amount to $2,500,000 per annum and they are
collectible in the States.)
The people around Almirante Alejandrino came to see me that very same
afternoon and told me that they will expect from me five letters obligating
myself if the business was done to pay 2,500 contos for the nine submarines,
that comes to about $30,000 per submarine, a sum that will have to be added
to the price. Of course, I told them that I was not authorized to do this but
that I would write to my people about it. They then asked me to cable,
and I told them I would as soon as I received the memoranda relating to the
data and they agreed to that. Ever since then I know that they are withhold-
ing the memoranda up to today because they have tried again and again that
I should give them some sort of a promise that I would do it. I do not want
to ask you to do this yet until I find that it is strictly indispensable, but I
am afraid that it does not matter how much would be to our credit in
regard to the essentials of our tenders and the different factors that we have
on our side, there will always be someone that will profit on the transaction
by increasing the agreed price. I am expecting tlie memoranda tomorrow,
or the day after, and then I will be in position to wire you the exact data.
Regarding our friend Monroe, as I told you in my letter of March 4th
(which I sent with Commander Causey, who went by the '"Pan America")
that I had expected to have gone over the matter in (letail regarding the two
tenders No. 1004-B and No. 1005-B, but Commander Monroe has been very
busy this past week, and he told me today that next week he will surely attend
to the matter. I have left with him the only copies I have of the tenders and
drawings.
Agency. — Regarding this question, I have already told you that Dr. Machado
Coelho, our agent here, is well related and has a good position, but his influ-
ence with the present administration is nil, and the Minister of Marine, I
have discovered, does not like him at all. Dr. Machado has many other inter-
ests to attend to besides ours ; he is a director in several companies, and he
therefore cannot devote his attention to our interests in propojtion to the
benefit he is going to reap therefrom. On the other hand, there are many
people who are helping us in this business, and Dr. Machado always tried to
evade the engagement of the obligations that I want to take with the right
ones for the proper distribution of the 3^/4% commission that is allocated
to the agency. In other words, he takes the attitude that this business is sure.
that it will be done in two, four, six months or a year, and it is foolish for
him to give away money that he already considers as in his own pockets.
My attitude is utterly different. I believe that the money shall be obtained by
the people that earn it and help in the matter, and I also strongly believe
that we will obtain the order quicker by having allies that can really help us.
For instance, Boettcher, who is the main factor at present in all of these
dealings, has only a commission of %%, and he naturally, as things are pro-
gressing, wants to obtain a little more. Although Machado, as a rule, assents
to what I ask for, I have to spend time and energy in fighting for same, as he
does not give up anything willingly, and the best way to arrange this matter,
which I now propose to you, is the following :
Please write a letter to Dr. Machado, confirming your original letter in
which you gave him the agency at my request, in these terms: He is to have
the agency up to June 1924, with 3l^% commission on orders for submarines
obtained in Brazil, with the understanding that same is to apply not only
for his own benefit but for the benefit of the other people engaged with us in
working to obtain the order, with the provision that this distribution will
have to be with the approval of the general representative for South America.
Commander Luis Aubry, and also that this accepted distribution will have to
be all decided upon before the order is finally received.
This arrangement will just fit, because it will mean the just distribution
of the commission and limit the time of the agency which is an important
thing also, because if the submarines are built here we will require as our
agent an active man who can devote his entire time to the business. I am
certain that Dr. Machado will have nothing to object to in this, and in the
remote case that he does, you can feel assured that I will have enough argu-
ments to convince him of the fairness and soundness of the case.
Of course, this does not mean that I am dissatisfied with Dr. Machado;
he has the best will and does his best. Please take this in the right way,
that is to say, that I am looking out for the best interests of the company
first.
MUNITIONS INDUSTRY 385
Cummander Causey will tell you probably (because he plans to visit you)
many details about these dealings, because lie has been my good confidant and
good friend not only to me but also of the company. My letter of March 4th
is in his hands for you.
I am going to see Admiral Vogelgesang in the course of a few days, as I
feel that we need to push them a little; it is only natural, as they have
so many things that they are studying and solving in regard to the adminis-
tration of the Navy. The Admiral has been always the same, very kind and
very straightforward.
Very probably when you receive this you will have had some new events
communicated to you by cable. I am hoping so, at any rate. I again reassure
you about my optimism in the matter, especially the more now that I see
that you can help the financing of the negotiation.
With best regards, believe me, as ever.
Very sincerely yours,
(S.) Luis Aubry.
Exhibit No. 99
May 16th, 1923.
Commander Lxjis At'bry,
Room 209, Casa Maiia Avenida Rio Branco No. 9,
Rio de Janeiro, Brazil.
Dear Commandek: I have seen your letters of April 16th and 30th to Mr.
Spear and note carefully what you say as to the effect of the statement emanat-
ing in the New York papers as to the order to be given by the Brazilian
Government for submarine boats.
In one of your letters to Mr. Spear several months ago you stated, in effect,
that in conversation with the Minister of Marine he had stated that if you
could make a proposition of a loan to Brazil to cover the cost of the submarine
boats, he would give you the order at once.
Naturally we considered this very important and that it was our duty at
once to make such investigation as was necessary as to the possibility of han-
dling a Brazilian loan. Our first effort in this direction was in cabling to
Vickers. We offered them a certain interest if they would withdraw their
bid and cooperate with us in securing the business and a much larger sum
if they could arrange to float a loan or finance the order in London. They
replied it was impossible to finance in London a piece of business to be done
in the United States.
We then consulted with the bankers in New York City who had handled
several previous Brazilian loans and they expressed considerable doubt as
to the possibility of floating an additional Brazilian loan because of the decline
ic the market value of the loans they have outstanding, but they stated they
would make a study of the matter and let me know. Undoubtedly they con-
sulted other bankers to obtain their judgment as to how the market would
receive such an issue of bonds, as this is always customary for bankers and
it may be that in that way the subject of the business reached some newspaper
man.
No announcement or any information was given out from this office as we
appreciate and thoroughly understand the necessity of secrecy in all negotia-
tions with governmental bodies. The fact that we successfully carried through
the construction of submarines for Japan during the Russo-Japanese War;
the construction of submarine boats and submarine chasers for Great Britain,
France, and Italy during the last war without interference from Washington
officials and despite the constant surveillance of German spies indicates that
this office appreciates the necessity of secrecy in relation to all governmental
transactions.
A reporter of the New York Mail called me on the telephone one afternoon
and asked me about the order for Brazil which I denied, but he published the
statement about the same and the other papers copied him. The fact that
they spoke to me on the telephone, even though I denied it, gave them a chance
of using my name in their statement. The reporter from the United Press
having cable correspondents all through South America, copied this message
from the papers and forwarded it without consultation with me, but the fol-
lowing day he came in to see me and after talking the subject over he stated
he would send a message quoting me as denying the report, but said then that
386 MUNITIONS INDUSTRY
the first newspaper statement had caused considerable commotion in South
America.
We have found in almost every negotiation we undertake that some unfore-
seen occurrences will come in and we simply have to be prepared to meet all
these things and work around the difficulties that arise.
We have the assurance from Vickers that they will cooperate with us in
every way possible in Brazil and I do not think thnt ultimately it will be
necessary to have the order pass through that channel. We have a number
of subsidiary companies and any of the names could be used in closing the
contract if necessary, although the Electric Boat Company is the logical
company to do that work, the Submarine Boat Corporation itself never appear-
ing in connection with any submarine boat work, it simply being the holding
company of the Electric Boat Company stock.
You can see from the above that it was simply by following out the sugges-
tion of the Minister of Marine in relation to a loan that this thing leaked out
and you can give him our assurances of appreciation of the importance of the
business and of our always exercising discreti(3n in the premises.
With kind regards and trusting that Madam Aubry and your family are
enjoying good health, we remain,
Yours very truly,
(Signed) Henry R. Carse, Pre».
Exhibit No. 100
E. W. Boss Co.,
Adams d Plymouth Sts.,
Brooklyn, N.Y., U.S.A., April 20, 1923.
Commander Aubry,
(% U.S. Naval Attache),
Rio de Janeiro, Brazil.
Dear Sir: At the suggestion of the OflSce of Naval Intelligence at Wash-
ington, we cabled you to know if you would be willing to represent us in the
matter of making a tender for our Bliss-Leavitt torpedoes for the Brazilian
Government, and we are very gratified that we have been able to come to an
arrangement with you and hope that the arrangement will be beneficial both
to you as well as to ourselves.
As a matter of record, we give you herewith a confirmation of the messages
that passed between us.
Our cable to you dated April 9, 1023:
" United States naval attache has suggested you represent us in connection
with sale of Bliss-Leavitt torpedoes to Brazil. Understand agreeable to you.
W^ill allow you 2i/^-percent conmiission. Cable if satisfactory and on receipt
of advice as to size and quantity wanted, we will give you full information
as to details of torpedoes, prices, etc."
Your reply dated April 15, 1923 :
" With thanks I accept your representation. Request commission four per-
cent covering selling expenses. Two sizes diameters 45 and fifty three centi-
meters, lengths 5,400 and 6,400 centimeters. Actual prospective orders hundred
each size. Waiting your full information to tender. Send it through oflice
Naval Intelligence Washington."
Our reply dated April 17, 1923:
" Your cable received. Please to learn of your willingness to represent
us but it would not be possible to pay more commission than mentioned in
our previous cable. Trust you may feel justified in acting for us. Answer."
Your reply dated April 19, 1923 :
" I accept representation previous terms."
Our reply dated April 20, 1923 :
" Your cable accepting representation our terms received. We are pre-
finring specifi^'ations and will forward to you through Naval Intelligence
Washington."
We have advised the oflBce of the Naval Intelligence at Washington through
the Bureau of Ordnance of our having reached an agreement with you to
represent us in this matter, and that we are to make the specifications covering
the proposed order for torpedoes, which we will send to them for their approval
with the request that same be forwarded to you in Rio de Janeiro, but we
MUNITIONS INDUSTRY 387
desire to get this letter off to you by the first mail in order that you may be
informed as to what we are doing.
We shall also prepare a letter giving you as much information as it is
possible to give you in a letter as to our torpedoes, also the prices and terms.
With very best regards, we remain
Very truly yours,
E. W. Bliss Company,
(S) James Skinnek, Secretary.
Geemano Boettchek,
Rio de Janeiro.
Exhibit No. 101
Rio de Janexro, May 23, 1924-
Electkio Boat Company,
Groton, Conn.
Gentlemen : Please excuse me for writing you in Portuguese, but I am
doing so in order that no one here should know about what I am going to
write.
On the 15th inst., I sent you the following cable:
" Strictly confidential. Nothing can be referred to steel company. Min-
ister has in this moment resolved order 5 submarines, 5 destroyers, 1 cruiser.
Aubry must leave as soon as possible. Telegraph privately departure.
" Flamengo."
and on the 19 I received your reply reading:
'• Impossible for Aubry to reach Brazil before 20th June unless you obtain
quickly written request from minister for tender and cable us when received.
" Spear."
The situation at the present time is as follows : On the 14th of the present
month, during a Cabinet meeting which takes place every Thursday under the
Presidency of the President of the Republic, the latter, taking into considera-
tion the precarious condition of our navy, as well as alleging that the relations
between the nations of this continent were not as they should be, instructed
the Ministers of War and Marine to make a report containing a statement of
the materials most needed to place our army and navy on a more efficient foot-
ing than they are at present.
Although nothing had transpired of what took place at that meeting, I was
informed of everything on the same day, and the following day both the
Minister of War and the Secretary of the Navy gave confidential instructions
to the staff to draw up as soon as possible an estimate of what should be
purchased with most urgency. At the time, in regards to ships, the Secretary
of the Navy expressed his opinion as to the purchase of 5 submarines, 5 de-
stroyers, and 1 cruiser. That same day I advised you by wire of the develop-
ments asking you to send Commander Aubry to look after the technical ques-
tions which would come up. I also asked you to keep this information secret
from the Bethlehem Steel Co. because I had given my word to my friends
that I would send you this information and to no one else but yourself.
Moreover, any indiscretion on the part of the agent of the steel would be
harmful to us and he is not very discreet.
The stage reached by this business may be summed up as follows : The
staff, in combination with the Department of Naval Engineering, are drawing
up the technical basis on which the ships are to be purchased, and according
to the opinion which the Secretary of the Navy has made known to his intimate
acquaintances as soon as this basis has been agreed upon prices and condi-
tions will be sought from the best-known shipbuilders. I believe the drawing
up of these technical details will take another two weeks at which time it is
necessary that Mr. Aubry be here or at least be on his way.
The time being opportune, I went at this business more forcefully still
and through the agent of the steel obtained that the Brazilian Ambassador
recently returned from Washington, declare his opinion to the Minister of
Foreign Relations, the Secretary of the Navy, and finally the President of the
Republic regarding the disappointment in the United States in case the build-
388 MUNITIONS INDUSTRY
ing of those ships were not intrusted to that country. This wns a good move in
our favor.
But the Secretary of the Navy is an old-time sailor, very much in favor of
English equipment. He is personally acquainted with the English shipbuilders,
and has maintained friendly relations with them for a long time; he is a
great admii-er of the English Navy, a fact which he has made known in public,
especially at the time of the last exhibition for the centenary of the Republic,
which took place here when he spoke publicly at the opening of the English
pavilion. Therefore, to speak frankly, I must say that the friendliness of our
Secretary towards the American Mission is purely platonic friendship. At the
bottom, the man is an Englishman, in the full meaning of the word and has
no leaning towards any other nation, and far less towards America. I have
never been afraid of Italian competition, but I have always been suspicious of
the English, for with them the danger lies. And I am unfortunately finding
out that my opinion was correct.
This is what just happened: In his own private house, the Secretary dis-
cussing privately with his family the next purchases, expressed himself in
such a way as to make it very plain that he was frankly on the side of the
English. Among other things the Secretary said that he was convinced that
the plans elaborated by the Americans were very fine, but that the construc-
tion was very poor and that nothing could compare with English equipment.
He added that when an Englishman said that the plates would be of such
and such thickness or that the tubes would be of such and such an alloy, one
could trust him implicitly, while with the Americans it was the contrary.
In order to prove his assertion, he cited the case of the Brazilian dreadnaughts
which were repaired in the United States, which repairs were the object of
very unfavorable comment here, not only on account of the poor workmanship
but also on account of the poor quality of the material used. He said also that
a great part of the material used on those ships in the U.S.A. was being con-
stantly replaced here. Finally, the Secretary ended by saying that no com-
parison could be made between an English and a U.S. job of construction. By
this you will know what is in the mind of the Secretary and that he is
against us, although in public he may pretend to be impartial.
I give you all these details because they are true and so that you may form
an accurate opinion as to the mind of the Secretai'y who is going to decide
on these purchases.
But the danger does not only lie there. Mr. Lynch, head of the house of
Davidson, PuUen & Co., agents of Vickers, is also the agent of the banking
house of Rothschild in Loudon, Mr. Lynch has held secret conferences with the
Minister of the Treasury and a few days ago, both spent the evening in the
Palace of the President of the Republic at which time the question of a loan
of twenty million pounds sterling to extinguish the internal floating debt left
by the preceding government was discussed and also another loan of eight
million pounds storing as a reserve to be held for the coffee valorization. It
seems that a crop of more than twenty million sacks is expected for 1925 which
is double this year's crop and in order that the Americans may not bring about
a fall in prices at that time, the Government wants to be ready to purchase
coffee in excess of normal production.
I have been able to find out that Mr. Lynch had already secured from Roths-
child those eight million pounds sterling, plus ten million of the twenty million
which the Government needs. Things are taking a turn for the better for it
is sure that finally Rothschild will supply the entire twenty millions.
Now it is clear that the English will not lose this opportunity of doing their
best so that the building of the ships may be awarded to their shipbuilders.
Mr. Lynch himself will see to that and so will Walter & Co., the representatives
of Armsti'ong who are closely acquainted and related with Lynch. One of
the partners of Walter, Mr. Hime, who is an English Jew born in Brazil has
been a great friend of the Secretary for many years and visits at his house on
very friendly terms.
That is why I found it proper to cable you to advise you of the situation in
order that in view of all these authentic facts you might lead your best card.
I do not believe in the intervention of the American mission in this affair
because the mission has adopted the course of hardly answering inquiries and
does not give its opinion except under those conditions. I do not believe either
in diplomatic intervention because in the United States you have not as yet
understood that one does not obtain anything unless one asks for it. Here
whoever wants anything must declare himself. If one reia^ius silent it is
MUNITIONS INDUSTRY 389
taken that be does not want anything. And that is the case of the United
States. I believe only in what we do ourselves. For this reason I have
thought fit to suggest to you in my cable given below that it perhaps would be
a good thing for you to keep up the combination which had been made last year
with London. A bird in the hand is worth two in the bush.
This is an accurate outline of the situation and it being so I wired you so that
you might act in your own interest. However, it may happen that the situa-
tion take another turn but this will take place only if the United States should
act or if some such action should take place or else if the Secretary should
resign. I shall advise you of further developments.
Yours very truly,
(Signed) Germ and Boettcheb.
Exhibit No. 102
Electric Boat Company,
Date, May 7, 1923.
To New York.
From Washington.
Dear Mr. Carse: An opportunity was present this morning to secure the
enclosed extracts from a report. As this is my first day out after a severe
illness, I asked Mr. Lord to handle the matter for me.
Yours very truly,
(Signed) C. S. McNbir.
I was given the opportunity today of reading a report on the Brazilian matter
from an official source which I am not at liberty to state in writing, but which
Mr. Spear, I believe, will readily recognize.
It assumes to give a complete history of the proposed Brazilian naval in-
crease. It begins by saying that Rear Admiral Souza de Silva, recently pro-
moted to that rank from captain in the Brazilian Navy, entered into a con-
spiracy with some alleged revolutionists in Brazil for the assassination of the
former President of that republic, only a short time before the expiration of his
term of office. De Silva, it seems, gained the full confidence of the conspira-
tors, whose plan was to fiy over the President's palace and drop a bomb upon
it. De Silva, after gaining their full confidence, revealed the entire plot to
the President, with the result of course, that it failed to materialize. In appre-
ciation of this act, the retiring President recommended De Silva to the incoming
executive, Signor Bernardes,. v.uth the recommendation that he be named a
member of the cabinet with the portfolio of Minister of Marine. It appears
from my recollection, from my hasty reading of the report, that De Silva did
not desire this position but used his prestige and influence for the appointment
of one Alencar, who was named and is now Minister of Marine. Alencar is
seventy-four years of age and was Minister of ISIarine in a former administra-
tion. He is said to be largely under the influence of De Silva. The report
indicates that De Silva is in the pay of British naval constructors, and re-
ceived a stipend amounting to $110 a month from them for work that he had
previously done in obtaining contracts for naval construction, particularly for
two large vessels which the British built some years ago for Brazil.
It states further that Argentine would look with much displeasure upon an
increase in the Brazilian Navy at this time, the increase involving 1 scout
cruiser, 5 destroyers, and 5 submarines. On the other hand, certain factions
in Brazil, anticipating a limitation of naval armament as applied to Latin
American countries in the near future, desire upon entering such agreement to
be upon the same naval basis of defense as Chile and Argentine. However,
the state of the Brazilian exchequer is somewhat depleted, their unit of value
having fallen to a point somewhat lower than it has been in several years.
For this reason, the Administration is desirous of postponing the naval con-
struction. On the other hand, the British interests are pressing it strongly,
and so is De Silva. A leverage which they have is the fact that in 1914 Brazil
had contracted with the British for a large battleship, to be known as the Rio
de Janeiro. Owing to economic conditions, it was necessary to cancel this
contract, and it was done with the promise that at a future date the British
would be given contracts for naval construction to an amount equal to what the
Rio de Janeiro would have cost. This argument is being used very effectively.
390 MUNITIONS INDUSTRY
De Silva, wlio seems to have quite a degree of influence and particularly-
over the Minister of Marine, Alencar, is also urging it very strongly. He is
now a member of the Brazilian Mission to tlie Pan-American Conference at
San Diego, and has sent several telegrams and wires urging the carrying
out of the program. The inference from the report, although it is not ex-
plicitly so stated, is that there may be a compromise within the next few weeks
which will permit of the submarine construction.
The report also goes on to state what the activities of the Electric Boat Com-
pany have been in the matter, and states that the Electric Boat Company is
corresponding with Vickers in an effort to get the matter through, so far as
the submarines are concerned, by a compromise which will be satisfactory to
Vickers.
My recollection of the reading of the report, while I am not quite clear on
this point, is that it says that the Electric Boat Company suggests a twenty-
five percent allowance to Vickers on the proposed contracts.
The report is quite long and as I only had an opportunity of reading it over
once without making notes, I was only able to absorb the high points. How-
ever, when Mr. Spear is here, he will have no difficulty in getting access to it
himself.
ExHiPiT No. 103
April 30, 1923.
C. S. McNeir, Esq.,
Hiibs Building, Washington, B.C.
De:ar Mr. McNehr: As you know, we have been negotiating for quite a long
time with Brazil about the construction of submarine boats, and Commander
Aubry, who is representing us at Rio de Janeiro, advises that the Minister of
Marine there indicates that some form of loan will be necessary in order to
have the work placed in the United States.
We have been discussing the subject of the form of loan with the bankers
in the city here, and they have raised the point as to how the making of a
loan to the Brazilian Government for the purpose of paying for submarine
boats to be built in the United States would be looked upon by the State
Department.
I wish you would call upon the officials of the State Department tomorrow
morning, present the matter to them, and secure if possible an expression of
opinion, which at this time need not be absolutely official.
The bankers in New York who have in the past acted for the Brazilian
Government have at the present time one of their representatives in Rio de
Janeiro, and they wish to write to him fully on the subject so that the letter
can go off in the steamer sailing the latter part of this week. You will, there-
fore, appreciate that this information should be obtained from the State
Department at as early a day as posible.
With kind regards,
Yours very truly,
(Signed) H. R. C.
Exhibit No. 104
Electric Boat Company, Groton, Conn., U.S.A.
J. Machado Coelho de Castro, Agente Geral No. Brazil.
Rio de Janeiro, Brazil, March 4. 192S.
Mr. Laurel Y. Spear,
Vice President, Electric Boat Co.,
Oroton, Conn.
My Dear Mr. Spear: I just received yesterday your letter of 8th FebruaiT
with enclosures (copies of cables exchange). Your letter contains a memoran-
dum of investigations and explanations of the situation in regard to the models
1004-B and 1005-B.
I had a long talk with Commander Monroe this morning and showed him
your letter. Of course, he will have I think, for the mine layer the same
battery cells, the same main motors, and the same main engines as in the
L MUNITIONS INDUSTRY 391
torpedo boats proper, that is to say 1005-B (d). He was unable this morning
to give me his definite opinion because he said that for the design 1004-B we
had — to have on our submerged speed at a maximum of 10 knots and at a
minimum of 0 knots. I have arranged with him to go to his house this coming
week in the evenings and we are going over the situation from the beginning
in order to get his mind set exactly about what will be the minimum that he
will be content with and also that he said he is sure that you can do. The only
uncertainty at the present time is in regard to the 1005-B, and in regard to
the 1004-B. everything except the submerged speed is O.K., that is to say the
same M.A.N, engines, the ironclad batteries and special armament, which will
also be the same for the lOOri-B, but what is not settled yet in regard to him
is which the keys for the 1005-B is the most suitable because he has to con-
sult and study the question of surface buoyancy. Therefore my next letter
will be very complete in all details, but you will have then to present optional
tenders that is to say, one tender for the 1004-B (8 boats) to be constructed
in the States as primarily thought of and one tender for the same boat
"knocked down" proposition, with delivery at Rio price and the scheme of
" cost plus ", as you explained in your letter to me of 8th February, with the
drawings and specifications accordingly, because as you remember we will
to withdraw the tenders that I presented in September with the impossible
condition of speed that I promised in order to kill off the Italians.
Regarding the 1005-S tender I will let you know definitely in the next
mail which is the exact key that you shall tender, also the drawings and speci-
fications and the number of boats. The exact weight of the mines which
I have been unable to find out as yet, and Monroe does not know either.
For this tender as well, you will have to present optional tenders, that is
to say. one with a price for delivery in the States, and the other for a
"knock-down" condition for delivery in Brazil.
!?ma1l engines. — In regard to this subject, I explained to you in my last
letter of 23rd February that they required for the submarine tender " Ceara "
2. and probably 4, stationary engines to be used as generating sets. I got
your wire confirmation of which I enclose, and Commander Monroe told me
this morning that he wanted me to be prepared when they asked for tenders.
He is not certain yet when that is going to be, so far he knows that the Sulzer
people are trying to place some of the engines that they have here in the expo-
sition, but he cannot yet give an opinion as to whether these engines would suit
the purpose. He will recommend ours. That is also a waiting proposition.
I expect to get your drawings and details in this respect shortly.
I understand that the mission is at present very busy inspecting the Navy ;
I, understand also that they are studying a sort of a programme for the
Brazilian Navy, which will be presented in the next six weeks. This pro-
gramme, of course, involves the building of submarines, but Commander
Monroe is not very sure about the number that the admiral will think to
recommend. I got the particulars that I gave to you of 8 and 1 from the Min-
ister of Marine, which is the idea entirely of the present administration and
Is not very far away from the opinion of the mission, but as I remark to you
again, it is not the last word. The mission seems to be in a great hurry to
propose the number of units required, and in that respect I may tell you that
Admiral Ale.iandrino, the Minister of Marine, has requested Admiral Vogle-
gasang to submit his programme as soon as possible because they want to
decide upon it soon after the Santiago Conference. Commander Monroe told
me this morning that he was pretty sure that they could not build anything
because they have not any money and that they have had difficulty in paying
the payroll of the Navy every month. Of course, I respect very much his
opinion in regard to the technicalities of the submarines, but he knows very
little about the organization of these countries; they might not have money
enough to pay the pay roll of the Navy, but they have money with
which to pay for any contract they may enter into. For instance, the other
day they signed a contract with Schneider from Creisot, France, for 120
batteries, i.e., 480 field guns 75 mm and they have paid in advance 20,000
contos ($2,500,000).
The other aspect of the business is as follows. I have had two more inter-
views with Admiral Alejandi'ino, who is very anxious indeed to get this busi-
ness of the naval armaments carried through as soon as possible, especially
the question of the submarines. In fact he insinuated to me the diflSculty at
present of making a contract until the finances of the country were in order,
392 MUNITIONS INDUSTRY
but he said to me if you will have any scheme to propose in re^ari to the
finances we certainly can go very rapidly. Your letter, par. 14. is therefore
very welcome. I am going to see this week not only Alejandrino again, but
I am going to try and see President Bernardes and inquire what sort of a
guarantee they will be willing to offer in c;ise they decide to place a loan for
this construction.
Germane Boettcher has been so far the most important and powerful ally
we have in all of these dealings and he has an enormous influence with the
Minister of Marine. I am working with him very satisfactorily. I am abso-
lutely optimistic about the result as I told you before, but I insist on telling
you that it is impossible to obtain a contract in one of these countries by fol-
lowing the same road and covering a well-known distance ; you have got to
change your course and lower your speed or increase it in accordance with the
course of events. Patience is also a great gift here.
I would ask you to send my cables through the All America Cable Co., and
not through the Western Union, which is an English concern at this end. A
few months ago I received a notice from the company to send all my messages
by the Western Union, but I have not done so, and I am very pleased, for the
reason I am telling you about it being an English company at this end, and at
the present time as you know we are competing only with the English. I feel
very much surer and safer than I would if using the Western Union, as the
All America is entirely an American company.
Also, I want to ask you please not to send copies of my letters to Buenos
Aires so long as I am here as I am afraid they might go astray.
Commander Monroe told me this morning that in the letter you wrote him
you said that in case something will be done here you will come on your way
to Europe. That would be fine and believe me the time may arrive when your
presence here to close the contract in regard to details will not only be very
desirable but very important.
In regard to myself, the situation is such here at the present that I intend
to remain here. If you think different, please let me know.
With best regards, my dear Mr. Spear, I remain, as ever.
Yours very sincerely,
(s) Luis Aubry.
7/3/2?>. The Minister of Marine whom I see this morning tells me that if I can
provide the money a loan of 15.000,000 dollars he will sign the contract
with me in 24 hours.
Exhibit No. 105
Naval Construction Works,
Barroixhin-Ftirness, 6th November, 1933.
L. Y. Spear, Esq.,
Electric Boat Company,
Groton, Conn., U.S.A.
(Brazilian Naval Programme)
My Dear Spear: You will no doubt have received full information about
the submarines required by Brazil. According to our information, they want:
4 submarines, 850/900 tons surface displacement, and
2 submarine mine-layers, 700/800 tons surface displacement.
I do not know what attitude you are going to take up regarding this enquiry,
but I think Mr. Carse and you will agree that some British firms will have to
compete for the submarines, and this being so, it would be very desirable in our
mutual interests that we should be one of them.
I am told that Japan is going all out for the whole programme, and therefore
I think it reasonable to suppose that pressure may be brought on me to put
forward an attractive offer.
I shall be greatly obliged if you will consult Mr. Carse and kindly let me
know what royalty should be reserved for the Electric Boat Company. I
sincerely hope it will be kept as low as possible, because you know the intense
competition there will be.
With every good wish,
Yours sincerely,
(S.) C. W. Craven.
MUNITIONS INDUSTRY 393
Exhibit No. 106
November 17, 1933.
Commander C. W. Cb-vven,
Naval Construction Warks,
Ban-o w-iii-Furness, England.
My Dear Commander : I have seen your letter of November 6th to Mr.
Spear regarding the Brazilian naval program and note that you say : " I am
told that Japan is going all out for the whole programme, and therefore I think
it reasonable to suppose that pressure may be brought on me to put forward
an attractive offer."
I do not understand how Japan has secured the right to bid on building
submarine boats for other countries, for in the agreement which I signed
for the Electric Boat Company on November 15, 1916, and sent to Vickers
on November 17, 1916, after cable correspondence between us, for them to have
executed by the Mitsubishi people, the right for a period of twenty years was
given only to build boats for the Government of Japan, and while that agree-
ment apparently was never executed but without any notice to us replaced
by your agreement of September 22, 1917, with IMitsubishi for a period of
twelve years, which limited their right to build vessels for the Government
of Japan, and also China and Siam. I do not now question the agreement made
in the name of Vickers because on October 25, 1923, I accepted your action
in the premises. The matter, however, of the Japanese entering into a world
competition in the construction of submarine boats for other countries might
be very important to both Vickers and ourselves in the future because of the
low cost of wages and material in Japan and, therefore, the right of the
Japanese firm to do this business I think should be carefully scrutinized.
We have not yet received the full details in regard to the Brazilian propo-
sition, but as soon as we have an opportunity to study the matter we will
be very glad to take it up with you further, as the question of the Brazilian
Government expending the amount necessary for such a great naval pi'ogram
at a time when they are not paying the interest on their foreign obligations
may cause some action by other Governments in regard to their subjects
taking the business on the conditions indicated.
With kind regards, and trusting you are enjoying the very best of health,
I remain.
Yours very truly,
Henry R. Carse. President.
Exhibit No. 107
December 29, 1933.
Mr. L. Y. Spear.
Vice President, Electric Boat Company,
Groton Connecticut.
Dear Mr. Spear : I enclose herewith a copy of a letter received this morning
from Commander Craven dated December 16th in relation to the Brazilian
business, al.so the two new English boats.
I have not replied, as there is nothing particular to be said at the present
time and we simply have to await developments.
I do not see how the Japs could bid on this business, as they have no
license from us, unless they simply ignore all our patents.
Yours very truly,
Henry R. Carse, President..
Exhibit No. 108
[Private]
Naval Construction Works,
Barroic-in-Furness, 16th December 1933.
H. R. Carse. Esq..
Electric Boot Company,
33 Pine Street, New York.
My Dear Mr. Carse: I apologise for having taken so long to answer your
letters of the 17th and 27th November, but I have been in Spain in the mean-
time and have been desperately busy in London.
394 MUNITIONS INDUSTRY
With regard to your first letter, you will realise, of course, that I am not
thinking only of the Mitsubishi people as competitors. I am told that the
Japanese Ambassador has definitely stated that the Japanese shipbuilding in-
dustry will put forward offers which will be better than anything that can come
froiu other countries and, of course, it may pay the Japanese Government to
give some veiled subsidy to their shipyards in order to have a small navy build-
ing in Japan in case an emergency arose. I am having every pressure brought
to bear on me to put forward a most attractive offer and, for your private infor-
mation, I have managed to do a good deal by way of cutting down British
competition. We shall be the only British firm tendering for the submarines
and, therefore, I want you to look at our tender from the point of view of
knocking out foreign competition.
I join with you in wondering how the Brazilians will pay, but I am told that
they can find about a million pounds a year after meeting all other obligations.
The whole thing is very involved and may take a long time to clear up, but, of
course, I must see that British tenders go forward lor every unit in the pro-
gramme and I have arranged for this.
Very many thanks for your letter of the 27th November, in which you confirm
your cable regarding the royalties on the two submarines, tenders for which
I am sending in in the next few days. I am very hoi^eful that something good
will result, but I doubt if it is reasonable to expect both boats in view of com-
petition and the necessity of spreading the work about to relieve unemployment.
I have been very interested in Mr. Spear's activities and I am so glad that it
looks as if you are going to have a better time in your company during the next
year or two.
AVith every good wish to you all for Christmas and 1934.
Yours sincerely,
(S.) C. W. Craven.
Exhibit No. 109
January 30th, 1934.
Subject: Brazilian business.
H. R. Carse, Esq.,
President, Electric Boat Company,
33 Pine Street, New York City.
Dear Mr. Carse : 1. I am enclosing herewith copy of a letter from Mr. Bardo
of Jan. 29th in reply to an inquiry from me as to the present status of his plan
with regard to the Brazilian business.
2. As you know, I have felt from the beginning that insofar as making any
money in this connection was concerned, the best bet in this case would be
Vickers ; on the other hand, I have also felt that for obvious, more important
reasons, we ought to go as far as we reasonably could to meet Mr. Bardo's
wishes. When he first took the matter up with me, the general idea was that
designs for the whole program would be submitted at this time. As you will
see from the enclosure, however, his present idea is not to submit now designs
or firm prices except on cruisers, so that it now looks as if it would not be
necessary for us to prepare any designs or proposals on his account.
3. Turning now to the question as to whether we ought to make any pro-
posals on our own account, my feeling is that even if we could get around the
apparently insuperable difficulties connected with financing and our high prices
as compared to Europe, we would not want to go after the business for con-
struction here in view of our other prospects. There is a distinct limit to our
ultimate capacity, and it looks to me as if we are likely to reach that limit
before very hmg without any Brazilian business. If, therefore, we wish to
submit any tender at all, the only practical way to do it would be to bid for
constructicm by Vickers. You will note that under the first clause of our
license agreement with Vickers, business by either of us with that country
must be made a matter of special agreement. If we had an order for execu-
tion in Vickers's yard to our design, we would supply the engines and electrical
apparatus, which, of course, would be advantageous to us from the point of
view of the work load in our shops. As we have not as yet made any agreement
with Vickex's as to the terms under which they may do the business, it might
be worth our while to take up the matter of our submitting a tender for con-
struction to our design in their yard. I doubt if they would like the idea, and
if they don't, we might be able to trade it off for a higher royalty than we could
MUNITIONS INDUSTRY 395
otherwise get I am by no meaus convinced tliat this would be good policy, so
I am simply throwing out the idea for consideration. Should you think it wise
to open up that subject with them, I will have to take it up with Craven very
soon, and, accordingly, I would be obliged if you would let me hear from you
about the matter as soon as you conveniently can.
4. Should we finally decide to make any tender, it will be necessary for us
to determine definitely whether the 50 contos deposit has been waived, or not.
If it has not, it can be taken care of in London with funds which we already
have there.
Very truly yours,
L. Y. SPEaEu
Exhibit No. 110
1296/85/LYS
December 26, 1925.
Commander Luis Aubey,
Grand Hotel, Calle Florida,
Bicenos Aires, Argentina.
Dear Commander Aubry : 1. I am in receipt this morning of your cable of
the 24th in reply to my no. 8 and after further consideration of the matter
of Brazilian commissions, I am today authorizing Mr. Sloat to add to the net
prices as follows, viz: 7%% for special commission, 2% for you, 3% for him,
and, if necessary, local commissions up to 2l^%, making the maximum 15%.
I am enclosing for your information copy of his letter of Dec. 9th together
with copy of my letter to him of today.
2. With all the compliments of the season, to Madame Aubry and yourself,
I remain, as always,
Very sincerely yours.
LYS:B
ENCS.
Exhibit No. Ill
Law Offices
Frederick E. Chapin
HiBBS Building, 723 Fifteenth Streiet
Washington, D.C.
February 15, 1922.
The honorable, the Secretary of State,
Wasliinffton.
Sir: At the instance of representatives of the Argentine Republic, the Elec-
tric Boat Company of Groton, Connecticut, submitted plans, specifications,
and prices for the building of a number of submarine boats. The negotiations
started some six months ago and were temporarily suspended during the early
part of the Conference for Disarmament which held its sessions here in
Washington.
In the meantime the company sent its personal representative, Commander
Luis Aibry, an ex-Penivian Navy oflicer, to Buenos Aires, for the purpose of
ascertaining conditions as they exist. His reports are quite satisfactory in
many particulars, but in a recent letter, dated January 4, 1922, he reports a
condition of affairs which is most annoying and evidently indicates German
interests are active in negotiating the sale of submarine boats to that Republic.
After stating that our proposition is looked upon with favor. Commander Aubry
states as follows :
" But there is something which I am afraid is going to delay and complicate
matters considerably. There is here an ex-captain of the German Navy whose
name I will ascertain very soon, who has come in touch with the President
and Navy Secretary and apparently has convinced them that German sub-
marines can be obtained through Sweden of much better qu.ility and prices
than the ones offered, shipping them in portions to be assembled here at Mar
del Plata, where he has proposed building a yard also with material brought
from Germany. He has even promised the elimination of the accumulators.
396 MUNITIONS INDUSTRY
"As the President has a sood deal of respect for the Germans he has
swallowed this pill, establishius a sort of disturbance that has stopped prac-
tically the proceedings in this matter until the report from the two officers sent
to Sweden last week, Ferrer and Zeballos, is obtained. You can easily under-
stand how extravagant and absurd is such a scheme, first because of the treaty
of Versailles and secondly due to the enormous diflaculties and cost of estab-
lishing a yard for the sole purpose of assembling these submarines.
" Yesterday I interviewed Admiral Gonzales Fernandez, who by the way
spoke to me very highly of the products of your company. He is a personal
friend of Mr. Schwab of the Bethlehem Corporation, and had a very frank and
nice talk with me, pointing out exactly the same views as his Secretary has
expounded to me.
" He said that they had almost decided to build six boats of the 509A design,
when this German had come forward with his silly proposal, which unfortu-
nately has been taken very seriously by the President and therefore will
delay considerably the matter. I explained to him the different clauses of
the Treaty of Versailles which I happen to be acquainted with by reason of
my having been delegate of Peru at the Reparation Commission in France
just recently. I told him the fact that Peru tried to buy sometime ago 150,000
rifles that were interned in Holland from the beginning of the war, and sent
the transport Urubamba for them. General Puente, the Peruvian Military
Attach^ at Washington, was sent to receive them with the result that the inter-
allied Military Commission forbade the rifles to be sold and the transport
Urubamba returned in ballast to Callao, Peru, suffering the humiliation for it.
" The same thing happened to Chile with a lot of Krupp guns bought in
Denmark.
" It was very easy to convince him of the impossibility of carrying out
successfully such an adventure, which in the end will only compromise Argen-
tine before the Allies and friendly powers. Of course I said to him that the
Germans do not lose anything but on the contrary they have to gain by putting
in evidence that they have friends and influence in this country. He did not
only agree entirely with me, but also told me how pleased he was of my com-
ing. He offered to introduce me to the President and to the Secretary of the
Navy as soon as he comes back from Muerto Militar, Bahio Blanca where
he is going today and will return on the 18th. He said that he has pointed
out similar arguments to the President and Secretary, but he was certain that
I will carry more authority and weight in the matter because of the fact
that I have been recently in the Reparation Commission and acquainted with
the details mentioned.
" It appears here that in the Government circles they are perfectly ignorant
of the rights and obligations that the treaty has created, and therefore they
are very candid about the possibilities of buying from Germany through
Sweden.
" Due to this, the President has not yet sent the bill to Congress for the
appropriation for the construction, because they are not certain about the right
sum required. The Admiral is sure of the failure of the project, and he went
as far as to say that the two oflicei-s sent to report to Sweden will inform
against the scheme. On the other hand he advocated for the building of a
yard for assembling one or two submarines, the parts being l)ought either
in U.S.A. or any other country. He also is in favor of the double hull, the
argument he puts forward is very candid ; the case of collision. He advised me
in the meantime to become associated with the most important oflScers in the
Navy in order to discuss and make propaganda, in favor of your submarine.
I have already been introduced to many of them."
In tl>e meantime, the company sent a cable to Commander Aubry requesting
him to cable the name of the German builders offering to build submarines-
for the Argentine Republic, also the name of the representative of that com-
pany in the Argentine, and further whether the builders are in fact a long-
established Swedish corporation or whether the proposed builders are Germans
who are operating under a Swedish name. Tlie purpose of the cable is to
ascertain whether the Swedish building corpoi'atlon is a going concern or
whether it is an attempt on the part of Germany to evade the pUiin stipulations
of the Treaty of Versailles.
An answer to this cable is expected within a few days, and in the mean-
time it is respectfully requested the Department will exercise its good offices
MUNITIONS INDUSTRY 397
to ascertain from its Legation in Sweden or its representatives in Germany
the actual state of affairs and, if proper, make protest to the Powers concerned
against conducting an enterprise which is so palpably contrary to the intent
of the Treaty of Versailles.
I remain, Mr. Secretary, with great respect,
Your obedient servant,
F. Chapin,
Exhibit No. 112
Electrio Boat Company,
Oroton, Conn., January 13, 1922.
Mr. H. R. Cause,
President, Electric Boat Company,
Neio York City.
Dear Mr. Carse: Enclosed please find copy of a cable just received from
Aubry.
Unfortunately we can do nothing about the torpedoes as the Bliss Levitt
people have already quoted directly to the Argentine Government and do not
see their way to associating us with the matter at the present time.
The morning papers refer to negotiations now going on in New York with
regard to additional loans to the Argentine. In my judgment the financial
aspect of the matter will ultimately control the placing of the order and I
thei'efore think that it is of vital importance that we should get in touch
with the banking people who are negotiating this loan. I passed the same
thought on to Bethlehem but do not think that it would be well to rely wholly
on them.
Very truly yours,
L. Y. Speae,
Exhibit No. 113
Electric Boat Company,
Groton, Conn., May 25, 1922.
Mr. H. R. Carse,
President, Electric Boat Company,
11 Pine Street, New York City.
Dear Mr. Carse: 1. I enclose herewith Commander Aubry's expense account
covering his trip from Lima to Buenos Aires in our interest. Under our
agreement with him in regard to this trip he was to be paid not only expenses
but reasonable compensation for his time and services, which compensation
he has waived.
2. I have made definite arrangements with Bethlehem under which they
assume one-half of this expense which should be accordingly charged against
them. I expect to make definite arrangements with Bethlehem, under which
so long as we are working with them, they will cary one-half of the expense
involved by special representation in South America, and if that goes through,
they will be charged one-half of our future payments to Commander Aubry.
3. No cash is required in this case as the amount due him can be placed ta
his credit against his half of the cost of the small Crusette. The same thing
will apply to his salary.
4. I have under preparation here a revised contract for the Peruvian sub-
marine boats, also a memorandum covering our proposed arrangement with
Commander Aubry. The completion of the latter paper necessarily awaits
decision as to the details with respect to his representation of Launch Company,
the E. D. Company and the Submarine Boat Corporation. As to the arrange-
ments for submarines and engines, all details have been completed, except as to
the Brazilian submarine situation ; as to that he has agreed that I shall fix
the commission at what I consider fair and feasible, and I have indicated that
the maximum which the situation will probably stand is % of 1%. This
figure is based on the idea that our limit for commissions and similar expenses
will be 5% as provided in the present contract with Boettcher and that
in rearranging this contract we will be able to reduce the Boetcher commission
83876 — 34— PT 1 26
398 MUNITIONS INDUSTRY
enough to take care of Aubry. In view of Azevedo's death and the service
which we are providing through Aubi-y, we are certainly entitled to a reduction
in the Boettcher commission. The crux of the whole matter however will be the
commissions wliich will have to be paid to third parties in Brazil, so that we
cannot very well fix upon definite figures until we get more information than
we now have.
Sincerely yours,
(Signed) L. Y. Speab.
Exhibit No. 114
Rio DE Janeiro, Septemier 2, 1923.
Mr. Laueel Y. Speae.
Vice President Elcctrio Boat Co., Grot on, Co-nn., U.S.A.
My Dear Mr. Spear: I was on the verge of writing you when I received
your cable yesterday, which I promptly answered, as per copy inclosed.
As you know I was requested by the Minister of Marine and presented to
him a new scheme which was authorized by the company to make possible the
signing of the contract the present year because the Minister of Marine had
done all in his power to put the matter thi'ough right now, but the unprece-
dented fall of exchange, which has been discussed very widely by the press
here and by Congress, has practically brought the determination of everybody
concerned to stop all the expenditures that they had decided to make this
jear regarding the new bills sent to Congress, which have now been put in
abeyance.
In the conference that I had with the Minister 2 days ago, in which I was
to ask for a reply to my last proposition on your cable agreeing to the begin-
ning of the payments next year, and which was at the suggestion of the
Minister himself, he told me decidedly that the situation was such financially
and the regard made in regard to economies so big that it had been impossible
for him to obtain the President's consent to sign any contract at all this year ;
that he was very confident that next year, not before April or May however,
they will be in a position to contract for the " subs " ; that it was positive that
they were going to obtain during the present administration at least the five
submarines, which was the most important and first thing on their program ;
that there was no discussion any longer regarding the type and builders, that
that was settled some time ago between the President and Admiral Vogelgesang
that we will construct the new program.
Of course, I stated that I was a little bit surprised that if the determination
was to build the submarines with us, having agreed on the type and builders,
and having also proposed to us in principle to sign the contract now and start
the payments next year, I could not see any advantage in delaying the sign-
ing of the contract, when it was practically the same thing for them. " Yes ",
he said, " but you do not take into consideration the most important factor,
the moral effect on public opinion when everybody is crying for economy.
If the contract is signed next year the situation will, without question, have
improved and we know now exactly how much money we will have next year."
Of course I told the Minister that I would explain the matter to my company
and that we will always be ready to serve.
Last night I took the opportunity to see Admiral Vogelgesang. and to whom
I related my conversation with Admiral Alejandrino. He ratified to me that
" nothing could be done in regard to new construction until April or May
next year when they will buy your ' subs ', they know very well today that
the best is the American."
Now. I think that there is no reason for me staying here longer. I have
done all in my power to bring things to a successful conclusion this year, and
inasmuch as I was sure to have succeeded if there had not been general
factors of such momentum here in the matter entirely out of my control. I
am perfectly confident that these people will order the submarines from the
Electric Boat Co. in April or May of next year. I suppose that you will have
more or less the same confirmation from your friends in the mission.
The news that I have from the Argentine from very reliable sources has
been always the same, that is, that the Government is developing a plan
there which consists in presenting to Congress bills for armament so exagger-
ated that they now cannot be passed and, at the critical moment if they see
Brazil building anything, they will agree to a logical reduction and then also
MUNITIONS INDUSTRY 399
build. In other words, tliey are bluflBug because they think in that way they
will prevent Brazil from building anything. Here they have absolutely ignored
these tactics, and if they have not ordered what they so badly need it is
because they cannot do it for the reasons I have already explained.
The sensible thing that I propose to do will be this: To return to the
Argentine, where I will only stay a few days, and investigate thoroughly the
situation there, and then proceed to Lima, where I have been called by
both cables and letters from my friend Dr. Rodrigues Larrain who tells me
that the discussion between the Pro-Marina and the Government has been
settled and that the Government can now dispose of the funds of the Pro-
Marina to start the construction of two " R " boats and that my presence is
requested there for the dealings. In the message of President Leguia to
Congress he has stated that he is going to contract for two units. Although
I think that Dr. Rodrigues Larrain is absolutely capable for closing this deal,
because there also there is no competition for us due to the fact, as you well
know, that we have accomplished that work long ago there and that the
American naval mission has also recommended the type and company 2
yeai's ago, but under the circumstances having nothing to attend to on this
side it will be the most sensible thing for me to go there, where naturally I
could bring things to a conclusion quicker.
It will be perfectly safe to leave here on the lookout Germanno Boettcher,
who although not qualified for signing any contract for the reasons explained
to you long ago regarding his commercial situation, he is the man without
question better prepared and better connected to attend to our business, besides
he is perfectly interested in the affair and I am entirely confident of him,
and so I suggest that you will authorize me to entrust him with the care of
our interests here, and I will manage to be in constant communication with
him.
Now, if you approve of this, please wire me authorizing me to proceed to
Peru ; if not, to return to B.A., and if you have any reasons for me to remain
here that I am ignorant of, also please wire me so that I will know exactly
how to handle the situation with my friend Dr. Rodrigues Larrain by letters
and cables. If you authorize me to proceed to Peru, I will understand that
it is via Argentine.
I want to point out that here in Brazil I have withheld the prices even
in this last proposal so if conditions change by next year we will have no
difficultj' in altering them. In regard to the dealings in Peru, although they
have there the complete specifications that you sent to Dr. Rodrigues Larrain
last July, and also the price that you gave me in June, if I am authorized
to go to Lima please send me any alterations that you might consider advisable
or desirable. My address will be as follows :
Buenos Aires, postal, Las Heras 1914 ; cable, Aubry.
Lima, postal, Basaje Velarde 177 ; cable, Aubry.
I hope to hear from you soon, in order that I may shape my plans
accordingly.
Believe me to be as ever,
Yours very sincerely,
[S.] Luis Aubry.
Exhibit No. 115
Eleoteic Boat Compant,
Oroton, Conn., September 20, 1923.
H. R. Cabse, Esq..
President, Electric Boat Company,
11 Pine Street, Neio York City.
Dkab. Mb. Caese : Enclosed please find copy of letter from Commander Aubry
dated September 2nd.
According to his cables, he plans to sail for Buenos Aires on the 27th instant,
I have advised him both by cable and by letter (which he will receive on
boarding the steamer at Rio) that we want him to stay in the Argentine long
enough to give us full reports and to receive and carry out instructions from
us. I have advised him in a general way that it may be our policy to support
the bid of our English friends in the Argentine and that we may also decide
to have a friendly controlled bid put in from Italy. I have tried to make
it clear to him that his reports from the Argentine are part of the data
which we must have before us before we adopt a final policy.
400 MUNITIONS INDUSTRY
In view of the situation in Peru, I suppose it will be well to authorize
him to proceed there as soon as we release him from the Argentine and, if you
agree, I will do so.
Sir Trevor Dawson's cable of yesterday shows that he is in accord with
my su^'gestion, viz: That we should arrange for an Argentine bid from our
Italian friends. As Sir Trevor's cable is not quite clear, I propose, if you
agree, to cable him substantially as follows, viz :
" Your cable 18th not fully intelligible. Stop. Have not approached Italy
or Argentine about proposed tender and will do nothing until after receipt
of your letter."
As Dawson has agreed in principle, I propose to communicate now with
Passano with a view to ascertaining whether our Italian friends want to go
into the matter and if so, whether they are in a position to do the needful
with regard to Italian diplomatic support.
The general idea, of course, is to fix the Italian price a little higher than
Vickers' price and if by any chance they should get the order, the profit will be
ample to take care of them as well as "Vickers and ourselves.
When tlie time comes for us to discuss the details of the arrangement be-
tween Vickers, Cantieri Navale, and ourselves, I will have for our guidance some
rough figures to indicate the amount available for distribution.
Very truly yours,
L. Y. Speae.
Exhibit No. IIG
Electric Boat Company,
Groton, Conn., January 7th, 1925.
(Refer to No. 1023/63/LYS. Subject: Argentine Order, Y-Guns, Depth
Charges, etc.)
H. R. Carse, Esq.,
President, Electric Boat Company,
11 Pine Street, New York City.
Dear Mr. Carse : 1. I am forwarding you under separate cover by registered
mail, four copies of the contract with the Argentine Government for Y-guns,
arbors, cartridge cases, and depth charges, together with four copies of the
three specifications accompanying the contract and I enclose herewith check
to the Electric Boat Company for $1,000, being the advance payment on the
order in accordance with the terms of the contract.
2. You will note that three of these copies have been duly executed by the
Argentine Commission. Please have the company's seal placed on all three
executed copies and on all of the specifications attached to them and have
them forwarded to Rear Admiral J. Irizar, President, Argentine Naval Com-
mission, 250 West 57th Street, New York City. The remaining copy is for
your files. I am acknowledging to him the receipt of the check.
3. The New London i)eople are now engaged in making up their estimate
of the cost of this stuff and as soon as those figures are available, I will
take up with you the question of the terms and the necessary formal arrange-
ments with the American Ordnance Corp., and with me. Of course these mat-
ters will have to go before the Board and I would suggest that it miht be well
to hold back the contract with the Argentines and let it go before the Board
at the same time so as to make one bite of the whole cherry.
4. When this negotiation started, the order was of substantial size, but
owing to the diversion of their funds to battleship construction by Bethlehem,
they have had to cut it down to small proportions so that the importance
lies not in the amount of money involved but in the fact that they have adopted
our type of stufC in competition with the British which, of cour.se, puts us in
a preferred position to get the business when they are ready to place a
substantial order as they well may be next year.
Very sincerely yours,
(Signed) L. Y. Spear.
LYS : B.
End.
("Exhibit No. 117" appears in text on p. 186.)
MUNITIONS INDUSTRY 401
Exhibit No. 118
10 July, 1926.
Mr. L. Y. Speak,
Vice President, Electric Boat Company,
Groton, Connecticut.
Subject: Argeutiue.
Dear Spear: I have received your cablegram of July the 8th, as follows:
" European construction for Argentine probably essential account price.
Procure immediately all information and requirements from Galdinez Mission
in London. Subject to necessary arrangements with Vickers to be made later
contemplate construction Italy or preferably Belgium. Ample time preparation
design and estimate essential. Unless Johnstone presence Finland essential
suggest that you recall him soon to assist you."
I have at once taken the necessary steps to go to London, and will see what
I can do in the matter and will report as soon as possible.
I am now handling outside the usual negotiations for submarines, the fol-
lowing matters :
1. ) Obtain affidavits for plans covering claim against the German Government.
2.) Direct campaign in Holland with the aid of French and Italian, and
perhaps the U.S. Government — if you can obtain that instructions be sent
to your Ambassador at The Hague — in view of the combating of the " N.V.Ing,
Kant V. Scheepsbouw ", as well as further German activities.
3.) Obtain information, data, and, if possible, plans about German torpedoes.
4.) Obtain requirements and information about Argentine submarines.
5.) Direct lawsuit against Whitehead-Fiume, in which the Company has a
50% half interest.
6.) Follow up orders for guns, etc., for Peru.
7.) Development business Y-gun, Davis gun and depth charge.
8.) Redeption of directors and friends of the company.
For all this important work, outside of the normal business, the company
pays me a salary in francs, which is equivalent to what, I suppose, your
draftsmen or your stenographers get, and whilst you wrote to me that for some
time you had been thinking about this matter, I wish to say that the time
to act, is now. And I request to be paid a suitable salary which will allow
me to live like a man in my station of life, and which I beg you to fix at one
thousand dollars a month, payable in dollars.
Please give this matter your best consideration, and believe me,
Very sincerely yours,
Exhibit No. 119
Department of State,
Washington, September 16, 1926.
(In reply refer to LA 835.34/409)
Mr. C. S. McNeie,
506 Hibbs Building, Washington, D.C.
Sir: On September 9 the Department at your request informed the Amer-
ican Ambassador of Buenos Aires by cable that the Electric Boat Company of
New York was competing before an Argentine Commission in Paris for an
order for three submarine torpedo boats of about 900 tons each, which it was
proposed to build at the works of the Cockerill Company in Belgium from de-
signs and under the superintendence of the Electric Boat Company which would
also furnish certain parts. The Ambassador was instructed to seek an early
opportunity informally to request the appropriate Argentine authorities that
American firms be given an equal chance to compete for the business and that
their offers receive consideration equal to that accorded to any other foreign
companies.
The Department is now In receipt of a reply from the Ambassador, stating
that he has taken the matter up with the Minister for Foreign Affairs and had
been assured by him that American bids will be given the equal opportunity re-
402 MUNITIONS INDUSTRY
quested and that they will be examined, strictly upon their merits, without;
regard for other considerations.
I am. Sir,
Your obedient servant,
For the Secretary of State:
(Signed) Butler Wkight,
Assistant Sect'etar'y,
Exhibit No. 120
[Telegram]
Baires, November H, 1926.
Elecboatco :
LALYGNIDTE UKMID MUZEF NODCOGIFOB LEHUGLAHZO BIHUZ
KLOTZ OBCHOMOHM EPUSDBUGUJ RUICTDIZIF APUHMFULUX JO-
POIICUMAF IDVUDPIOVK ULMFAAKDIZ JUNJEOHVOS MYTITLECVA
UKWYRTYDE AKUFDNOOBZ OWBENOHVOS KYDKYIFORS WREMVDI-
ZIF BIYMEABWUF JUANLEGUIA APGAGKUKIB LADYXHIMFO IMVTO
ANFIBIANS REPLY BY POSTAL.
AUBBY.
[Translation]
No. 3. I am of opinion that we will obtain orders for six now but we must
agree to pay 50,000 dollars cash against signing (on) contracts as an extra local
commission. In return they will also maintain price of your three therefore
such net amount ought to be reduction of price not to be included. Writing-
contracts. Cable if you accept. Juan Leguia due to arrive New York 1.5th
November. He may be interested in amphibians. Reply by Postal.
Postal 9 a.m., Nov. 15th.
Exhibit No. 121
[Telegram]
ExJBKSTRio Boat Company,
Netv London, Conn., November 15, 1926.
AuERT, Grand Hotel, Buenos Aires:
Lalzawisaz uzwujukkib vamroohvos gifoblehug wicyppukaf akcuborbra
lecvaukkib irfelmudny miutsepusd ahjenafarf gumafusewj mohmyepusd
obhygbugky ueoznrufve diziftugny idetywuenif edixytygpe disavgionk vem-
woagzyn ospuzijloy vezkobisok seawrtugny uhorttytde edwuzoconf akidiznieca
owtijjyrno oconfummer eflujmyojk lehugtugny deczaneozn olnyx Spear.
(Translation)
No. 4. With understanding that unit price for six will be same as already
quoted for three that is $713,500 we agree to additional commission total
$50,(X)0 payable cash on signature contracts. Important you defer submitting
contract form until after receipt information from us by next steamer. Tele-
graph whether such delay permissible also your opinion regarding maximum
permissible time for delivery of six. Congratulations on prospects.
Speiab.
Exhibit No. 122
[Copy]
Buenos Aires, March 24, 1921.
Mr. Lawrence Y^. Spear,
Vice President Electric Boat Company,
Groton, Conn.
My Dear Mr. Spear: (1) I wish to acknowledge receipt of your personal
letter of February 10th and your 3 letters of February 10th, nos. 124, 125,
and 23 ; also yours of Feb. 11th, for all of which please accept my best thanks^
MUNITIONS INDUSTRY 403
(2) I must apologize for not liaving written after my letter of February
24th, with the exception of a very short one under date of March 10th. The
reason for this being that the impressions received since February 24th until
recently have caused many uncertainties which placed me in the position of
preferring to write you as soon as I was certain of what I was saying; and that,
unfortunately, was not the case from February 24th up to March 16th. My
cable of March Sth, requesting the $20,000 in advance of commission promised,
duly arrived on the 10th March. I cabled you in regard to this because it
w^as imperative to get action from the man to whom we have offered $50,000
and I knew at the moment that only he could avoid the consummation of
the plans of the Minister of Marine and the Minister of the Treasury in
regard to French construction. That man told Ribero that he would not
undertake any action that might compromise himself in any way unless he
could see part of the money offered in sight ; and I, therefore, made arrange-
ments by which he might be sure of obtaining this amount of $20,000 and I also
made sure that he cannot touch the money until the contract is signed ; so I
am therefore responsible, as I stated in my cable, for the refunding of the
money to the company in case the company or our licencees do not obtain the
contract. The only thing that I did was to convert the dollars into pesos,
as per enclosed bank liquidation. I do not know whether, if I have to convert
these pesos into dollars again, it will mean any loss to the company.
(3) Your cable no. 6S in reply to my no. 33 was also very welcome, because
we are making a very, very big effort to develop a great campaign to see that
all our work is not lost at the last minute by a combination such as the French
one which I explained to you in my letter of Febraary 24th. We have been
able, in this respect, to get an editorial in the most reliable newspaper in the
Argentine, " La Prensa ", which I herewith enclose in order that you may have
an idea of what it says. You can, I suppose, imagine who is responsible for
this editorial.
(4) My week-end cable asking that you do not consider that I wrote in
my letter of February 24th and stating that we were almost in the same
position as we were on February Sth is exactly the present state of affairs.
The Minister of Marine, Domecq Garcia, has been making efforts, in con-
junction with the Minister of the Treasury, to arrange for the use of the
$20,000,000 that France owes the Argentine. Now the President has been told
by very responsible people in this country and by the press, as you can see-
by the editorial which I enclose, that such a policy cannot be followed with
safety for the good of the country. The President has now stepped back in
the arrangements and has definitely told Ribero that the order will be ours
unless France gives Argentina the wonderful type that they are building at
Loire for the French Government (which the French Government so far refuses
to cede). This explains my cables nos. 33 and 34. Your cable no. 68 allows
us to bring to certain quarters the conviction that the French are just play-
ing a trick and that what they want is to get rid of something no good in
which they have no faith.
(5) Our team work is being carried on all the time and I can assure you^
Mr. Spear, that I cannot swear, but I certainly can tell you that my strong
opinion is that we will not lose the order, one way or another. The only
disagreeable thing is that these negotiations have taken too long. Another
disagreeable feature is that the contracts will not be signed here, but in
Europe — at least, that is what the Minister says and what everyone else says at
present.
With best regards to Mrs. Spear and yourself, believe me, my dear Mr. Spear,
Yours very sincerely,
(S.) Luis Aubky.
Exhibit No. 123
Lima, Peru, Mmj 12, 1927,
Avenida. del Progreso, No. SOS.
Mr. Lawrence Y. Spelar.
Vice President the Electric Boat Company,
Oroton, Conn.
My Dear Mr. Spear: I arrived here from B. A. via Chili, on the Sth of May,
and also received, upon my arrival, your cable #1 simultaneously with a-
cable message from Ribero informing me about the situation in B. A.
404 MUNITIONS INDUSTRY
1. Argentine business : I acknowledge receipt of your letters of the following
dates : April the 21st and April the 20th. It is now evident that we are going
to have a definite action. The Minister of Marine had to realize that it was
of no use to continue this fight with Ribero and be had to adopt the only-
attitude possible under the circumstances. We will have the order for three
submarines to be built in France and I entirely agree with the suggestions
contained in your letter of the li6th April to Sr. Ribero, especially as regards
paragraph no. 2, where you refer about how exceedingly difficult it is to deal
with the French firms, especially when they think that the Government has
designated any particular yard for the construction. The selection of the
Building Yard, I hope, is going to be let entirely in our hands and I have
sent, today, a very impressive wire to Ribero to that effect iu order that our
friend, Capt. Koster, will not suffer the same ordeal as in the past at Buenos
Aires. I am in touch by wire with Ribero all the while and I have also received
already letters from him. In his last letter of the 27th April he sent a copy
of the wire he had forwarded to you on that date, in which he pointed the
specifical commission of £5,000 per boat for the friends and, besides, the special
commission agreed with me some time ago ; and he said to me that everything
is in order in regard to this matter excepting that he had noticed that in his
document covering his personal commission the expiration date is 9th June,
1927, and although he felt sure tliat morally he is absolutely well covered
because any contract that will be signed weeks or even months after the
^th of June will be the result of our work and efforts and recognized so by
the company, he would very much prefer to have everything legally in order.
So he requested me that the company send him a wire stating that he will
receive his commission irrespective of the date in which the pending contract
will be signed by the Argentine Government and The Electric Boat. I think
that this request is perfectly in order, and, incidentally, I request you also
to send me a letter extending my contract rights and obligations until the
9th of September, because my contract expires on the 9th of June, and this
■extension of three months I request and I consider necessary to satisfactorily
conclude the business in Argentine as well as here; and although I am per-
fectly sure that the company will always recognize my rights on what will be
the result of my work, I think it is more businesslike to have everything as it
is in writing. So I will highly appreciate if you will kindly send me a letter
signed by your or Mr. Carse extending my contract for three months.
I hope that by September, or before that date, I shall be able to go to the
States after concluding the business in Argentine and adjusting here some-
thing new and hence to talk over with you there about my future services,
if they are wanted, with the company.
No. 2 Peruvian business : I acknowledge the receipt of yours of the 12th,
14th, 18th, 19th, 21st, and 26th April.
Regarding yours of April the 12th, about Juan Leguia's visit to you and
the construction of the larger boats for Peru, I spoke last night, at length,
with the President and he told me that he has not instructed, commissioned,
or requested his son, Juan Leguia, to act in any capacity whatever in regard
to this, and whatever he might do will be entirely in harmony with what he
promised me in October last ; that is, to increase the national defense funds and
buy armaments for the Army, which are required very badly, and order two
more " R " boats. He promised me that at the end of June next he will be
entirely prepared to discuss the matter thoroughly with me, as he expects to
have by that time the financial scheme accomplished, which will very likely
permit the withdrawal of the bonds issued by the National Defense Act (that
is, our bonds) and then contract two more lioats on a cash basis.
He told me that he has not discussed the matter over with Admiral Howe
because he was perfectly aware that the Admiral did not want any more
subs but destroyers, and he added, smilingly : " But you and I, we do not want
any destroyers, but subs, and, therefore, why should we discuss the matter
with Howe when we have the opinion of his predecessor, which is in line with
ours."
My opinion, my dear Mr. Spear, is that I shall be able to do something
here, probably in July, that is, I shall be able to obtain, I think, an order for
2 more " R " boats ; now, what I request is that ,vou should send me a price
on cash basis — that is, an independent contract entirely from the last one,
including 50 torpedoes and ammunitions, guns, etc. You can quote a price only
a little lower than the last ones, and I will also try, as we are speaking about
available cash, that the first payment should be very large, say 40% of the
MUNITIONS INDUSTRY 405
total contract price. You have also to consider the usual commissions plus
the one for J. L.
I am sorry that this prospect will not fit entirely with your desire expressed
in your letter of April the 14th, but in case it should come at the meantime
with the other larger expected orders, we always can apply to some other
yards for the building of the hulls. Of one thing I can be sure, and that is
that I will do my best to get the most advantageous price, terms, and condi-
tions for the company, and also that it will not be any change in the design
because not only the president is absolutely satisfied with the " R " boats, but
also everybody in Peru.
No. 3. Regarding your enquiry about the Callao port improvements, before
having a talk with the president upon my arrival, I went through the different
departments of the government and obtained all the data concerning the past
and present projects of improvements, but I stopped this activity as soon as
I spoke with the president last night. He told me that this matter is already
committed with a gentleman named Mr. Clark, in which our old friend Chester
has a hand to accomplish such an undertaking ; and therefore, he could not
promise anything at all in this respect. In other words, my dear Mr. Spear,
there is nothing to do in regard to this matter. Somebody else will have the
job, whatever Mr. Juan Leguis may have told you.
Referring to the letters of the 26th, as regards the bills sent to Admiral
Howe, I spoke with him this morning and he told me that the bill will be
ordered payment as soon as O.K. by Capt. Jordan; but he told me that there
were some items which we have sent that have already been paid. Of course,
I suppose both sides will have documents in regard to such a thing; so I do
not anticipate any difiiculty, but on the contrary.
No. 4. Mr. Carse has writen to my uncle Pedro Larranaga, in regard to
obtaining from Dr. Alvarez Calderon a statement about the legal aspect of
the last contract that I made in October 1926. My uncle has passed the
request over to me and I am attending to it and expect to be able to send the
requested document to the company by next mail.
I want to mention in regard to this that I did not consult Dr. Alvarez
Calderon at the time of the contract for the obvious reason that Alvarez
Calderon, at such time was not here but in the United States, and I am not
soft-y for that neither, because at such time — that is, other contracts — his
opinion and intervention would have cost the company a 25% — that is nearly
$9,000 cash. Now, his bill, of course, will be quite different.
With very best regards to you and Mrs. Spear from Mrs. Aubi'y and myself,
believe me, my dear Mr. Spear,
Yours very sincerely,
(S.) Luis Aubey.
("Exhibit No. 124" appears in text on p. 195.)
Exhibit No. 125
VicKE2?s Limited,
Barrow-in-Furness, 1th Nouember, 1927.
PEIVATE
L. Y. Spear, Esq.,
Electric Boat Company, Groton, Conn., U.S.A.
My Dkar Spear: Referring to my letter to you of the 7th October and your
reply of the 21st concerning the new British submarines, I have again care-
fully thought out the whole matter. The same crowd of firms are tendering
this time and in addition Yarrow is tendering. This means a cut-throat
performance.
In view of the fact that the Vickers-Armstrong matter is not definitely
settled and passed by the shareholders they are preparing their own estimate.
However, I think I shall be able to guide them when the final tender goes
in but only at the very last moment.
May I suggest to you that it is in your interests as well as ours that we
should get as many boats as possible this time. I do not think Beardmore's will
get much of an order unless they put in a terribly low price, because they
406 MUNITIONS INDUSTRY
are so far behind with the two boats they are now building. We, on the con-
trary, have made very good progress considering the slacliness of the Admiral-
ity in approving drawings, and we are well ahead of Beardmore's and Chatham
dockyard. I am hoping to knock both out by a good many months in final
completion.
However, I am very doubtful whether the Admirality dare order more
than three or four boats from us, but I still think it worth while to put in a
tender for six on the basis of paragraph two of my letter to you of the 7th
October. I should be very grateful if you would wire me your approval of the
suggested royalties in that paragi'aph.
During the last few days by skillful maneuvering we have managed to get
some of our competitors' prices in the Chilean competition put up, and so
may have prevented a real price-cutting war which w^ould have resulted in
our taking the boats at a loss. However, I hope we shall know our fate
soon and, of course, I will cable you immediately I hear anything.
Yours sincerely,
C. W. Ceaven.
Exhibit No. 126
Victcers-Armstrongs, Limited,
Naval Construction Works,
Barrow-in-Fumess, 31 March, 1928.
JL. Y. Spear, Esq.,
Messrs. Electric Boat Company,
Chroton, Conn., U.S.A.
My Dear Spear: I apologise for having taken so long to answer your letter
of the 28th February, but I wanted to have a talk with Thurston about it.
First, let me tell you that " Z " has written and asked for a copy of the
*' O " class design to be sent to Fuster. We took some considerable time to deal
with the matter, but a hastener came, and as the Admiralty allowed us to send
the design, minus certain secret fittings, we had to agree. I am afraid you will
be upset, but it really could not be helped.
With regard to paragraph 2 of your letter, the price is £1,094,000, including,
of cour.se, all the usual Admiralty supplies, wireless, torpedo tubes, etc. It is
not as good as I hoped for. I have included £10,000^ per boat for you, and
the delivery dates in the contract are June, July, and August 1929. The whole
thing has been most secret, and as Dawson negotiated the final contract with
the chief of the commission in London, I had to accept his ruling, that I was
not even to mention the matter to you in writing, hence the message by Roberts.
Even today, we are bound to secrecy, so will you please promise me not to let
your little friends from the other South American country know what is going
on at present. Delivery, as you will see, is a terribly tight one, and I have
heavy penalties against them, but I am afraid that cannot be helped.
You will have seen in the press about the trouble with the steel columns in
the " Oxley " and " Otway." I have asked Rabbidge to write to you and explain
the whole situation. It is a damned nuisance, as the Iwats were doing so well.
Regarding paragraph 3 of your letter, I have now been able to have a talk
with Thurston. He tells nie it is really rather dilficult for him to support your
contention about the stability of the " C " class. He says that we have nothing
in our records to support the figures obtained by the Spanish boats, and he
would find it rather diflScult as a naval architect to definitely say they are good
for the Spaniards. However, he has promised to do what he can if we are
•consulted.
With regard to paragraph 4, I wish you the best of luck and hope you may
:be able to knock out s><)me of your Government dockyards. They seem to be
even more of a nuisance with you than they are here.
I wonder whether you have heard that our old friend Percy Addison is now
the director of dockyards. I helped him all I could to get the job, and I think
he will be an ideal fellow for it. It means his retirement, but it also means
his having a permanent job for about ten years if he behaves himself, and as
he has no private means worth talking about, you will appreciate wiiat this
means to 'him. I have suggested to him that you and I, and he and Johns
^As per your telegram of 13th April 1927.
MUNITIONS INDUSTRY 407
(who is anxious to meet you), should liave a party and thoroughly wet the
appointment next time you are over here.
I am having a terribly busy time with the Armstrong Works on my hands
as well as Barrow, but I am going away for five or six days at Easter, in the
" Orford ", a new liner we have just delivered to the Orient Company.
Yours sincerely,
(s) C. W. Craven.
Exhibit No. 127
[Copy]
August 6, 1928.
1036/127/LYS
Confidential
Commander C. W. Ceaven,
Vickers-Armstrongs Ltd.,
Barrow-in-Furness, England.
My Deas. Ceaven : I am just in receipt of your letter of July 25th in reply
to mine of July 13th with reference to a new compensating system for fuel
oil, etc. In accordance with your request, I am enclosing herewith copy of
the preliminary patent papers and sketch, which I think will give you all
the information you need. Since your letter indicates that it will be desirable
to secure patent protection in Great Britain for this scheme, I shall act ac-
cordingly, unless I hear from you to the contrary. Until our British applica-
tion is actually filed, I think it would be in order for you not to pass the
information herewith to anyone.
I have recently received a note from the late unlamented Mayers advising
me of his arrival in New York enroute to Washington. The note was, of course,
duly filed in the wastebasket.
I hear that friend Livingston passed through New York recently on his way
back from Peru. I. however, have not seen him. It is too bad 1hat the per-
nicious activities of our State Department have put the brake on armament
orders from Peru by forcing the resumption of formal diplomatic relations with
Chile. My friends advise me that this gesture means that all contemplated
orders must go over until next year. This hitch also means that we must not
delay too long in getting Aubry back on the job in Lima. The indications
are now that he ought to be there about Jan. 1, 1929, which means that his
private arrangements will have to be made quite soon. Since the arrangement
which we may make with him will necessarily be affected in some degree by
any arrangement which you may make, I would be obliged if you will, if
possible, step on the gas so that we can chase the matter up next month.
Very sincerely yours.
LYS : B
Exhibit No. 128
[Copy]
Naval Consteuotion Woeks,
Barrow-in-Furness, 8th February 1929.
L. Y. Speae, Esq.,
Messrs. The Electric Boat Company,
Oroton, Conn., U.S.A.
My Dear Spbue: I am very grateful to you for your letter of the 28th
January, and for so promptly sending me copies of the instruction books issued
by you relating to the H type of submarine for Chile and the R type of
submarines for Peru. These will be most useful to us in preparing something
similar regarding the Chilean " O'S."
Thank you also for letting me know the latest about Aubry. I am very
relieved to know he is now on the mend, but am terribly sorry to hear he has
ihad .such a bad time.
Again many thanks,
Yours very sincerely,
/a/ C. W. Craven.
408 MUXITIOXS INDUSTRY
Exhibit No. 129
Naval Constbuction Works.
Barrov>m-Furness, July ISth 1929,
L. Y. Speiab, Esq.,
Messrs. Electric Boat Company,
Groton, Conn.
My Dear Spear : Thank you very much for your interesting letter telling me
of the visit of the Spanish Mission. I think both of us are feeling a bit more
optimistic regarding the Spanish submarine business than we were a few
months ago.
Your note regarding the limitation of armaments is very interesting, and
I can assure you I am extremely anxious about some of our present contracts.
Although the papers say that certain submarines have been cancelled, nothing
has yet taken place although there is always a possibility of it happening.
However, we shall know our fate within tlie next week or two and if I hear
anything I will at once let you know.
Our second Chilean submarine has done her preliminary sea trials and. is
due to go out for official trials on Tuesday the 16th instant. They are all
about a month late, but really my people have done remarkably well as the
engine column trouble gave us a serious set-back.
The " H.47 " " L.12 " collision is a pretty bad show, and it is really a marvel
that " L.12 " was not taken down by the other boat.
All good wishes to Mrs. Spear and yourself,
Yours sincerely,
Craven.
Exhibit No. 130
February 1st, 1916.
Memo for Mr. Spear.
At 9 : 00 a.m. on January 31st, I met Captains Carranza and Garcia of the
Spanish Navy at the Parker House, Boston, by previous appointment.
I expressed Mr. Davison's regret that he was unable to be present.
Previously, requests for passes had been obtained signed jointly, as is cus-
tomary, by Mr. Gardner and a Fore River Company official. These requests
referred to "Mr. S. B. Smith of the Electric Boat Company, and ttvo assistants."
We went to the Boston Navy Yard where the commandant's aide informed
me that the captain of the yard, Commander Haswell, handled such matters
personally. Commander Haswell gave me the necessary order to Mr. Roth and
we went on board the boats. During our visit these ttvo officers were not
recognized.
We went on board H-13, and for three hours went over the boat very care-
fully. One of the engines was run charging battery. The periscope (after) was
raised and lowered and diving gear operated. Steering gear, hand and electric,
was demonstrated. The conning tower as an escape lock was explained, also
the safety features of the partial bulkheads and escape hatches.
The boat was in excellent condition, clean paint, and shining bright work, and
all gear that we tested operated perfectly. The periscopes were exceptionally
clear, considering the misty and foggy weather.
Captain Carranza said that he liked the boat very much and was anxious that
Captain Garcia see it so that on his return to Madrid he could take information
first-hand.
The rank of each officer is It. commander.
Captain Garcia's address in New York, where he returned today, is the Hotel
McAlpin. His name is " Mateo Garcia de Los Reyer."
(Sig.) S. B. Smith.
("Exhibit No. 131" appears in text on p. 206.)
MUNITIONS INDUSTRY 409
ExHiDiT No. 132
[Copy]
ConfidentiaJ.
Translatioi) oy JRD.
June 5, 1924.
Ebnest B, Sansom, Esq.,
London.
Dear Me. Sansom : We have pending an important negotiation witli regard
to a contract of guarantee for tlie new submariues, of tlie program wliicli is
under consideration by tlie Ministry of Marine, and I prefer to write to you
in order that you may consult on the question with Sir Trevor Dawson at the
moment that you may consider most opportune. The important points on this
question are the following :
The contract which our company had made with the Electric Boat Co. was
.signe<l in 1912 for a period of 10 years. It thus terminated in 1922. Really,
the submariues which we are now constructing of type " C " of 900 tons sur-
face displacement, were contracted for with the Ministry of Marine after our
agreement with the E.B.C. had terminated, and it has been considered (su-
puesto) that this agreement remained tacitly prolonged with exclusive applica-
tion to these sis submarines " C " which we are constructing in Cartagena.
When I was in England in the month of June of last year, the question was
brought forward in the terms wliich you perhaps are familiar with, and Sir
Trevor Dawsan and Lieutenant Spear of the E.B.C, delivered to be a " rough
draft " of which I included a copy herewith (document A) ; also send inclosed
a copy (document B), in which are set forth the amounts which we would have
to pay the E.B.C. and to Vickers, Ltd., if we made with both firms the con-
tract which they proposed to us. This proposition could not be accepted by
our society, and in order that you may see that it is completely unacceptable, I
include a statement which we have made out (document C), in which we have
sought to apply the " rough draft " to various assumed cases of estimates for
submarines. Also I am sending you (document D) a note in which is ex-
plained the intention (or basis ?) on which we have prepared the above-
mentioned statement.
It may be seen from said statement that although the profits reserved to the
E.B.C. and to Vickers, Ltd., are very important, that of the sociedad disap-
pears rapidly, and may easily be converted into a great loss for us.
From another point of view, the foundation of the new concern the " Union
Naval de Levante " is bound to have its influence on the prices which are
conceded to us for submarines, tending to make them lower than those au-
thorized up to now, since it is evident that said combine has come here attracted
by the prices which it has become acquainted with regarding our previous
contracts, and is already proclaiming that they are going to make much more
economical offers to construct submarines, employing plans and guarantees from
the Krupp company. We must therefore be prepared to offer reasonable prices
f^nd it would be convenient that we might arrive at conditions very similar to
those established in our contract with the companies which give us their
guarantee for the other surface boats, or in other case, at a reduction not
only of very considerable amount, in the price of the guarantee as set forth in
the " rough draft ", but also at an elastic price sufficient so that in case
we should have to reduce our prices of construction by exigencies of the
Government, this reductions would not be at our expense but might be borne
equally by the guaranteeing firms.
As an important question I may tell you that on treating with the authori-
ties with respect to the new submarines, we are acting with the belief that they
will not ask of us the guarantee of any foreign company since they consider
that the society in condition to design many of the types of boats which they
are constructing. Is this not an indispensable condition for us, to present a
technical guarantee from important companies, but our desire to continue as-
sociated in the study of boats, with the firms with which we are already
410 MUNITIONS INDUSTRY
acquainted, is what causes us to attempt to arrive at reasonable terms, within
the clianges suffered in general circumstances from 1912 to present date.
I will thank you very much for any attention wliich you may give this
matter and remain.
N.F.
Document A : You have copy.
Rough draft.
Document B : Simple note showing deduction of the 5% and then 10%.
Document C : Enclosed.
Document D.
GUARAJSfTEE FOB STJBMARINES
By the contract of 1912, the E.B.C. supplies the general plans, the con-
struction plans, and specifications and covers the expenses of their technical
inspection and collects 5% of the value of the boats and the half of the
profits.
Under the proposal of July 1923, the E.B.C. supplies only the general plans
and specifications required for the presentation of the projects and collects 5%
commission and 10% after deduction of the 5% previous (9.5%) as royalty;
supplies the construction plans at cost, and there passes to the account of
the S.E. de C.N. the travelling expenses and salaries of the engineers or
technical inspectors. Not being acquainted with the amount of these costs we
assume them provisionally represented by 2.5% of the contract price.
"With this data and assuming various alterations in the cost of the boats
and the prices at which they are awarded, we have made out the enclosed
statement in which are represented the profits according to the contract of 1912
and according to the proposition of 1923. In comprising the profits, we see
that the proposal of 1923 has for us no advantages if the profit is great and
might prejudice us greatly if the profit be small.
The contract of 25th Sept. 1916 with the British group for surface war-
ships, fixes as price of guarantee 10% of the actual profit obtained ficom each
boat, and said remuneration is never to be less than 8 per 1,000 of the con-
tract price. When the plans are supplied by the British group the cost of
the execution of the same will be paid by the S^E. de C.N.
Exhibit No. 133
Electric Boat Co.,
Groton, Conn., July 16, 1925.
Refer to no. 1255/126/LYS.
Mr. H. R. Carse,
President Electric Boat Co.,
New York City.
Dear Mr. Carse : 1. Referring to our recent conversation about the possibility
of getting some cash now out of our anticipated profits in Spain, I am giving
you below some figures to turn over in your mind until we have a chance to
talk the matter over.
2. When I broached the idea, I had in mind the profits on the six C boats,
but before dealing with that, it may perhaps be well to refresh your mind as
to the six B boats. We have had an accounting on four of these, and while
we have not received everything that is due us on them, the whole situatioji
is quite hazy and there is no certainty that we will ever receive anything more.
On the remaining two boats, viz, B-5 and 6, we ought to receive about
$135,000 each, with the peseta at its present value of 141/2 ^. As far
as we can tell at this distance, these boats are due for delivery about as
follows: B-5, August 1925; B-6, .January 1926. In the case of B-1/4, the
Spanish Co. did not render us any account until after the expiration of the
1 year guaranty period. I hope that in the case of B-5 and 6 we shall be able
fo change this and get the accounting shortly after the deliveiy of the boats,
but, of course, there is no certainty as to that, so that on the whole there is
no telling when we will get in our money on these boats.
3. Turning now to the six C boats, the contract price of these is 13,186
pesetas each and the lowest estimated gross profits per boat — after taking
care of Zedzed's 5 percent— is a little over 4,000,000 pesetas, so that our
anticipated mininnnn total income from the six boats is $1,750,000. While
turning over the matter in my mind, it has occurred to me that instead of
MUNITIONS INDUSTRY 411
attempting to sell the profits, it might be possible to make a deal in the form
of a loan. Assuming, for instance, that these prospective and partially earned,
profits, together with our general credit would warrant a loan of $900,000,
we might borrow $150,000 per boat at 6 percent, obligating ourselves to devote
the proceeds as and when received to the discharge of the loan, but resei"ving
the right to pay it off, principal and interest at an earlier date, and to sweeten
the loan we might offer a bonus of 10% of our gross profit. Assuming
the following dates for the receipt of the money, viz, C-1, October 1927 ; C-2,
April 1928; C-3, August 1928; C^, December 1928; 0-5, April 1929; C-6,
August 1929 : and assuming the loans to be made about September 1, 1925, and
to run to about the above dates, the interest would come to from $165,000 to
$175,000. Taking the larger figure for interest, the expense, including the
bonus, would run to $350,000, which would leave us a net return of $1,400,000
or 12 percent of the contract price. Of course, we all expect that we will
be in funds in about a year through recovery under our United States claim,,
in which case, of course, we could pay off the loans and thus save the greater
part of the interest and correspondingly increase our net return on the Spanish
business.
4. I suppose that the whole thing is too far ovit of the beaten track to war-
rant the hope of swinging it over here, where people have no personal knowl-
edge of the Sociedad and the facts relating to these contracts, but as to that
you. of course, are a much better judge than I am. If. as I suspect, the thing,
if done at all, will have to be done with or through Zedzed, I think it wojuld
be wise for us to make np our minds as soon as possible as to what we would
like to try for, and if tlie loan idea appeals to you as it does to me as probably
the easiest thing to put over, I would be glad to have as soon as convenient
your views about the details, and particularly about the sweetening.
Very sincerely yours,
(Signed) L. Y. Speab.
LYS/AM
P.S. — Whether such a loan should be made in dollars or pesetas is, of course,
a question of the future trend of exchange, about which perhaps you may have'
some definite opinion.
Exhibit No. 134
Electric Boat Company,
Groton, Conn., October 2^, 1929.
File No. 1259/454/LYS
H. R. Caesb, Esq.,
President Electric Boat Company,
11 Pine Street, 'New York City.
Dear Me. Caese: Replying to yours of the 23rd in re Spanish business, if
the Sociedad gets the order for these boats, Vickers and ourselves share equally
in the royalty. If our design or patents (including Vickers) are used, the
Spanish company pays the old 5% which we pass on, and in addition pays to
each of us a royalty of 3iA% of the balance of the contract proceeds after
deducting the said 5% and the cost to the Spanish company of any gun arma-
ment included in the contract price. If, by order of the Spanish Government,
the Sociedad should build some other type of boat, then they have to pay
each of us 1%% of the total contract proceeds.
Taking everything into account, including the financial aid which the
Sociedad has been rendering to the government, I do not believe that there
is any real danger of the order going to anyone else. As to design, while the
German interest has been and is still active in Spain, I think that the odds
are much against their chances of pushing us out of the nest. All of the
official documents with regard to the new construction refer to the boats as
new construction to our design.
Very sincerely yours,
(Signed) L. Y. Speak..
LYS:B
("Exhibit No. 135" appears in text on p. 211. >
("Exhibit No. 136" appears in text on p. 212.)-
412 MUNITIONS INDUSTRY
Exhibit No. 137
[Copy]
Naval Construction Works,
Barrow-in-FurneHs, I'/tk March lOS.'i.
Personal and confidential.
L. Y. Spear, Esq.,
Electric Boat Company, Groton, Conn., U.S.A.
My Dear Spelae: I am awfully sorry that I neglected to answer your letter
of the 9th February, reference 1259/283/LTS, and that you therefore had to
send me a shake up on the 28th February. I have wired you this morning as
follows :
"Apologize my neglect answering your letter 9th February. Consider your
proposals paragraph three for payment for work done reasonable. Leave you
to approach Sociedad in view by dual position. Writing."
As I am deputy chairman of the Sociedad — and I can assure you I am having
plenty of difficulties with them by virtue of that position — I should much prefer
that you should take up the question under discussion. If it is referred to me,
as I think it will be. I shall say that I consider your proposal very reasonable.
I note that you have written to Colonel Fuster, asking him whether the
press information regarding the Government decree is correct. We have re-
cently appointed Colonel Cervera as managing director of all the works of the
Sociedad and in charge of naval business generally, and Captain Calonje as
managing director in Madrid and in charge of military business. I think,
therefore, that in future you should write direct to Cervera, because Colonel
Fuster. having been promoted to the board, is now acting as an adviser only.
I can tell -you at once that there is every possibility of the Government ap-
proving the construction of certain warships, including two repeats of the
submarine now building. Of course, things look very stormy in Spain at
present, and I sincerely hope nothing will be done to check the swing to the
right which has recently taken place, because the present government look as
if they are going to be most sympathetic to the Sociedad and give us a modest
naval programme, which, I can assure you, is very sorely needed to keep the
place going.
Again apologising for my delay in writing to you, but I really have been
terribly busy.
Yours, sincerely,
(S.) C. W. Craven;
Exhibit No. 138
Submarine Boat Corporation,
Affaires Continent ales, Paris, 9 Nov., 1920.
President Henry R. Carse,
Submarine Boat Corporation,
5 Nas.^au Street, New York City.
De:ar President : I have received your letter of October the 28th on the sub-
ject of Mr. Hurley's book, and have also received the book itself. I have written
to Mr. Hurley to thank him for his gift, and am much obliged to you for
having obtained it for me.
I have just these days been decorated by the Italian Government with the
Crown of Italy, and have applied to the Queen of Holland, to be allowed to
accept this decoration.
With kindest regards,
Yours faithfully.
Koster.
Exhibit No. 139
June 5, 1923.
Hon. Secretary of State,
Washington, B.C.
Sir : The representative of the E'ectric Boat Company in Europe, located at
Paris, has been in negotiation for some time with Cantieri Navali della Spezia,
of Italy, In relation to entering into an agreement with the Electric Boat Com-
MUNITIONS INDUSTRY 413
pany for the building of submariue boats in Italy for the Italian Government,
the Electric Company furnishing complete designs, plans, and specifications for
submarine boats as might be desired by the Italian Government, and the con-
struction of said boats to be accomplished by Cantieri Navali della Spezia from
said plans with such assistance as might be necessary to be given that organiza-
tion by the experts on submariue construction in the employ of the Electric
Boat Company.
We understand that certain competitive tenders are to be submitted to the
Italian Government on or before June 11th, and our vice president, L. Y.
Spear, who is now in Europe in close connection with this matter, has made
a special appeal for us to present the matter to the State Department at
Washington with the hope that it will instruct the Ambassador of the United
States at Rome to support the proposals of the Electric Boat Company for
the construction of submarine boats that may be made through the Cantieri
Navali della Spezia.
The work of the Electric Boat Company is well and favorably known in
Italy, as during the late war eight submarines were constructed by the Electric
Boat Company at Montreal for the Italian Government, which made the trip
to Italy under their own power.
We would appreciate the intercession of the State Department in this matter
as far as it is considered proper and desirable.
Respectfully,
(Signed) Henry R. Caese, Pres.
("Exhibit No. 140" appears in text on p. 219.)
("Exhibit No. 141" appears in text ov p. 220.)
Exhibit No. 142
Nov. 9, 1923.
C. S. McNeir, Esq.,
Hihbs Bitiidiiiy, Washington, B.C.
Deae Mr. McNeie: We have received a letter of which the following is a
copy :
Italian Embassy,
Washington, B.C., November 2, 1923.
The Elco Company,
Bayonne, N.J.
Gentlemen : I would consider it a favor if you could send me a copy of
the contract between your company and the Royal Italian Navy, which was
drawn on November 1916 for 28 submarine chasers, $44,500 each, 75% paid at
the signature of contract, the remainder at delivery.
Thanking you in advance for your courtesy in this matter, I remain,
Yours very truly,
Comdr. E. Sommati di Mombello,
Naval Attache.
1 wish you would call on Commander Sommati and try to find out what he
has in mind. The contract of November 1916 was for 4 motor yachts instead of
28 and was between the Elco Company and Paul Koster (our representative
in Europe — and not the Royal Italian Navy, and the price for the boats was
$48,000 each and not $44,500, and only 25% was paid at the signing of the
contract, and not 75%. The order was negotiated by Koster in Paris through
the Italian Embassy there and was executed by Koster as the party of the
first part because the United States was not then at war with Germany and the
State Department had ruled that these motor boats would be considered as war
craft, and it was therefore considered unwise to have any of the belligerents a
party to the contract. We have no special knowledge here as to the arrange-
ments made by Koster in Paris, but the payments were all made to us through
the Italian Embassy in Washington. I give you these items of facts for your
83876 — 34— PT 1 27
414 MUNITIONS INDUSTRY
information in talking with the commander to find out why he wants a copy of
this contract.
We had other orders for motor boats, viz:
2nd Jan. 1917. between Koster and Elco Co., 12 at $48,000 each ;
15th Feb. 11)17, between Koster and Eico Co., 12 at $48,(X)0 each:
6th April 1917, between Koster and Elco Co., 12 at $48,000 each ;
20tli July 1917 between Ciirlo I'fi.stt^r representing Royal Italian Navy and
Electric Boat Co. 50 at $44,500 each, we making the concession because of
the larger number; and
6th Feb. 1918, between Major Lugi Galileo and Electric Boat Co., 20 at
$43,500 each, we being obliged to make a reduction of $1,000 in order to please
Mr. Baruch who was handling the mitter of purchases because of the money
being advanced by tlie United States Treasury.
All of these boats were accepted, delivered, and paid for.
Yours very truly,
(Signed) Henry R. Carse, Pres.
Exhibit 143
5 Nassau Street,
New York City, November- 15, 1923.
Comdr. E. Sommati Di Mombeillo,
Naval Attach^, Italian Emhasst/, Washington, D.C.
Dear Sir: Referring to your favor of November 2nd and to the interview
of our Washington representative witli you on the 10th instant, we have been
going over our records in relation to this subject which accounts for the delay
in replying to your inquiry.
We find that hulls number 7 and 10 (the Italian numbers of which were 71
and 12) were part of the first contract for the construction of 4 motor boats,
which contract was executed between Paul Koster, our representative in Paris,
and the Electric Boat Company, in order to avoid any question being raised
of neutrality in regard to building for a belligerent what might be claimed by
the German Government to have been war boats, and I enclose herewith a copy
of said contract for your confidential information.
This order for 4 boats was succeeded by several orders — one for 12 boats in
January 1917 ; 12 in February 1917 ; 12 in April 1917 ; 50 in July 1917 ; and 20
in February 1918; the parties to these contracts in the first part being indi-
viduals, but the boats all being intended for the Italian Government.
Trusting this information will cover what you have in mind, we remain,
with kind regards.
Yours very truly,
(Signed) Henry R. Carse, Pres.
Exhibit No. 144
Dec. 28, 1925.
Personal.
W. D. Benson, Esq.,
Pacific Coast Manager,
San Francisco, Cal.:
I have your confidential letter of the 21st instant, which I have read with a
great deal of pleasure, but I am surprised that Mr. Hill should have taken
such a position as indicated, because our relations here have been so intimate
for many years, and certainly not to the loss or detriment of the Bethlehem
Company. I figured up about a year ago that since 1919 we have paid the
Bethlehem Company between twenty and twenty-five millions of dollars for
work done for us, all on a C'ost-i)lus basis, in connection with contracts which
we were doing mostly on a straight price contract, and in this connection we
paid the Bethlehem Company three million or more for increased wages paid
during the war time on constrnction for the Navy Department for work they
were doing on submarine boats for us, which we have not yet been able to
recover from the Navy Department, but on which we have lost interest these
seven or eight years, and you can fiirure up very readily that it runs into
extremely large figures. There are some unsettled accounts between us, but
we have paid them every penny of their out of pocket, and the only unsettled
MUNITIONS INDUSTRY 415
items are some which depend upon wliether the Navy Department allow cer-
tain claims and pay to us, in which case we will pay them over to Bethlehem,
and if we do not receive payment they cancel themselves ; and othei's, where
they were to receive a certain bonus if they turned out certain work at a
lesser amount thun tlie estimated cost, or in quicker time ; but, as we have not
come to a full and final settlement with the Navy Department, we do not feel
that such comparatively small items are pressing.
We know very well the very friendly relations between ourselves and Mr.
Tynan, because, in connection with his splended services we did a remarkable
stunt in 1914—1915 in building submarine boats for England at Montreal,
where a bonus of one million dollars was earned, and our friend Tynan re-
ceived from Mr. Schwab a substantial acknowledgement for his extraordinary
services, and in addition to that, which gave prestige and reputation he gained
by that work, which brought to the Bethlehem Company orders for over three
hundred millions worth of work from Great Britain.
The personal relations of the three executive officers of this company with
Mr. Schwab are very close, almost as though we were junior partners, and our
relations with Mr. Grace and his staff are very agreeable ; so that it has really
hurt us to feel that anybody in the Bethlehem organization would divert any
business that they could possibly send our way, and I have felt so strongly
that it was simply some little oversight or mistake that I have not even men-
tioned it to Mr. Schwab when I have met him.
I would be glad if you would convey to Mr. Tynan my best remembrances
and respect and trust that his management of the Pacific coast end of the
Bethlehem Company will be very successful, and you can show him this letter
if you think best.
With kind regards
Yours very truly,
(Signed) Heney R. Cakse, Pres.
Correct: Henry R. Carse.
Exhibit No. 145
Electric Boat Company,
Groton, Conn., November 3, 1925.
Refer to : 1285/156/LYS.
Subject : Roumanian business.
H. R. Caese, Esq.,
President Electric Boat Company,
11 Pine Street, Neiv York City.
Deae Mb. Carse : 1. Forgetting that it was election day, I called you up this
morning to talk to you about Roumanian business before cabling Koster, but
as the matter is urgent I am releasing today the proposed cable as per copy
herewith. He has several things to do before he can make any commitment to
the Roumanian Government and consequently if for any reason you do not
approve of the proposed action, there is time to stop it by cable.
2. To refresh your mind, I will say that when the Roumanians got in tenders
sometime ago, everyone expected that the order would go to Italy. All the
Italian yards, however, grouped themselves into a syndicate and offered exactly
the same price, at which the Roumanians took offense, and consequently re-
opened the business. As the thing now stands, they are asking for quotations
on six boats on which they have placed a price limit of £120.000 each. To
fully meet their specifications would require a boat of about 600 tons disi^lace-
ment w-hich is too big for the money available and we have accordingly worked
out a project with a 500-ton boat which comes pretty close to meeting their
requirements. As construction in Italy in this case is out of the question, our
best bet would seem to be Cockerill in Belgium. On this business we would
have to pay an agent's commission of 2% and a participation to Vickers of
3% so that the net price would be $551,000 per boat. The estimated cost includ-
ing 100% overhead for Cockerill is $450,000. There must necessarily be a
good deal of guess about the cost of production at Cockerill's yard and per-
sonally I haven't any too much confidence in this estimate and believe that we
will find it is too low. However, there seems to be ample margin to protect
us against any real loss and I therefore favor going after the business. Our
contract with Cockerill for construction for the Belgian Government is on a
416 MUNITIONS INDUSTRY
50-50 profit-sharing basis, and provides tliat unless we malie otlier arrangements
anytliing built tor foreign account would be handled in the same way. My
feeling is that if we can procure this business, Cockerill ought to give us
better terms than for the Belgian business and the simplest way to work that
would be for us to withhold something from the contract price.
You will see that I have proposed to hold £11,000 per boat from which
we will have to disburse £4.400 per boat in addition to our costs and one-half
the profits which the accounting with Cockerill may show, taking the proceeds
as £109,000 per boat. Our costs for plans, supervision, and evei*ything else
which we may supply, including our 45% overhead on the labor should not
exceed $30,000 per boat and as the contract with Cockerill requires each parry
to share eventual losses in proportion to their expenditures, we will not be
taking any risk at all if Cockerill accepts our tenns.
Very sincerely yours,
(Signed) L. Y. Speab.
LYS-B.
Enc.
Exhibit No. 146
Januaet 21, 1929.
L. Y. Speae, Esq.,
Vice-President, Oroton, Conn.
Dear Mk. Spear: Your favor of the 18tli instant to hand, with the letters
from Koster about giving a license to the Italian concern represented by
Captain Sacerdote.
I cannot see that we can expect any benefit from such an arrangement. It
does not matter what the information of any individual in Italy might be, as
the policy of the Government is clearly stated, that everything they can pos-
sibly control or direct is for Italy and not for outside. The only thing that
would happen would be that the Italian would get some information and data
from us, and possibly plans, which he would use for his own benefit.
Years ago we had an arrangement with Orlando, who was Premier of Italy,
and he ignored his obligations under the agreement. Since then Koster made
arrangements with several concerns in Italy, one after the other, and nothing
developed. They simply made the agreements, apparently with the idea that in
some way or other they would get some money or information, and I see no use
in wasting time and effort in that direction.
Yours very truly,
(Signed) Henry R. Carse, Pres.
Exhibit No. 147
June 17, 1927.
L. Y. Speiar, Esq.,
Vice President, Groton, Conn.
Dear Mr. Spear : Your letter of the 16th at hand in regard to Aubry. When
he was last in this country, he discussed with me the subject of being our
representative in Europe, which I believe I mentioned to you, and indicated
that that arrangement would be very agreeable to him because he felt that the
South American field was nearing the point of exhaustion.
The record that Aubry has made in South America shows his efficiency, and
we have not been burdened by spending large sums of money and chasing rain-
bows as in Europe in the past. The position might be taken that if we did not
go after business we would never get any, but I think there is a difference
Detween spending your energies on possibilities after close analysis rather
than chasing matters that if secured would not prove profitable or beneficial.
I consider that Passano is an absolute loss to the company and all the money
spent by him is vanity and vexation of spirit. The people with whom he dis-
cusses these matters are simply looking for what they can get out of him and
I cannot see that there is any reason for continuing him.
In regard to Koster, the strong adverse opinion of Sir Basil should not be
ignored because there evidently is some groundwork for his antagonism, and
since Koster was appointed by Mr. Rice in 1912 he has not secured a dollar's
worth of business except the submarines and motor boats from Italy which
were paid for from the United States Treasury, and he led us into the cargo-
MUNITIONS INDUSTRY 417
ship proposition, which almost proved a mortal blow. I like Koster and admire
his persistence, but he does not produce anything, evidently not proving
liimself persona grata to the powers that be.
Our experience with Aubry shows that he has proper understanding and has
been able to accomplish things which would probably have been impossible with
anyone else. Of course, if he were ouf representative in Europe he would not
have any connection with oxir Spanish business, because Sir Basil insists upon
that being kept away from our European representative, and of course the
question is how would a Spaniard be received by the people of other European
countries. Regarding that, my opinion would be of no value. I should say
that we could agree to proposition (a) as outlined by Aubry, because he would
be entitled in any event, at least morally, to commissions on any business we
should develop in the near future from either Peru or Argentine, and, as he
states, he would not look to us for any other compensation while he was naval
attache for Peru. If we could retain an option on his services for the future
without any obligation on our part, that would also be wise, but I do not
believe that we should obligate ourselves to employ him as European agent
until such time arrives as we may wish to decide the question.
I really believe we ought to drop Passano, although I realize that he prob-
ably would be helpless and unable to earn anything if we did that, but look
back on his record and all the result to the company has been trovible, and
neither he nor Koster has had at any time any more difficult proposition
to work out than Aubry had in Peru, and yet Aubry worked it out to the
benefit of the company, while these other people have worked up their proposi-
tions in a way that has proved detrimental to us.
I approve j^our writing to Aubry accepting proposition (a) as indicated
above.
With kind regards, yours very truly,
Henry R. Carse.
P.S. — You might at the same time say to Aubry that the bankers accepted
the Peruvian notes on the opinion of Mr. Stroock witho\it requiring that of
Dr. Calderon. and while it would undoubtedly be desirable in the future to
have that opinion, there is no particular rush about it now, and his action wait-
ing so as to secure such opinion at a reasonable outlay is approved by us.
Exhibit No. 148
[Copy]
Electric Boat Company,
Paris, 25 March, 1929.
Subject : German claim.
Electric Boat Company,
Groton, Conn., U.S.A.
Gentlemen : I have received your letter of March 13th, together with memo-
randum and documents 1-7, and am writing to you in a hurry, just before
leaving. I have prepared everything as much as possible for my arrival, by
telegram, with the patent agent, Mr. van Hoogstraten, but it is a pity that I
did not know before, that Techel had come into the picture, as it is possible
that there exist relations between the two gentlemen named. However, I will
find that out as soon as I see Mr. van Hoogstraten, whom I have requested
to come and meet me at the Hotel des Indes immediately upon my arrival.
In going rapidly over documents 1 to 7, it seems tO' me that no. 7 is by far
the most dangerous (Techel-Neiland) ; I had already read up all that I possess
on the subject in the oflBce, so that in a very short time, I could get an approxi-
mate idea as to the data now received. It seems at first sight that the Techel
opinion is based on the absence of tank " f " of our patent claim, and that seems
the point which, Mr. van Hoogstraten has to refute, and you intend probably
to make his affidavit part of our reply to the Techel opinion. I am of the
opinion that your standpoint is quite correct that tank " f " is a mere refine-
ment, to be used on all smaller boats and on such bigger boats in which the
reserve torpedoes are located at an appreciable distance from the tubes, but
which tank " f " may eventually be omitted if static stability and the distance
from torpedoes to tubes permit. It is a kind of safety valve, to be used, if
necessary. Mr. Giese is quite right in not putting any store thereby.
418 MUNITIONS INDUSTRY
If in our reply we can discredit Techel, it will be a good thing for us, and
the following may be of use therefor :
Now, let us see who Tochel is. According to his own showing, he was —
1. Employed from 1912-1916 at the Imperial Shipyard at Danzig, where he
was in charge of submarine boat construction.
2. Attached from 191C-1918 to tlie submarine boat inspectorate at Kiel where
he was engaged in the preparation of the plans and where he supervised the
submarine boats in course of construction and when finished.
3. At the end of 1925 he withdrew from the services of the " Germania
Werft " and since that time he is mannger of the Dutch [sic] firm N. V.
Ingenieurs Kantoor voor Scheepsbouw, The Hague.
It seems from the above that he was one of the guilty parties in the in-
fringement of our patent 133,607, and is now acting as a witness to pass judg-
ment on his own wrong doings. He is one of the accused, now camoutlaged
as a witness. It is a great pity that Techel does not tell us something more
about his activities in the Inc/cnieurs Kantoor voor t^chcepshonw (Inkavos)
at The Hague, which in my mind is nothing but a camouflaged German con-
cern, created by German firms with the consent and probably under the pro-
tection of the German Navy, in order to be in a position to keep actively
into touch with developments in submarine-boat construction, which, because
of the Treaty of Versailles, they cannot follow in practice in Germany. All the
German firms who build parts or machinery for submarine boats, have estab-
lished camouflaged concerns in different small countries surrounding Germany
(Sweden, Switzerland, Holland, etc.) and I consider "Inkavos" their rallying
point. If the aforegoing is correct, and the way in which " Inkavos " was
created makes me believe it, then the Techel opinion comes in a strange light,
and ordinary people may be surprised that he tells us so little about his
activities since 1918. especially as he is the soul of the whole thing. It is
most interesting if Techel would tell us : —
1. How " Inkavos " was created.
2. By what people (some Dutchmen who know nothing about submarines and
are pure strawmen).
3. Who put up the money at its creation?
4. Who own the shares at present?
5. Who direct the company?
I have sent you a copy of the Statute Laws of " Inkavos " several years
ago. But Techel is more ; he is the bold knight who has overcome all the
formidable difficulties enumerated by the German agent, Mr. von Levinsky.
He, Techel, h;is obtained all the data which Mr. •\' on Levinsky stated that it
would be impossible to obtain (see his objections 1 to 9). How is that Techel
overcame all these extremely forbidding conditions ; is it too bold to say that
he was probably invited to violate the sanctuary. As a matter of fact, Techel
says :
"The original drawings (supposed to be delivered to the Allies) utilized
by me bore handwritten dates ", and "I could ascertain that these were the
actual original drawings."
Very, very clever of Techel to have obtained all this, and will he tell us,
where, when and from whom he obtained the information, and also by whom
he is paid. We may then get the Allies to enforce the Treaty of Versailles.
(See von Levinsky objection no. 5 and no. 9.) It shows certainly that the
archives of the German Admiralty are not as barren of documents as the
German agent said it was?.
If I did let myself go, I would say that the entire thing is a huge camouflage
and a lie, and I suppose that Mr. von Levinsky is shaking in his shoes as to the
military sanctions which the Fatherland may incur. (See objection 9.) I will
volunteer in the invading army, and I might go on in this strain, if I were not
in such a hurry. Regenbogen is another bird of the same feather, and I well
recollect having met him on two of my four visits to Berlin.
1. With Mr. Sutphen (Regenbogen).
2. Alone.
3. With Mr. Carse.
4. With Mr. Spear (Regenbogen).
When in The Hague, I will —
1. See whether van Hoogstraten is free from " Inkavos."
2. Submit the documents 1 to 6 to van Hoogstraten to begin with ; later on 7.
8. Let him study the matter first for himself with a view to giving us what
we want.
MUNITIONS INDUSTRY 419
4. Hang on, and guide him as best I can.
I will cable you from The Hague as soon as I am in a position to say what
we may expect.
Time is up.
Yours very sincerely,
KOSTER.
P.S. — I recollect very well that when I was on board the submarine boat of
German design for the Russian Government and running a submerged trial in
Eckernfjorde Bucht, the captain of the boat, Mr. d'Equevilley, who also had
supervised the construction, would not permit anybody, when running under
water, to go from one compartment into the other. As Techel says that patent
133,607 is of very little value, why did he (Krupp and the navy) make such
frantic efforts to obtain possession of it?
Exhibit No. 149
[Copy]
Paris, Le IS February, 1934.'
Ref. 691/E
L. Y. Spear, Esq.,
Vice President Electric Boat Co.,
Groton, Conn., U.S.A.
Dear Speiar: Your letter of January 31st, ref. 1000-10/61 re my trip to the
United States, duly received, and many thanks.
Yours of January 31st, ref. 1000-10/619, re Davison gun, duly received, but
I must honestly say that your suggestion to leave France (England, I do not
mind so much) out of the picture is not welcome. With my letter of Febru-
ary 3rd, which has crossed yours, I have given you information about my
connections.
Yours of January 31st, ref. 1000-10/617, re data which I sent you about
certain Bofors guns, duly received. I am collecting further data which you
require, but would much like to know how I stand as to collaboration with
the owners of the dual gun. You undoubtedly know that it is not easy to
obtain the information which you ask for, as Ordnance firms do not care to
give out such information. As there is already a desire on the part of
owners to leave France and England out of the picture, and to let me work
In secondary countries, the business is losing quite an amount of its
attraction.
I have recently gone on the board of the Bergmann Company, in Berlin, and
would like to make an agreement for the construction of our submachine gun
with a firm in the United States. Would it be possible for you, to recommend
some firm, and in this connection I am enclosing a little pamphlet? Confiden-
tially I may tell you that that we are building these guns for certain organiza-
tions in Germany.
Yours of February 1st, ref. 1000-10/620, re Welsbach, duly received, and
I thank you very much for the perfectly rotten information. What is the matter
with these Yankees ; do not they any more know how to run their companies?
Naturally, gas mantles in 1934 are about in the same class with torches stuck
into sconches on the wall, as our forefathers did in their castles.
Are we downhearted? No! Wot a life!
Yours,
(Signed) Koster.
Exhibit No. 150
Electric Boat Company,
Paris, 48, Avenue De La Bourdonnais.
L. Y. Speap., Esq.,
Vice President, Electric Boat Company,
Groton, Connecticut.
Subject : Submarines, Holland.
Dear Spear: When I left Holland, I asked Mr, Johnstone to write out his
understanding of the situation in Holland, to address his letter to you, and
420 MUNITIONS INDUSTRY
to send me two copies thereof. I told him that I would send you my comments
on his letter, so that you might have both of our opinions in full.
I must say that Johnstone lias set down the facts very fairly and clearly,
and my comments on his letter therefore can be short. There are, how-
ever, other matters, which I want to call to your attention, and certain con-
clusions and proposals which I want to submit to you :
It is now perfectly clear to me who Schelde desire no interference from this
oflBce, as their actions cannot stand the light, and as they are afraid to be
found out in their crooked dealings.
Towards the Navy they even take the standpoint that they have nothing
to do with the Electric Boat Company, and act in general in such a way as
to anger the authorities against them.
Their dealings with Feyeuoord are very clear to the Navy, and that
certainly is one of the reasons why the Amsterdam yard has been into the
business, as the Navy see clearly that Schelde and Feyenoord are no longer
competitors, but are working on a mutual understanding.
Captain Zeeman, the man who is in charge of the submarine business, and
presides at the Navy Department when discussions on construction are held,
is fully aware that an understanding between Schelde and Feyenoord exists,
and has no use for Schelde and their methods at all ; he stated so to myself.
He is responsible for the cable I sent you on January eighth, and has in
general been very outspoken and kind to me in these matters.
I would most emphatically state, that Schelde's communication to Mr.
Johnstone — as moreover Mr. Johnstone is fully aware of — that the submarine
business is a question of politics, is completely erroneous and false ; politics
have nothing to do with the matter, but there naturally is a desire to keep
the work in the country.
I naturally have no absolute proof that Schelde and Feyeuoord have an
agreement on submarine business (I know that they used to have me, j-ears
ago, about torpedo boat building) but all indications lead every unbiased
person to believe that such agreement exists. It is in my mind perfectly correct
that Mr. Johnstone says in his letter:
" and it wound by Schelde not bidding on our design and thus throwing the
contract to Feyenoord. There must be some sort of an agreement between the
two yards."
In this respect, I would propose that you have a letter written to Schelde
of about the following contents and drift:
Gentlemen : "We have been informed that at the time when the Dutch Navy
called for tenders for three " K " boats, you have not put in a bid and have
therefore enabled Messrs. Feyenoord to obtain the order of all three vessels. You
may have taken this action, or rather you may have abstained from tendering,
with a view to control submarine building in Holland, but the result has been
that by your not bidding you have throwu the contract to Feyenoord.
We do not at present wish to criticize your actions, but quite understand
that for smoothing the path for Feyenoord, you will have come to some under-
standing with this firm, by which you have reserved for yourselves certain
advantages resulting from the construction of these three vessels. It would be
entirely unreasonable to come to an understanding with your competitors, and
to let the work go to them, unless some agreement has been arrived at by which-
you have reserved an interest in the work, and we feel that we are justified in
thinking that such agreement exists. Moreover, we have further information
which corroborates this opinion.
Under these circumstances we would call your attention to clauses 19 and 20
of our contract as follows :
" 19. The Schelde Company will not assign this agreement without the
pi'evious consent in writing of the American Company."
We think that this is practically what you have done, if not to the letter,
at least in the .spirit. •But even if this should not be the case, we consider that
you did not have the right to even treat-let-alone come to an understanding
with Feyenoord without our consent. For the present, however, wo only wish
to protest against your action, and do not desire to push the point home.
We would request you to inform us about your dealings with Feyenoord,
which have been so manifest to everybody concerned, and to let us know what
understanding you have arrived at.
We also call your attention to article 17 of our contract :
" The Schelde Company shall use all reasonable endeavors to promote the
interests of the undertaking, and to obtain all orders for the said submerged
MUNITIONS INDUSTRY 421
boats in the countries aforesaid whicb in their opinion would be likely to
result in a sufficient and reasonable profit and so as to niiike the manufacture
and sale of submerged boats a commercial success."
"We are of the opinion that you have not used all reasonable endeavours to
promote the interests of the undertaking, v^-hilst there can in our minds — and
we believe in the minds of reasonable people in shipbuilding circles — be no
douht that a sufficient and rcasonahle profit might have been obtained, resulting
in a commercial success.
You will certainly understand that a commercial success is such as defined
by the ordinary and usual profits made in shipbuilding, as you are perfectly
able to find your own books over all work carried out by you in a long term of
years. We feel quite sure that the " K " boats would not have given less profit
than the average of your other shipbuilding operations. But even if this were
not the case, we can be guided by the results obtained by shipbuilding firms in
general in Holland, and as a matter of fact, all over the world.
In view of the above, we would like to know wliat you have done to pro-
tect our interests, and what participation you have in the result of the work
which you have thrown to Feyenoord. In case you should not have adequately
protected yourselves and us, we would hold you responsible for this lack
of foresight, and would be ol)liged to protect ourselves in another way.
We repeat that we desire to settle this question in as amicable way as
possible, and remain * * *.
This is only a form of letter, and undoubtedly will be put in some other
form by yourselves.
I am asking Mr. Johnstone, in whose common sense and intelligence I have
much faith, to send you a proposal for a letter to Scbelde, in case he can
think of some better way in saying practically the same thing. You will then
have the result of our two minds, which may guide you in the drawing up of
the letter which you will finally write.
In case Scbelde should not come forward with something acceptacle to us,
I would call Article 20 of the contract to your attention.
" Should any dispute or difference arise between the parties hereto under or
with regard to this agreement such difference or disputes shall be decided by
three arbiters who will have to judge in equity, and their decision shall be
final and both parties agree not to defend against their decision either in
Holland or America.
" Said arbiters are to be appointed by the parties hereto and failing agree-
ment upon the choice of the arbiters then by the Court of First Instance
(Arroudissements Rechtbank at Middelburg) (Holland) on the demand of
the most diligent party."
I must frankly say that I do not at all like this clause, as I think that
Scbelde will never agree upon the choice of the arbiters, so that the appoint-
ment will go to the Arroudissements Rechtbank in Meddelburg, and Smit the
leading spirit in the crooked Scbelde ways, lives at Middelburg and may have
influence on the nomination of the arbiters.
If we could claim that it is not " a dispute or difference under or with regard
to the agreement ", but an absolute violation of the agreement, then we
might get away from the arbitration, and be able to prosecute them in the
law courts ; which first of all will give us better chance and, secondly, will be
much more feared by Scbelde, as then the matter is public, and I can make
matters very hot for them.
I cannot help thinking, that with such dishonest and unreliable people as
Scbelde have now to direct their affairs, it is practically useless to have a
.contract, and I would set the following proposal before you :
1. Prosecute Scbelde for their action on the " K " boats, and try to get as
high a sum of money out of them as possible for this matter.
2. Propose to them to buy from us the remaining part of the contract up to
August 5, 1927.
3. Make a new contract with another firm in Holland, either Smulders or
Smit.
There undoubtedly is further submarine business in Holland ; at present there
is a committee of five members at the Navy Department, studying future con-
struction for the Navy. I know that this committee, which is presided over by
a classmate of mine. Captain Gooszen, chief of the staff, will propose only the
construction of small vessels : submarines, destroyers, mine layers, etc. Captain
•Gooszen in going in the near future to India, in order to study matters with
422 MUNITIONS INDUSTRY
the chief of the naval forces there, Admiral Umhgrove, who is a good friend
of mine.
The committee's report may partially be made known in a few months, and it
is expected that in the course of this year, and even before the new Navy
estimates, appropriations will be applied for from the Second Chamber.
As far as the use of submarines in India is concerned, K-3 and K-5 have
both arrived, and as you know, I have in September 1920 offered a prize for an
essay on " The Use and Future of Submarines for Our East Indian Colonies."
The Naval Society have accepted my offer, and have issued a call for
competitors.
During my stay in Holland I visited my friends of the Navy League, which,
as you know, I created about sixteen years ago. and of which I am the only
honorary member. We have agreed on a campaign for the strengthening of
the naval defences in Holland and India for which a prominent part will be
played by submarines.
As far as the protest is concerned which you sent to Schelde about the Navy
calling for bids on plans for " K " boats, which undoubtedly are derived from
our K-3, Mr. Johnstone and myself went to see in The Hague a Mr. Doyer,
patent attorney, who is the correspondent of Mr. Picard in Paris, and we dis-
cussed at great length with him in what way we could follow up the protest.
Mr. Doyer was uncertain about the matter, and the next day we had another
meeting with his lawyer Mr. Cramer, but the result is that we have no leg
to stand on.
Under these circumstances, and if you will authorize me, I am going to take
the standpoint with my friends at the Navy Department, where some feeling
exists because of the way Schelde informed them of your protest, that I ob-
tained from the company to withdraw the protest, and thereby may get a
bit fai'ther in their good graces.
Please send me your instructions on all the above, and oblige.
Yours very sincerely.
KOSTER.
Exhibit No. 151
Electric Boat Company,
Qroton, Conn., February 2, 1921.
Mr. H. R. Carsb.
President Electric Boat Cotrvpany,
New York City.
De-\r Mr. Carsb: The expected report from Koster on the Dutch situation
has just come in without date or signature, and I enclose copy herewith. You
will note that Koster makes some specific recommendations as to the steps
that he thinks we ought to take.
You will recall that (he whole situation is hooked up with our general con-
tract with Vickers and that they have an interest in the Dutch profits. In
view of the somewhat delicate nature of our general relations with Vickers
and their recent active intervention in Holland, I am inclined to the belief that
we should not open up the matter with Schelde by correspondence or otherwise
until after we have conferred with Vickers. The' main point in my mind is to
avoid taking any action which Vickers might possibly construe into a violation
of our contract with them.
While in my mind there is no doubt that we will have to do something quite
radical in Holland or permanently lose quite a nice little business, I do not
believe that the matter is so pressing as to make it necessary for us to open up
the contract question with Schelde immediately.
Very truly yours,
L. Y. Speak.
("Exhibit No. 152" appears in text on p. 239.)
("Exhibit No. 153" appears in text on p. 241.)
MUNITIONS INDUSTRY 423
Exhibit No. 154
SuBMABiNB Boat Corporation,
Affaires Continent ales, Paris, 21 June, 1919.
To the Sxibmarine Boat Corporation,
5 Nassau Street, New York City.
Gentlemen : I have just had the visit of a representative of the Lloyd
Francais, who came to see me on the subject of the letter I have addressed
to their editor, on their malevolent publications about American shipping
industry.
This gentleman began to explain to me that much indignation existed in
French shipping circles about the fact that the United States keep the Ger-
man ships which they had in their ports, and that they try to sell to the
French bad wooden ships at high prices : further that a certain amount of
exasperation existed against Americans, etc., etc.
Anyhow he promised that the tone of the publications in his journal would
be changed, and wound up by asking me for two thousand franes to publish
the letter which I had written them, as it might serxe as a great advertise-
ment for us.
I explained to bim that I have written on the subject to Mr. Tardieu, who has
thanked me for the copy I sent him. that I have requested you to bring the
matter to the knowledge of Mr. Hui-ley, that I have half a dozen letters from
French companies asking for our ships, that I can publish the letter in two
other papers if I wish, and that I consider his demand for money as a kind
of blackmail.
Very much down in the mouth, he has left the ofBce, and has promised that
my letter will be publis'hed in a general way, and without making any allu-
sion to the Submarine Boat Corporation. This is exactly what I want, as
everybody in French shipping circles knows that the American ship industry
is represented by the Submarine Boat Corporation, so that whether he pub-
lishes the name yes or no comes to very much the same thing.
I told him moreover tliat if the way in which my letter was published
did not suit me, I would have it published anyhow in another paper, and
that I would then also publish his demand for 2.000 francs. We will now see
what happens, and I will keep you informed. I have no objection at all to
this letter being shown to Chairman Hurley.
Yours faithfully,
( Signed ) Koster.
("Exhibit No. 155" appears in text on p. 243.)
("Exhibit No. 156" appears in text on p. 243.)
Exhibit No. 157
Electric Boat Cojipany,
Groton, Conn., Sept. 14th, li^Sl.
In reply refer to file No. 1210/G91/LYS.
H. R. Caesb, Esq.,
President Electric Boat Company,
40 Wall Street, New York City.
D.EAR Mr. Cakse: 1. We have been approached by a certain Mr. Menelas
Metaxa, of Athens, who v.'ants to take the agency, on a commission basis,
for the sale of Davis guns, Y-guns and depth charges to the Greek Government.
While the contract between the Electric Boat Company and the American
Ordnance Company provides that all such business is to be handled directly
by the Boat Company, it has occurred to me that in this case we might think
it better to let the American Ordnance Company make the agency arrange-
ments direct, then if the matter drags on in Greece as in all probability it
424 MUNITIONS INDUSTRY
Will, the Eoat Company will not have any commitment there which it Avoulfl
have to consider iu connection with the continunnce of the manufacturing
contract witli the Ameiican Ordnance Company. If we prefer to take that
course it will lie a.iiroeal)!e to tlie American Ordnance Company.
2. As yet, no agreement has heen readied as to the terms of the agency.
I have in mind generally tlie follov.'ing : A one year agency with the privilege
to both parties to terminate at the end of the year provided three months'
notice has heen given, and if no sucli notice is given, tlie agency is to con-
tinue for periods of six montlis with the same i)rovision as to termination
after tliree months' notice. As to commissions. I tliink it would he hest to
keep some elasticity iu the arrangement. Unless tliere has been some recent
improvement in morals in the Balkans, I judge that the commission will
liave to be rather liberal in order to make business possible. IMy idea is to
leave tlie commission open for adjustment in each case with the understanding
that if the parties are unable to agree to any other figure, the commission
will be 10%.
3. I would be obliged if you will, at your convenience, let me know if you
have any preference as to how the matter should be handled and also any
suggestions you may care to make as to tlie terms of the agency which we can
practically control even if the arrangement be made directly by the American
Ordnance Company.
Very truly yours,
LYS:E
(Signed) L. Y. Spear.
Refer to file no. 406-6/208.
Subject : Turkish submarine.
Letter no. T-19.
Exhibit No. 158
GEOsroA, October 22, 1924.
Mr. L. Y. SPEi^vR,
Vice President Electric Boat Company,
Groton, Connecticut.
Dear Mr. Spear: 1. Your cable of the 15th instant was received in Pera the
day before I left and I immediately wired you as follows: "No. 6 mutilated
words are UVHYK FIKYN BIHEV ARZDO." The last code word I was at
fault in not spelling it correctly in my cable no. 5.
2. I left Constantinople the afternoon of the 16th and reached here yesterday
morning. I found your cable, unnumbered, in reference to my cable no. 5.
This cable reached Constantinople after I left and was badly mutilated when
finally received here but I think that I understand what was intended.
The armament wanted for these two boats is apparently the final decision
of the technical committee and was supposed to have been given to us on the
8th of September, but we did not receive the letter until the 29th. I
am certain that not one firm submitted bids to meet these requirements except
us. The boat is to have four internal bow tubes and twin deck revolving
tubes, total number torpedoes carried to be ten (10). Size of torpedoes, 18".
My letter no. 18 and my cable no. 7 explains what is meant by European
price.
I called on C. N. R. yesterday afternoon and saw Mr. Piaggio and told him
what I wanted. Mr. Calcagno is in Palermo but is expected back here on
Sunday. In the meantime I have started things going here in obtaining prices
for main engines, main electric motors and storage battery. When Mr. Cal-
cagno returns I can take up the other questions and hope to be able to give
you their figure within ten days from now.
From the telegram of Captain Koster, copy enclosed, I see that you wish to
use the American engines. The offer from here will be for MxVN engines and,
spares and will be cabled to you as an alternative. Ordera, Ansaldo, and
Piaggio are interested in a firm called " Savoia " who will tender for the
engines.
3. There is one thing we have wanted to let you know about but were afraid
to even write about it while I was in Turkey. That is the question of com-
mission. I will relate to you exactly how the matter came up and what we did.
Shortly after I arrived in Angora the first time I was showing some of the
designs to the officers at the Navy ofllce. One young officer, Escher Bey, came
to me and started talking about torpedoes. He is the torpedo expert in the
MUNITIONS INDUSTRY 425
Navy office and was trained in the British Navy and at Vickers. After I had
finished with the designs he came to me and asked if I would write a letter
for liim in English. I told him I would be glad to, and he gave me a draft
of a letter to the Bucharest agents of the Baldwin Locomotive Works about a
14" railway gun battery the Turks are interested in. He told me that he
would come to my room at seven as he did not wish to be seen iu any cafe
with me.
At seven the same evening Escher Bey arrived at my room and I g.ive him
the letter as I had written it. After a short talk about his stay in England
he told me that the letter was only an excuse for him to come and see me
as he had been waiting for several days to get a chance to speak to me but
as I had not mentioned toi-pedoes before he was unable to do so. He said the
main object of his visit was to tell me that if we wanted the business we would
have to deal through an office called " Tessund " which handles all matters
for the Minister of Defence. Two of the officers of the Technical Committee,
Escher Bey and Avni Bey, are in this business and that unless we wished to
discuss this with Tessund it would just be luck if we ever obtained anything in
Turkey. I told Escher Bey that I had nothing to do with that end of the
business but that I would speak to the Marquis and arrange a meeting with
him the following day. He agreed to this and left.
I told the Marquis the whole story and advised him that we should look
into the matter and see just what could be done. The following day the
Marquis met Escher Bey and Ismail Hakki Bey at the office " Tessund " and
they asked for Turkish pounds 50,000 for their help in case we got a contract.
As 50.000 pounds would not lose u.s the contract in any cnse the Marquis agreed
to their terms and when he returned to Constantinople drew up a paper before
a notary agreeing to pay to Tessund 50,000 pounds in case we received an ord-^^r
for a submarine, half to be paid with the order and the other half in propor-
tion to payments received from the Government. The first half was to go to the
Minister of Defence. Tessund then told us that we would receive a call from
Colonel Edib Bey who is Tessund and the right hand man of Kiasim Pacha.
Edib Bey called in due time and talked with us about the business. Said our
great trouble was our very high price and we went into detail explaining why
our prices were high as compared to foreign firms. He said that he was going
to Angora soon and that he would see the Minister.
When the Marquis joined me in Angora on the 27th of September Edib Bey
was also there and it was through him we obtained the twelve-day extension
to submit a tender for the boat with the deck tubes and the four internal bow
tubes. The Marquis also saw Kiasim Pacha with Edib Bey and started the
conversations which finally led the Minister to promise the Marquis two boats
if we could give European prices for them. My letter no. 18 explains this
matter.
Admiral Bristol's remarks about baksheesh do not hold good.
We watched the office Tessund during our stay in Angora but did not see
any of our competitors enter there. De Perrot once told me that he had tried to
talk to Escher Bey but that he was turned down by him. So it appears that
they were not playing the game in every direction but acted on the square
with us.
This naturally brought up the question of the 5% to Ben Ayed. We told the
Prince that owing to the keen competition we would have to reduce his com-
mission and he agreed to accept one percent (1%). Thus to the price we sub-
mitted with his one percent we added $25,000 to cover Tessund and also for
the necessary stamps duties we would have to pay in case we received a
contract.
I know that the above is irregular but it was our only chance to do business
there and we took it.
So that for the new tenders we will add 1 percent for the Prince and $25,000
for Tessund and the stamp duties. Stamp duties are about one Turkish pound
in every one thousand.
4. Up to the time I left a decision had not been given as to what firm would
be given the one boat but general opinion was that Chantiers de la Loire would
get it. It will be a French firm we know. Just before the 28th of September
General Mougin arrived in Turkey on a mission and was in Angora that week.
Edib Bey, who had told us that he would not go to Angora unless absolutely
necessary, left hurriedly for Angora in response to a wire from Tessund.
Also just previous to that France had given Turkey 50,000 pounds for the
Ezerum earthquake victims. Putting all this together and adding the remarks
of the Minister to the Marquis that he was " controlled ", it seems to me that
426 MUNITIONS INDUSTRY
it developed into a political question and Turkey repaid France by giving the
French firm the order for the tirst submarine.
5. The Marquis had a very severe time of it with the Prince and worked for
three or four days with him to keep him (the Prince) from making a scandal
and injuring our future chances in Turkey. The Prince when he heard that we
would not get the order went wild. He wanted to write open letters to the
opposition press in Constantinople about the sul)marine business and also
wanted to send a telegram of protest to Isinet Pacha the Prime Minister. For
three days there was a struggle and at last the Marquis convinced the Prince
that the only thing to do was to keep quiet and keep on fighting for the future.
The Prince agreed to this. Undoubtedly the Prince was a groat help in tho
beginning and through him the Marquis met Chukri Bey and several other
very influential naval officers in Constantinople and w'ho have and will do
everything in their power to help us in obtaining orders there. The Marquis
acted properly after he got to Angora and did not take the Prince into his
confidence in any way. That was why the Prince wrote to Captain Kostpr
complaining about the way he was treated. We were told by many people in
Angora to get the Prince out of that place as soon as possible and keep him
away as he was doing us more harm than good by his everlasting talking about
things he knew nothing about. We did get him away and he remained in
Constantinople the rest of the time. His uncle owns the paper of tl^e opposition
and any one connected with that crowd is not at all welcome in Angora. An-
other thing the Marquis handled extremely well was the deputies. They hang
about Angora and Constantinople trying to obtain their 1 percent commission on
orders for the Government and really do more harm than good. They have
no direct influence at all and only hope that luck will get them a commission.
The Marquis was approached by any number of such men but always turned
them down. I, too, was approached in Angora by several men but passed them
by. More people have come to grief in their dealings in Angora by mixing up
with the deputies.
The Marquis is in excellent relations with the Minister of Defense and the
oflBcers of the technical committee. Abdul Rahim Bey is the only man I am
not sure of but he is such a fool that one can expect anything from him at
any time.
The Marquis is also in good relations with very prominent members of the
opposition including Enver Bey, Rizza Bey, and the leader of the opposition
Ranuff Bey, who was Prime Minister before Ismet Pacha.
The political situation in Turkey is serious and they expect a lively time at
Angora during the special session which met last Saturday. Kiazim Pacha has
held the office of the president of the national defence under both Prime IMin-
isters and no matter what happens to the present cabinet Kiazim will certainly
remain at his post.
6. Chukrt Bey, who is commander of all light craft and will also have the
submarines under him when they are in oomniission. has written to the Min-
ister of Defence protes'ting against awarding a contract for the submarine
until after he has had a chance to examine the various projects submitted
and can make his recommendations also. This the Marquis asked of Chukri.
Just what will come of it I do not know but when I left the rumor was about
that a special committee would be formed to examine into the plans. I wrote
you about that before but it then seemed to have died a natural death but
now seems to have come to life again. Constantinople is full of rumors all
the time and one must use care in believing anything.
7. The Marquis will stay in Constantinople until he receives the Y gun let-
ter and then will go to Angora and see the Minister about the ordnance
business. It is again a question of price especially for the depth charges
and I suggested to the Marquis to make a strong talk about the safety features
of our type of charges. He has a copy of Winkler's letter to you and there
is also a short notice in Jane about the charge.
8. As soon as Mr. Calcagno returns we can get down to work and have the
offer for you in plenty of time. We have until the middle of November and
can probably get an extension if absolutely necessary but I do not think that
it will be necessary. I can't talk to any one at C.N.R. now that Mr. Calcagno
Is away and Ing. Ferrari has left. I can make Mr. Piaggio understand but
in the technical office it is hard work. Use a mixture of English, French, Ger-
man, and Italian and in that way can get things started but I am not sure
at all times that I am understood.
MUNITIONS INDUSTRY 427
9. Captain Battaglia is in Rome and last night I wired him that I would
be here for a weeli. This noon I had a wire from him saying that he would
be here Friday. I will find out what the situation is in Italy and also about
the two destroyers C.N.R. are building at Riva Trigossa.
Yours very truly,
H. H. Johnstone.
Ends.
Exhibit No. 159
[Copy]
Elekjtbic Boat Co.,
Hibbs Building, Washington, D.C., Jan. 19, 1928.
Lawkenoe Y. Spear, Esq.,
Vice Pres't Electric Boat Co., Oroton, Conn.
Dear Lawebnce : I ran into a situation that may prove to be very attractive
and profitable. However, there are certain conditions that go with it which
are absolutely and positively part of the bargain or understanding at the start —
conditions over which I had no control, and which were not suggested by myself,
and which are most arbitrary because of the fact that this whole proposition
had been carefully canvassed before I was brought into it at all. It has
to be absolutely confidential in every manner, shape, and form. However,
for your Information, on a separate card I will tell you who has approved
of the primary proceedings.
I have been in long conferences with no. 1, no. 2, and no. 3, with no. 3 and
no. 4 present, and secretly, this is the story : Because of certain conditions
developing in their country, and " forewarned being forearmed ", Kemal Pasha,
head of the Republic, has communicated with his representatives, nos. 1 and 2,
expressing a desire to arrange to place orders in the United States immediately
for submarines, for antiaircraft guns, for aircraft, machine gtms, and for
other necessary munitions for this equipment. When this request was forwarded
to nos. 1 and 2, they immediately took it up with no. 4, and nos. 1 and 2
discussed it with no. 4. I think nos. 4 and 5 discussed it between themselves.
Then it resolved itself upon the question of picking the man whom all parties
could trust. That party was no. 6. Of course, no. 6 was delighted to have
an opportunity to discuss the matter. Nos. 4 and 6 met with nos. 1 and 2
at nos. 1 and 2's residence and had a very long discussion. It was then and
there decided that no. 6 was to proceed to secure the information, arrange for
a conference at no. I's residence, and to bring about, if possible, a defensive
program so far as the parties concerned were in a position to prepare and
supply. Tliis will necessitate certain men from various companies — after a
<'onference here — proceeding to Turkey and conferring with Kemal Pasha and
his officials for the closing of the orders, meaning terms, payments, prices,
deliveries, and types of equipment to be approved of in Turkey. This may
lead to program of reorganizing to a fair extent their military program at this
time. They have been buying large supplies of material in England, France,
and other countries. They are now in a position to really purchase in the
United States, and it is their desire and absolute disposition to do so because
they believe that the United States Government has no selfish interest from
a territorial point of view, and that the other nations really have. Also that the
placing of the business in the United States will equip them in a diplomatic
way to treat on other subjects which are being diplomatically considered at
this time. The strength of our position is the fact that we are the only
ones called in and that we will be the ones who will bring in the others, and
that our position is absolutely confidential up to this point, and that you and
the writer will bring about the meeting and will from time to time have private
conferences and that we will be in a position to control the activities of any-
one we bring in, provided we are careful in our choice and that we have the
proper understanding in advance with those whom we bring into the picture.
The machine gun they have in mind is the Browning gun, which Is manu-
factured by license through the Browning interests by the Hartford, Colt Arms
Company, of Hartford, Conn. They are also quite willing to consider other
machine guns. They have sjwken of the Driggs Com])any. However, having
had dealings with that company and with the most friendly relations existing
at this time, I do know their methods and strongly recommend against even
giving them a hint of a possibility of an alliance in this business, I shall be
glad to explain in detail.
428 MUNITIONS INDUSTRY
Tlie antiaircraft guns should be in line with our own recomraondations and
types.
The confidential feature of the matter is that no. 4 will really be the one whom
they will largely depend upon in private conference, and it was no. 4 who,
through courtesy and kindness, brouglit me into the picture, on the advice of
no. 5. There are certain Oriental conditions, quite confidential and personal,
which will enter into this matter, whicli we will also have to discuss and which
we will also have to control.
The last part of the picture is that they insist that I close the contracts
with Kemal Pasha, and that such men as go over are simply technical experts,
because they do not want to complicate the situation with too many executives,
and unless these conditions can be met, they would discourage any further
consideration. They give us considerable latitude, saying tliat they are per-
fectly willing to have us recommend various companies, so long as we can
assume responsibility for their integrity and guarantee the quality of their
output. I can arrange quite readily any time for a conference at no. I's resi-
dence with you and such representatives of organizations that might be
identified with our organization, and will do so after you have had a chance to
discuss the situation thoroughly with the people wliom you care to brhig into
the matter. So far, this is a cash proposition, properly protected and fortified
in a business-like way. In addition to that, there are certain military require-
ments that will be purchased, such as tanks, etc. Also guns, one-pounders, etc.,.
which will be used for antitank warfare. Aside from the above, there are-
certain industrial requirements, machinery and equipment for arsenal purposes
and commercial purposes, which will also be purchased.
This business will be without competition because of its confidential nature,
if I am correctly informed at this time. One of the essences of the whole
feature is speed. If you can arrange with the Colt people, or any other people
who manufacture machine guns, to show to nos. 1 and 2 certain samples of their
guns, or in any case to present photographs, specifications, and such other
information as they may have available, it will serve the purpose of nos. 1 and 2
so far as their position here is concerned, and they in turn will then communicate
with Kemal Pasha and such other officials as are to be associated in this
matter, and make the necessary arrangements resulting from any decisions
arrived at during our conferences. Am quite interested in learning your reac-
tion just as soon as possible. Keep this entirely confidential, please.
Very sincerely yours,
(S) S. J. J.
SJJ/MLS.
P.S. — Since dictating the above, have talked to you on the telephone.
(Approved by no. 4, who will have the final say in the confidential, most
secret capacity, and by the State Department, who will approve of the ship-
ment and any contracts entered into, and which understanding has Jbeen
approved after cai-eful discussion by Mr. Shaw of the State Department.
Please keep this part of the understanding strictly secret, because of certain
reasons which we can discuss.)
No. 1. Ahmed Mouhter Bey, Turkish Ambassador.
No. 2. Ahmed Bedy Bey, counsellor.
No. 3. Kemal Djenany Bey, second secretary, 2607 Military Road ; telephone,.
Cleveland 2831.
No. 4. Admiral H. E. Long.
No. 5. Admiral Hilary Jones.
No. 6. Mr. Sterline J. Joyner.
Exhibit No. 160
[Copy]
34, Lime St.,
London, E.G. 6th June, 1912.
I. L. Rice, Esq.,
President of the ElectHn Boat Co.,
c/o Ritz Hotel. London.
Dear Sir: In confirmation of the conversation the writer had with you on
the 4th instant at the office of Messrs. Vickers L., Victoria Street, S.iv., we
beg to record by this letter the arrangement made with reference to our sole
MUNITIONS INDUSTRY 429
agency in Japan for the sale of youi* submarine or rearly submerged boats,
on a commission basis, as follows :
We undertake to exercise due diligence and to make our best endeavor to
secure orders, either directly or indirectly, from the Japanese Government.
We will employ the services of Admiral T. Matsuo to cooperate with us
in securing such orders from the Japanese Government.
On all orders received by the Electric Boat Co., either directly or indirectly,
they will pay a commission of ten percent on the total value of such ordei's.
Out of this commission we agree to pay for Admiral Matsuo's services as
well as such other expenses as cablegrams and other incidental items.
Payments in respect of the above comniission to be made to us as and when
the Electric Boat Co. receive payments in cash.
It is clearly understood that, notwitlistanding the agreement now recorded,
we shall be at liberty to work for IMessrs. Vickers L. for similar products
whenever we are called upon to do so.
The agreement in question is terminable at any time by one year's notice
to that effect, given by either party.
We shall be glad to have your confirmation of the above and we would ask
you to consider this letter and your reply as forming the agreement betv/een us.
In the event of your confirmation we propose to send a copy of this letter
to Messrs. Vickers L.
We beg to remain, dear sir,
Yours faithfully,
Mitsui & Co., Limited,
Sem. Watanable, Dir.
RiTZ HoTEX, London,
June 13th, 1912.
Exhibit No. 160-A
I. L. Rice, Esq.,
6th June 1912.
Messrs. Mrrsui & Co.,
5//, Lime Street, E.G.
Gentlemen : We have taken due note of your letter of the 6th instant,
which embodies our understanding arrived at as expressed in the letter.
It is of course understood that we shall have the decision as to all questions
relating to price, type, etc. in any tender to the Japanese Government, and,
further, that the commissions as fixed in the letter, namely ten percent, will
be subject to negotiation for a reduction whenever the price of a boat or the
size of the order may make such a course advisable.
Yours truly,
Electric Boat Company,
, President.
Exhibit No. IGl
Sept. 17, 1926.
Mr. L. Y. Speak,
Care Captain Paul Koster,
48 Avenue de La Bourdonnais, Paris, France.
Dear Mr. Spear : Mr. Joyner has returned and has gone over things very
elaborately with us and, as previously advised you by cable and letter, he has
in hand two submarines of 2,.50O H.P., two of .3,000 H.P., and two mine layers,
also several of tlie otlier vessels mentioned. Tliere is no doubt from the details
he has gone over with us that he has this business in hand, and he having
spent two days at Groton with Mr. Sutphen, they feel there that the company
can without doubt fulfill tlie requirements. Mr. Joyner sails on the " Beren-
garia " on the 22nd and will meet you in London to discuss matters.
He mentions that Mitsubishi has been building a large number of submarine
boats for Japan for some years back and claims that the boats are from our
designs. They have even been figuring with the Argentine Minister about
building the Argentine boats in Japan. He states that Vickers have a very
large oflSce at Mitsubishi's plant and that Vickers has a claim against the
Japanese Government of twenty-four million yen, but just what it covers he
83876— 34— PT 1 28
430 MUNITIONS INDUSTRY
does not know oxaotly but has an idea there is something in it about submarine
boats. He states that Japan has offered Vickers twelve million yen in settle-
ment, and 1 have thought that perhaps we might have some interest in this
claim. It would seem as though Vickers liad double-crossed us in Japan in not
having the contract executed by Mitsubishi which I sent them in I'JIG, which
provided for a royalty of ten percent of the gross price. I know they have
given you an explanation that the British Government had given the plans of
the " K " boats to Japan and therefore jNIitsubishi did not think it necessary to
go forward with our contract, but this might be sometliing that would be worth
while your investigating pretty closely while in London. I do not like to say
anything harsh about Vickers because they have proved to be our friends in
a number of other cases. You will see Joyner and he will give you all this at
first hand.
We have received a cable from Aubry, of which I enclose a copy, and after
carefully considering this for two days and discussing it with Sutphen and
Otto Marx, I have sent the reply which I also enclose a copy of. I have done
this before making any banking arrangements for the sale of the Peruvian
notes, because I feel that I will be able to liorrow against six month maturities
if we need the money and I do not want to pay any " Shylock " discount. The
Peruvian loan of sixteen million dollars which White, Weld & Co. brought out
was sold immediately and the Peruvian bonds have lield their price extremely
well. You will note that Aubry speaks about our forwarding a finance con-
tract, but my understanding, as expressed in my reply, was that he was to work
out that contract with Calderon and submit it for our approval. I did not con-
sider it necessary to give Aubry "A B C " instructions in the cable, because we
certainly discussed it among ourselves very thoroughly indeed before he left
and he understands our position exactly, and he has the intelligence and ability
to work the matter out in a way that I believe will be entirely satisfactory
to us.
Naval carried out their agreement to the dot, and on September 15th, after
sending us pesetas 4,250,000, they deposited with the Royal Bank of Canada, at
Barcelona, pesetas 2,257.933, covering the 10%% up to date, which covered an
additional payment which they had received from Spain since the agreement,
for which they also sent us a check for the 5% due Zaharoff. Taylor, from
his accounts here, proves within less than pesetas 100 of the amount due us.
We have not touched this money excepting the proceeds of 250,000 pesetas,
which they sent us in dollars, so that we have in Barcelona, or in the mail
enroute, pesetas 6,257,933, which I will sell as we need the funds, hoping for
some improvement in pesetas which are now selling between 15.20 and 15.80.
Joyner, at request, is going to London to consult with Hayashi in regard to
the trip of the Prince here next year, and it is further intimated that perhaps
Hayashi has additional business. Matsaduria telephoned Joyner this morning
that his business would probably be increased to three of the smaller sub-
marines.
I have not heard anything from you in relation to the quotation on the
cargo vessels, and Joyner seems to be extremely confident that the Japanese
friends will take six of our boats at at least $160,000 apiece. If this should
be so, we would of course prefer not to sell any more just now, especially at
the lower price.
I have your letter of September 5th from Paris, and note what you say
about Vickers' statement and the amount we may have to pay on account of
the Spanish settlement, but will hold that over until you return. Also note
what you say about the Russian claim and have had Mr. Taylor working on
it, so that he will be ready by the time you return.
Joyner is very firm in the opinion that nothing should be said about this to
Vickers, because he is afraid it will get back to Japan through them and per-
haps open up the matter to competition, where he expects to arrange it all
through his personal friends.
There has been quite some activity in the stock since you left. A friend of
Otto Marx by the name of Hines bought 15,000 shares between 7 and 8, and
the stock has sold as high as 10%, but has sold off a little today.
We are trying to keep everything quiet because we fear that publicity might
spoil some of our plans.
During the last twenty-four hours we have chartered six cargo vessels to
carry coal to England at $6.25 to $6.50 per ton, showing a net profit over all
expenses, including maintenance, of about $5,0CK) a vessel, and illustrates the
value of these ships in the minds of the New York charterers.
MUNITIONS INDUSTRY 431
Harding, of the Southern Pacific, was here yesterday and undoubtedly we
will receive orders for engines for three more boats, making five in all, and
if the operation proves successful, as we believe it will, they have about thirty
more ferry boats which they will want in the course of time to recondition.
Wliile the price we gave them was low, it was $10,000 above the next bidder,
and some of them were $20,000 lower.
Mr. Sutphen and I trust you have had a very pleasant and successful trip
through Europe and that Mrs. Spear and yourself are enjoying the best of health.
Should you see Sir Basil, give him my very best regards.
Yours very truly,
Exhibit No. 162
ViCKEKS AbMSTEONGS, LtD.,
Naval Construction Works,
Barrow in Furness, 2Sth November, 1930.
PORTtrQAL
L. Y. Spbab, Esq.,
Messrs. Electric Boat Company,
Qroton, Conn., U.S.A.
My Dear Spear: For your very confidential information, we have come to
an arrangement with Hawthorn Leslie's and Thornycroft's in connection with
the Portuguese naval programme.
The broad outline of the scheme is that we shall take a half, and the other
two firms each a quai'ter of whatever orders we can get. Representatives of
the three firms have just returned from Portugal and it looks as if we might
have a chance of doing something.
Our object in agreeing to work with two other English firms is that very
considerable deferred payments will probably be required, and we have wedded
ourselves to two firms of good financial standing who will each be able to
take their share of whatever finance is required. The enquiry is to be broad-
casted to about twenty continental firms, but I do not think we need fear
English competition, and I am advised that the Portuguese will probably insist
on British armament as they are admirers of our navy, and of course, very
old friends of our country. Further, they want to make sure that in the
event of trouble in the Mediterranean they will be able to get supplies of
ammunition from us.
After the tremendous rebuff I received from your company in connection
with the " G " boat I do not know quite what to say regarding royalty, but I
think it will be obvious to you that if we have to add 4.%%, we are going to
be properly up against it with the Italians.
Gumming has been out to Portugal and obtained all the information required
for us to get out our designs, which will be required with our tender in about
six weeks' time. I do not know whether you are competing for this pro-
gramme, but whether you are or not, I suggest that you seriously consider
your royalty, and suggest to me some modest percentage which will not kill our
chances.
All good wishes,
Yours sincerely,
(s) C. W. Craven.
P.S. The present arrangement is that we get the submarines and armament,
at any rate.
Exhibit No. 163
April 13, 1925.
L. Y. Speab, Esq.,
Vice-President, Or o ton, Conn.
My Dear Spear : I have your letter of the 9th instant, with copy of cablegram
from Passano and one from Koster in relation to Passano's expenses.
It has been my opinion for some time that Passano was an expensive orna-
ment which we could ill afford to maintain and it would be better for us to
432 MUNITIONS INDUSTRY
dispense with it. He receives greater compensation tlian does Koster and is
apparently rather free in his expenditures. As you will remember, he bor-
rowed .S2,U0O from lis some time ago, which of course lie has maile no movement
to repay. When I was in Europe last August I discussed these different mat-
ters very thoroughly with Koster, and he was quite strongly of the opinion
tliut whatever we might do in relation to representation in Europe that he be
not given any authority in relation to Passano's expenses because, he stated,
if Passano thought and knew that he had anything to do with Passano's ex-
pense accounts Koster's life would not be worth living because of Passano's
constant requests for additional funds. He stated that Passano then almost
worried him to death, and the only v^ay he could get rid of him was hy saying
he had no funds and it would be necessary for Passano to send to the United
States for money.
The wlude record of Passano for four or five years seems to me to be a
regular op<^ra bouffe.
Yours very truly,
(Signed) Henby II. Cabse, Pres.
Exhibit No. 164
August 11, 1933.
Mr. L. Y. Speak,
Vice President Electric Boat Company,
Groton, Conn.
Dear Mr. Speae: In relation to your proposed trip to Europe, a very import-
ant matter to be considered is the effect at Washington of you and Mr. Nibbs
both being absent at this time, which might be considered as our not giving
the work for the U.S. the proper attention and consideration and the diffi-
culty of explaining to the satisfaction of the Navy Department. There is
nothing of importance for us in Europe except the Lanova development at
Munich, where Mr. Nibbs will be. If, however, you should visit Spain, while
a rumor was current some time ago that Sir Basil Zaharoff had died, I saw
an article in one of the papers a few days later denying the early state-
ment and declaiming that he was apparently in very good health ; so that
if Sir Basil is still alive, we would not be at liberty to discuss with either the
Spaniards or with Vickers any moditication of the current agreement with the
Spanish concern, as that is absolutely the business of Sir Basil.
The only thing in England that I know of open at the present time is the
inquiry from Esthonia, regarding which we have advised Craven we would
not bid. Our agreement provides 4%% for the Electric Boat Company; Craven
has suggested modification of 1% and I have agreed to accepting 2%.
There does not seem to be any possibility of our doing business with any
other country in Europe except the barest chance of selling plans and speci-
fications to Holland or the Scandinavian countries, and this is only visionary.
We would not trust the Italians and would not care to take contracts for any
of the southeastern country nor would we care to negotiate with Russia until
after the United States Government had recognized the Soviet Government.
Koster may bring forward a lot of schemes, but as he was not able to secure
any business during the period of twenty years, there is no reason why we
should consider he might be more successful now. His reputation as an inter-
national spy ruins any usefulness.
Vickers' contract does not expire until 1937, so it is too early to discuss
with them any modification; but if any proposal should be submitted by the
Spaniards or by Vickers for modification of present agreements, you could
not agree to anything but could only take them to be presented to the board
of diiectors and subject to the approval of the board of directors, so as to
avoid any embarrassment in case the board of directors should not approve
the suggestions brought forward.
With kind regards,
Yours very truly,
(S.) H. R. Carsb.
I
MUNITIONS INDUSTRY 433
Exhibit No. 165
Nov. 30, 1929.
li. Y. SPE.VR, Esq.,
Vice President, Oroton, Conn.
Dear Mr. Spear: I have received from you this morniug the carbon copies
of Roster's two letters, Nov. 18th, but the matter of his going to London
during the naval conference is absolutely out of the question. He apparently,
has no comprehension of the state of affairs in this country of such matters,
and it is not necessary to wait even for Joyner's opinion on the subject. The
conference will work itself out in its own way and without any advice, assist-
ance or interference, actual or claimed, on the part of any of our representatives.
With kind regards.
Yours very truly,
(Signed) Henry R. Carse, Prcs.
Joyner cables from London 11/29 arrived.
Exhibit No. 166
Vickers. Ltd., controls —
1. Vickers Armstrongs.
2. Vickers (Aviation).
3. Vickers (Crayford).
4. Robert Boby.
5. Electric Holdings.
6. Airship Guarantee Co.
7. Cooke, Troughton and Simms.
8. Manufacturers' Estate and Assets Co.
9. Vickers Train Lighting.
10. loco Rubber and Waterproof.
11 British Separators.
12. Supermarine Aviation (Vickers).
13. Isle of Walney Housing Co.
14. Walney Housing Co.
15. Vickers Commercial Steel.
Vickers, Ltd., has interests in Assoc. Electrical Industries, controlling —
16. British Thomson-Houston.
17. Edison Swan Electric.
18. Edison Swan Cables.
19. Ferguson Pailin.
20. Metropolitan Vickers Electrical.
21. Metropolitan Vickers Export.
22. Assoc. Electrical Industries (India).
23. Cosmos Lamp Works.
24. General Rly. Signal.
25. Harcourts.
26. Hotpoint Electrical Appliance.
27. Park Royal Engineering Co.
28. Birtley Co.
29. Electrical Manufacturers Finance.
30. Through International General Electric the company is associated with
31. General Electric Co. (America) and
32. Assoc. General Elect. Industries was formed to merge Australian interests
of the two groups.
Camvwll Laird and Co., Ltd., controls —
33. Tranmere Bay Development.
34. Interests in Conipania Minierva de Sierra Minera.
Vickers and Cammell Laird are largely interested in —
Metropolitan Cammell Carriage Wagon and Finance, controlling —
35. Metropolitan-Cammell-Weyman Motor Bodies.
36. Blake Boiler Wagon and Engineering.
37. Willingsworth Iron.
434 MUNITIONS INDUSTRY
38. Leeds Forge.
39. Patent Shaft and Axeltree.
40. IMidland Rly. Carriage and Wagon.
41. Newlay Wheel.
Armstrong Whitworth Securities controls —
42. A. W. Consolidated Stock Trust.
43. Sir W. G. Armstrong Whitworth (Engineers).
44. Sir W. G. Armstrong Whitworth (Shipbuilders).
4.^5. Sir AV. G. Armstrong Whitworth (Iroufounders).
46. Armstrong Construction.
47. Craven Bros. (Manchester).
48. Pearson and Knowles Coal and Iron.
49. 50 percent of Armstrong Saurer Commercial Vehicles.
Vickers and Armstrong Whitworth own Vickers Armstrongs, which controls —
50. Thames Ammunition Works.
51. Variable Speed Gear.
52. Vickers (Ireland).
53. Whitehead Torpedo.
54. Placencia de las Armas.
55. Internal Combustion Locomotives.
Cammell Laird and Vickers Armstrongs control English Steel Corp., which
controls —
56. Taylor Bros.
57. Industrial Steels.
58. Darlington Forge. Also associated with John Brown (Group F) in
59. Carnforth Hematite Iron.
Armstrong Whitworth and Vickers Armstrongs —
per Securities Management Trust have large shareholding in —
Lancashire Steel Corp., which controls : —
60. Wigan Coal Corp.
61. Wigan Coal and Iron.
62. Rylands Bros.
63. Pearson and Knowles.
04. Partington Steel and Iron.
65. U. K. Ferro-Manganese.
66. Whitecross Co. (Warrington).
67. Pearson and Knowles Engineering.
68. William Robertson.
Camnicl Laird have interests in —
English Electric, which controls
Willans and Rohinson and interests in
English Electric Co. of Canada, and recently a large foreign contract was
taken by
English Electric with
Metropolitan Vickers, which is associated with
Dorm an Long (Group "D") in —
Dornian Long and Associates, China.
Exhibit No. 167
Electric Boat Company
11 PINE ST.
Edificio Italia, Ofician No. 30S,
Lima, Peru, 9th October 1029.
Mr. Lawrence Y. Spear,
Vice President Electric Boat Co.,
Oroton, Conn., U.8.A.
My Dear Mr. Spear: I have taken some time in answering your personal
letter of September 12th. I am very thankful to you, for the news you give
me in it, specially the one's regarding Mrs. Spear's health. Luisa and I are
both happy to know that the source of trouble was only from drainage of
an infected tooth. Her recovery now- is sure. Kindly express to her our best
regards.
MUNITIONS INDUSTRY 435
Regarding the building of my new house, I might say that it is pretty well
advanced ; it ought to be finished by next February. The style is Florentine,
and it will have two separate apartments, consisting of two floors, the ground
floor with garden, etc., will be occupied by us, and the second or top one, totally
independent, by Luisa's sister Teresa, married with a naval officer, Commander
Saldias. The house is quite large, each apartment in itself, consisting of 10
rooms.
I am glad to know that you with your extraordinary foresight could see
trouble ahead by having any contract with Shearer.
I am afraid that the British-American negotiations will tend to stop for
some time any activities in regard to ai'maments in these countries, who are
so emotives, and liable to copy.
I am expecting soon the data you request, regarding sea-keeping ability, and
so far, of the submarines from Burnett, and will send to you immediately.
With our best regards to dear Mrs. Spear and to you from both of us, I
am, as always,
Yours very sincerely,
Luis Aubry,
Exhibit No. 168
J^^^E 18, 1919.
Sir Trevor Dawson,
%Vickers Limited, Broadv:ay, Westminster, London.
Dear Sir Trevor : Your cablegram of the 13th came duly to hand, and as
the date was at our Gi'oton office we telephoned to our ]Mr. Davison about it,
and he has prepared a statement in relation to the torpedo gun and blueprints
of plans of various designs, which we take pleasure in enclosing you herewith.
We cabled you today that these papers were being forwarded to you by the
Lapland, which is scheduled to sail from New York on Saturday, June 21st.
If this subject should prove of interest to your concern, we would be pleased
to go into the matter in a most exhaustive manner.
We take this opportunity of confirming our cablegram to you extending our
most sincere congratulations upon the magnifi.cent performance of the aero-
plane constructed by your organization, and if it should be your wish to have
this company work in cou.iunction with you in relation to aeroplane matters
that is a subject we would also be very happy indeed to discuss with you in
detail.
With kind regards and trusting that you have been enjoying good health
during the trying years that have passed, we remain,
Yours very truly,
(Signed) H. R. Carse.
Exhibit No. 169
[Copy]
Electric Boat Co.,
February 5, 192!,.
1082/LYS
Finnish Business.
Sir Trevor Dawson,
Vickers Limited, Vickers House, Broadway, Westminster.
London, England.
Dear Sib Trevor:
1. Referring to your cable of January 22nd reading as follows :
" Many firms will compete Finland including Norman Thornycroft. Consider
it advisable we should compete as well as you including Finland in mutual
countries. Please cable."
and my reply of January 28th, reading as follows :
" On account of contract with Sandviken impossible to include Finland in
mutual countries now. Matter really is not urgent. Will write."
I am now taking my first opportunity to write you in accordance with my
promise.
2. The question under consideration is covered by the following provision of
our contract with Sandviken :
436 MUNITIONS INDUSTRY
" Should the Governmeut of Fiuland negotiate for construction in foreign
countries, the American company shall have the right to undertake such con-
struction direct or throu.^h other licensees, with reasonable compensation to
Sandviken in the event of orders in foreign countries being placed with the
American company or its licensees. It is however the intent of both parties
to use their best efforts to secure orders from the Finnish Government for
the construction by yandvikeu so that the provisions mentioned hereabove are
only to apply if the Government on its own initiative negotiates for foreign
construction. The American company will keep their other licensees from
negotiating with the Finnish Government except under the circumstances cited
above, and then only as directed and approved by the American company."
In view of the above stipulation, it is obvious that your participation in this
competition will necessitate special arrangements in advance between j'our
firm, yourselves and Sandviken in case the Government does, of its own initi-
ative, negotiate for foreign construction as apparently will be the case.
3. It is our understanding that the Finnish naval program will be submitted
to Parliament this month and in connection with the matter, we contemplate
sending Caplain Aarestrup to Helsingfors in the near future. We believe it
would be wise to intrust to him the negotiations with Sandviken with regard
to your participation including of course the important question of fixing
reasonable compensation for them, and if the matter is arranged that way, it
would seem desirable for Captain Aarestrup to discuss the subject with you
before he goes to Helsingfors. I am by this same mail advising him of the
situation and requesting him to make his plans accordingly. I do not know
his present whereabouts but he can always be reached through our Paris
office, viz: Captain Olief Aarestrup, care of Captain Paul Koster, 48, Avenue
de la Bourdonnais, Paris.
4. Mr. Carse and I both think that we had better postpone discussion of the
financial arrangements between you and us until we know what terms can be
made with Sandviken and have a clearer idea as to price and profit possibili-
ties. In this connection, I hope it may be possible to arrange the matter so that
any contracts for you which may result will pass through us so that we can
avoid the British income tax. Obviously, any saving which we can make in
this way would benefit the whole situation.
5. As my cable of January 28th might readily be interpreted to mean that you
would necessarily be excluded from Finland indefinitely, I am cabling you today
as follows :
"Am writing you this mail about necessary arrangements Finland."
Very sincerely yours,
LTS:B
Exhibit No. 170
December 28, 1928.
Captain L. F. Oklandini,
President of the Argentine Naval Commission,
250 West 57th Street, Nero York City.
Dear Captain: Referring to our conversation of yesterdny I hand you here-
with a memorandum in regard to the number of submarine boats built by
the Electric Boat Company and its licensees, which I have received this morning
from our works at Groton, Connecticut.
The numbers stated here do not exactly agree with the table published
in our paper Speed-up of August 15th. 1922, a copy of which we gave you,
but the discrepancy is undoubtedly accounted for by the last paragraph in the
enclosed memorandum, that the tabulation does not include a large number
of boats constructed in England, Germany, and Austria wherein a certain
number of Electric Boat patents were used.
In relation to our arrangement with shipbuilding companies in foreign
countries, our agreement with Vickers Limited in Great Britain dates from
1901 and has many years yet to run. This in general provides that we shall
furnish all information, data, plans, etc., required in the construction of the
submarine boats, giving superintendence if so desired, and payment to us is
arranged in different ways. We have or have had agreements somewhat
similar in form to that of Vickers with leading shipbuilding concerns in
Holland, Belgium, Norway, Russia, France, Spain, Italy, and Japan, so that
MUNITIONS INDUSTRY 437
the Electric Boat Company is able with perfect confidence to enter into con-
tracts for the building of submarine boats in any part of the world which
the buyer may choose, the cost varying in accordance with the basic price of
labor in the different countries together with facilities of transportation, manu-
facture, etc. To properly carry out such contracts we have built up a very
large and able force of experienced men who thoroughly understand the
construction and operation of submarine boats and whom we send to the
different countries where we may have contracts to perform, who oversee the
design and construction in accordance with experience and data which they
receive from the home office.
Trusting this is the information which you desire, I remain, wuth kind
regards,
Yours very truly,
Henry R. Cakse, President.
Exhibit No. 171
Electric Boat Company,
Groton, Conn., December 21, 1926.
Refer to no. 1023/243/LYS
H. R. Carse, Esq.,
President Electric Boat Company,
11 Pine Street, New York City.
Deae Mr. Carse : In connection with the inquiry of the Argentine Naval
Commission, I am enclosing you herewith in duplicate an up-to-date memoran-
dum showing submarines constructed and under construction by ourselves and
licensees.
Very sincerely yours,
(Signed) L. Y. Spear.
I.YS-B
end.
December 27, 1926.
submarines built by electric boat CO. AND ITS LICENSEES
Submarines constructed by the Electric Boat Co. in the United States
total 165 (number of different types involved, 16), divided as
follows :
U.S. Government 115
Great Britain 22
Russia 12
Italy , 8
Japan 5
Peru 2
Spain 1
Total 165
Submarines constructed in the United States to Electric Boat
Co. plans under license from Electric Boat Co 2
167
Submarines constructed in England by Vickers, Ltd., under license
from the Electric Boat Co 139
Under construction 5
By other builders 12
• 156
Submarines constructed in Spain by the Sociedad Espanola de
Construction Naval to Electric Boat Co. plans and under Electric
Co. license 6
Under construction 6
On order 12
24
438 MUNITIONS INDUSTRY
4. Submarines constructed in Holland by Schelde under license from
Electric Boat Co 13
5. Submarines constructed in Russia at the Nevsky Works to Electric
Bout Co. plans under license from Electric Boat Co 6
6. Electric Boat Co. type submarines constructed for Denmark by
Whitehead, Fiume, and Government 14
Under construction 2
16
7. Submarines constructed in Norway by the Government to the plans
and under license of Electric Boat Co 4
Under construction 2
6
8. Submarines constructed in Austria by Whitehead to the plans of and
under license from Electric Boat Co 3
Grand total of Electric Boat Co. submarines constructed and
under construction 391
9. The above tabulation does not include a large ninnber of boats constructed
in England, Germany, and Austria wherein certain Electric Boat Co. patents
were used.
Exhibit No. 172
VICKERS, Limited Naval Construction Works,
who. Barrow-in-Furness, 20th April 1927.
Private.
L. Y. Speak, Esq.,
Mess7-s. Electric Boat Company, Groton, Connecticut, U.S.A.
My Dejak Speak: I have purposely not written to you about Mayers because
I thought it only fair and riglit that I should not do so until after the result
of his trial. He appears at the Old Bailey next week and all I can tell you is
that the case will be tried in camera and that the charge is a serious one.
I have very definite assurances from Lord Beatty, from the Director of Naval
Intelligence at the Admiralty, and from the Chief of Staff of the Submarine
Service (who was largely responsible for my taking Mayers on) that Vickers
can in no way be implicated. Even when the trial is over I do not think I
shall be able to let you know the whole story until we meet, which I hoi)e
will be before long.
Yours sincerely,
(S.) C. W. Craven.
Exhibit No. 173
[Private]
Naval Construction Works,
Barrow-in-Furness, 10th May 1927.
L. Y. Spear, Esq..
Messrs. The Electric Boat Co.,
Groton, Conn., U.S.A.
My Dear Spear: For your private information, Mayers has called me for
the defense. I told the Admiralty I was afraid he would do so if tbey did
not call me for the prosecution. However, it will give the prosecution a chance
of getting out of me exactly why I engaged Mayers, and I have so far received
definite confirmation from Lord Beatty that in taking Mayers, Vieker;? acted
in the interests of the Admiralty and they apologize for the trouble they
have landed us into.
Lieut. Commander Cumming, who is a submarine oflicer of considerable
standing, has recently joined my staff. At present I am keeping him on sub-
marines only, but later on I hojio to develop him for naval work generally, and
I look forward to introducing him to you the next time you are in this country.
Yours sincerely,
(s) C. W, Craven.
MUNITIONS INDUSTRY 439
Exhibit No. 174
(2nd Copy)
Electeic Boat Company,
Chroton, Conn., June ISth, 1931.
H. R. Caese, Esq.,
President, Electric Boat Company,
1,0 Wall Street, New York City,
Deab Mr. Carse : Referring to the matter of European licensees, touched upon
in your letter of June 16th to Commander Craven, our records here show
that the Italian and Finland agreements have already been cancelled, so that
except for Spain and Great Britain, the only agreements now in force are
those with Cockerill for Belgium and Burgerhout for Holland. Apparently,
we are free to cancel both of these licen.ses at any time we should consider
that course to be in our interest.
Under the circumstances. I would not think it necessary to communicate
further at this time with Commander Craven about this matter, since, while
the actual situation is a little different from that outlined by you, neverthe-
less, we have a free hand all over continental Europe, except in Spain, and
can do what we like.
Very truly yours,
L. Y. Speae.
Exhibit No. 175
July 2, 1919.
L. Y. Spear, Esq.,
Vice President, Groton, Conn.
Da\E Mr. Speae: Mr. Parker, coming from Washington last night, brought
with him as accommodation to Mr. Neagle, the form of contract for boats Nos.
153 to 158, which I enclose herewith for your examination and approval. I
see that it is drawn to be executed by the president of the company, so if
you find it in accordance with the terms agreed upon, and will let me know, I
will execute it in triplicate and send it forward to Washington. Mr. Parker
brought a number of extra copies, so that we will have plenty for our files.
Mr. Parker tells me that the performance bond has been fixed at a million
dollars for the six boats and that the premium agreed upon by the Department
is 2%, or $20,000, for the full term including acceptance. This is higher than
the last rate but as it being paid by the Government and has been agreed to
by the proper officials I do not see that it is of any special concern to us,
except of course in the matter of our proportion of the saving.
Yours very truly,
(Sgd.) H. R. Caese.
Exhibit No. 176
May 19, 1921.
H. S. SNYDB3?, Esq.,
Vice President, Bethlehem Shiphuilding Corporation, Ltd.,
South Bethlehem, Pa.
My Deae Me. Snydee : I have been unwell and away from the office for
10 days, but on my return this morning have your letter of the 14th instant
and the matter will have my early attention.
Mr. Taylor submits to me, however, some preliminary figures, indicating
that on the S-boat contract we have already paid the Bethlehem companies
$24,700,000, and that, figuring in reserves provided for in contracts, there is
apparently now due the Bethlehem Company about $104,800 ; but the accounting
branch of the Navy Department has arbitrarily held up payments of over
$565,000, pending some correction or adjustments of their auditing methods, of
which sum a goodly portion has already been paid to your company ; and in
view of the fact that this business has been done by the Bethlehem companies
on cost-plus basis, without any risk or responsibility for uncontrollable actions
of the Department, and giving further consideration to the fact that in 1917,
1918, and 1919, we paid the Bethlehem companies about $3,000,000 on account
of wage inci-eases directed by the Navy Department, for which we have not as
440 MUNITIONS INDUSTRY
yet received compensation, and on which we have lost interest all these years,
I must say that I am somewhat surprised to have received this memorandum
from you. as it would seem to me that your company would only be too glad
to share in some slight degree the burden of arbitrary rulings over which
we have no control.
I remain, with kind regards,
Very truly yours,
(Signed) Henry R. Carsk, Pres.
PS. — Mr. Taylor tells me that since I became connected with this company
in October 1915 we have paid the Bethlehem companies $42,564,073 all of
which has shown a substantial profit to you.
Exhibit No. 177
March 28, 1922.
D. J. Murphy, Esq.,
1024 Conneoticut Ave. NW.,
Washington, D.C.
Dear Sir: Your favor of the 27th instant at hand, and while the directors
have thought it best not to enter into a newspaper controversy with these
people, for the ones behind Mr. Rice are two former officers of the company
whose services were dispensed with in 1917 for the good of the cause, a full
report will be made at the meeting of the stockholders on April 11th, but I
can give you brief replies to the matters referred to. To go into detail would
take a very long letter.
The accounts of this company are audited each year by the Audit Company
of America, and all of our reports and tax matters are handled under the
guidance of Messrs. White and Case. An analysis is now being made of the
cash items mentioned in article no. 1, and that will satisfactorily show how the
money was spent.
In regard to no. 2, the plant at Newark Bay: It would be a very long ex-
planation, but the directors feel that is the asset of the future of the company.
We have been working for the last few years for a freight export terminal,
and I think you can have some imagination of the value of it when developed
when I tell you there are 112 acres of land with over 4,000 feet of dock space,
on a 30-foot channel to the sea, and at a distance from the narrows the same
as 23rd Street, Manhattan Island. I could talk to you by the hour about this
proposition, and the United States engineers have recently made a report to
Congress dealing with the subject at length.
With regard to nos. 3, 4, and 5, at the time we were negotiated with the
Shipping Board for the purchase of this material we were also negotiating
with the Italian Government for the sale of the ships and had reached an
agreements as to terms. The contract had been drawn by the Italian Minister
of Marine, but the fall in exchange prevented that transaction being carried
through.
We completed the ships without borrowing any money and have marked down
the Inventory to $50 a ton.
Pending this negotiation with the Italian Government and in order to pro-
vide for future work for the shipyard, because at that time the shipyards all
over the world were filled with orders for three or fours years of work ahead,
we did arrange for some steel material, but when the Italian Government
failed to carry out their contract we stopped all new work immediately, and
the loss on that was practically nothing.
In this connection you will notice that we have marked down the inventory
for 1921 over $6,000,000, and if that bookkeeping had not been made the com-
pany would have showed a profit of about $4,000,000.
The latest tax law provided that buildings and vessels constructed during
the war could be marked down to present prices, but such marking down had
to be done in 1921, and, further, that if the statement for 1921 showed a net
loss such net loss could be carried over and deducted from the income of 1922.
I think you will appreciate the reason for such entry.
In relation to the service to Cuba, the officers had arranged for dockage at
Havana, but when the ships arrived there the people did not carry out their
MUNITIONS INDUSTRY 441
promises. I, therefore, went to Havana myself and arranged for the lorefer-
eiitial use of the best dock in Havana for a period of four years by lending
those people $550,000 at 6% interest, repayable in instalments, and that loan
Is secured by a mortgage upon property valued in Havana at from $5,000,000
to $10,000,000, subject only to a prior mortgage of $350,000.
None of our ships was returned to this country without unloading cargo ;
that is absolutely false and there is no foundation for it ; they were all un-
loaded promptly after we secured this docking arrangement and they brought
back cargoes of sugar from docking arrangment and they brought back cargoes
of sugar from Cuba ; but the collapse of business in Cuba has been so great
that there has been practically no freight going there the past year except
foodstuffs and that is carried on the passenger boats. We have all of our
amingements in hand, however, and if Cuban trade should revive we would be
in very tine position.
The Russian contract was entered into in 1916 under the special condition
that the rubles should stay in Russia until the end of the vt^ar. The officers
and directors did not like to make such a transaction but our agent in Russia
pressed it because of the influence it would have in securing future business,
as a Russian commission had unanimously voted to adopt our type of sub-
marine boats, and they had provided in their budget for the building of 70
of them. We had just finished some buats for Russia on a dollar basis, on
which a very handsome profit had been made, and really the company suffered
no net loss because the 11,000,000 rubles referred to were charged off at a
time when our income tax ran over 80%. These rubles were deposited in five
of the leading bunks of Russia, and if that country should ever come back I
see no reason why there should not be some recovery.
In relation to the " Bug " machine, we made a loan of $2.50,000 at 6%
interest to a firm that was rated by the agencies at a value of $1,500,000, and
by lending this money secured an option of 51% of the stock of the " Bug "
machine company if we elected to exercise it. Our investigation of this thing
led us to believe therewould be a great demand for it and that it would give
very desirable business for our Bayonne plant. There has been some little
dispute and misunderstanding owing to the other party not acting straight-
forwardly, but the whole matter has been adjusted and we have demanded
and secured a large amount of collateral to this note, not having exercised
our option to purchase the stock. Our counsel, IMr. Peter Knight, who is
acquainted with this whole matter states we will undoubtedly be paid in full.
The " Bug " machine has not been dropped, however, and it may yet develop
into a very handsome business, but our money is perfectly safe. The counter
suit brought by the other side was very foolish and ill-advised and has been
withdrawn.
I know of no other loans of funds of the company except to the General
Ordnance Company which was done to assist them in liquidating, so that Vice
President Spear could give his undivided attention to the affairs of the Elec-
tric Boat Company. That loan is amply secured and will be paid.
The directors thought it for the benefit of the stockholders in 1920 to buy
some of the stock in the market. It is true it has gone down since but it has
not been sold and is held in the treasury of the company and will come back
in the course of time.
No. 12. The i)lant extensions referred to were required by the Government
to fill Government orders for submarine boats and accessories and they have
been charged and paid by the Government as a part of the contruction cost
of such work.
No. 13. I know of no new activities except the developments at the Newark
Bay plant, which I have referred to above.
No. 14. Is an entire misstatement. We have, however, been constructing
with Mr. James Craig a Diesel engine of about 1,800 h.p. which gives indication
of being perhaps the best Diesel engine that has so far been developed. We
have every reason to be satisfied with the work we have done, and while the
expense of development work is always large, it has been charged against our
rent expenses in the last two or three years. This engine will be in operation
in one of our ships within two or three months and all those who know any-
thing about the subject speak of it in the highest terms.
No. 15. Of course you, living in Washington, will appreciate how nonsensical
it is. We have a claim against the U.S. Navy, but as you know, the U.S. Navy
442 MUNITIONS INDUSTEY
has no funds available at present to pay any claims, and this is one of the
numerous ones of which you have heard, where the Secretary of the Navy
having directed in writing the manufacturers, to pay extraordinary wages and
agreed to reimburse tliem, the Comiitroller of the Treasury has ruled that the
Secretary of the Navy exceeded his powers, and that it is necessary for him
to have the sanction of Congress. This item we will collect in due course.
Nos. 16, 17, 18, refer directly to me and you are entitled to a direct answer,
the bonus referred to was voted to me by a committee of the board of directors
in 1915 and was $00,000 and not $75,000, and was all of it expended by me
later for the benefit of the company, and I did not receive directly or indirectly
the benefit of a single dollar.
In relation to the salaries of the executive officers, these salaries in 1915 and
3916 were paid by the Electric Boat Company, the Submarine Boat Corpora-
tion being a holding company only of the stock. No salary was being paid to
me nor did I receive any compensation from the Electric Launch Company, the
Electro Dynamic Company, The New London Ship »& Engine Company and other
subsidiaries.
When the $150,000,000 contract was entered into with the Shipping Board
in 1917 for steel cargo vessels we created an entirely new organization of 15,000
men at the Newark Bay Shipyard, and the directors felt that the executive
officers were entitled to additional compensation for that great burden of
work from May 1917. I took the position that I did not care to draw any
compensation until it had been demonstrated what we were undertaking to
do was successful and the other executives followed my example. In 1920
when the work had proved very successful the directors took up the question and
felt that the compensation should be paid that year while our tax rate was
running over 80%, and while I was in Cuba they voted to pay me at the rate
of $30,000 a year from May 1917, the other executive officers having had their
payment adjusted prior thereto. Since the work at Newark Bay has decreased
in volume the wages of the executives have been cut from 40% to 80% and I
can say to you personally, without wishing to make any broadcast statement,
that I have not drawn any pay from the Submarine Boat Corporation since
June 1, 1920.
Our statement speaks for itself; we owe no money to anyone except the
Shipping Board for material purchased for the ships and for the purchase of
the plant at Newark Bay. We have been endeavoring to arrive at a modifica-
tion of the amount paid for this material, because of the great fall in the
price at which the Shipping Board is offering its ships which come in competi-
tion with our own, but taking all in all we owe them less than eight millon
dollars against which we will have a plant upon which the Emergency Fleet
Corporation spent $17,000,000 and 32 ships, or 170,000 deadweight tons, which
would cost at least $100 a ton to replace, or a value of $17,000,000 which they
undoubtedly will have in the course of a few years.
General business has been very flat the past year and it has probably gone
lower than most anyone really believed it would, but we have come through
in very much better shape than most people who try to do large things, and
our potential assets are really enormous, and with the revival of business will
become of most active use.
We are now chartering vessels at a profitable rate, having arranged for
eight of them within the last two weeks, and if the revival continues, as we
all believe it will from now on, oxu- 32 vessels will soon be in active service
and earning a handsome income for the stockholders.
Finally, I might say that as Mr. Rice states, he has been a director for years,
has been a very regular attendant at meetings, and has voted to approve every
action of the board, and contrary to his statement full details of every pro-
posed piece of business have been laid before the board and discussed very
fully and freely, our meetings from one to two hours every week.
If you shnuld ever be in New York and have time to stop in the office it
would give me great pleasure to go over any subject with you which you have
in mind.
Yours very truly,
(Signed) Henry R. Cabse,
President.
1 MUNITIONS INDUSTRY 443
Exhibit No. 178
Received by telephone from Mr. Joyner Aug. 3, 1933.
Office of the Secretary,
Department of the Navy,
Washington, B.C., Aug. 3rd, 1933.
File SS174-L4-2 (330726).
Electric Boat Company,
Groton, Conn.
SiBS : Your proposals submittecl July 26th, 1933, offering for the fixed price
of ?2,770,000 each without adjustment for increases in the cost of labor and/or
material, to construct two submarines Nos. 174 and 175 under class III, in
accordance with your company's design, is hereby accepted and contract
therefor awarded to you accordingly. Formal contract covering this M'ork
will be forwarded to you for execution at an early date. It is requested
that the receipt of this award be acknowledged.
Very respectfully,
( S ) Clattde a. Swanson,
Secretary of the Navy.
Exhibit No. 179
[Copy]
The Davison Ordnance Co..
Coal Exchange Buhding,
Huntington, W.Va., Decem'ber 1, 1932.
Mr. L. T. Spear,
Electric Boat Company, Groton, Conn.
Dear Larky: Last week I visited General Summerall at Charleston, S.C,
and spent four days with him. To avoid repetition I enclose two memoranda —
one covering what he said about my gun and the other covering what I saw
and picked up from him and other artillery officers stationed at the Citadel.
Summerall is the only general beside Pershing who wears four stars and
they are due primarily to his work with artillery. He is very hard boiled
and iiractical. For that reason and the fact that he is not an enthus'iast, state-
ments such as he made to me can be safely accepted at 100% of their face
value.
As regards my plan to organize a company with a couple of generals and
a couple of admirals on the board and with a view to starting some real
competition with Army Ordnance, he tells me I would get nowhere. He says
that Army Ordnance first of all will have absolutely nothing to do with any-
thing which they do not develop themselves. Also that they are so powerful
with the Military Committees of Congress it would be useless to fight them
there. The only way they will ever buy these guns is for them to be first
maniifactured and sold to some forei,gn power or to be developed abroad.
I have made up my mind to go ahead and develop this gun regardless of
the financial situation or outside help.
When I was in Washington a couple weeks ago, I saw Admiral Larimer of
the Navy Ordnance. We discussed landing equipment for the marines and
bluejackets. He tells me tliat their present equipment is not what it should
be and showed great interest in the gun. In fact, we arrived at an under-
standing as follov/s : I am to prepare description, specifications, and drawings.
These will be checked over by his experts and unless they discover something
impracticable he will order a gun. He asked me what I thought the cost
would be. I told him I did not know, but believed we could sell him a gun
for $10,000 regardless of what the actual cost might be. This was before
I saw Summerall, and at the time I had in mind the 75 mm. gun, design of
which has been completed. This gun was based on the latest army 75 mm.
and has a muzzle velocity of 2,200 feet per second. The design also calls for
the use of the Army 3" breech mechanism and recoil mechanism. The old
Army 3" is now considered obsolete and I was given to understand in Army
Ordnance that I could obtain these parts very cheap. While the 3" gun itself
444 MUNITIONS INDUSTRY
is obsolete due to its low power these parts are for all practical purposes, just
as good as the more modern fashions. In fact, one major of artillery ex-
pressed a preference for the older design ,of breech and recoil mechanisms.
But Summerall says that the use of parts from an obsolete type would have a
very bad effect psychologically even though they operate just as well as the
modern designs. This will mean several thousand dollars to be added to the
cost.
In view of what I have written in regard to my interviews with Summerall
and Larimer I have made up my mind to sever my refinery connections so as
to have time to devote to the development of the gun.
So yesterday I took up the matter with the refinery and while I have not
severed all relations I am held only by a thread in the form of a small re-
tainer, which of course is quite welcome under existing conditions.
From what I hear from Caulkius his health does not seem to have improved
and I cannot count on using him to any great extent, he may, however, be able
to do some drafting work from sketches and dimensions I will send him and
also to skirmish around to pick up materials. If he does not improve, I will
later pick up some young fellow from Annapolis, West Point, or one of the
technical colleges.
In view of the unofficial understanding with Larimer, I have no doubt of
being able to get an order from him at a satisfactory price. The next ques-
tion is the actual building of the gun. If you have the necessary tools, how
about subletting the contract to the Electric Boat Company? Payments to be
made on completion and acceptance of the gun, or as received from the Navy
Department.
It will be a very strenuous job to completely redesign the gnu to meet
General Summerall's recommendations. But I fear he is right. If I do what
he recommends I will not only have an antiaircraft gun with a muzzle velocity
equal to that of the armys' mobile antiaircraft gun, but I will also have a field
gun far superior in range to their latest 75 mm.
There is one more thing that should be attended to in the near future, and
that is the filing of patent applications in the principal foreign countries. 1
do not know right now where I will get the money unless I sell something at a
sacrifice. It may be that I can interest my patent attorney and have him do
all the work required and pay him in stock. This would leave only the foreign
dues to be taken care of with cash.
You will see from the above that I expect to go ahead with this job regard-
less of Ml-. M. If I have something which the world wants and which will make
all the present field artillery obsolete, I think I would be a damn fool to keep
tied up with the refinery or a salary or to wait indefinitely for Mr. M. or any
other one man to make up his mind. I have not so far approached any of my
friends in the oil business. Among them I can count a number of presidents
and vice presidents of the big companies with salaries of $50,000 a year or so.
In some ways I would prefer to have a gun to show them before attempting to
interest them.
Trusting that everything is going O.K. with you, I am.
Sincerely yours
Greg.
By M. G. P.
CCD : JS
Enclosure
Exhibit No. 180
[Copy]
The Davison Ordnance Co.,
Coal Exchange Buii-ding,
Euntington, W.Va., December 23, 1932.
Mr. L. Y. Spear,
Electric Boat Gompany,
Groton, Connecticut.
Deiar Larry : I have just received from General Summerall a letter signifying
his willingness to come in on the gun business for foreign countries. He cannot
have anything to do with U.S. business on account of the fool law pertaining to
officers of the Army and Navy.
MUNITIONS INDUSTRY 445
In view of this, please do nothing in regard to Vickers, for the present. Suin-
merall now being my partner in regard to all foreign business I will now have
to work with him.
So far as U.S. business is concerned he will have nothing to do with it.
I am mighty glad to have him with me, as he has commanded more artillery
and killed more Huns then any general in the Great War. When he gets back
of this gun I think something will happen.
I will write you more in regard to 6-inch guns for the new cruiser later. If
the Navy is willing to use a much longer recoil, there may be some weight-saving
possibilities using higher-grade steel wherever practicable. If you have any
dope as regards proposed gun, muzzle velocity, length of recoil, weights, etc.,
it would be useful in a study of the question.
Sincerely yours,
GCD: JS
G. C. Davison.
("Exhibit No. 181" appears in text on p. 287.)
(No exhibit was marked "No. 182.")
("Exhibit No. 183" appears in text on p. 289.)
("Exhibit No. 184" appears in text on p. 205.)
Exhibit No. 185
(Copy for Mr. H. R. Carse, president, Electric Boat Co., 11 Pine St., New
York, N.Y.)
May 23, 1929.
Mr. Lawrence Y. Spe:ar,
Vice President, Electric Boat Co.,
Groton, Connecticut.
Dear Lawrence: Re Turkish matter, had two talks with the Ambassador
today, one just a few minutes ago. The net of the situation is that he is mov-
ing every power reasonable to believe possible to see that we get the other three
boats, and these on a basis of no competition, no bonds, or guarantees, no more
dilly-dallying, but a straight proposition from his Government.
He met the cabinet oflScer in New York, and has been visiting witli him up
to last night. The cabinet officer will be in this city in a fortnight or so. If
I understand the situation correctly, they are both in accord and are making
a united effort in our favor.
As you understand, Hilary had the impression in Geneva and Paris, before he
sailed on the Leviathan that we would get two if not three; but it was his
opinion that it would only lie two, and this for political reasons. He felt that
at no time was price the consideration and, of course, ridiculed delivery time
as a factor. He said he could see the situation very clearly in Geneva, and
that there was considerable gossip and talk. When Rushtu Bey arrived he was
surrounded by Italians, Germans, and Russians, particularly the Italian group,
and they managed to cut short his stay and hasten his departure for Rome,
where he was entertained royally and made much of. Apparently from
Hilary's statement he had two or three very delicate problems, n'hich necessi-
tated sacrifices on the part of his government. In fact, he remarked they
were of serious importance, and in order to save his face, it is thought that he
probably agreed to lend his influence with his government to the end that we
have the result we know of. However, only for a portion of the busim-ss, and
it is the impression of our friend here that the balance of the order was
purposely held out.
83876— .'?4—PT 1 29
446 MUNITIONS INDUSTRY
There is also another situation that is peculiar, and that is the Italians
accepted approximately twelve to thirteen percent of the total payment up to
time delivery, and arranged that the balance of payments should run for eight
more years after time of delivery. This may and may not be authentic. It is,
howevci-, an accepted version at this time. It is peculiar but nevertheless true
that the Department, Hilary, and His Excellency believe that we will still get
our portion of the business.
Maconiber talked with me today and the essence of his conversation was that
we should have no regrets as evidenced by information he has and information
we have, his information undoubtedly coming through European sources and
probably quite reliable. He says that if they had come through at the time
clean tiiey could have obtained the money on terms recommended, and tliat the
situation could have been followed up by a bond issue for a rather large amount,
which would liave given them an established tinancial position in the United
States as well as a better commercial relation.
He congratulated the company on its clean-cut methods and its frankness in
dealing with this whole situation. JS'ot only did he refer to our negotiations
with the Turkish Government direct, but also to the manner in which we han-
dled the matter v.ith his interests. He expressed himself along the lines that
it was rare a matter of this type received the same intelligent treatment, and
that we had made all the concessions reasonable to expect. He said lie abso-
lutely now had information in his own otlice which confirmed the fact that it
was entirely political, and that nothing that we or anyone else could have done
could have changed this situation after Mussolini took it in hand, and that
there were factors, which none of us knew about, at work. He did not in any
manner, shape, or form evidence a change of heart if the other two or three
came through in the near future. He further said that if the devil got into the
stock market the bond market would move free and fast, and that probably a
very good bond issue could be handled.
He did advise that we take a very lirm place in the future with the Turks
and make it clear to them that this was the best proposition ever offered any
government by American bankers, so far as he had knowledge of, and that
they would never again receive the same cordial welcome, when it came to ob-
taining credits, etc. ; that in the future they would have to step up to the
counter and meet the situation frankly, honestly, and immediately.
He got the impression, and this possibly from the State Department, because
I know it has been remarked by Jones and Long yesterday, that we would have
been nmch better off had an American been handling the negotiations with the
Turk, because of the fact that he was speaking for an American company, and
that probably an American would be more blunt, positive, and forceful in his
actions ; that the Turk would recognize the fact that he was dealing with an
American and not a foreigner, who had quite a different psychology from that
of the average American representative, who is best fitted to handle matters of
this importance. I simply tell you this as one of his reactions, for what it is
worth. Several times during my recent talks with the State Department they
gave me the same impression, and as the Harris-Forbes people and the First
National people of Boston are in constant touch with the Department, it is im-
possible he got his idea there. Tiie suggestion was certainly never otYered by
me and I trust it will not carry any weight with you, lest my position be mis-
understood.
I was glad to have Macoml)er say that he wanted us to bring in any and all
of this type of propositions to him because they want to look them over and
stand behind any that were attractive or offered future possibilities. That is
about all on this subject.
Thanking you, and with kind regards.
Sincerely yours,
Sterling J. .Toyner.
P_S_ — Glad to give .vou the Japanese information today, also the information
regarding Godo's intended start for America.
It was glad tidings to have heard from Harding this morning. It now looks
as though that situation may move along.
("Exhibit No. 186" appears in text on p. 296.)
Exhibit No. 1S7 " appears in text on p. 297.)
MUNITIONS INDUSTRY 447
Exhibit No. 188
[Copy for Mr. Carse, Electric Boat Co., copy]
October 21, 1930.
Mr. John R. Macomber,
2Ji Federal Street, Boston, Mass.
Loving Old Thokoughbeed Fkiend : The Italian commercial attache, one
Signor Romolo Angelone, will call ou you next Tuesday at youi- New York office.
The gentleman will visit me here today, Tuesday, at which time I will advise
him to make an engagement, meaning to communicate with you in order to learn
your convenience.
I have made it signally clear to him that you are not seeking the meeting.
That it must be thorovighly understood he is soliciting the conference, and that
it is a privilege to meet you. If there is anything worth while in Italy you
can be the judge, after your meeting with him.
In order that you may be somewhat informed in advance, I wish to state
our experience with Italians has not alv,'ays proven attractive. However, do
not let that deter you.
Mrs. Joyner asked me to convey her love with mine when writing you.
I have a tentative week-end engagement with Du Fonts at Wilmington. Del.,
which I would pass over to the week following if you could dine with us Friday.
In that case I would run up to New York F'riday afternoon. I hope you can
accept.
With all affection and best wishes,
Sincerely yours,
A. J. J.
P.S. Confidentially to you, Secretary C. F. Adams confirmed wheat talk.
("Exhibit No. 189" appears in text on p. 30O.)
("Exhibit No. 190" appears in text on p. 300.)
Exhibit No. 191
Fehruaey 10, 1931.
Confidential
Memorandum for Mr. Joyner.
The tariff on oil will have very serious consequences from an industrial,
investment, and even international political point of view. I have been very
closely in touch with this fight in the last few days. The companies strug-
gling for the imposition of a dollar a barrel have sent here a delegation of
70 men (I am credibly informed) with a million dollars at their disposal. The
sole resistance of any effective character is coming from the Standard of
Indiana.
The measure will be blocked in the Senate, sent back to the House where it
will probably be dealt with as a revenue measure with hearings in the Ways
and Means Committee.
My guess is that the Navy Department would very much prefer to have this
measure defeated since it wants to buy its oil purely on the basis of price
and strategic location. I venture the suggestion that you ascertain whether
it would not be regarded as a considerable service on your part to use your
extensive influence with Mr. Tilson and others in effectively blocking the
measure if that is what they would like to have done.
C.E.M.
Exhibit No. 192
Confidential.
Makoh 7, 1931.
Sir Basil Zaharoff,
Hotel De Paris, Monte Carlo, Monaco.
My Dear Sir Basil: Your letters received with much delight and the
writer feels signally honored because of the time and trouble you have taken
to send these notes. You are very, very busy. Of that fact I am well aware,
and it is not necessary for you to waste your time acknowledging my missives.
448 MUNITIONS INDUSTRY
I am glad to tell you now that Congress has adjourned until December, not
to be recalled except in case of emergency. The total expenditure of this
short Congress was over ten billion dollars, gold, a rather extravagant
amount, and we are not sure but what it came closer to twelve billion,
when the bonus legislation is taken into consideration. It has had its effect
on business. At the opening of the year there were some prospects of new
business. However, we have had a relapse back into the old state of unem-
ployment, and even fewer prospects of new business.
We have been assured by high oflicials th.it we will receive some business
from the Government. We will know on April IGth. The new Navy con-
struction bill never reached daylight due to filibusters on other legislation. It
will receive preference when Congress meets in December. However, with
the limitation of Armament Conference coming up in 1932, there will un-
doubtedly be a long delay before anything is reduced to an authorization and
financed sufficiently to proceed with construction. Personally, I do not look
forward to anything of that kind until probably next June 1932. Don't take
me too pessimistically. It is just a reasonable analysis of not only the
possible, but the probable condition which we must confront.
With reference to Passano, would assure you he is not drawing one cent
rrom the company in any manner, shape, or form. I have most carefully
checked this out and you may have that assurance from me, if you will kindly
accept same. I am informed that he is hopping around Italy, France, and
other places, but if he is it is not on any deferred compensation of any
sort from this company. I am glad the Paris office issue has been settled
for once and all.
I am glad that you are well and that all the rumors were false. Of course,
at that time it was very disconcerting, but now that we know you are
well, everything looks brighter and better.
Very, very confidontial to you, and confidential it must be, I had decided
to retire from the organization. In fact my resignation has been in for over a
year. I wanted to get out months and months ago. (I am not in accord
and never have been in accord with the methods which this company adopts
and sees fit to carry through in their endeavor to handle or obtain new busi-
ness.) Very confidential to you. I think there is a good deal of dry rot,
which, form of decay is fatal. However, the raising of my voice is like the
call of one at Babylon, lost in the confusion, and just as I was about to force
my own retirement a rather strange condition (le\eloped. The Secretary and
the Assistant Secretary of the Navy, Admiral .Tones and other admirals in
the Navy Department, Colonel Tilson, leader of the Republican Party, the
party in power, the White House, and other people brought me into conference,
and asked me to remain in the organization in order that they mi.ght have
faith in an honest construction of any program they favored us with, and
also that their dealings might be without conflict or confusion, enmity, or
doubt. I was also asked by members of our designing department to with-
draw my intention to leave March 1st. It is going to be a very se^rious
pei'sonal sacrifice on my part, and while it is most complimentary. I am not too
happy. Howevei-, it is the first time in the history of the United States Navy,
I am told today, that the department has made an official request to aniy
officer of any private corporation to remain in the service of the company in:
order to better serve the Navy.
I know your mos(- powerful position and influenre for the good and the better-
ment of the company, and I think you ought to know these facts. In fact,
■ *^hink it would be very nife if you wish to confirm the situation to quietly
talk it over in a very confidential way with Admiral Andy Long, wlio will
frankly tell you, if you ask him to do so, the situation I stepped into unknow-
ingly tliree years ago. What applies in this country, likewise applies abroad
and it is sometimes most discouraging. There is, if you will excuse me, an
expression sometimes used in America that is fitting on c(>rtain occasions but
not always pleasant to the ear. It speaks of the situation and men in the
phrase of a " stuffed shirt." You have probably heard it in Europe, or I
believe it originated in England.
If you are interested in l»eing advised with the progress we are marking
in this country with reference to Government work, and general work, I shall
be glad to keep you advised on that basis. I repeat on the basis of confidential
communications, nnd I suggest you address me to my permanent residence, the
Hotel P.ossert, Brooklyn, New York, where nil mail will' be personally andl
confidentially handled.
MUNITIONS INDUSTRY 449
I wrote to you with reference to Sir Henri Deterding of the Shell orgiani-
zation, whom I am informed is a personal friend of yours. We ought to be
doing some of his business in the United States. They have a large power-
ful organization, and aside from this, they are now deeply interested in the
present embargo controversy. I sat in a brief meeting about two hours ago
at luncheon with the men who really have the say as to whether there will or
will not be an enil)arg(). I believe I could help, in fact, I know I can. Sir
Henri Doterding's interest in this country and on the other hand I think it
would be a good thing if his activities were encouraged. I also think I am
about the only man in this country who can save the situation for the foreign
interests, and this I absolutely and positively believe without any conceit on
my part.
I will be glad to make a trip to Europe and call upon Sir Henri Deterding
and spend two or tliree days with him the latter part of April or the first part of
May if he would be interested, and if you should l)e writing him I wish
you would make known the fact that you know who I am, and that I am
not trying to graft him or do anything of the sort, and that I know positively
that the foreign countries are going at the thing absolutely wrong and will be
defeated by a tremendous majority in 1932 if they continue the methods they
are now using, and that they will absolutely be shut out of the oil business in
this country through an embargo. They are being ton optimistically advised,
and are too confident of their position. I talked today at luncheon with one man
who will have practically all of the say when the issue is brought to the
floor of the liouse, which it will be, and I know his position.
There now, I have written you a long letter and I trust that you continue
to enjoy your usual splendid activities with success and good health.
Very sincerely yours,
Exhibit No. 193
April 23, 1931.
Sir Basil Zaharoff,
Hotel Dc Paris,
Monte Carlo, Monaco.
My Dear Sir Basil Zaharoff: This letter will introduce the Honorable
Mrs. Ernest Lee Jahncke and Miss Adele Townsend Jahncke, of Washington,
D.C., and New Orleans. La., the wife and daughter of the Honorable Assistant
Secretary of the United States Navy. Ernest Lee Jahncke.
They are vei-y dear friends of mine, charming folks, and I take much delight
in suggesting to the ladies and your most excellent self the pleasure of a meet-
ing during their stay abroad.
They will want to see some of Paris and meet some of the nice people, and
they will want to visit the exposition during their stay in Europe.
I have written Admiral Andrew T. Long, U.S. Navy retired, and advised
him of their expected arrival.
I shall sincerely appreciate, and I can assure you that the Secretary and his
family will dwell in a long life of gratitude for any favors you may find it
your pleasure and convenience to extend.
With warm personal regards and very best wishes.
Cordially yours,
Exhibit No. 194
{Copy for the Honorable Ernest Lee .Jahncke. Assistant Secretary U.S. Navy,
Washington, D.C.]
Electric Boat Co.,
New London Ship d Engine Works, April 23, 1931.
CONFIDENTIAL AND PKRSONAL
Admiral Andrew T. Long,
International HycLrograhic Bureau,
Monte Carlo, Monaco.
Beloved Andy and Vi : Your good letters continue to flow our way, and we
are doing our best to keep you informed of what is going on in this part of the
world.
We trust you are both enjoying excellent health and I noted in your letter
that you are going to be touring around Europe this summer.
450 MUNITIONS INDUSTRY
Strictly and absolutely confidential to you, it is now definitely decided, and
very definitely, that I am goins to Japan via Europe in June. As a matter of
fact I neglected sending out for the transportation today but I am going to do
so this afternoon. Nobody has been informed of this fact except you and a
couple of members of our organization with whom it has been arranged. For
business reasons we are keeping it very, very secret. I dislilie taking the long
route in the hot weather, but there are reasons why I should go to Europe
first, and there are further reasons why I should not tell anybody of my
intentions.
Business does not seem to improve in the United States. However, we are
trying to be cheerful, be optimistic, and be loyal at the same time.
I am having some trouble fighting against any wage reduction. On Tuesday
last the board of directors voted to make a very serious reduction, and to put
it into effect coverino^ everybody excepting, strange to say, " Yours truly ", and
I fought that out this morning and saved that. There is a general feeling
all over this country to cut wages. My feeble effort will not avail much gener-
ally speaking, but it does amount to something in the organization. In other
words, about 60.000 shares in one block and possibly another 100,000 in another
block. These two blocks and the stock that I can command outside by proxy
makes it possible for me to speak up occasionally out of turn. In doing this,
I am supporting the hand, in my limited way, of President Herbert Hoover.
Hilary returned to the hospital yesterday afternoon at Philadelphia. I
trust after the final treatment and final examination that they in time will
discharge him and permit him to enjoy some real food. He has been coura-
geous and a splendid patient. He has taken his medicine like the splendid
naval officer he is known to be.
Admiral Hughes is much better. I am glad to tell you this. I visit the
Admiral's home very often. In fact, all of the family are well and send their
compliments to you.
Admiral Blakeley is cheerful and fine and says he is writing you. Admiral
Leahy is leaving about the 29th of May. He is a fine chap and a splendid
officer as well as a loyal friend.
Admiral Shag Taylor is leaving for the Asiatic command. Your old friend
Admiral Chase is returning to the General Bnard. Adolphus Andrews is
being located probably at Chicago, and your other friend S. M. Roliinson is
coming to Engineering to become Chief of the Bureau. There is any amount
of gossip but that is sufficient for the time.
Now for a vei'y, very important and absolutely secret communication. Mrs.
Ernest Lee Jnhncke and Miss Adele Townsend Jahncke will arrive in Paris on
the Golden Arrow the afternoon of May 20th, and I have instructed our Euro-
pean Manager, H. H. Johnstone, 48. Avenue de la Bourdounais, Paris, France,
cable address code word Eetsok, to meet the steamer at Calais, and to accom-
pany these splendid ladies, your friends, to Paris and arrange for their hotel
accommodations, likewise to give them such of his time as they may require.
This will play but a very minor part in their plans, and I know or believe that
the Assistant Secretary would dwell in a long life of gratitude and appreciation
if both you and Vi were in Paris during their visit, or if you and Vi would
arrange to have them visit your section of the world, Monaco, during their
trip abroad ; also if it is convenient to convey this invitation to Sir Basil,
whom I am also writing so that he may show them some of the royal reception
and signally beautiful considerations and entertainment so usual on his
part when par-excellent or very elite people visit him. If you will connnunicate
with Johnstone, whom you have met and know is an ex-United States naval
oflicer, and give expression to your idea as to what they should and should not
see, it will be sincerely appreciated by all concerned.
For your information, they will want to visit the Exposition. If there
is any change in date of their arrival in Paris I will have you notified by
telegraphic communication or by telephone.
One thing that I do not want to see happen is to have them charged
tourist rates in hotels, etc., during their stay. Johnstone has been instructed
to secure accommodations in some first-class French hotel in Paris where the
rates are reasonable and the accommodations first class. He has been told to
keep away from the Ritz, ainerice, King George V. and hotels of that t.ype.
If you get tliis letter in time I would thank you if you would drop me a
line acknowledging same.
Secretary Jahncke, as you knov,-, is an old friend of mine, and a very
loving friend of yours. He is one of the keenest and one of the finest com-
MUNITIONS INDUSTEY ' 451
panions a man can have on this earth, a prince of men amonii men. He is
not aware of this letter being written. However, I am sure he would not
disapprove of me writing j-ou because of his great friendsliip and admiration
for both you and Vi.
Glad to tell you we are both well and Mary is here in Washington with
me for a short visit.
Hoping to see you personally soon and with all our love and best wishes.
Faithfully yours,
Mary and Sterling.
Exhibit No. 195
Copy for the Honorable Ernest Lee Jahncke.
Washington, D.C, April 28, 1931.
Sir Robert McLean,
% VlcTccrs-Ai-mstronff Co., Ltd.,
London, England.
Esteemed Friend, Sir Robert : Forgive us not writing you before, but so
many things have been happening, and as a matter of fact I have not per-
souj^lly been so well that I have really neglected my personal correspondence.
We both send our affectionate best wishes to both you, Lady McLean, and
your lovely daughters.
We have been looking forward to seeing you in the States and want to assure
you that a warm welcome awaits you at our home.
It is about time we took an ocean voyage together. I am planning a rather
very long voyage, leaving the States in June and we will probably end up at
your side some fine morning in London, perhaps begging for a shilling or a
pound. In any case vre have confidence in our British cousins to believe
they will see that we get it.
Now, for the second act, and probably the most important. My most beloved
friend, the Honorable Ernest Lee Jahncke, Assistant Secretary of the United
States Navy advises me that his beloved wife and daughter ; namely, Mrs.
Ernest Lee Jahncke and Miss Adele Townsend Jahncke, are sailing on the
Geofffe WdHliington. United States Lines, about May 6th enroute to London.
They will stop at the Carlton Hotel, and should arrive there the 13th or 14th.
I wish if it was your convenience and pleasure that you would pay them a
call during their stay, which is between the date of arrival and the 20th day
of May, when they will proceed to France.
Both Mary and I trust it will be your pleasure and convenience to have
your lovely daughter visit them some time during their stay.
After their arrival in London you will read much about them. I cannot
write you why I make this statement, however, you will be charmed when
you read it, just as you will be supercharmed when you meet them. Any
help or assistance that you can give them will be sincerely appreciated by all
parties concerned.
We hope you have all been well, and we close this letter with our affection to
yourself and all the members of your loving family.
With warm personal regards,
Cordially yours.
Personal and confidential.
Exhibit No. 196
May 22, 1931,
Sir Basil Zaharoff,
Chateau De BaUncourt,
Par Arronville, France.
My very dear Sir Basil: I am in a position today to tell you that I kept
my promise to you made some time ago, but, nevertheless, not forgotten. I
succeeded in restoring the Company to the old resf>ected position it enjoyed
some twenty-five years ago.
We were the low bidder and succeeded in securing the building of the SC5
today. Bids went in May 19th, and I was assured by the Acting Secretary
of the Navy today that we would be given the contract. Being low bidder
452 MUNITIONS INDUSTRY
did not mean wliat it seonif!, because the Navy Yard still had the privilege of
coniinj? in and offering a price much under ours, which I believe they did.
However, the honorable position which we have taken through all of this
situation and the helpfuhiess which we have rendered to the Department in
various manners and various ways has borne fruit. Where we had nothing
but disrespect we today have great respect.
We received a good reasonable price for our work. Everybody is now
rejoicing. Naturally, I have not been to tlie New York Ollice because I only
received tlie final word today, but I am told over the telephone that both
Mr. Carse and Mr. Sutphen are delighted, and our directors are very, very
pleased.
I know this will please you as a stockholder and it is a signal evidence
that where iionorable, truthful, intelligent methods are adopted, with ability
to perform, associated with these efforts, that even though a tirm may have
suffered through a blighted reputation unjustly, if you please, however, suffered,
that they can, by courage and patience become restored with the confidence and
support of their former customers, even though these customers be important
governments, where pr(\judices live much longer tluin they do among indi-
viduals or private organizations.
I am delighted to be able to write this Information, and beg to assure you
that it does seem as if the Company was on the right road.
I thaidv you for your kind letters, and with reference to the oil matter would
say that 1 was not in any manner, shape, or form seeking any help or assist-
ance. I was wondering whether I could be of any assistance. What I really
w^as hinting at was this big contract that was up to supply the Government
in which I believe I could have been helpful, and which the Government gave
to the Shell organization. There was no desire on my part to profit. On the
contrary, a profit would actually have been refused as far as I was personally
concerned, or to anybody with whom I might be in a friendly way connected.
Chase National Bank stock sold at 70 or under today. I secured some, I think.
At least I put in a bid through a brokerage house. I know that you are one of
the largest holders of Chase National stock in the world, and I believe Chase
is one of the finest institutions in the world.
We are going through a very serious reorganization, and we are being
drenched with water they are squeezing out of inflated securities of various
kinds. This process will continue for the time being and possibly longer than
is being estimated by the average problem solver. Everybody seems to have
a cure. Nobody seems to have the time or price sufficient to iiurchase or make
use of the medicine prescribed. In truth, there is no more reason for values
to be higher now than they were in 1924 because the same covmtry, the same
resources and the same finances to a very large extent existed at that time
that exists now. Further, the world's depression was not on with the full
cyclonic force and was not having the snme devastating cost as exists today.
Moreover, there was the patriotism that always follows a victory after a great
war to the victor nations. It is a form of patriotism which gives courage and
invites confidence in the national leaders. It takes the place of depression, and
it is best expressed in support and confidence in the men who lead. Today
thei-e is a different situation. The effects of the war ;ire largely forgotten.
The children of 1917 are grown men, married and have children today. The
little they know about war is that their parents enjoyed prosperity and that
money was plentiful, and that they wei'e in a position to not only be supplied
with the needs of life, but with many unusual luxuries. It was a sort of an
era of extravagance, and where there is extravagance there is alw:iys inflatiim,
and where there is modesty, stability dwells. Tlie bubble has burst and we
must got back to normalcy. Necessity is the mother of invention, and the big
men of the Nation nmst invent new business policies and put them into force
in an intelligent, nevertheless drastic manner in order to keep privation and
suffering from many, many more homes this comins winter.
This is a Nation made up of many races and has many creeds. It is rather
hai'd to unite a Nation so populated under any one conmion banner when we are
discussing political policies and political economies, because each race or
creed has its mother love for the land of its birth, and while they are quite
willing to adapt themselves to prosperity in any nation, they object to sacri-
fices and unemployment in a country which they have simply adapted, and to
weld these people together in the manner that President Theodore Roosevelt
MUNITIONS INDUSTRY 453
once remarked, " In the melting pot all is well when all goes well ", but it
don't work out so successfully when all seems to be going wrong.
President Hoover and his Cabinet are dealing with a very difficult situation
and the big business men of (lie Nntion are not unanimously behind them.
Selfishness and prejudices still hold forth. A great accumulation of wealth
and centralized interest is not willing to make the surrender they are called
upon to voluntarily do. However, I do not wish to have my remarks inferred
that wealth has not suffered, because the big cannon-ball stocks are the ones
that are apparently hit the worst. United States Steel, Westinghouse, General
Electric, First National Bank, Chase National Bank, National City Bank, and
institutions of great importance generally speaking.
The poorer classes and the middle classes who have mortgages, and I speak
sincerely when I say 75% of them before the crash came. The principle
of buying on credit was over-extended, and the dangers quite unappreciated.
We drifted from the age of walking or using a street car to the age of horses
and carriages, and then motor cars, finally to the age of not walking, not
making use of street cars and the keeping of several motor cars, one for
the parents and one each for the sons and daughters. It was not the original
purchase that did the damage In many cases. It was the upkeep and the
extravagances that went Avith the original purchase. They had to have auto-
mobiles, pleasure boats, radios and raiment that was not in keeping with the
station or requirements of those who sought these luxuries, and when the
crash came they met It in debt, and there was no form of rescue which could
restore the previous life they had learned to live, in our grain fields, or grain-
raising States this was apparently very, very true. Likewise applying to lands.
The farmer ceased to live on the farm. He went to live in the city and em-
ployed foremen or superintendents to live on his farm, in some cases selling
the land at terrifically Inflated values accepting small payments as a down
payment, and taking a big mortgage for the balance where he had been required
to earn a living and a saving on a very reasonably priced land for himself and
his family, the new tenant farmer was required to earn a living for both the
original owner and himself, and to carry the burden of a very big unfair
mortgage. If this had been in exceptional cases, the result would not have
been very severe. However, when it became absolutely general, and when land
went from $54J.OO an acre to .$2,000 in a few months, there was no method, mod-
ern or otherwise, whidi could produce sufficient profit to meet these require-
ments. The bankers were loaded down with paper that later became almost
worthless, if not entirely so, and over 5,000 institutions of various standing
have gone into bankruptcy within the last two or three years.
This panic was not as startling or as sudden as represented to be. A
" Stop, look, and listen " attitude on the part of the Government and the people
would have saved much of the sacrifice and nearly all of the suffering. Many
of our better thinkers gave these warnings. However, there is an old saying :
" It is folly to be wise ", and as you know, there is no wisdom in a brain that
is occupied by Ignorance and greed, and that is really what happened here.
The cause we generally know, and the cure is probably also known. It is
bitter and I dare say clouded with more suffering and more sacrifices. How-
ever, those of us who go through will have had an experience, and to those of
us who don't, well what is the difference? Some people say it Is an evolution.
I believe it is a revolution because we will not go through it without some
form of resistance, possibly a passive reslstence. I hope so, and where there
is resistance, it is not evolution, It is revolution.
I am one of the most conservative people in this world, I can see harm in
the use of force. Its dangers are like a two-edged sword. It cuts both sides.
I am as patriotic as any many living in this country, and if trouble came I
would be found on the national side of the cause. There is not a red Soviet
hair in my head nor a drop of Soviet blood in my make-up. However, my
loyalty hightens and directs my views towards the possible but not probable
danger which we are now facing in this country.
This is a chatty little letter, perhaps rather too long, but it will give you
some idea of what is going on in this country at this time.
Trusting you are enjoying better health, and with very great appreciation
of your kind expressions from time to time, I am ver.v, very sincerely
Yours very faithfully,
454 MUNITIONS INDUSTRY
Exhibit No. 197
[Air mail]
June 2, 1931.
Mr. Ltman S. King,
Care of K'mg-Knight Company,
Balboa Budding, San Francisco, Gal.
Dear Lyman : Newspaper reports the Harvard lost or boyoud salvage. Mr.
Spear and myself have been discussing the matter in a very brief way this
morning. It is our desire that you learn as soon as possible what plans are
being made, if any, for the building of a new vessel to rejilare the Harvard
and the type of vessel that they will probably design. Our interest is in the
Dieselization and electrical equipment. We believe that time is the essence of
tliis matter, and we are in a ix.sition to make delivery and as speedily as
anybody in the United States. If the Shipping Board is to take part in any
tinancing, we are in a better position than any other organization to help the
owners.
Mr. Chandler, of the Los Angeles Times, was an old friend of mine back in
1924. I believe he will still remember me in a favorable way. However, in
case he does not, you can bring to his attention the fact that it was I whom
President Coolidge and Mr. Butler had on the Pacific coast working on the
delegation in 1923-24, and that I am the man that brought about the various
meetings with Governor Fred W. Richardson, Speaker Merritt, Mr. Arnold.
Mr. Chandler, and others, when v>'e all got together and secured the California
delegation for Mr. Coolidge and defeated Hiram Johnson's delegation, and I
am the man for whom Mr. Chandler gave the luncheon about the time we were
assured of our success. These facts I give you briefly so that in case you
want to refer to them you may do so in any conversation you have with Mr.
Chandler. I believe the Chandler interests are very important in the Los
Angeles Steamship Corporation.
You can talk to George Hatfield, United States district attorney in San
Francisco, and he will probably do anything necessary with Ray Benjamin,
if and only if Ray Benjamin's influence is necessary. Be very, very careful
and most guarded not to permit yourself to become committed or to commit the
company in any manner with Hatfield. It might leave him open to sending
us a bill for services.
With kind personal regards and very best wishes.
Very sincerely,
P.S. — What is the status of the McCormack ship?
Exhibit No. 198
[Copy]
NovEMBKE 5th, 1932.
Mr. W. H. Putnam.
Chairman, Republican State Ways and Means Committee,
Boom 49, Allyn Hoti^e, Hartford, Conn.
Dear Me. Putnam : Please pardon my delay in replying to yours of Oct. 19th
which has been due to my absence. You are correct in thinking that I am
very much interested in the election of Senator Bingham as I feel that failure
to send him back to the Senate would not only be an enormous loss to the
State but to the Nation as a whole. I have been woi-king actively in his
behalf and have reason to believo that as a result he will receive some 1,500
votes moi'e than would otherwise have been the case.
I am enclosing my check for $50 as a contribution to your fund which is
additional to other contributions. I am sorry that I cannot make it more
but in tliese days of severely reduced incomes and greatly increased demands,
this is the best I can do.
While I was very nervous about the outlook a few months ago, I now feel
that we are reasonably safe so far as Connecticut is concerned.
Very truly yours,
(S.) L. Y. Speah.
LYS : B.
Enc.
Part I
The following- exhibits were entered in the record during the
hearings of Friday, September 21, 1934, immediately proceeding the>
noon recess :
EXHIEIT No. 811
Electric Boat Company,
Groton, Conn., Sept. 20th, 193.'f.
Mr. Stephen Raushenbush,
Chief Investigator of Munitions Committee,
Room 408, Senate Office Building, Washington, D.C.
Sir : 1. If my memory serves me correctly, I undertook to furnish additional
information to the committe with respect to :
(a) The orisiual licen.se contract with the Sociedad Espanola de Construc-
cion Naval ; and
(b) 'I'he matter of transportation to Europe procured by us for Mrs. Howe
and referred to in the letter from Mr. Carse to me, dated February 28th, 1928.
2. As to («), I am enclosing you herewith copy of the original contract with
the Sociedad Espanola de Construccion Naval, dated June IS, 1912.
3. As to (6), please be advised as follows: It is a custom in the shipbuilding
world for naval vessels to be sponsored at their launching by the wives or
daughters of prominent Government officials nominated by the Government. It
is also customary for the sponsors and their parties to be guests of the ship-
builder. In accordance with this custom, Mrs. Howe and Senora Leguia (wife
of the President of the Peruvian senate) were selected by the Peruvian autlior-
ities to sponsor the Peruvian submarines R-3 and R-4, respectively. As the
sponsors were guests of the company, their traveling expenses were assumed by
us. As it happened, Mrs. Howe preferred to go to Europe after the launching
instead of returning directly to Peru. The company, accordingly, secured and
paid for the necessary accommodations in lieu of the return passage to Peru.
Tlie phrase in Mr. Carse's letter, " the other outlay ", refers to the balance of
the traveling expense for which we reimbursed Mrs. Howe. Except for this
traveling expense, no other outlay was ever contemplated, agreed to, or made.
4. As Senora Leguia was unable to leave Peru in time to sponsor the R-4, she
nominated Senora Aubry to act in her place, and, as in the case of the R-3, tlie
traveling expenses involved were defrayed by us.
5. As you will see from the above, tl'.ere was nothing v/hatsoever out of the
way about the transaction with Mrs. Howe, as everything that was done was
openly done in accordance with a long-established practice in the shipbuilding
world.
Very truly yours,
L. Y. Spear,
Vice President.
Exhibit No. 812
[Copy]
An agreement made in London on the 18th day of June 1912 betv/een the
Electric Boat Company, a company constituted according to the laws of tlie
State of New Jersey, in the United States of America, hereinafter called the
"American Company " of the one part and La Sociedad Espanola de Construccion
Naval, hereinafter called the " Spanish Company ", on the other part.
Whereas the American Company is the owner of certain letters patent,
secrets, and designs relating to the manufacture of submarine boats and has
in contemplation the perfecting or carrying out of inventions relating to sub-
marine boats or nearly submerged boats, which latter, under normal conditions
of navigation, are capable of having the upper part of their hulls awash, but
their turrets or conning towers above the water line, all of which boats are
hereinafter included in the expression " submerged boats."
Now. it is liereby agreed by and between the said parties hereto as follows:
1st. The American Company hereby grants to the Spanisli Company for the
term of ten (10) yer.rs from the date hereof the exclusive right during the
continuance of this license to manufacture submerged boats in Spain in accord-
ance with the said patents, secrets, and designs or any other letters patent
now or hereafter belonging to the American Co. or which may either directly
455
456 MUNITIONS INDUSTRY
or indirectly come under its control relatins to, or connected with submerged
boats, all of which are hereinafter referred to as '" the American Company's
patents " and to sell the same exclusively in Spain for the use of the Spanish
Government.
2n(l. If Ihe Spanish Company shall, during the continuance of this agree-
ment, manufacture any submerged boats nut compilsed in and covered by the
American Company's patents, and whether manufactured in accordance with
any other letters patent or not, then the manufacture and sale of such boats
shall in all respects be subject to the terms and conditions contained in this
agreement as if the boats so manufactured had been manufactured under the
American Company's patents.
If, during the continuance of the agreement, the Spanish Company should,
on its own and exclusive initiative, manufacture any submerged boats not
comprised in nor covered by the American Company's patents and whether
manufactured in accordance, or not, with any other letters patent, then the
manufacture and sale of such boats shall in all respects be subject to the
terms and conditions contained in this agreement as if the boats so manu-
factured had been manufactured under the American Comi)any's patents ; pro-
vided, however, that if the Spanish Government should order the Spanish
Company to undertake the manufacture of submerged boats other than those
comprised in and covered by the American Company's patents, plans, or
specifications, that as to such boats the Spanish Company will undertake to
manufacture the same on its own account exclusively and will pay to the
American Company three percent (3%) of the total amount of the order in
the place and stead of any other payment to the American Company, said
three percent (3%) to be paid as provided for for the payment of the five
percent (5%) in clause 9 hereof.
3rd. The Spanish Company shall set up any necessary apparatus for the
manufacture of submerged boats as and when the same is required.
4th. The American Company undertakes to pay the legal and other expenses
in connection with any action which may be brought against the Sj vanish Com-
pany for the infringement of any patents arising out of the construction of
submerged boats under the plans and specifications of the American Company,
and undertakes to indemnify them against any damages which may be re-
covered against them in any such action, and in the event of any injunction
being obtained which would prevent the continuance of such construction the
American Company agrees to pay one-half of the cost incurred in such con-
struction and will be entitled to one-half of the net amount realized by the sale
of the material which had entered into such construction.
5th. The American Company shall, at its own expense, supply the Spanish
Company with such copies of complete working drawings of submerged boats
comprised in or covered by the patents, secrets, and designs held by the Amer-
ican Company as may be necessary for the construction of any boat, and shall
also give all information and assistance in their power with respect to the
manufacture of any boats referred to in this agreement. If any drawings are
required by the American Company to be undertaken by the Spanish Company
the same shall be prepared by the Spanish Company at actual cost.
6th. The following items shall be considered as business charges :
(a) Legal charges arising under clause 19 hereinafter and in general all
charges in connection with the registration of documents and stamp duties.
(&) Insurance of boats at the most reasonable rates.
(c) Traveling expenses of the personnel of the Spanish Company necessitated
by the construction of the boats.
(d) Expenses of trials, including expenses of mother ship and other
incidentals.
<e) Expenses of governmental inspecting officers.
(f) Dry-docking expenses.
(g) Transport of boats to destination.
(/).) Salary of yard manager appointed under clause 13 hereinafter.
All business charges shall be considered as separate from and in addition to
manufacturing charges provided under clause S hereinafter. Such business
ohnrges shall be paid from time to time in equal parts by the American
Company and the Spanish Company as they arise.
7th. Any monies received by the Sjianish Company for the sale or use of
patents, plans, or like disposal of partial rights shall be divided equally between
the parties, it being understood that the prices and conditions in connection
with such disposals shall first be mutually agreed upon by the parties.
MUNITIONS INDUSTRY 457
8tli. All monies received during the continuation of this agreement by way
of payment for the said boats referred in this agreement shall be applied as
follows, namely :
The Spanish Company shall first deduct therefrom tlie amounts paid the
American Company provided in clause 9 hereinafter, and shall next deduct the
cost of manufacture, which shall be reckoned and taken to be the actual cost
of material and labor for building the bull and the cost of machinery and other
apparatus to be installed in the boat, and the cost of such installation and the
usual factory charges. The factory charges shall not exceed in any one year
eighty percent (SO^o) of the amount actually paid in wages for manual labor
in the construction of the boats by the Spanish Company and in the event of it
being ascertained from the accounts kept by the Spanish Company that the per-
centage applicable to the construction of submerged boats for any year is less
than eighty percent (80%) then the percentage to be charged upon the wages
shall be at the lower rate as ascertained for the year, it being understood that
the factory charges shall be at actual cost. The balance of the said monies
shall be divided equally between the parties hereto.
9th. The selling price of the boats shall be fixed by agreement between the
parties hereto, either in writing or by cable.
For the purpose of maintaining the American Company's business in Europe,
it is agreed that five percent (5%) of the selling price of each boat shall be
paid by the Spanish Co. to the American Co., and that these payments will be
made pro rata as and when the money is received by the Spanish Co. under the
order for such boat or boats.
10th. The Spanish Co. shall immediately advise the American Co. of all
inquiries and orders received for submerged boats, together with full details
as to the type of the boats and prices.
11th. The Spanish Co. shall keep full and detailed accounts of all receipts and
payments in respect of orders for submerged boats, and shall deliver to the
representative of the American Co. at the Spanish Co.'s works a weekly state-
ment of the total amount of material supplied and wages paid, and shall also
give full access to the books of the Spanish Co., so far as they relate to the
construction of submerged boats to an authorized agent of the American Co.
at all reasonable hours. Payment to the American Co. shall be made immedi-
ately after acceptance of any boat under any such order upon the receipt by
the Spanish Co. of the money due under such order. For the purpose of such,
payment eighty percent (80%) may be added to the cost of actual manual
labor for factory charges, but if at the end of the year the accounts of the
Spanish Co. should show that the factory charges are less than eighty percent
(80%) on the amount actually paid for the manual labor during the course of
the year, then one-half the excess of the said eighty percent (80%) over the
actuiil cost shall be paid to the American Co. as soon as ascertained.
12th. The Spanish Co. shall manufacture all the submerged boats of the
best workmanship and the best and most suitable material and with all due
diligence and de.spatch, and careful regard to any special condition imposed
in each order and to the periods of delivery and other arrangements agreed
upon with the Government or other party for whom the order is being
executed.
1.3th. The American Co. shall, at their own expense, for the purpose of
superintending the manufacture of submerged boats, provide a resident engi-
neer who shall have full charge of construction ; and the American Co. shall
also appoint such assistant or assistants for said engineer as in their opinion
may be required for the proper execution of the woik. The Spanish Co. shall
appoint a yard manager who shall carry out the instructions of the resident
engineer, and the Spanish Co. shall also furnish reasonable oflice facilities for
the resident engineer and his assistant.
14th. Every boat manufactured by the Spanish Co. under this agreement shall
be marked with some correct description or trade-mark and a running number,
and shnll bear an inscription showing that the Spanish Co. are the builders, and
shall also bear the name of the American Co.
15th. Each party hereto shall communicate to the other all patentable inven-
tions and improvements to submerged boats which either of them shnll, during
the continuance of this agreement, invent or acquire, and shall without any fur-
ther special reminioratidii allow the other party to incorporate such inventions
and improvements in the boats constructed by it.
Provided always that neither Co. shall be bound to divulge any inventions,
improvements, or alterations made eitl.r^r entirely by or with the aid or at the
458 MUNITIONS INDUSTRY
suggestion of any government and communicated to either of the parties on
condition that the same shall not be divulged.
16th. It is further agreed that all patents relating exclusively to submerged
boats, Vi'hether on inventions or impruvements made or acquired by the Amer-
ican Co. or by the Spanish Co. shall be taken out by the American Co. who
shall bear the expenses of taking out and keeping up such patents ; but nothing
in this clause shall be construed to require the American Co. to take out or
keep up any patents which in their opinion are not of sufficient value to warrant
the expense. In the event that any invention made by or acquired by the
Spanish Co. be applicable to submerged boats but not exclusively, then in such
event a patent or patents may be taken out and kept up by the Spanish Co.
at its own expense and a license thereunder shall be grantetl to the American
Co. for submerged boat purposes from the Spanish Co. Should the Spanish Co.
desire at any time to abandon a patent of this kind then before doing so it
shall give an opportunity to the American Co. to keep up such patent and
thereupon such patent shall be assigned to the American Co. and a license
thereunder granted to the Spanish Co.
17th. It being the intention of the parties hereto that the American Co.'s
patents shall be admitted to be valid without question so far as regards con-
struction of submerged boats, the Spanish Co. will not at any time during the
continuance of this agreement contest the validity of the patents so far as the
same may be applicable to such construction as aforesaid, but this clause shall
not be construed to prevent the Spanish Co. from contesting any patent of the
American Co. which it may use not relating to the construction of submerged
boats. The Spanish Co. also agrees during the life of this agreement to refrain
from manufacturing submerged boats or selling the same or offering the same
for sale either directly or indirectly to or for use in all countries not expressly
conceded in this agreement although such countries or any of them may fail
to afford patent protection to the said submerged boats either by absence of
patent laws or by reason of the failure of the American Co. to have obtained
patents therein or through the lapse of its patents.
18th. Except insofar as is otherwise expressly provided by this agreement
the capital and property of each of the said parties shall remain entirely sepa-
rate, independent and distinct and the respective results and profits or their
respective enterprises shall remain and be and belong entirely to their respec-
tive accounts and for their respective benefits, it being expressly agreed and
declared that as regards the submerged boats to be manufactured under this
agreement there is and will be no partnership between the said parties hereto,
but simply a working arrangement with regard to the manufacture and dis-
posal of submerged boats, and only to the extent expressly provided by this
agreement and neither party shall be responsible for the acts or defaults of
the other party.
19th. Each of the parties hereto shall grant or execute or apply for, or do,
<tr procure to be granted, executed or applied, for and done all documents,
instruments, acts and things requisite for giving full legal validity to this
agreement or any of the provisions thereof.
20th. The Spanish Co. will not assign this agreement without the previous
consent in writing of the American Co.
21st. It is mutually agreed that if one year should elapse after the oflBcial
publication of the law for the construction or acquisition of submarines, and
the necessary sum should have been voted for the purpose, and the Spanish
Co. in the meantime shall not have received any order for the construction or
sale of vessels of the American Co. this contract shall become null and void.
The term of one year, however, may be extended for an equal period at the
option of the Spanish Co. provided the said company shall have made written
request of the American Co. for such extension within sixty (60) days after
the expiration of said period of one (1) year.
22nd. Should iiny dispute or difference arise between the parties hereto,
under or with regard to this agreement such difference or dispute shall be
settled by Spnuish arbitrators appointed according to the Spanish law of
'* Enjuiciamiento Civil."
In witness thereof the respective parties have executed this agreement the
•day and year above written.
Electkio Boat Company,
By (Signed) I : ( (3 L. R'35, President.
SOCIEOAD ESPANOLA DE CONSTEUCOION NAVAL BT PrKSIDENTE,
(Signed) d Zubiria.
I SEAL.]
X
MUNITIONS INDUSTRY
HEARINGS
BEFORE THE
SPECIAL COMMITTEE
INVESTIGATING THE MUNITIONS INDUSTRY
UNITED STATES SENATE
SEVENTY-THIRD CONGRESS
PURSUANT TO
S. Res. 206
A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
PART 2
SEPTEMBER 7, 1934
DRIGGS ORDNANCE & ENGINEERING CO.
Printed for the use of the
Special Committee Investigating the Munitions Industry
UNITED STATES
GOVERNMENT PRINTING OFFICE
«3878 WASHINGTON : 1934
SPECIAL COMMITTEE INVESTIGATING THE MUNITIONS INDUSTRY
GERALD P. NYE, North Dakota, Chairman
WALTER P. GEORGE, Georgia ARTHUR H. VANDBNBERG, Michigan
BENNETT CHAMP CLARK, Missouri W. WARREN BARBOUR, New Jersey
HOMER T. BONE, Washington
JAMES P. POPE, Idaho
Stephen Raushenbush, Secretary
II
CONTENTS
Testimony of — Pase
Driggs, Louis L., president Driggs Ordnance & Engineering Co 459
Cooperation of United States Government in connection with foreign
sales 462
Connections with United States naval officials 475
Relations with Turkey 487
Foreign agents 492
Use of United States naval vessels to promote sales to Turkey 496
in
»
INVESTIGATION OF MUNITIONS INDUSTEY
FRIDAY, SEPTEMBER 7, 1934
United States Senate,
Special Committee to Investigate
THE Munitions Industry,
Washington^ D.C.
The hearing was resumed at 10 o'clock a.m. in the Caucus Room,
Senate Office Building, pursuant to the taking of recess, Senator
Gerald P. Nye presiding.
Present: Senators Nye (chairman), George, Clark, Bone, Pope,
and Vandenberg.
The Chairman. The committee will be in order.
TESTIMONY OF LOUIS L. DRIGGS
(The witness was duly sworn by the chairman.)
The Chairman. Please give the committee your full name, your
home and business address, and .business connections, Mr. Driggs.
Mr. Driggs. Louis L. Driggs, 19 West Forty-fourth Street, New
York; my home address is 319 Center Avenue, New Rochelle. I am
president of the Driggs Ordnance & Engineering Co.
The Chairman. Senator Pope, you may take the witness.
Mr. Driggs. Senator, may I ask a question ?
The Chairman. Certainly.
Mr. Driggs. I submitted a letter the day before yesterday addressed
to you with regard to treating in confidence information relating to
the Government policy of countries that we have been dealing with.
The Chairman. I received that letter, Mr. Driggs, and your con-
cern relative to the possibility of revealing what might be secrets of
a government or that might in any way compromise a government —
let us await until a question arises as to whether that secrecy is being
challenged and then we can take it up.
Mr. Driggs. The only point I want to make is this, that as respects
ourselves, it is of no very great importance; but if these countries
feel that they cannot deal in confidence and have their confidence
respected, the business will not come to the United States. It will
just go to enhance other plants and enlarge plants elsewhere in the
world that may be potential enemies of ours. I merely wanted to
make that point.
Senator Pope. Who are the directors of your present company,
Mr. Driggs?
Mr. Driggs. Myself; L. L. Driggs, Jr.
Senator Pope. That is your soni
459
460 MUNITIONS INDUSTRY
Mr. Driggs. Yes, sir. P. T. Shari)less, of Philadelphia, and at
present, through the death of one member and the resignation of
another, there are two vacancies.
Senator Pope. Are your stockholders widespread?
Mr. Driggs. No.
Senator Pope. Or are they limited in number?
Mr. Driggs. Very limited.
Senator Pope. Who are your associates, who do the actual work
in connection with your business; are those the men that you have
named ?
Mr. Driggs. Well, Mr. Sharpless is not active in it. He is in
business in Philadelphia.
Senator Pope. But the others are?
Mr. Driggs. Yes.
Senator Pope. Are there others than directors who are active in
your work, as salesmen in the main office ?
Mr. Driggs. Well, just at present we have no salesmen working
out of the New York office. We have agents abroad.
Senator Pope. How long have you been in the business of manu-
facturing guns, Mr. Driggs?
Mr. Driggs. About 40 years.
Senator Pope. Your first company was named the Driggs Ord-
nance Co., was it not?
Mr. Driggs. Yes.
Senator Pope. And was organized about 1888?
Mr. Driggs. Yes, sir.
Senator Pope. For what purpose was that organized?
Mr. Driggs. It was organized to manufacture the Driggs-
Schroeder gun, a gun invented by my brother, Comdr. W. H. Driggs,
of the Navy.
Senator Pope. And was that gun adopted by the United States
Navy?
Mr. Driggs. Yes, sir; it was.
Senator Pope. About when, with reference to the organization of
your first company?
Mr. Driggs. Why, I would say around 1890; that is. the first guns
were ordered for the Navy at that time.
Senator Pope. Your company was reorganized about 1898, was
it not, as the Driggs-Seabury Co.?
Mr. Driggs. In between we had had a merger with the American
interests of the Hotchkiss Co. of France, which company had sup-
plied the earlier rapid-fire guns to our Navy. They were bought
abroad. Then when Congress
Senator Clark (interposing). Your original guns were rapid-fire
guns, Mr. Driggs?
Mr. Driggs. I beg your pardon.
Senator Clark. Your original guns, the guns to manufacture
which you organized your company originally, were rapid-fire guns?
Mr. Driggs. Yes, sir.
Then Congress passed an act requiring that all ordnance must be
of domestic manufacture. Then the Hotchkiss Co. was obliged to
come over here and they contracted with Pratt & Whitney to make
their guns under contract.
MUNITIONS INDUSTEY . 461
Now, answering your question about the Dri^gs-Seabury Co., we
had quite keen competition for a while with Hotchkiss until there
was a merger; but we were not entirely satisfied with the final
details, so there was a provision that the Driggs Co. could pull out
after a year. That we did and joined interests in New York that
had been backing Lieutenant Seabury in some patents he had taken
out. Then we formed the Driggs-Seabury Co.
Senator Pope. How long did you do business under the name of
the Driggs-Seabury Co.?
Mr. Driggs. Oh, for quite a number of years.
Senator Pope. Did you do any foreign business?
Mr. Driggs. No. During that time all our business was with
this Government except the one test gun Ave had furnished to
England.
Senator Pope. Then in about 1915 you organized the Driggs Ord-
nance Co.?
Mr. Driggs. Yes, sir.
Senator Pope. And that continued during the war and up to
about 1924?
Mr. Driggs. Yes, sir.
Senator Pope. During that time did you do any foreign business?
Mr. Driggs. No.
Senator Pope. All domestic business?
Mr. Driggs. All domestic.
Senator Pope. Your present company was organized, then, in
1924?
Mr. Driggs. Yes, sir.
Senator Pope. Were Mr. A. J. Miranda and Mr. I. J. Miranda con-
nected with your present organization for a time ?
Mr. Driggs. Mr. A. J. Miranda — just out of friendship and to
have another representative for the Driggs interests on our board,
I made him a director about 7 years ago.
Senator Pope. Wliat part of the work did he do; what was his
jDarticular business?
Mr. Driggs. During that time he had no active part in the busi-
ness. He and his brother — rather, he was in an automobile concern
in New York, as agent for foreign cars and for the du Pont car.
Then, owing to the small demand for those cars, there was nothing
doing in 1932, and we had some South American business. We took
on Mr. Miranda at that time to follow up principally South
American sales.
Senator Pope. Which Mr. Miranda ?
Mr. Driggs. A. J., and his brother acted for him when he was
away. They worked it together.
Senator Pope. Were they stockholders in your corporation?
Mr. Driggs. I think A. J. in this present corporation owns a small
amount of stock. I cannot say how much. It is a small amount.
Senator Pope. But I. J. does not?
Mr. Driggs. No.
Senator Pope. What is the size and the kind of guns that you now
make?
Mr. Driggs. From 37 millimeters, or what we call here the
1-pounder, up to the largest that we have made, which was practi-
cally 5-inch, or 4.72; that is, 12 centimeters.
462 MUNITIONS INDUSTRY
Senator Pope. When did j^our foreign business first start; when
did you first get orders for foreign business ?
Mr. Driggs. It started about 1925 when we had a trial order from
Poland for one of our infantry-accompanying guns. We were in-
debted to Mr. Vauclain for that, really. We had — well, the only
contract we had had with our own government since the war was a
designing contract for such guns. They had heard of it over there
and made inquiries of Mr. Vauclain,
Senator Clark. That is Vauclain, of the Baldwin Locomotive
Works?
Mr. Driggs. Yes, sir. He had a $7,000,000 order for locomotives
in Poland. They made inquiries as to how they could get in touch
with the designer of this gun, and the first we knew of it was a letter
from the Embassy here saying that they had been directed to us.
When that gun was finished, I decided to go over myself. I had
spent a great deal of money since the war keeping our company
alive, keeping the organization together. I finally concluded that I
would either can it or go on, depending upon what I found to be the
situation in Europe.
I had supposed that such enormous concerns as Vickers and
Schneider, and the large manufacturer in Sweden, Bofors, with the
engineering staffs that they had, were probably ahead of us in
engineering. And if I found that to be the case I was going to fold
up and take my loss and go out of the ordnance business. But I
found, to my surprise, that they had not progressed much since the
war on new designs; that we had a good opportunity. So then I
got encouragement in Poland and decided to go on and try to keep
it alive.
Senator Pope. Did you make a trip to Europe in connection with
that?
Mr. Driggs. Yes. I went over in 1925 and I came back in 1926
with a tentative order.
Senator Pope. Since your first small order with Poland, Avith
what countries have you done business or negotiated ?
Mr. Driggs. Well, with Denmark and Turkey, Greece, Lithuania,
and a number of South American countries; Venezuela, Colombia,
Guatemala.
COOPERATION OF UNITED STATES GOVERNMENT IN CONNECTION WITH
FOREIGN SALES
Senator Pope. In connection with your foreign business — and I
include, of course, the South American countries — you have had
certain cooperation from the United States Government?
Mr. Driggs. Yes.
Senator Pope. And what would you say as to the sort of coopera-
tion that was given to you by the Government in connection with
3'^our foreign business, in your efforts to get orders in foreign fields?
Mr. Driggs. Well, the War Department informed us — which we
knew to be their policy — that they wished to encourage private
ordnance manufacture, so as to have a capacity in this country in
case of necessity.
MUNITIONS INDUSTRY 463
Senator Clark. Do you manufacture all your guns in this country,
Mr. Driggs ?
Mr. Driggs. We have.
Senator Clark. You do not have any tie-up with any foreign con-
cerns by which you manufacture abroad, or they manufacture abroad
according to your design?
Mr. Driggs. No. We have no tie-up there.
We, in turn, kept the Department informed of what we were doing
and when it came to the negotiation for anti-aircraft orders, the War
Department agreed to allow us the use of the designs of what are
known as the mobile mount. This present outfit was the outgrowth
of — that is, the gun is our own gun, but since the war the Depart-
ment has designed around it this mobile mount, which makes the
whole thing altogether a very fine unit. But we had had a very
tough break so far as getting any compensation for the use of our
patents during the war was concerned. We did not get any settle-
ment from 1927.
Senator Clark. That is from the United States Government?
Mr. Driggs. Yes. So it was represented to us then that if it was
settled out of court and not in the Court of Claims, it would amount
to as much to us in the end, through Government cooperation in
helping us to get foreign orders, providing they were of sufficient
size to build up our capacity again. And on those conditions the
Department granted us this help.
Senator Pope. What did that amount to in the way of permitting
you to use the designs and plans of the Government?
Mr. Driggs. It was an agreement to release to us for use on a big
contract — I mean in connection with our Polish contract for anti-
aircraft guns — I want to make a point, too, now, that that was all
defensive material that we were furnishing, and that Poland was
interested in obtaining.
Senator Clark. That was what?
Mr. Driggs. Defensive material.
Senator Pope. What do you mean by that — defensive material ?
Mr. Driggs. I mean an anti-aircraft gun is per se defensive; to
fight off airplane attacks; it is not offensive at all. If there is no
airplane attack, you do not use the guns.
Senator Clark. But the gun can be used just as easily by an
offensive army against defensive aircraft as by a defensive army
against offensive aircraft, can it not?
Mr. Driggs. Well
Senator Clark. For instance, when Germany was on the offensive
in France, occuj^ying French or Belgium territory, an anti-aircraft
gun would be just as useful to them as if they were fighting defensive
warfare on their own soil.
Mr. Driggs. That is presupposing that the operation had reached
that point where the enemy was in possession. But that is not the
starting point, when you start with the first attack.
Senator Clark. But it is just as valuable to an offensive army as
to a defensive army, is it not ? That is the point that I am making.
Mr. Driggs. It would be under those conditions.
The Chairman. Senator Clark, it ought to be noted here that
Mr. Carse, of the Electric Boat Co., contended that the submarine
464 MUNITIONS INDUSTRY
was a piece of defensive machinery, and that it remained so until
Germany stole the Electric Boat Co.'s patents on the submarine.
Then it no longer was a defensive weajDon.
Senator Clark. In my experience, I have never heard of any
weapon being offered as an offensive weapon.
Mr. Driggs. Was he not making the point, Mr. Chairman, that
it depended on the size of the boat, whether it was a small boat
operating from shore or a boat of much larger size that went abroad
looking for trouble?
Senator Pope. I want to call your attention to a letter dated Janu-
ary 24, 1929, written by you to Mr. Florjan Ziemba, which I will
offer as " Exhibit No. 199."
(The letter referred to was marked " Exhibit No. 199 ", and is
included in the a])pendix on p. 521.)
Senator Pope. Who is Mr. Ziemba?
Mr. Driggs. He is our agent in Poland.
Senator Pope. How long has he been your agent there?
Mr. Driggs. Since 1925.
Senator Pope. Who is he? What is his background ?
Mr. Driggs. He is an engineer, a graduate of the Principal Tech-
nical School at Lemberg.
Senator Pope. How did you get in touch with him ? How did his
employment come about?
Mr. Driggs. Simultaneously with our receiving this inquiry for the
type of gun from Poland he wrote us and applied for the agency
for our material. I left the matter in abeyance until I got there
and investigated, and then made him our agent.
Senator Pope. Had he been connected with other munition com-
panies before then?
Mr. Driggs. No, sir.
Senator Pope. Referring to the letter, a copy of which is before
you, it appears that you were writing Mr. Ziemba about the details
of a du Pont contract with Poland ; is that correct ?
Mr. Driggs. Just allow me to refresh my memory.
Senator Pope. I refer you to the second paragraph, which reads :
While I suppose you have obtained the details of the du Pont contract from
the ministry, I would say they are as follows :
Then follow the details of the contract of the du Pont's Avith
Poland.
Mr. Driggs. What page is that?
Senator Pope. That is the first page of the letter which is dated
January 24, 1929, from you to Mr. Ziemba,
Mr. Driggs. Yes. This merely was to illustrate a form of pay-
ment, a form of deferred payment that had been used by them; that
is all.
Senator Pope. Did you have any interest in that contract?
Mr. Driggs. Not at "all.
Senator Pope. Will you now turn to the third page of the same
letter, where I refer you to this statement :
As you know, the War Department is now oooporating with us lOO percent.
They have even changed the policy to a more favorable ttne to us than when
you were here. The Ordnance Department officials informed us a few days
MUNITIONS INDUSTRY 465
ago that the Department was now more concerned hi having our plant get work
than Government plants. They are pushing a bill now in Congress, on which
I enclose newspaper clipping.
Senator Pope. What was that bill; do you remember?
Mr. Driggs. I think it was with regard to giving out educational
orders. I am not sure, but that is my recollection ; that is, with the
idea of having plants in the United States familiar with this char-
acter of work, so that they could expand quickly.
Senator Pope. And that you call educational orders?
Mr. Driggs. Yes, sir.
Senator Pope (continuing reading) :
You will remember the release to us of the latest designs of the anti-aircraft
guns to be furnished Poland is conditional upon our having orders of satis-
factory size for production in our plant here. The Government feels that the
compensation for making public what has heretofore been secret is in the
building up of our facilities so they will be available in time of necessity.
Mr. Driggs. Yes, sir.
Senator Pope. So that your understanding was that that was the
policy of the Government with reference to you at this time?
Mr. Driggs. Yes, sir.
Senator Clark. Do I understand, Mr, Driggs, that the "War De-
partment agreed to release to you and through you to a foreign
country in the sale of your guns to a foreign country, the plans of
a gun that had heretofore been held secret by the War Department?
Mr. Driggs. Merely in this way Senator : That these designs had
been developed here
Senator Clark. They were developed by you or by the War De-
partment ?
Mr. Driggs. Both. It was customary to have an exhibition every
fall down at Aberdeen of new material and have members of the
Amy Ordnance Association, which is made up largely of civilians
interested in the industry, present. It was realized that these guns
were really not secret at all; there had been thousands of people at
these meetings that had seen the guns, and the attaches of foreign
governments had seen them and reported on them. You cannot keep
a thing of that sort, after it is once out and the public view^ it, secret.
So it did not really mean anything.
Senator Pope. What did you understand by the statement here
that the Government had recently changed its policy in that respect?
Mr. Driggs. I merely meant with regard to giving more encourage-
ment than had been the custom since the war to private firms;
because the Government had absorbed practically all the manu-
facture. After the war we had no business whatever. There was
not anything given out.
Senator Pope. In what way was more encouragement given?
Mr, Driggs. I mean to say with regard to this policy of educa-
tional orders.
Senator Pope. They gave out more on their secret designs and
plans than they had theretofore ?
Mr. Driggs. No, no; I do not mean that. I mean that if a new
type of infantry gun was developed — we will say that it was pro-
posed to give a plant an order for a certain number of those, a
limited order, so that they would have the tools on hand and be
466 MUNITIONS INDUSTRY
prepared to make thoge in case of war; to give another concern an
order for some shell projectors, so that they will be tooled up and
able to make that stuff in case of war.
Senator Pope. For use in other countries you mean?
Mr. Dkiggs. No; for thig Government. In other words, these
were a sort of training order for our own people. That was the
whole object of it.
Senator Pope. I call your attention to a letter received by you
Senator Clark (interposing). Senator, will you permit an inter-
ruption before you go on with that? I shall like to ask Mr. Driggs
another question. Mr. Driggs, you spoke a moment ago of the mili-
tary attaches of foreign missions and embassies being present at
these exhibits at Aberdeen. Do you know whether these attaches
of foreign governments are active in securing information about the
secret plans of guns for their government?
Mr. Driggs. A^ far as they can see; in that way, just as our own
attaches abroad attend their maneuvers, the maneuvers the dif-
ferent countries have. They sort of exchange information. And
incidentally this has been very good for American material, because
we have lost nothing b}^ it in this way; we have lost nothing through
any secrets getting abroad that were not known. But they have sent
very favorable reports to the effect that the antiaircraft guns here
were far ahead of those in Europe.
Senator Pope. I will now refer to a letter from Townsend Whelen
to yourself, dated February 18, 1927, which I will offer in evidence
as " Exhibit No. 200."
(The letter referred to was marked " Exhibit No. 200 ", and is
included in the appendix on p. 523.)
Senator Pope. The only part of that letter I wanted to refer to
is the last sentence, which reads as follows :
In fact, we are in full sympathy with the work and with the huiltling up
of munitions work, both in your own company and in other companies in this
country, and we will be very glad to cooperate with you to the fullest extent
possible if you will simply let us know what you wish.
That was the attitude of the Government, as you understood it?
Mr. Driggs. Yes, sir.
Senator Pope. I next refer to a letter dated April 7, 1928, from
yourself, addressed to Herbert F. L. Allen, which I offer in evidence
as " Exhibit No. 201."
(The letter referred to was marked "Exhibit No. 201", and is
included in the appendix on p. 523.)
Senator Pope. Who was Herbert F. L. Allen, to whom this letter,
" Exhibit No. 201 ", was addressed ?
Mr. Driggs. He was our agent at that time in Turkey.
Senator Pope. Who was he ; what was his background ?
Mr. Driggs. Well, he had begun as a stenographer away back in
the nineties in our office here in Washington; then he had been a
newspaper correspondent for a number of years ; and shortly before
the war he was with the American — British Manufacturing Co.
After that he went out to Turkey for us.
Senator Pope. Is he still your agent?
Mr. Driggs. No.
MUNITIONS INDUSTRY 467
Senator Pope. The only reference to this letter I desire to make
is with reference to the last two paragraphs on page 1 of the letter.
I read as follows :
We have had lately good cooperation from our own Government. It is for
the purpose, however, of bringing these orders to this country and furnishing
work for our plants and to be used as such, but not to be broadcast and
merely serve the purpose of furnisliing information to competitors. We have
ali'eady been allowed to go quite far with regard to the data of our guns.
We have furnished the Turkisli Government with the muzzle velocity, maxi-
mum ceiling, and maximum range, and also the weights of the ammunition,
powder charge, rapidity of fire, and other data. On top of this, we have now
notified you that we can furnish the new flashless powder, which is very valu-
able in night firing.
In other words, you had furnished them all of the material with
reference to these guns.
Mr. Driggs. Tliose are very general specifications, as you realize,
and nothing on which they could build guns or duplicate them.
That reference to the flashless powder the Department has nothing
to do with. That was the result of our communication with du Pont.
Senator Pope. That came from du Pont?
Mr. Driggs. Yes.
Senator Pope. Now, I refer to a letter dated July 9, 1931, from
you to Mr. H. J. Leisenheimer, vice president in charge of export
sales, of the Cleveland Tractor Co., which letter I offer in evidence
as " Exhibit No. 202."
(The letter referred to was marked " Exhibit No. 202 ", and is
included in the appendix on p. 524.)
Senator Pope. I wish to call your attention to the fourth para-
graph of this letter, " Exhibit No. 202 ", which reads as f ollow^s :
Before we could show the new type of mobile mount (to carry our guns)
which our Government had in the meantime developed, it was necessary to
obtain an agreement from the War Department to release the designs to us
for use in filling a foreign contract. This we obtained and, in the fall of 1928,
the commission arrived here, having previously seen the latest developments
at the various European ordnance plants. Upon returning, the commission
reported that the American material was at least 5 years in advance of that
in Europe.
Tlien at the bottom of the first page of this letter appears the
following :
This material, which is purely for defensive purposes, is not only approved
by the League of Nations, but its acquisition required by the League, consists
of 348 units (guns and mounts).
What did you mean by that statement, where did you get the in-
formation upon which you based it?
Mr. Driggs. I don't recall now, Senator.
Senator Pope. Was it from any order or any pronouncement of
the League?
Mr. Driggs. Yes; we had it, and it practically amounted to an
order on the League, but just the source I got it from, I cannot now
recall.
Senator Pope. Do you have a copy of that order now, or could
you locate one?
Mr. Driggs. It is not an order we had, it is merely that such an
order was placed, that was required by the League. We did not
have it, and I would have been very glad if we had.
468 MUNITIONS INDUSTRY
Senator Pope. You understood, then, that the League was recom-
mending increases in armaments in some instances?
Mr. Driggs. In some instances where it was to put a country in a
position to put up resistance to encroachment or attack, and they
considered it was in the interest of peace to have a country able to
protect itself.
Senator Vandenberg. May I ask, Mr. Driggs, does this indicate
that whenever America develops some defense, or what you would
term a " defense ", that almost inevitably it becomes available for
world-wide use?
Mr. Driggs. Not at all, Senator. This does not relate to American
guns at all. That paragraph there does not relate to American
guns, but merely that the League decided certain countries were
deficient in certain material for their own protection to resist
invasion and, therefore, required them to acquire that much. It has
no relation to American material at all.
Senator Vandenberg. Here is an instance where you obtained
from the War Department the release of designs for use in filling a
foreign contract. What contract was it — what country was it?
Mr. Driggs. At the time we had that agreement for the release
the primary thing pending was Poland, but it did not apply solely
to them. It indicated a policy on the part of the Department that
provided w^e got orders of sufficient magnitude to meet their approval
as building up our capacity again that had languished since the war,
that we should use the drawings of the mobile mount.
Senator Vandenberg. The mobile mount is supposed to be an
improvement on some previous ordnance?
Mr. Driggs. Yes, it is ; but it is not ordnance. It is a part of the
gun, or a part of the unit. The unit with the gun on the mount is
the whole unit, and this is a part of that affair. They recognized
that, and also recognized that we had not been properly compensated
for the use of our patents during the war, so they agreed to let us
use this part so that we could fill the order.
Senator Vandenberg. As I understand, it is an improvement, and
the War Department permitted this improvement to become foreign
property and an element of foreign defense. Is that correct?
Mr. Driggs. Yes.
Senator Vandenberg. Is that general practice ?
Mr. Driggs. Why, yes; it is general practice with something that
they could copy anyway. There is nothing endangered by it, and it
is different from them coming over here and copying a locomotive.
Senator Vandenberg. They seem to pretend to guard these proc-
esses of production against observers who might take advantage of
the information they obtain in some instances, according to the testi-
mony ])reviously submitted; yet in other instances, apparently for
the sake of contributing to American business, the War Department
is willing to rob itself of the inherent advantage of an improved
agency of defense. That seems to be what I get out of your state-
ment ?
Mr. Driggs. No, sir; what they did was to allow us to use these
designs or these drawings, provided it contributed to our own na-
tional defense capacity, provided it built up the capacity in this
country, as a measure of national defense, and not merely for the
MUNITIONS INDUSTEY 469
sake of American business. Incidentally, it Avould bring business
here that otherwise would go abroad.
Senator Clakk. As a matter of fact it was giving American guns
to a foreign country which they did not have, was it not, Mr. Driggs ?
Mr. Driggs. I would not say that, Senator. There were certain
portions of the design that were secret and Avere not released. But
what anybody could see we were allowed to use. We could have
gotten out our own drawings and filled the orders ourselves; there
was nothing to stop us at all.
Senator Clark. Then why was it necessary for the United States
Government to release them, Mr. Driggs ?
Mr. Driggs. Because they might consider that instead of our mak-
ing the drawings ourselves, it would facilitate the work to use those
same prints.
Senator Clark. It is possible for the Government to keep the type
of guns they are using secret, is it not ?
Mr. Driggs. No, sir.
Senator Clark. Was it not true that nobody Imew the Germans
had those 42-centimeter guns — wasn't it a surprise to the French
when they ran into those 42-centimeter guns?
Mr. Driggs. I do not know how it was.
Senator Clark. It was universally stated at the time though I have
no personal knowledge of it, that the Belgians and the French knew
nothing whatever of the fact that the Germans had in their posses-
sion the 42-centimeter guns, and it was a complete surprise to the
Allies?
Mr. Driggs. I do not know how correct that is, but I do know
from what I have learned abroad in the last few years that every-
thing Germany is doing today is generally well known to the other
countries, no matter how much they try to keep it secret.
Senator Pope. Now, Mr. Driggs, I call your attention to the next
paragraph at the top of the second page of this letter, " Exhibit No.
202 ", w^iich reads as follows :
The contract is to be divided into two orders, for 174 guns each, the Govern-
ment agreeing that, if the appropriations are not provided for the second
lot of this same tj'pe, they will give us the equivalent value in other sizes.
I have returned for the purpose of completing our manufacturing and financ-
ing arrangements, and the Polish Government is ready to sign the contract
as soon as I can return to Poland and work out the details of the Polish part
of the manufacture.
Now, how much of this was to be manufactured in Poland?
Mr. Driggs. This letter is just one of those that come under the
letter I put in heretofore.
Senator Pope. Did you state that a part of these guns would be
made in Poland ?
Mr. Driggs. Is it not possible for me to give the information on
this letter to the committee in executive session ?
Senator Pope. That is a matter for the committee to decide, but
it seems to me that question could be asked. It has been answered
repeatedly by others, that is the same short question.
Mr. Driggs. That may be, but we might as well hold up now, if
we cannot keep in confidence information given us in confidence.
470 MUNITIONS INDUSTRY
The Chairman. Senator Pope, you are more conversant than
any of the rest of the committee with the ridiculous letter; do you
feel it is in any way a compromise of our attitude ?
Senator Vandenberg. What is the question the witness declined
to answer?
Senator Pope. What part of this proposed order was to be manu-
factured in Poland. I can see no reason not to answer that.
The Chairman. I see no objection.
Senator Clark. It seems to me it goes to the very gist of the
practice of the United States Government in giving military secrets
out for the purpose of expanding the business capacity of the United
States. If we cannot find out how much of the business, when the
secrets are divulged, goes to the plants in the United States and how
much goes to the foreign plants, the whole inquiry should be ter-
minated.
Senator Pope. I think you can properly answer the question so
far as our Government is concerned. What part of this order was
to be made in Poland ?
Mr. Driggs. My recollection is that the proposition was that we
build — leaving us to select the plant ourselves — 100 here and 200
over there, bringing over the raw material from here. But nothing
came of it.
Senator Pope. Those to be built in Poland had nothing to do with
the capacity of your plant to manufacture these guns ?
Mr. Driggs. No ; but 100 guns to be built here is considered a very
good order. Later our order was cut down to 70 guns, and I came
back and asked the Department if that met their conditions; and
they said yes, that was a very good order.
Senator Pope. And the Department agreed to the manufacture
of these others in Poland?
Mr. Driggs. The question did not come up.
Senator Pope. Did you not advise the Department of that?
Mr. Driggs. I believe we did. I believe we advised them of all of
the details, but no request was necessary. You can realize, when
they have a hundred guns, that if they wanted to duplicate them
over there, there are no patents, and there is nothing to stop them.
Senator Pope. Now, referring to the third and fourth paragraph
on page 2 of this " Exhibit No. 202 ", you state that this order will
amount to $5,000,000, and then you give the profit in the fourth para-
graph that would be received by you under such an order. You say :
Under this plan the profits per gun would be $10,000, of which our share
would be one-half, plus half of the profits on the present business which the
Government guarantees this plant.
If you were to receive one-half of the profit, who received the
other ?
Mr. Driggs. The plant over there.
Senator Pope. That is for the part that was manufactured over
there?
Mr. Driggs. That is the armament manufactured there; yes. You
imderstand. Senator, this was a proposition made but never carried
into effect.
Senator Pope. In the next paragraph I find the following:
An alternative plan is to license the Polish plant to build our guns upon a
royalty basis. Under this, our profit would be from $1,500 to $1,800 per gun,
MUNITIONS INDUSTRY 471
plus tbe charge for engineering and supervision. This should bring our total
profit on the first order for 174 units to about $1,200,000.
So that if all of the o:iins were manufactured in Poland, which was
an alternative plan proposed, you would receive this amount of
profit?
Mr. Driggs. Yes.
Senator Pope. And that was considered by you ?
Mr. Driggs. No ; it was not considered. It was a proposition made,
but we were not interested in it.
Senator Pope. Now, on September 5, 1931, there appears a letter
written by you to your son, I take it, which letter is offered as
"Exhibit No. 203."
(The letter referred to was marked " Exhibit No. 203 ", and is
included in the appendix on p. 526.)
Senator Pope. There appears in this letter, " Exhibit No. 203 ", on
the second page, in the next to the last paragraph, the following :
There may be a number of things that only you can handle.
It may be necessary, for closer estimates, for you to examine the drawings
of the mobile outfit. These have already been released for this purpose to
the Sperry U.S. Pipe crowd, and Barnes agrees with me that the Department
could not refuse them to us should we demand them. However, I do not want
to run the risk of any delay or controversy at this time, which would delay
my sailing.
Did you obtain the drawings for what you called the mobile outfit?
Mr. Driggs. My recollection is this related purely to an attachment
known as the fuze setter. That is a part of the outfit attached to it,
for setting the time fuze.
Senator Pope. Now, on the last page, under subdivision (2), it is
stated :
Have just closed an agency agreement with the Auto Ordnance Co. for the
sale of Thompson submachine guns in Poland, Esthonia, Latvia, Lithuania,
Turkey, Bulgaria, Norway, Sweden, and Denmark.
You still have your agency agreement ?
Mr. Driggs. No ; we gave it up with regard to all of the countries.
In fact, we only had it a short time before we found there was no
field over there.
Senator Pope. I call your attention to a letter dated January 21,
1932, which I offer in evidence as " Exhibit No. 204."
(The letter referred to was marked " Exhibit No. 204 ", and is
included in the appendix on p. 527.)
Senator Pope. In this letter, " Exhibit No. 204 ", I call your atten-
tion to the last paragraph on the first page, as follows :
Except for the support of your Department, we have for several years carried
on this fight entirely single-handed. We have not only the opposition of our
competitors to overcome, but also the political pressure which their govern-
ments bring on their behalf. This has made our negotiations long drawn out
and very costly.
What did you mean by that statement, " political pressure " ?
Mr, Driggs. I meant that the ambassadors and ministers of the
countries in which these plants belonged bring pressure on behalf of
their plants for the business.
Senator Pope. In what way do they bring that pressure?
Mr. Driggs. Well, by demanding the business, by activity in insist-
ing on it and other things, and bringing up various reasons why the
83876— 34— PT 2 2
472 MUNITIONS INDUSTRY
business should be placed there. These other plants have the strong
backing of their government because it is a part of the governmental
policy to have a large private capacity.
For instance, it used to be so — I don't know if it is now — that in
England it was not a question of what percentage of the business
went to Vickers, but it was a question of how much went to the
Woolwich Arsenal after Vickers and Armstrong had been taken
care of. In France it is the same thing, that those plants have
strong pressure brought to bear to make them prosperous so that they
have a big capacity of work at all times.
(Senator Pope. That is what you meant by political pressure in the
above statement?
Mr. Driggs. I am speaking of the ambassadors and the ministers
of the countries bringing what pressure they can to have those orders
placed in their country.
Senator Pope. Now, referring to a letter dated February 22, 1929,
to H. F. L. Allen, I ofi'er that letter in evidence as " Exhibit No. 205."
(The letter referred to was marked '' Exhibit No. 205 ", and is
included in the appendix on p. 528.)
Senator Pope. This letter appears to have been written to Mr.
Allen of the American Embassy at Angora, Turkey. I believe you
stated he was your agent in Turkey ?
Mr. Driggs. Yes, sir.
Senator Pope. At the middle of the last paragraph on page 1 I
make reference to a statement as follows :
It is upon the latest developments in this material, which are now released
to us with the purpose of supplying guns to Turkey, that our Government has
spent $2,000,000.00 this is official and not our estimate. I cannot conceive
Turkey throwing away the tremendous benefit which would put her anti-aircraft
material ahead of any other European country.
That was your understanding of the matter, that the Government
had spent $2,000,000 on these designs and plans you were having the
use of?
]\Ir. Driggs. Yes ; and manufacturing. It does not mean any secret
development ; it means they have been drawn and a good many manu-
factured, but it is all settled in an engineering way and there is
nothing secret about it.
Senator Pope. Now, I call your attention to a letter dated May 8,
1928, addressed to you and written by C. B. Kobbins, Assistant Sec-
retary of War, and I offer it in evidence as " Exhibit No. 206."
(The letter referred to Avas marked " Exhibit No. 206 ", and is
included in the appendix on p. 530.)
Senator Pope. This letter, " Exhibit No. 206 ", begins as follows :
Reference is made to your letter dated Washington, D.C., March 14, 1928,
in which you request authority to utilize the latest United States Army designs
of anti-aircraft material in your manufacture of anti-aircraft material for sale
to European countries.
Tlie Driggs breech and .semiautomatic mechanisms have been standai'd equip-
ment of U.S. Army antiaircraft guns for a number of years. Tliese mechanisms
are very satisfactory, and are utilized in the latest 3" and 105 mm anti-
aircraft guns developed by the U.S. Army.
It is the desire of the War Department to encourage the manufacture of
munitions in the United States by commercial manufacturers. The War De-
partment would be willing to release to your company the designs of our latest
anti-aircraft material with the exceptions of certain secret portions, provided
you had a contract with a foreign government for a production quantity of
MUNITIONS INDUSTRY 473
anti-aircruft material which you wouhl agree to manufacture iu the United
Stiites. You can readily appreciate that an order from a foreign source for
only two or three of these new antiaircraft materials would only serve to
disclose to the foreign power the latest United States developments in anti-
aircraft artillery, and would not develop any munitions manufacturing capacity
in your plant. The size of the order will, therefore, have to receive the ap-
proval of the War Department before any design information is released to your
company.
Design information on the following components pertaining to the latest
United States antiaircraft material both of the 3" and of the 105 mm types
will be released to your company.
Then on the top of the next page, it reads as follows :
The anti-aircraft director (Wilson type) being developed by the U.S. Army
is classed as secret, and no manufacturing details of this instrument can be
released to your company.
Considerable data and information regarding the efficiency and performance
of the new types of U.S. anti-aircraft material have been published. The
article on anti-aircraft progi'ess, by Major G. M. Barnes, Ordnance Depart-
ment, published in the March-April 1927 issue of "Army Ordnance " is a very
excellent resume of the present status of anti-aircraft development in the
United States, and should serve as very good sales literature in convincing
foreign governments of the efficiency of U.S. Army anti-aircraft artillery ma-
terial. Developments since the publication of this resume about a year ago
have been in the nature of reflnements, all of which would be included in
the design information furnished to your company.
In supplying design information to your company, it should be understood
that the War Depai'tment assume no responsibility for the use of any patents,
and that your company must assume full responsibility and liability for any
patent features which you might make use of in the manufacture of this anti-
aircraft material. It is also manifest that the U.S. War Department can
assume no responsilulity for the correct functioning of any anti-aircraft ma-
terial built by your company and sold to a foreign power, as the United States
would have no supervision or jurisdiction over the manufacture, inspection,
proof, or test of these materials.
The War Department hopes that your company may be successful in obtain-
ing an order for the manufacture of a considerable number of these new anti-
aircraft materials of the latest U.S. Army design.
Very truly yours,
(Signed) O. B. Robbins,
The Assistant Secretary of War.
Now, of course, the War Department determines and decides what
portions of these designs are secret, I suppose ?
Mr. Driggs. They state in the letter in that list, the items.
Senator Pope. Do you know of any definite policy that they fol-
low in determining what is secret and what is not secret, or does
it depend upon the individual that happens to be in the War Depart-
ment at the time ?
Mr. Driggs. No; this relates to certain features of the recoil sys-
tem, which was supposed to be secret at the time of the war, and
was imported to our Government from France as secret, in the
manufacture of the Y5-millimeter field guns in this country from the
French guns.
Senator Clark, That was an essential feature of the T5's?
Mr. Driggs. Yes, sir.
Senator Clark. Supposed to make them superior in the event of
war?
Mr. Driggs. Yes, sir; because they used compressed air in the
spring instead of the recoil system, to put it briefly, but they ceased
to be a secret the moment the Germans captured the first TS's, but
474 MUNITIONS INDUSTRY
the condition had been that on the release of these designs to our
War Department of tliose, they had to pass it on.
Senator Vandenberg. Before we leave this letter, I am still in-
terested in the third paragraph on page 1, where the War Depart-
cent indicates certain things which you are not permitted to make
public, yet, nevertheless, the information which they allow you
to make public is shown, provided there is enough business in it,
and it is described by the War Department itself as serving to dis-
close to the foreign power the latest United States developments,
in anti-aircraft artillery. So that even that part which is disclosed,
apparently, is considered by the War Department to be illuminating,
at least to the foreign country. Is not that a fair interpretation of
the Secretary's letter?
Mr. Driggs. No ; not entirely, Senator. Bear in mind that a large
part of this was our own design anyway, these guns, and that ques-
tion is on all fours with the other. It is a facility to them, of course,
to give them up-to-date material, better than they can get abroad. It
is also realized that after they got even one or two guns, that they
can duplicate them. That is why there could be no objection to our
making guns abroad later, because after we had furnished 100 here,
they would know all about them.
That is, all of these attaches have seen them and thousands of
people have seen them at the proving ground, but it is to give them
something better than they can get abroad. It was not proposed by
us or the department to give them that advantage, or to copy, without
proper compensaion to us and the Government.
Senator Vandenberg. This design which is being discussed here is
a Government design, is it not? That is, I am referring to the letter
of May 8, 1928. You are asking for the release of a Government
design, are you not, the latest United States Army design of anti-air-
craft material?
Mr. Driggs. May I illustrate something to you [exhibiting
pamphlet] ? There is the outfit on the mobile mount. This part is
the mobile mount [indicating]. The part which does the shooting.
This was ours. When we delivered to the Navy Department, they
adopted it first, and it is on the Navy mount [exhibiting picture].
These are more or less engineering developments, very fine, very
good for efficiency, and so forth, and can be transported at high
speeds over bad roads, because it is mounted on ball bearings and
balloon tires. But the first gun here was adopted by the Navy
before the Army.
Senator Clark. That makes it an excellent offensive weapon, when
it can be transported at high speed over bad roads, Mr. Driggs ?
Mr. Driggs. Not necessarily. Suppose a battery of guns were
here, and there was going to be an attack in Baltimore, you would
rush the guns to Baltimore, would you not?
Senator Clark. Suppose j^ou were invading Maryland from this
side of the line with one of those anti-aircraft guns to follow up the
troops to shoot at the airplanes. In that event it would be an ex-
cellent offensive weapon, would it not? It depends on what you
want to use it for, does it not ?
Mr. Driggs. It depends on whether you consider it before the
major operation or afterward.
MUlSriTIONS INDUSTRY 475
Senator Clark. Suppose the major operation is a declaration of
war by Virginia against Maryland — they were using them in the man-
ner described; then that would be an excellent weapon to repel the
-attack of the Maryland aircraft, would it not ; and it all comes back
to the question of what you want to use the gun for, whether it is
an ofi'ensive weapon or a defensive weapon?
Mr. Driggs. You must determine upon that question, and the
•question was before the League as to what are offensive weapons and
what are defensive weapons. You must draw the line somewhere
and go by the initial purpose of the design, and the League has
■decided, which is officially on record over there, that anti-aircraft
guns are defensive weapons.
Senator Clark. But they can be used as offensive weapons, can
they not?
Mr. Driggs. A revolver in the hands of a police officer is a defen-
sive weapon, and in the hands of a gangster is an offensive weapon.
Senator Vandexberg. I want to get back to that letter of May 8,
1928, for a moment. How can I read the third paragraph of that
letter to mean anj^thing except that the War Department is willing
to permit you " to disclose to a foreign power the latest United
States developments in anti-aircraft artillery ", provided " it will
•develop munitions manufacturing capacity " in an American plant?
Is not that a fair construction of that statement of policy?
Mr, Driggs. But you are putting the wrong interpretation on it,
Senator.
Senator Vandenberg. I do not want to. I am concerned to find
•out the correct interpretation.
Mr. Driggs. By disclosure is meant such information that they
would get by having the guns in their possession. It does not mean
giving away some secret information.
Senator Vandenberg. It is manifestly to their advantage to
have it.
Mr. Driggs. Exactly; and the advantage to us is having the
increased capacity here. One offsets the other.
Senator Vandenberg. And the policy of the Department has been
to give a foreign power a military advantage in return for a com-
mercial advantage to the United States?
Mr. Driggs. It all depends upon the country. If it is a country
which is promoting peace, where its lack of resistance might result
in war, it is a very great contribution to peace, I consider.
Senator Vandenberg. That is all.
CONNECTIONS WITH UNITED STATES NAVAL OFFICIALS
Senator Pope. Mr. Driggs, I refer you now to a letter dated No-
vember 19, 1932, or to a report under that date, which appears to
have been written from Lt. Comdr. James H. Strong to the consul
general of Colombia in New York City. I will offer that for iden-
tification as " Exhibit No. 207."
Senator Pope. Who is Lt. Comdr. James H. Strong?
Mr. Driggs. He was a naval officer at that time attached to the
Philadelphia aircraft factory.
Senator Pope. In the service of the United States?
Mr. Driggs. Yes, sir.
476 MUNITIONS INDUSTRY
Senator Pope. What position at that time did he occupy, if you
know, with Coh)nil)ia. with the Republic of Colombia?
Mr. Driggs. I do not know definitely, except that I understood
from him that be was allowed by the Department to act as adviser
to them in practical matters connected with aviation.
Senator Pope. And he occupied that position at that time ?
Mr. Dkiggs. Yes; while not interfering^ with his other duties.
Senator Pope. How lonj; have you known Lieutenant Commander
Strong ?
Mr, Driggs. Only a feAV months before this time, perhaps Septem-
ber or October 1932.
Senator Pope. When did you first see the report made by Lieuten-
ant Commander Strong to the Consul General of Colombia?
Mr. Driggs. When it was prepared.
Senator Pope. You assisted him in preparing the report ?
Mr. Driggs. Yes.
Senator Pope. Where was it prepared ?
Mr. Driggs. It was prepared in New York.
Senator Pope. What was your office location at that time in New
York?
Mr. Driggs. Where it is now.
Senator Pope. What is that ?
Mr. Driggs. 19 West Forty-fourth Street.
Senator Pope. This was prepared at 19 West Forty-fourth Street
in your office ?
Mr. Driggs. Yes, sir.
Senator Pope. Now, in that report, which has been marked for
identification as " Exhibit No. 207 "
(Exhibit No. 207 has been stricken from the record upon instruc-
tions from the chairman of the committee.)
Mr. Driggs. Senator, I had no interest in these matters here, I
mean to say with regard to their scheme of defense, other than to
protect their interests and secrets.
Senator Pope. Referring to this report, you will note that the sub-
ject is "Recommendations for the defense of the ports of Buena
Venturo and Tumaco, Colombia." And in the first paragraph of the
report it states that :
As a result of careful study and analysis of the various problems connected
with the defense of the above-mentioned ports, the following pertinent points-
are submitted for consideration of the Colombian Government
Mr. Driggs. Senator, pardon me. But do you think that that is
a matter which, in view of Colombia's position objecting to this,,
that they could consider it w^as a violation of diplomatic courtesy?
Senator Pope. I would not think so. It is a part of the inves-
tigation.
Mr. Driggs. All right.
Senator Pope. In the second paragraph the ref)ort reads :
(This quotation has been stricken from the record upon instruc-
tions from the chairman of the committee.)
You were, of course, familiar with that at the time it was written
and assisted in that.
MUNITIONS INDUSTRY 477
I will call your attention to the top of page 2 to this sentence in
the report :
Thus it will be possible for the shore batteries to keep the cruisers of Peru
at a distance where shell fire from them will be ineffective.
And after going ahead and setting out in detail the defense that
should be made there appears, at the bottom of page 3 of the report,
or near the bottom, this statement :
The Driggs Ordnance & Engineering Company, who had prepared and worked
out tlie necessary details for the guns and fire-control system, and the estimate
for this project, have given whole-hearted support in the endeavor to furnish
to Colombia a system of defense which will consist of the most modern equip-
ment and which will guarantee ample protection from any attack which may
be launched by Peru.
You, of course, were familiar with that at the time it was put into
this report?
Mr. Driggs. Yes, sir.
Senator Pope. How long had you been conferring with Lieutenant
Commander Strong with reference to this matter before this report
was made in your office?
Mr. Driggs. I do not know. Probably a week or 10 days.
Senator Pope. You discussed this whole matter before you and
he made up the report, of course ?
Mr. Driggs. Yes ; because we had to have a basis for our estimates.
Senator Pope. Did you discuss this matter with him in his office
at any time while he was an officer of the United States Government?
Mr. Driggs. In his office ? No, sir.
Senator Pope. Now, going on to the next paragraph of the report,
it reads :
(This quotation has been stricken from the record upon instruc-
tions from the chairman of the committee.)
And so forth, describing the situation of Peru.
Now, at the same time that this report was prepared there was
prepared another letter, was there not, from you to Mr. German
Olano, consul general of Colombia?
Mr. Driggs. Yes.
Senator Pope. Did Mr. Strong help you to prepare that letter?
Were they prepared together or at the same time? This is dated
November 19, 1932, the same date as the report which has been
marked " Exhibit No. 207."
Mr. Driggs. This is all very confidential stuff, Senator, and I was
requested by the consul general to confer with Commander Strong
on it.
Senator Pope. You were requested by Mr. Olano to confer with
Commander Strong?
Mr. Driggs. Yes, sir.
Senator Pope. When was that request made ?
Mr. Driggs. About the time that the consulate received the in-
structions from their Government.
Senator Pope. The letter that I have last referred to Avill be
marked for identification as "Exhibit No. 208."
(Exhibit No. 208 has been stricken from the record upon instruc-
tions from the chairman of the committee.)
478 MUNITIONS INDUSTRY
Senator Pope. Who first mentioned this matter to you — Com-
mander Strong or Mr. Olano ?
Mr. Driggs. I think the consul did. That is my recollection.
Senator CliArk. May I ask, was Commander Strong on the active
list at that time?
Mr. Driggs. Yes.
Senator Clark. Of the United States Navy?
Mr. Driggs. Yes, sir. He was advising under authority of the
Department, I believe. That is my understanding.
Senator Pope. The Department permitted him to advise Colombia
in the way that he was advising them?
Mr. Driggs. Yes.
Senator Pope. That is the way you understand it ?
Mr. Driggs. Yes, sir. I do not know how specific it was, but it
was general advice on airplane matters, because they had no experts.
Senator Pope. Did Commander Strong tell you how much the
Colombian Government was paying him for his services in that
respect ?
Mr. Driggs. No, sir ; I never knew.
Senator Pope. Keferring to the letter of November 19, 1932, " Ex-
hibit No. 208 ", which was your letter written on the same date as
the report of Commander Strong, you say :
Pursuant to our conference with Commander Strong, and in accordance
therewith, we are pleased to quote you on the material required for the
adequate protection and defense of the two zones that you have mentioned.
From Commander Strong's report you will understand that this material has
heen determined upon after most careful consideration of all possible con-
tingencies, bearing always in mind the desired advantage of overmatching the
material of the probable enemy.
Of course, " the probable enemy " was Peru, as mentioned in the
report, I take it.
Now in that letter you set out at very considerable length and in
detail the main batteries that are desirable, the ammunition, the
anti-aircraft defenses, fire control for anti-aircraft batteries, and
convey that or send that to Mr. Olano, Consul General of Colombia.
Now for this service rendered to you by Commander Strong, what
arrangements did you have for compensating him?
Mr. Driggs. He did not render any service to us.
Senator Pope. You feel that in making this report in your office,
and you following it up immediately with a letter the same day,
with his assistance, was of no service to you ?
Mr. Driggs. It required collaboration between ourselves and hirn,
at the request of the consul, and there was no other place for this
work, unless I left my office and went down to the consulate or some
place like that.
Senator Pope. This letter to which we refer was signed by Mr.
A. J. Miranda, Jr. He was, of course, at that time in your employ?
Mr. Driggs. Yes, sir.
Senator Pope. I will ask you the question again : What compensa^
tion, if any, did you pay Lieutenant Commander Strong for his serv-
ices in this regard?
Mr. Driggs. None whatever.
Senator Pope, Do you know whether or not Mr. Miranda paid him
anything for his services?
Mr. Driggs. No, sir.
MUNITIONS INDUSTRY 479
Senator Pope. You mean he did not or you do not know whether
he did or not?
Mr. Driggs. I do not know anything about it.
Senator Pope. Now, I would call your attention to a report by
Lt. Comdr. James H. Strong to the Consul General of Colombia,
dated December 2, 1932, which will be marked for identification as
" Exhibit No. 209."
(Exhibit No. 209 has been stricken from the record upon instruc-
tions from the chairman of the committee.)
Senator Pope. I call your attention to this report " Exhibit No.
209." You will note the subject of that report is " Recommendations
for the defense of Cartagena, Puerto Colombia, and Barranquilla,
Colombia ", and I would call your attention particularly to the
second paragraph of the report and recommendation, which says :
(This quotation has been stricken from the record upon instruc-
tions from the chairman of the connnittee.)
Then the following paragraph reads:
(This quotation has been stricken from the record upon in-
structions from the chairman of the committee.)
Did you join in this report from Commander Strong?
Mr. Driggs. I do not recall definitely.
Senator Pope. You do not recall the second report and recom-
mendation ?
Mr. Driggs. I know there was a second report made.
Senator Pope. Was it made in the same way as the first?
Mr. Driggs. That I do not remember.
Senator Pope. Now, in the very last part of that report, the last
two paragraphs, it reads as follows:
The Driggs Ordnance & Engineering Co., who are furnishing the quotations
for the material involved, have given whole-hearted support in the working
out of these recommendations for the defense of the strategic points in the
Atlantic.
The defense, as outlined, supplemented by the use of at least two large
patrol planes, will provide adequate defense against all present possible
sources of attack.
You knew of that part of the recommendations made by Lieuten-
ant Commander Strong?
Mr. Driggs. No; I did not. To the best of my recollection, the
plan for defending these ports was worked out like the other one
was.
Senator Pope. Yes.
Mr. Driggs. But as to this last recommendation of his, and this
stuff stated there, I do not remember.
Senator Pope. When was that brought to your attention? When
was this report, which was found in your files, or a copy of it, first
brought to your . attention ?
Mr. Driggs. As I say, my recollection is that it was before me at
the time, but I do not recall — I mean the preparation of the report,
and I had no hand in the writing of the letter.
Senator Pope. Now, I would call vour attention to a letter from
the Driggs Ordnance & Engineering Co. to Mr. German Olano, Con-
sul General of Colombia, written on December 3, 1932, which will
be marked for identification as " Exhibit No. 210."
(Exhibit No. 210 has been stricken from the record upon instruc-
tions from the chairman of the committee.)
480 MUNITIONS INDUSTRY
Senator Pope. Mr. Dri^<js, I would call your particular attention
to the first para<rraph of that letter, " Exhibit No. 210 ", which reads
as follows :
(This (]uotati()n has been stricken from the record upon in-
structions from the chairman of the committee.)
That, of course, was prepared by you and Commander Strong at
the same time the report was prepared, as in the other case?
Mr. Driggs. T think so.
Senator Pope. There follows a very detailed statement as to the
guns and as to the fire control for anti-aircraft batteries.
Mr. Driggs. Yes, sir.
Senator Pope. About that time, Mr. Driggs, you furnished Colom-
bia with some sort of war vessel, did you not ?
Mr. Driggs. Yes.
Senator Pope. The Flying Fox?
Mr. Driggs. The Flying Fox.
Senator Pope. Tell us briefly of that transaction, your furnishing
the Flying Fox to Colombia.
Mr. Driggs. Well, they were wanting, needing vessels, and I was
familiar with the Flying Fox^ and I used to know her owner, and I
knew she was designed and built by Yarrow from torpedo-boat plans,
and she Avas a fast turbine vessel, and therefore well adapted to be a
fast gunboat.
Senator Pope. Where did you get that boat ?
Mr. Driggs. In New York, from William B. Leeds. He was the
owner then. So I had plans prepared showing her as a gunboat,
with a battery of four of our 3-inch guns and 3T-millimeter gun.
Then when I got all prepared, we submitted to Mr. Olano the
matter, and he put it up to his Government, and they ordered it.
Senator Pope. Where was the boat armed? Where were the guns
put on her ?
,, Mr. Driggs. They were put on over at Brooklyn.
Senator Pope. Who did the work on that ?
Mr. Driggs. The United Dry Dock for us — that is, the mounting
of the guns. We built the guns ourselves.
Senator Pope. Was the boat on Colombian registry at that time or
not?
Mr. Driggs. No.
Senator Pope. Now, we will mark as " Exhibit No. 211 " a letter
which we have here under date of September 8, 1927, addressed to the
Driggs Ordnance & Engineering Co. from S. Kohno, of Mitsui
& Co., Ltd.
(The letter referred to was marked " Exhibit No. 211 " and is
included in the appendix on p. 531.)
Senator Pope. Are you acquainted, Mr. Driggs, with the firm of
Mitsui & Co., of Japan, with branch offices in various ports of the
world and one in New York?
Mr. Driggs. Very slightly. I met them, I think, two or three
times a number of years ago.
Senator Pope. And have you had some negotiations with them?
Mr. Driggs. We did at that time.
Senator Pope. Now, I call your attention to the letter from Mitsui
& Co. to you under date of September 8, 1927, which has been
placed in the record as " Exhibit No. 211 ", and I would call your par-
MUNITIONS INDUSTRY 481
ticiilar attention to the first paragraph thereof, which reads as
follows :
Regarding the 37-iinllimeter antiaircraft gun and 47-miIlimeter semiautomatic
gun, we beg to confirm the conversation had with your Mr. Driggs yesterday
in your office, that you would willingly quote us your best export prices f.o.b.
New York for each of the above guns. You will also let us have five copies
of rough sketches of 37-millinieter antiaircraft gun under your design, the
pame as those which you showed us yesterday.
As you are well aware from the conversation had with Col. S. Oyaizu, he is
very much interested in the above guns and desires to send full information
about the same to the Japanese Government, recommending your goods as the
best in this line. Under the circumstances, we are now doing our best to
obtain their order for our mutual benefit.
We shall be much obliged if you will give this matter your special attention
and send us all your documents, as requested by us, as quickly as possible,
along with a description of your company's history and all your references,
as we have to send all this information to our Tokyo office as well as the
Japanese Government.
In the meantime, we would ask you not to quote to others in case you receive
any inquiries from our competitors for this business, but if this is impossible,
please quote them higher prices than for us, after you have been in touch
with us.
Thanking you for your kind cooperation, we are,
Yours very truly,
Mitsui & Co., Lto.
Now, did you furnish them the full information and the docu-
ments which were requested in this letter?
]Mr. Driggs. My recollection is that we did not. What reply we
made to this, if any, I do not now remember, but I do know that I
iDecame convinced that their government was on " a fishing expedi-
tion ", and might obtain a few guns and then proceed to copy them,
and we decided to let the negotiations lapse.
Another thing to which I want to call your attention. Senator, is
that we do not refer here to our 33-inch anti-aircraft gun anvAvay.
Senator Pope. But you are not sure whether you furnished the
information or not?
Mr. Driggs. If we furnished the information, it was nothing more
than a rough sketch or general description of the 37-millimeter. It
is my recollection we did not furnish even that, but I am not positive
of it. Anyway, I determined not to carry on the negotiations any
further, and that ended it.
Senator Pope. Did you observe their request with reference to
quoting prices to competitors?
Mr. Driggs. We quoted nobody else.
Senator Pope. Are you acquainted with Mr. W. D. Shearer?
Mr. Driggs. Yes, sir.
Senator Pope. How long have you known him?
Mr. Driggs. Well, I suppose 3 years.
Senator Pope. Do you recall his request for quotations on Sep-
tember 10, 1931, for 20,000 Mauser rifles and quotations on other
materials about that same time?
Mr. Driggs. Yes, sir.
Senator Pope. Whom did he represent at that time ?
Mr. Driggs. I do not know. It just came to us out of a clear sky
from him, saying that it was for China.
Senator Pope. He said it was for China?
Mr. Driggs. Yes.
482 MUNITIONS INDUSTRY
Senator Pope. I should like to offer this letter of September 7^
1931, as " Exhibit No. 212."
(The letter referred to was marked "Exhibit No. 212" and is
included in the appendix on p. 532.)
Merely referring to this letter, in paragraph 3 he writes :
We have an inquiry, received tlirongli W. D. Shearer, for rifles, machine
guufi, and T.N.T. for China. The rifles and the 150 3-inch field guns, on which
we have also quoted, can be obtained from Poland. (Machine guns can be
obtained from Soley.)
Who was Soley?
Mr. Driggs. Soley is a man in England that is a sort of an outlet
agent for surplus British material.
Senator Pope. What did you do when you received this inquiry
from Shearer?
Mr. Driggs. I do not knoAV. Very likely we got quotations from
Soley, or we had them — I do not know. He publishes a list of stuff,
which he sends out, and we had such a list in the office.
Senator Pope. You had dealings with Soley & Co., of London,^
then ?
Mr. Driggs. No transactions; we had correspondence.
Senator Pope. I call your attention to a letter of March 8, 1929^
Avhich I will ask to have marked " Exhibit No. 213."
(Tlie letter referred to was marked " Exhibit No. 213 " and is
included in the appendix on p. 533.)
Senator Pope. This letter is from the Soley Armament, Ltd., of
London, to the Driggs Ordnance Co. In that letter there is men-
tioned a very large number of guns of various kinds.
For instance, in paragraph 1 they say :
1. Lee Enfield, made by Remingtons 1917, unused, quantity 100,000 or more.
Lewis 3,000, ammunition 25 millions, particulars battery posted today.
2. Ammunition quantity should read 125 millions instead of 25 million.
They give a very large list of guns. Did you understand that
those were guns that they had on hand and available?
Mr. Driggs. Yes ; surplus war stuff.
Senator Pope. Surplus war stuff?
Mr. Driggs. Yes.
Senator Pope. I call your attention to the postscript in the letter
which says :
We have marked this letter " confidential ", as we do not wish it to be gen-
erally known that such large stocks of rifles and machine guns exist, and as
a matter of fact they are much larger than stated here.
What was your understanding of their purpose in not giving the
facts with reference to the number of guns that they had on hand ?
Mr. Driggs. I cannot surmise unless it might have been part of the
policy of the British Government. He was completely in their con-
fidence and he released this 'stuff as he sold it. He might have
thought it was well not to have it known that there were so many
rifles available. I cannot guess his purpose.
The Chairman. With Senator Pope's consent to the interruption,
the Chair offers for the record two letters received this morning
from Sterling J. Joyner addressed to the committee. The first letter
reads :
MUNITIONS INDUSTRY 483
Though ill, I desire to emphatically state that any desire on my part to see
Mr. Fort a member of any committee was positively private and absolutely
unknown to Mr. Fort, and in justice to Mr. Fort this statement must be made.
Any desire that I may have had was by no request, and entirely without any
knowledge on the part of Mr. Fort. My spirit was that he was, indeed, a
splendid mau, and for that reason I was hopeful that he would be honored.
I am quite unknown to Mr. Fort. I never asked any meetings or favors and
never expected any.
Respectfully yours.
Sterling J. Joyneii.
If you so desire, this statement may be released to the newspapers.
The second letter reads :
Referring to publicity in this morning's papers : Believing a frank statement
is necessary, the Honorable Joseph W. Martin, Jr., M.C., did not need me, or
any other man of my humble class to assist him, and I never asked Mr. Martin
to do me any political favor with regard to any business connected with sub-
marines, or the like, or anything else for that matter.
I am very, very sorry if my enthusiasm has caused Mr. Martin any annoy-
ance, I send this message as a justice to Mr. Martin in all haste.
Respectfully yours,
Steeling J. Joyner,
If you so desire, this statement may be released to the newspapers.
Senator Vandenberg. Mr. Chairman, I would like to make this-
observation in connection with these letters from Mr. Joyner.
The Chairman. Senator Vandenberg.
Senator Vandenberg. Yesterday's testimony was of tremendous
utility in respect to our own munitions quest. It seems to me that
this is another utility. Here is one of these high-powered Wash-
ington lobbyists giving a totally different reason to the public than
he gave to his own employers respecting his attitudes and activities.
I suggest that it is one more demonstration to the business men of
America that these lobbyists claim large influence with Congress
which they do not even remotely possess. It is a racket from which
both Congress and the country suffer. If we may take the profit out
of lobbying in Washington, as well as out of war, we shall have done
a double service.
The Chairman. And when one racket plays upon the other there
is double need for removal.
Senator Vandenberg. Yes.
The Chairman. Senator Pope, will you continue your exam-
inaation?
Senator Pope. Who is the firm of Urueta & Samper, Mr. Driggs?
Mr. Driggs. I am not sure about their former connection. But
it is a firm down in Bogota, Colombia.
Senator Pope. Do you know anything about their background or
what their business is?
Mr. Driggs. One of them was a former official. They are sup-
posed to be influential and have good connections there to get Gov-
ernment contracts.
Senator Pope. Who suggested Urueta & Samper to you as being
desirable agents in Colombia?
Mr. Driggs. I do not recall.
Senator Pope. I should like to have this letter dated November 4.
1932, marked " Exhibit No. 214."
(The letter referred to was marked " Exhibit No. 214 ", and is
included in the appendix on p. 533.)
484 MUNITIONS INDUSTRY
Senator Pope. In the first paragraph of the letter written by you
or your firm to Urueta & Samper you will note this language [read-
ing] :
Our mutual friend, Mr. Owen Shannon, of the Curtiss-Wright Export Cor-
poration, has been kind enough to give us your name and recommend your finn.
to look after our negotiations in Bogota with the Government of Colombia.
Does that refresh your mind?
Mr. Driggs. Yes, sir.
Senator Pope. Do you know the relationship of the Curtiss-Wright
Export Corporation, or rather Mr. Shannon, of that corporation, to-
Urueta & Samper?
Mr. Driggs. No. Mr. Shannon is a friend of Mr. I. J. Miranda,,
and it was in that way that this firm was named.
Senator Pope. I call your attention to the last two full paragraphs
on the second page of this letter. Those paragraphs read as follows-
[reading] :
In view of the publicity attendant to the international situation between'
Colombia and Peru, the Colombian consulate here has been deluged with pro-
posals for all kinds of war material, mostly second-hand, obsolete material
offered by brokers. To safeguard the interests of the Colombia Government
and save the time of the consulate and of the War Ministry in Bogota, the
United States Government has " loaned " to the Colombian consulate one of its:
naval officers to act as advisor on the merit of the material offered.
Do you know why that word " loaned " was put in quotation marks-
and just what that means ?
Mr. Driggs. No, sir. It was his own personal idea.
Senator Pope. Continuing with this letter [reading] :
The officer in question is Commander James Strong, U.S.N. Inasmuch as^
our guns have been the standard used by the Army and Navy for more than
forty years, and their efficiency has been amply demonstrated in past wars
(particularly in the World War), Commander Strong is thoroughly acquainted
with our equipment, and not only has he approved our proposals but strongly
recommended the acquisition of our material as being the finest obtainable..
Consul General Olano has conveyed that recommendation to the President.
That refers to the same reports and same contacts with Strong^
that you have testified to before.
Mr. Driggs. Yes, sir.
Senator Pope. And then there follows a long list of guns and
materials.
Senator Vandenberg. May I interrupt at this point to make an
inquiry. Senator ?
Senator Pope. Surely.
Senator Vandenberg. I should like to inquire whether Com-
mander Strong was in service in the Navy at the time he was
rendering these services to you, Mr. Driggs ?
Mr. Driggs. Yes, sir ; at that time he was.
Senator Vandenberg. Is he doing this on his owm responsibility^
or is he doing it on assignment from the Navy Department?
Mr. Driggs. I do not think it was an assignment, exactly. I think
it w^as just permission to act as technical adviser for them. That
was my understanding.
Senator Vandenberg. Do you think the Navy Department is
acquainted at this time with the fact that Commander Strong's
recommendation is being used in a sales-promotion campaign?
Mr. Driggs. I do not know.
MUNITIONS INDUSTRY 485
Senator Vandenberg. You would not think that that would come
within the type of license that the Department would grant to one
of its officers in line, would you ?
Mr. Driggs. It might be quite proper to pass on the quality of the
material that we are getting, as he was advising them as to what
that stuff
Senator Vandenberg. Do I understand that Commander Strong
received no compensation whatever for all of these services?
Mr. Driggs. Not from us.
Senator Vandenberg. And you do not know of any that he re-
ceived from anybody else?
Mr. Driggs. Other than the Colombian Government.
Senator Vandenberg. You think the Colombian Government is
compensating Commander Strong?
Mr. Driggs. I suppose so.
Senator Vandenberg. The Colombian Government is compensat-
ing an officer of the United States Navy who is in active service ?
Mr. Driggs, Hold on — I withdraw that. I have no right to say,
because I do not know. ;
Senator Vandenberg. But that is your assumption, that he is being
compensated by the Colombian Government.
Mr. Driggs. He is now. He has resigned, so I do not know just
where to separate the dates. I cannot state anything about it.
Senator Vandenberg. When he resigned he is prohibited by stat-
ute from selling services to any American munitions maker, is he not?
Mr. Driggs. I did not know that.
Senator Vandenberg. That is a fact. But apparently he is not
prohibited from selling them to some foreign country.
Senator Pope. When did Commander Strong resign his position
with the United States Government?
Mr. Driggs. I do not know, exactly. While I was in Europe, I
think.
Senator Pope. Well, about when — the first of this year?
Mr. Driggs. Oh, no. I have been away practically a year. I got
back Christmas time. It was before that.
Senator Pope. You think he resigned before that sometime.
Mr. Driggs. Yes.
Senator Pope. In 1933 ?
Mr. Driggs. Yes.
Senator Vandenberg. I would like to clear up one point in the
record. Senator, if you will permit me. In the event that Com-
mander Strong is now on the pay roll of the Colombian Government,
what woidd be the capacity in which he serves the Colombian Gov-
ernment ?
Mr. Driggs. Some capacity in connection with their air service.
Senator Pope. I am given the date February 8, 1934, as the date
when Commander Strong resigned his position with the United
States Government. Do you know anything about the circumstances
of his resignation?
Mr. Driggs. None at all.
Senator Pope. You do not know why he resigned ?
Mr. Driggs. No.
486 MUNITIONS INDUSTRY
Senator Pope, AVhether upon request or not?
Mr. Driggs. No, sir.
Senator Pope. I call your attention to a letter written by your
firm to Urueta & Samper, your agents in Colombia. The date I am
told is November 25, 1932. I will offer this letter as " Exhibit No.
215."
(The letter referred to was marked " Exhibit No. 215 " and is in-
cluded in the appendix on p. 534.)
Senator Pope. Do you know anything about that letter, and do
you know when it was written?
Mr. Driggs. No ; I am not familiar with that.
Senator Pope. I call your attention particularly to the paragraph
on the first page [reading] :
Now, we have another matter pending before your Government, of great
importance and of extremely confidential nature, i.e.
Your Government finds it absolutely indispensible to fortify the Pacific ports
of Buenaventura and Tumaco, and has requested the consul here to have Com-
mander Strong make a thorough analysis of the situation and offer his recom-
mendations. Because of our experience, the consul and Commander Strong
have requested our cooperation.
Assisted by hydrographical charts which we have procured from the United
States Navy Department we have been able to formulate an excellent plan of
defense. To apprise you thoroughly on this matter, we enclose copy of the
reports submitted by us and by Commander Strong on this subject. The
reports have gone forward from the consul to the president.
This matter is of prime importance to your Government and we are confident
that a more thorough and intelligent report and plan of defense will not be
mapped out, either there, by your general staff or in Europe, if such request
should have been made.
Does that call the letter particularly to your attention?
Mr, Driggs. No, I am familiar with what was taking place at
the time, but not with that letter.
Senator Pope. And you furnished to your agents in Colombia the
hydrographic charts which you procured from the United States
Navy Department?
Mr. Driggs. Well, that is a kind of poetic license, I think, to put
it that way, because you can just go down town in New York, as
you can in most ports, and buy these charts. They are issued by
the Hydrographic Office. It is nothing that is by favor of the Navy
Department. We do not have to come to Washington for it.
Senator Pope. The next paragraph reads :
Our proposal will run about two million of dollars bait will assure the
safety of your country's gateway from the Pacific and of its proposed Pacific
naval and aerial base at Tumaco, and its defense will be of the latest.
Please post yourselves thoroughly with the detailed information which
we send you herewith in strict confidence. Make your inquiries very dis-
creetly as this is a matter that has been treated only by the President with
the Consul. Your comments will be welcome. We will keep you posted on
developments.
Senator Vandenberg. Senator, will you permit a short question ?
Senator Pope. Surely.
Senator Vandenberg. Am I in error, Mr. Driggs, in my under-
standing that this Commander Strong is now the commander of
the Colombian air forces; that he undertook to recruit his forces
in the United States; and that the State Department issued a gen-
eral statement expressing their refusal to sanction any such opera-
tion? Is not this the same Commander Strong?
MUNITIONS INDUSTRY 487
Mr. Drigos. Yes.
Senator Pope. Did you make any sales as the result of these
letters and quotations based upon Commander Strong's report?
Mr. Driggs. No, sir.
Senator Pope. You made no sales?
Mr. Driggs. No, sir.
RELATIONS WITH TURKEY
Senator Pope. I call your attention to a letter dated November 30,
1927, which I will offer as " Exhibit No. 216."
(The letter referred to was marked " Exhibit No. 216 ", and is
included in the appendix on p. 53'5.)
Senator Pope. That appears to be a letter from Mr. Herbert Allen
to you. Who is Mr. Herbert Allen?
Mr. Driggs. He was our agent out there; that is. an agent.
Senator Pope. And when was he employed by yoii?
Mr. Driggs. Shortly previous to this date; sometime in 1927 I
think he went out there.
Senator Pope. Who was he, what was his business?
Mr. Driggs. As I explained to you before, he had been with us
years before in the old original Driggs Ordnance Co. beginning as a
stenographer; and then later he was with the American & British
Manufacturing Co. up to the time of the war; and then after that
he went out to Turkey for us.
Senator Pope. Who is Mr. Roehr who is mentioned in this letter?
Mr. Driggs. I do not recall.
Senator Pope. Was he not your agent in Turkey?
Mr. Driggs. Not that I know of. We had Allen Avorking with the
firm that Emmen Bey was connected with. But whether Roehr was
one of them I do not now recall.
Senator Pope. Let us read a portion of that paragraph which was
written by Mr. Allen to you,
I must divide my operations in sections. F(»r weelvs I occupied myself to
unravel the most difficult and mysterious of intrigues knowing the oriontiil
mind I wanted. It was impossible to work in America in this fashi<ni. The
character on the stake were Heinekin, Roehr, ('horinsky, Hitzigroth, Captain
Rudshi, and Kemal Ochri. Heinekin and Chorinsky tried to yet me to Berlin.
In Peru, Hitzetiroth tried to represent Roehr who w 's so sick that when
" Jawus " ur^ed your coming here, he was so sick that -it times in delirium
he knew not his wife. Chorinsky was trying to get rifle contracts from Tur-
key ; Roehr's operations for Jonkers smelled to heaven.
What do you know about Roehr's operations for Jonkers?
Mr. Driggs. Nothing at all. I suppose he refers to the Jonkers
plane.
Senator Pope. What was that?
Mr. Driggs. That is the German plane and then since the war
they were made in Holland, I believe. It had nothing to do with us.
Senator Pope. You do not know what he had reference to there
that smelled to heaven?
Mr. Driggs. No.
Senator Pope. On the next page there is this language :
I sent for Noury Pasha and discovered that he had definitely taken appoint-
ment with Vickers, because of Heinekin's failure to work with him, but it
8.3876 — 34 — pt 2 3
488 MUNITIONS INDUSTRY
is a question if lie had not already made this arrangement when he wrote
you his letter of about June 15. He is capable of doing this to get the
dope of competitors. I sent for Oohri Bey (Kemmel Ochri) and he suavely
and smoothly deprecated all others. He was surprised when I asked him if
he has been the principal in the Jonkers airplane deal, which smells to
heaven and which makes the Turks so sore.
Does that refresh your mind as to what that incident was?
Mr. Driggs. No; I do not think we ever got any more details
than that about lioehr's operations.
Senator Pope. There are some very interesting suggestions here.
In the former quotation you referred to doing business in the Amer-
ican fashion and intimated that he could not do business in the Amer-
ican fashion over there. What do you know about that situation?
He also referred to intrigue, mysterious intrigue. What do you
know about that? What about this competition that you have to
meet over there, what sort of competition was it?
Mr. Driggs. There is all kinds of competition. A lot of this about
intrigues is moonshine. It is greatly exaggerated. If you listen
to these people, you will have a swarm of them all telling you what
they can do, making promises of how they are next to the powers
that be and that they can get you orders, and you can be easily
misled if you are not careful and promise a commission to this man
or that man for helping you when he really cannot do anything
at all.
The Chairman. Is that confined to your experiences abroad, Mr.
Driggs, or is that also true here in Washington as well ?
Mr. Driggs. I think it is true in a good many others industries
besides the munitions industry.
The Chairman. I have not any doubt of it. But is that true in
Washington as well as abroad?
Mr. Driggs. You mean negotiations with our Government?
The Chairman. Are you encountering these experiences which
you have just mentioned, in Washington as well as abroad?
Mr. Driggs. Oh, no; we have always dealt here directly with the
officer placing the contract.
The Chairman. You do not encounter those who represent them-
selves as being people who can help you here in Washington?
Mr. Driggs. No; we have had at times people come around and
tell us that, but we have had enough experience ourselves, so that we
do not pay any attention to that sort of thing.
Senator Pope. Do you know who Noury is?
Mr. Driggs. That means Noury Pasha. He is the one they re-
ferred to in the other place when they say he is taking a position
with Vickers. That is a sort of an oriental custom; not only
there, but in eastern Europe, in the same company you will find one
director who represents one company and another director repre-
senting a competitor. They see nothing wrong in that, two people
who are friends and co-directors representing rival interests.
Senator Pope. In the fourth paragraph of this exhibit on the
third page, I should like to refer you to this language
Senator Clark. May I ask a question right at this point, Senator
Pope?
Senator Pope. Of course.
Senator Clark. Mr. Driggs, do you mean by that last statement,
" representing rival interests " that, for instance, on the same muni-
MUNITIONS INDUSTRY 489
tions board of directors, there will be one director representing
Vickers we will say and another one representing Krupp and pos-
sibly another one representing Schneider?
Mr, Driggs. Yes, sir.
Senator Clark. And then they go in cahoots on some other com-
pany so that whoever gets the contract, they will all be protected ?
Mr. Dbiggs. Yes ; I suppose so. When I ran into that I saw that
they thought nothing of it, saw no impropriety in it.
Senator Clark. As a matter of fact, there is a certain amount of
community of interest between them, is there not?
Mr. Driggs. Naturally.
Senator Pope. In line with that :
Finally Noury proposed to Kenial to work for us secretly and double-
cross Vickers. This Kemal and I have not agreed to.
That is simply the custom that you have referred to ?
Mr. Driggs. Yes.
Senator Pope. I now call your attention to a letter written Sep-
tember 14. 1926, by you to 1. C. Munthe Kauffmann, and which I
offer in evidence as " Exhibit No. 217."
(The letter referred to was marked "Exhibit No. 217", and is
included in the a^^pendix on p. 537.)
Senator Pope. Mr. Driggs, who is I. C. Munthe Kauffmann, of
Copenhagen, Denmark, to whom this letter, " Exhibit No. 217 ", was
addressed ?
Mr. Driggs. He was a former officer in the Danish service though
he was a minor one, I think only a lieutenant, and he had been out
for a good many years. At that time he was acting as agent for us
in Denmark.
Senator Pope. I call your attention to the fourth paragraph in
that letter offered as " Exhibit No. 217 ", where you say :
Until now, the European firms have had such a monopoly through political
influence or otherwise, of the ordnance business in Europe and in the Near East,
that American firms have been unable to break it.
Just what did you have in mind at the time you wrote that letter
stating the European firms have had such a monopoly?
Mr. Driggs. Well, I meant through having the active support, and
not only support but also intervention of their own Governments.
They have back of them, as I stated before, political pressure from
their legations and embassies. Then another favorite way has been,
for instance, to send a military or naval mission to a country under
the guise of advising it on the tactics of its army. This mission
would immediately proceed to can all the material they had and
recommend they should have English material or French material
according to what the country the mission was from.
Senator Pope. I now look at the next paragraph which reads as
follows :
I foiuid during my recent visit to Euroi)e that the guns being built there
are not up to date and the prices are higher than ours. I believe that an
energetic campaign on your part will get us considerable business.
Is that your experience, that the prices of their guns are higher
than the prices of our guns ?
Mr, Driggs. Yes, sir; they lose some of their advantage in lower
wages, through the lack of modern methods of manufacture, and
490 MUNITIONS INDUSTRY
another thiri<i: is they have not had comjjetition from liere before,
and they have not had to sharpen their pencils.
Senator Pope. So that the matter of fillinp; orders by you from
guns made in these foreign countries is not a matter of price as much
as it is a matter of what you can receive fpr the guns, but it is a
matter of what?
Mr. DfiKiGS. It is a matter of quality and design. As I said
a while ago, when I went over there on a sort of exploring expedition
in 1925 and investigated the engineering material with respect to
the other countries I found to my surprise these countries are behind
and that our country was ahead, that they had laid on their oars
in bringing out new types, and in certain other matters like that,
for instance like the anti-aircraft gun. In that we had approached
the matter from a different standpoint, and we had thought a good
many years ago that the anti-aircraft gun must be a gun with rapid-
ity of fire and maximum velocity, while they had taken up the idea
of adapting the field gun for anti-aircraft, which was a wrong
conception.
Senator Pope. Then any effort you might make to have guns
made in these foreign countries was not based on the matter of
the price, but for other reasons.
Mr. Driggs. You mean made over there?
Senator Pope. Yes.
Mr. Driggs. Well, there is only one instance where we considered
that, and that was in connection with Poland, and the sole reason
there was they insisted on being self-contained in time of war when
their borders were closed.
Senator Pope. I call your attention to a letter of date June 13,
1927, written by F. Ziemba, Avho was your Polish agent, to you
which I offer as " Exhibit No. 218."
(The letter referred to was marked " Exhibit No. 218 ", and is
included in the appendix on p. 538.)
Senator Pope. Now, the first paragraph of that letter, " Exhibit
No. 218", makes this statement:
I have taken into the serious consideration your suggestion of cooperating
with Mr. Pisarek and I was going to make him a concrete proposal.
Who was Mr. Pisarek?
Mr. Driggs. He is a young man who was educated here, a gradu-
ate of Georgetown College. He was secretary to the president of
the National Economic Bank, which is the Government Bank of
Poland, and he was loaned to me to act as secretary and interpreter
for me, because I did not speak Polish and he speaks English
perfectly.
It was wholly secretarial work, but he wanted to be taken in and
have a part of the commission, and Ziemba was protesting against
it, because he only gets 5 percent.
Senator Pope. The letter proceeds as follows :
However, after investigating the expenses that will be connected with the
securing of orders I have found out tliat it is inii)ossihle for me to yield anything
fi'om my 5% commission. The number of people that have to be " influenced "
is larger than I exi>ected, and in order to conduct any effective work the ex-
penses will take the larger bulk of my commission and I shall bo satisfied
if at the close of the deal I would be left with net 2% for myself.
[
MUNITIONS INDUSTRY 491
What is your experience with reference to that, Mr. Driggs. the
money that was needed to influence certain people down there?
Mr. Driggs. It did not mean any money was used to influence
people. It has been my experience it is not necessary to pay 1 cent
to anybody to influence them. If there was any suggestion like that,
they would go out of the window.
Senator Pope. What does this mean?
Mr. Driggs. Entertainment and such. We have provided
Ziemba with no funds for that. It is also for traveling going to
the proving grounds and transportation and such things as that.
Senator Pope. So in Poland you found that was the only sort of
influence that was used?
Mr. Driggs. Yes, sir.
Senator Pope. That was very different from other countries you
dealt with, wasn't it?
Mr. Driggs. No; not at all.
Senator Pope. How about Turkey? ^^ j
Mr. Driggs. Turkey is very clean now.
Senator Pope. How was it then?
Mr. Driggs. Well, the Kemal Pasha has settled that.
Senator Pope. What was the usual commission you paid to a
salesman over there?
Mr. Driggs. I do not know what other companies have paid, but
we generally have paid a commission of 5 to 10 percent; some cases
5 ])ercent and some cases 10 percent.
Senator Pope. Now I call your attention to a letter written Jan-
uary 22, 1929, from Mr. Allen to yourself, which I offer as " Exhibit
No." 219."
(The letter referred to was marked " Exhibit No. 219" and is in-
cluded in the appendix on p. 538.)
Senator Pope. In this letter. " Exhibit No. 219 ", I particularly
call attention to the last long paragraph on the second page of the
letter, and taking the last four lines of that long paragraph, it says
this :
The Viokers crowd are the dirtiest opponents liere. They Imve ahnost an
entire embassy in number working for them and use women of doubtful char-
acter freely.
What do you know about that?
Mr. Driggs. Nothing more than he says there.
Senator Pope. Now, this letter is written from Turkey ; do you
think conditions have changed there recently?
Mr. Driggs. I do not know whether they have or not. I do not
know whether their employment has ceased. I was speaking about
the methods of commission on the contracts.
Senator Pope. Now, I call your attention to the second paragraph
on the next page of that letter, as follows :
.lust as an indication of what these European competitors will do. About two
weeks ago, the Caterpillar tractor man, demonstrating to the military here was
called upon to drive his sixty with a large 8-inch Russian liowit/.er to the
general-staff headijuarters, which is on a large hill on the outskirts of Angora,
His competitors were also required to make the trip, because Fevzi Pasha, the
great chief of staff, was going to review the maneuvers. The Caterpillar driver
soon discovered that someone liad removed the plug from his radiator and hacl
492 MUNIIIONS INDUSTRY
lost a lot of water. He remembered tigliteniug that plug himself and so it could
not have come loose. That same morning several of his special tools had dis-
appeared. All this with a tractor i-equired to be guarded by soldiers at the
military garage.
Do you know anything more about that, Mr. Driggs?
Mr. Driggs. No ; except that they had pretty tough competitors.
Senator Pope. Competition is pretty keen?
Mr. Driggs. Yes; competition is keen.
Senator Pope. I call your attention to a letter dated January 22.
1929, from Mr. Allen to yourself which I offer as " Exhibit No. 220.'^
(The letter referred to was marked " Exhibit No. 220 ", and is in-
cluded in the appendix on p. 539.)
Senator Pope. Beginning at the first, this letter reads as follows:
I have scotched a snake. He is a certain man named I'asano, connected
with the Paris office of the Electric Boat Co., of the United States.
Senator Clark. That was the marquis.
Senator Pope. Do you know Pasano?
Mr. Driggs. No ; I do not know him.
Senator Pope. Did you find out about the matter he asked you
about ?
Mr. Driggs. No ; I was unable to find out.
Senator Pope. Did you make any inquiry of the Electric Boat Co.
about that?
Mr. Driggs. No; I don't recall whether I did or not.
Senator Clark. Did you ever have any dealings with a man
named Joyner?
Mr. Driggs. Some; yes.
Senator Clark. Were you here yesterday when there was a letter
read where he advised everybody not to have any dealings with your
company ?
Mr. Driggs. No ; I was not.
Senator Clark. That was put in evidence, being a letter to Mr.
Spear in connection with the Turkish business, and he said that your
firm had been mentioned as the builder of some armament that would
be supplied and went on to say that he had had some dealings with
you and very frankly recommended against you being brought into
the Turkish matter.
Mr. Driggs. Judging from our experience the shoe is on the other
foot. I felt great sympathy for the Electric Boat Co. when I heard
those letters being read, because you cannot protect yourself against
a man writing such letters.
foreign agents
Senator Pope. Now I refer to you a letter written January 19,
1927 by Steffen & Heyman to your company which I offer in evidence
as " Exhibit No. 221!"
(The letter referred to was marked " Exhibit No. 221 ", and is
included in the appendix on p. 540.)
Senator Pope. Wlio are Steffen & Heyman?
Mr. Driggs. They were two people in Berlin.
Senator Pope. Are they your agents ?
Mr. Driggs. They are not our agents; no. In the first place, we
did not care to have any of our material in Berlin, and it was repre-
MUNITIONS INDUSTRY 493
sented to me that we were not dealing with the German Govern-
ment, but that they were with Bofors in Sweden, and while I do not
want to make this statement positive, yet they are reputed to be
controlled by Krupp. Sometime after this I visited Berlin myself
and saw these people and decided not to employ them at all.
Senator Pope. The only thing in this letter of interest is found in
the last paragraph on the first page, about the middle of the para-
graph. After stating they had made an investigation of the situation
they say :
The result of which is that Berlin (besides Paris) has today become the
center of Europe as regards the trade in fire arms.
What do you know about that, Mr. Driggs ?
Mr. Driggs. I think it is a very great exaggeration. There is a
firm which is in that section what Soley is in England, called
Benny Spiro, that handles second-hand material, that has an ade-
quate warehouse in Hamburg, and makes sales in South America
and the Far East. He has another house in Shanghai, I think, and
I think that reference is to this concern.
Senator Pope. I call your attention to another letter of date Jan-
uary 19, 1929, from H. E. Osann to Mr. David A. Buckley, Jr.,
which I offer in evidence as " Exhibit No. 222."
(The letter referred to was marked " Exhibit No. 222 ", and is
included in the appendix on p. 541.)
Senator Pope. Who was David A. Buckley, Jr. ?
Mr. Driggs. Our attorney in New York,
Senator Pope. Who is Osann?
Mr. Driggs. Osann is a former officer in the Army — that is, during
the war he was in the American occupation force at Coblenz, and
got to know the Germans very well. He had been practicing there,
and came over here, and was in a way associated with Buckley
for a while, with regard to business in Europe. When he went
back I asked him to investigate these people. That is my recol-
lection of it.
Senator Pope. The only thing in this letter that may be of interest
is found in the third paragraph of the letter as I have it here. In
the first place there is a statement by Mr. Osann that prices are
higher in Germany than in the United States, and then in the para-
graph below the middle of the page he states :
I will not bother you with details, but can resume the result by stating that
Bofors is Knipp and Krupp is I. G. Dyeworks.
Is that what you referred to a while ago?
Mr. Driggs. Yes. I had that same information from other sources.
Senator Bone. Mr. Driggs, a moment ago you made reference to a
private arms outfit in Germany the name of which I did not get
at the moment, comparable with Soley in England ?
Mr. Driggs. It is not a manufacturer ; it is Benny Spiro.
Senator Bone. That would be a Greek, possibly?
Mr. Driggs. No ; it is Jewish.
Senator Bone. You say that outfit is a private dealer in arms, I
take that to be small arms ?
Mr. Driggs. It is like Bannerman in New York.
Senator Bone. Are they as large as Soley?
Mr. Driggs. Oh, yes; larger.
494 MUNITIONS INDUSTRY
Senator Bone. Can you tell the committee why it is, if you know,
that a. private ('(mcern is permitted to maintain such a vast stock of
firearms when Germany, herself, is not permitted to, under the Ver-
sailles Treaty; was that aspect entireh' overlooked in the treaty?
Mr. Driggs. It must have been.
Senator Bone. Then, we have a picture in Germany of a concern
like Bannerman in this country and Soley in England, maintaining
a vast supply of war supplies of all kinds.
Mr. Deiggs. I would not say very vast.
Senator Bone. If they are anything like Soley they must have
vast supplies, because we have information here to the effect that
Soley could supply a good-sized nation with arms.
Mr. Driggs. He happens to have a large quantity of rifles on
hand. My information is that Spiro has much less in that regard,
but more larger ordnance.
Senator Bone. Have you ever heard any complaint from any other
nations who were engaged in war with Germany, against this supply
in Germany?
Mr. Driggs. No ; but they all know it.
Senator Bone. It would seem to indicate where it is a private
concern engaged in these operations for profit and none are making
very much objection to the institution. Would you say that is a fair
assumption ?
Mr. Driggs. Yes; and, of course, most of this material, you must
remember, is not up-to-date, and the larger countries would not want
most of it as a part of their equipment except in a great emergency.
Senator Bone. Of course, a man can be killed with a Mauser
rifle or a Krag rifle just as well as by a Springfield, and it would
not make any difference if he had the choice of being killed by one
of those or by a modern Springfield.
Mr. Driggs. No.
Senator Vandenberg. I would like to ask one further question to
clear up one point in connection with this Colombian order which
Commander Strong was attempting to get. In your company's letter
to the Consul General, New York, after making quotations and item-
izing the material then follows this:
" terms : The unusual, already known to you."
That is all that is said in the statement respecting terms.
Mr. Driggs. It means, " usual."
Senator Vandenberg. It says " unusual " and I was wondering
whether this involved any extra compensation of any nature.
Mr. Driggs. No, sir; the general rule is that 35 or 40 percent with
the order and the balance
Senator Vandenberg. You think this word " unusual " is a typo-
graphical error?
Mr. Driggs. It is.
Senator Vandenberg. There were no special commissions paid to
anybody or contemplated?
Mr. Driggs. No, sir.
Senator Clark. Mr. Driggs, the Sperry Co. was one of your prin-
cipal competitors in the manufacture of arms.
Mr. Driggs. No, sir.
Senator Clark. What did they supply?
MUNITIONS INDUSTRY 495
Mr. Driggs. They supplied the fire control, particularly for anti-
aircraft puns. You know these new antiaircraft guns do not have
sights on the guns and the people working the gun do not see the
target. That is off to one side and it is that equipment that Sperry
.-upplies.
Senator Clark. They are not competitors of yours?
Mr. Driggs. No, sir.
Senator Pope. Now, Mr. Driggs, there is being handed you a copy
of this cablegram found in your file recently and this document
says " Copy of Translation of Cable received by us, dated Warsaw,
January 20, 1932 ", which I offer in evidence as " Exhibit No. 223."
(The document referred to was marked " Exhibit No. 223 " and is
included in the appendix on p. 544.)
Senator Pope. This translation of the cablegram reads as follows :
Kiiij? of Great Britain suninioned our Ambassador in London and intervened
in 3-incli or 75-mni 50-cal. gun on New Mobile Mount letter Dec. 15tli, 1928,
contract. Chief stands hish pressure but great difficult.v hold situation. You
must hasten sunnnoning commission to America. Anxiously await your tele-
gram promisied for today.
Are you familiar with that?
Mr. Driggs. I am very familiar with that, and it is one of the
things I do not think ought to be made public and I want to protest
against it.
Senator Pope. Who sent that cablegram?
Mr. Driggs. Our agent.
Senator Pope. What was his name?
Mr. Driggs. His name is Ziemba.
Senator Pope. To whom was it sent?
Mr. Driggs. Just to the office.
Senator Pope. I have noticed in the file there are several telegrams
that were not signed.
Mr. Driggs. We do not do that generally ourselves, just to cut
the expense of cabling down.
Senator Pope. You have to pay for the signature as well.
Mr. Driggs. Yes.
Senator Pope. You received that cablegram, did you not?
Mr. Driggs. Yes.
Senator Pope. Whom did that refer to by " Chief stands high
pressure."
Mr. Driggs. It means the Chief of Ordnance.
Senator Pope. What contract does he refer to as in December 15,
1928, contract.
Mr. Driggs. Our contract that was pending and agreed upon
before I left Warsaw.
Senator Pope. It was with reference to this contract which you
had already executed then that the King of Great Britain summoned
the Ambassador.
Mr. Driggs. That is the Polish Ambassador. You see it was not
officially executed. There was an exchange of letters between our-
selves, that is the company and the chief, to the effect that we were
now in complete agreement and that the formal contract would be
signed at Washington when the documents were attached and at
that time it would be necessary to have the specifications drawn up
and the general drawings so that the commission that came over
496 MUNITIONS INDUSTRY
could see they were in order and attached to the contract, and on
my return I was to show this agreement by letter to the War De-
partment and get their assent to the readings of the drawings indi-
cating that we had complied with their requirements. This was a
letter to be sent to the Commission ahead of the time before we
were ready.
Senator Pope. What did you understand was the purpose of the
King in sunnnoning the Ambassador there?
Mr. Driggs. That is just a part of the same gesture that the
British royalty has been indulging in lately in using the Prince of
Wales down in Argentina; he is their best salesman they say, and
creates good will and it is a gesture of the royal family interesting
itself in British business.
Senator Clark. That is kind of an offset to the gesture of our War
Department giving them plans of guns as a selling argument.
Mr. Driggs. Yes, but it was much more effective.
Senator Clark. They got a little higher in England than in this
country ?
Mr. Driggs. Yes.
Senator Clark. Do you know whether the royal family owns stock
in Vickers?
Mr. Driggs. I do not think so.
Senator Clark. Is that the understanding in Europe?
Mr. Driggs. I do not think so.
Senator Clark. I wondered if it was a matter of knowledge that
the royal family had stock in Vickers.
Mr. Driggs. I never heard of it.
Senator Clark. I wondered if the King was playing his own
game, or just playing salesman.
Mr. Driggs. I think he was just helping get them out of the
depression.
Senator Clark. Who was your chief competitor in this matter ?
Mr. Driggs. I think the principal one was Vickers.
Senator Clark. Did you get any further information as to this
conference ordered by the King and referring to Vickers ?
Mr. Driggs. I never did.
Senator Pope. Did this commission come to America after that?
Mr. Driggs. Oh, yes.
Senator Pope. And you conferred with them?
Mr. Driggs. Yes, sir.
Senator Pope. Did they visit your place of business?
Mr. Driggs. Yes, sir.
Senator Pope. And you showed them your equipment and demon-
strated to them your ability to fulfill an order?
Mr. Driggs. Yes.
use or U. S. NAVAL VESSELS TO PROMOTE SALES TO TURKEY
Senator Pope. Now, then, I call your attention to a letter dated
April 10, 1928. That letter was apparently written to you by Mr.
Herbert F. L. Allen, 5^our agent.
Mr. Driggs. Yes, sir.
(The letter referred to was marked "Exhibit No. 224'' and is
included in the appendix on p. 544.)
MUNITIONS INDUSTRY 497
Senator Pope. I would call your attention particularly to the third
page of that letter, Mr. Driggs. I think you have an excerpt con-
taining the same thing. That reads:
* * * To offset that I am working on a plan, with the Embassy's
cooperation, to have the cruiser Detroit, now in the Mediterranean, come here
to sliow our guns on board to the Military Commission or to have the Com-
mission visit the ship in Italian waters. To accomplish this, the Turkish
Government must invite the ship to come here through the Foreign Dept., and
immediately this is done Ambassador Grew will cable the State Dept., asking
that the visit of the Detroit be arranged. The Turkish War Department has
asked their Foreign Minister to make the invitation and it may come out
tomcn-row. Meanwhile Eruin Bey, the head of the A. T. & T. Co., left today
for Angora, and I may go tomorrow instead of going to Greece. In fact, the
action of the Technical Dept. will probably come to a head before the first
of May and if in our favor the discussion of the financial matters should be
concluded by June 1st. The typewritten offers enclosed are literal translation
from the Turk which accounts for the phrasing used.
You received that letter?
Mr. Driggs. Yes, sir.
Senator Pope. What did you do upon receipt of that letter with
reference to his suggestion to you to get the Government to send the
destroyer over there to show your guns?
Mr. Driggs. I came down here to Washington and I found that
at the time the destroyer was already at Leghorn, on her way back,
and therefore it was too late. I found out that a call at Constanti-
nople was on the itinerary of the Raleigh, and I asked the Chief of
Ordnance if she could not stop in there and let this Commission see
our guns.
Senator Pope. I call your attention to a cable dated May 4, 1928,
this previous letter, " Exhibit No. 224 ", having been dated April 10,
1928. This was a cable sent apparently by you to Herbert Allen,
your agent in Turkey.
Mr. Driggs. Yes, sir.
(The cablegram referred to was marked " Exhibit No. 225 " and
is included in the appendix on p. 545.)
Senator Pope. That cablegram reads :
When invitation received Detroit at Leghorn en route France if nearer
department would have ordered Constantinople. Due Ville France 10th May
Cherbourg 16 to 28. Department anxious to cooperate. Will delay departure
Ville France until 12th May if notified by 7th May. Try to arrange examina-
tion France. Telegraph promptly.
That was the information which you obtained from the Navy
Department?
Mr. Driggs. Yes, sir.
Senator Pope. Now, I would call your attention to a cablegram
under date of May 5, 1928, apparently sent by you to Mr. Pisarek,
which I will ask to have marked " Exhibit No. 226."
(The cablegram referred to was marked " Exhibit No. 226 " and is
included in the appendix on p. 545.)
Senator Pope. That cablegram from you to Pisarek reads as
follows :
F.S.S. " Detroit " carrying our guns at Cherbourg from 16th May to about
28th May ; Navy Department will telegraph instructions, show guns Polish
commission. Try to arrange visit of commission or representative.
It is signed " Driggs."
498 MUNITIONS INDUSTRY
Now, I would call your attention to a letter of February 13, 1929,
written bv A'ou to the Chief of Bureau of Oixlnance. Navy Depart-
ment, Wash'ino-ton, D.C. That, which will be "' Exhibit No. 227."
(The letter referred to was nuirked " Exliibit No. 227 " and was
read in full by Senator Pope as follows) :
Fejjruary 13x11, 1929.
Chief of Bureau of Ordnance,
Navy DeiKtrtment, Washington, D.C.
Deiar Sir : As you know, we liavo had for some time a contrai-t under nego-
tiation in Turkey for 4!) anli-airciaft .mnis. The (luantity has now l)eeii
increased to G4.
The Turkish Government sent a military commission to see the j;uns of our
European competitors, and' to avoid the expense of coming here expected to
see the guns on the " Detroit."
As you will remember, they extended an invitation to have the " Detroit "
rislt Constantinoiile. Their red tai)e consumed so much time that when the
invitation reached Washington the " Detroit " was at Leghorn on her way
Iiome. The commission reported, . however, based on the data furnished and
the reports of performance received from this country, that our gun was
superior, and we have been promised the contract subject to reaching an
agreement on tiie specifications.
We are now informed that the ministry, to avoid the criticisms of giving
a contract without having actually seen our gun, would like to see the guns
on the " Raleigh ", which the Bureau of Operations states will be at Constanti-
nople on March 27th. If the Bureau will assist us by having instructions
sent to the conunanding officer to show our 3" anti-aircraft guns on the
*' Raleigh ", we would greatly appreciate it.
Very truly yours,
Driggs Ordnance & Engine:eking Co., Inc.,
LLD:MS — , President.
Mr. Driggs. I want to make a correction of something you asked
about a while ago, if our chief competitor was Vickers. I want to
amend that; that it was the Schneider & Vickers.
Senator Pope. Schneider t^ Vickers?
Mr. Driggs. Yes, sir; principally Schneider.
Senator Pope. Now I would call your attention to a letter written
by AVilliam D. Leahy, rear admiral. United States Navy, Chief of
the Bureau of Ordnance, to you, under date of February 18, 1929,
which will be '' Exhibit No. 228."
(The letter referred to was marked " Exhibit No. 228 ", and was
read in full by Senator Pope as follows) :
Feb. 18, 1929.
EF70 (1) (A5).
Gentlemen : With further reference to my letter of February 16th regard-
ing the inspection of 5-inch AA guns on board the " Kaleigh " by the Turkish
Government, I am pleased to inform you that the Ch of of Naval Operations
has written the Commander Naval Forces Euroi)e, as follows :
" Tlie Navy Department has been requested by the Driggs Ordnance and Engi-
neering Co., Inc., New York, N.Y., to grant permission for a military connnissiou
of the Turkish Government to inspect the 3-inch anti-aircraft guns of the
'Raleigh' during her visit at Constantinople from March 27 to April 4, 1929.
The Driggs company is negotiating with the Turkish Government a contract
for certain anti-aircraft guns and desires the inspection to be made in this
connection.
"The inspection requested by the Driggs company is satisfactory to the
Bureau of Ordnance and is approved by the Navy Department."
Very truly yours,
WnxiAM D. Leahy,
Rear Admiral. t/.jS'. Navj/,
Chief of the Bureau of Ordnance.
Driggs Ordnance and Engineering Co., Inc.,
19 West 44th Street, New York City.
MES.
MUNITIONS INDUSTRY 499
Senator Pope. You received that letter, Mr. Driggs?
Mr. Driggs. Yes.
Senator Pope. Now I will call your attention to a letter of
February . , • , ^
Mr. Driggs. May I make an explanation regarding this letter «
Senator Pope. Yes.
Mr. Driggs. I want to say that that was not regarded as anything
rxtraordinary that visitors about the ship see our gun, and it only
helped overcome some of the handicaps we were under as compared
with our competitors in having them see our material. These com-
petitors always have some guns going through for their own gov-
ernment, or for other governments, and it is an inexpensive matter
for them to take one of them and ship it down to some other place
in Europe.
Senator Pope. The Government pays all expenses of that sort ?
Mr. Driggs. The purchasing government?
Senator Pope. No ; the United States Government, when they send
a ship out to demonstrate the guns?
Mr. Driggs. They did not incur any extra expense, it is my under-
standing. She was to call at Constantinople anyway, and the re-
quest merely was that they would show our guns to this commission
and let them come aboard.
Senator Pope. At any rat€, you incurred no expense in connection
with that incident?
Mr. Driggs. No; we incurred no expense. But, as I say, for us
to have a commission come over here would be very expensive, and
we do not have guns going through our plants which they can see,
and the foreign companies do.
Senator Pope. I would call your attention to a letter written by
you to the Chief of Bureau of Ordnance, Navy Department, Wash-
ington, D.C., which is very brief. That wall be marked " Exhibit
No. 229."
(The letter referred to was marked "Exhibit No. 229", and was
read in full by Senator Pope as follows) :
Drigcs Okunance & Engineering Co., Inc..
19 West U Street, New York, N.Y., February 19th, 1929.
Ref. EF70 (1) (A.5).
Chief of Bureau of Ordnance.
Jlavi/^ Department, Wa-shington, D.C.
Dear Sir: We acknowleclge receipt of Department's letters of the 17tli
and IStli iiist. quoting the instructions sent by the Chief of Naval Operations
for the commander of Naval Forces in Europe.
We thank the Bureau very much for its action and believe it will be of
great assistance to us.
Very truly yours,
Driggs Ordnance & Engineering Co., Ixc,
(S.) L. L. Driggs, President.
LLD : MS.
Senator Pope. That letter was written by you?
Mr. Driggs. Yes, sir.
Senator Pope. I offer the log, or a portion of the log, of the steam-
ship Raleigh of December 31, 1929, page 199. This will be " Exhibit
No. 280."
(The document referred to was marked " Exhibit No. 230 ",
and was read in full by Senator Pope, as folio avs) :
500 MUNITIONS INDUSTRY ' -'.
hog book U.S.S. Raleigh. 7 1 1929— Dec. 31. 1929. Page 199.
TxTESDAY, 26 March 1929.
12 to 16.
At 1506 let go port anchor. At 1508 Lt. Col. J. D. Elliott, and Mr. E. L.
Ives, first secretary of the American Embassy, came on board. At 1547 Lieut.
Col. J. D. Elliott and Mr. Ives, left ship.
Page 205.
Thursday, 28 March 1929.
OS to 12.
Anchored as before. At 1012 Turkish officials came board to inspect 3"
AA battery.
C. L. C. Atkeson,
Lieutenant, U.S. Navy.
12 to 16.
Anchored as before. At 1207 Turkish officials left the sliip.
Francis W. McCann,
Ensign, U.S. Navy.
(Left Constantinople Thursday April 4.)
Personnel as given at beginning of March log book. United States Naval
Forces, Europe :
John H. Dayton, vice admiral, Com. U.S.Nav. for Europe.
•lohn R. Beardall, commander, Sen. aide ; Act. Chief of Staff.
Pal L. Meadows, lieutenant, flag lieutenant.
U.S.S. Raleigh: William K. Riddle, captain, commanding. Alfred H. Balsley,
lieut.-commander, gunnery. Augustus C. Long, ensign, asst. fire control-eng. In.
Senator Bone. The "U.S.S. Raleigh ^^ was an American cruiser?
Mr. Driggs. Yes, sir.
Senator Pope. Now, I would call your attention to a letter written
on February 19, 1929, by you to Mr. Allen, your agent in Turkey,
which will be marked " Exhibit No. 231."
Mr. Driggs. Yes, sir.
(The letter referred to was marked " Exhibit No. 231 ", and was
read in full by Senator Pope as follows) :
Subject : Visit of the Raleigh to Constantinople.
February 19th, 1929.
Mr. H. F. L. Allen,
V/o American Embassy, Angora, Turkey.
Dear Herbert: I enclose photostatic copy in triplicate of the Navy Depart*
ment's letter of the 18th, approving our request for the inspection of our 3"
antiaircra'ft guns on board the " Raleigh " by the Turkish Government.
I believe this letter is all that is required for a complete inspection of the
guns, including the dismounting and assembling of the breach mechanism.
They probably have some dummy rounds on board for drill purposes which
■will show the automatic functioning of the mechanism. You should ask that
this be demonstrated. In other words, the Department expresses a wish to
assist us in every way possible.
The Commission will probably not be shown the tire-control system. Un-
like the Army method, this is not an isolated system for each battery of four
guns, but applies to the whole battery of the ship. It is very complicated,
consisting of something like 40,000 parts and costs in the neighborhood of
$200,000 an outfit. Tlie Navy guards the secrets of this system very carefully.
We will send you a description of the case III computer and equipment
accompanying it.
"Very sincerely,
■ President.
LLDA:MS
P.S. — We are enclosing two additional copies Of letter from the Chief of
Bureau of Ordnance of the Navy, which I would suggest your handing to tlie
commanding officer of the " Raleigh " as soon as you see him so that he will
take pains to let the Turks know that the guns shown are ours, and as they
were made in the Navy Yard our name is not on them.
Senator Pope, The next letter I desire to offer is dated February
20, 1929, being a letter to Mr. H. F. L. Allen from you, Mr. Drig<js.
MUNITIONS INDUSTRY 501
quoting the letter from Mr. C. B. Robbins, The Assistant Secretary
of War, which will be marked " Exhibit No. 232."
(The letter referred to was marked "Exhibit No. 232", and is
included in the appendix on p. 545.)
Senator Pope. The first and the last paragraphs of this letter,
^' Exhibit No. 232 ", are the only ones which interest us, because the
letter from Assistant Secretary Robbins is already in the record.
Those paragraphs read as follows:
In order to answer statements that the American Government would not allow
us to manufacture the latest antiaircraft material for a foreign power, you can
state, as we have previously informed you, that the War Department has agreed
to release these latest designs for filliug orders for foreign powers when the
orders are of sufficient size to give adequate work to our plant.
Then in the final paragraphs of the letter it states :
The above is for the confidential information of the Turkish Government. We
must be careful that our competitors do not make it the basis of misrepresenta-
tion of the American Government's position on the reduction-of-armameuts
question.
As you will see, this permission is conditional upon the size of the order,
which, of course, is met by an order of the size contemplated by Turkey at the
Dresent time.
If you have not already done so, you should drive home the fact that this
proves we are offering the Turkish Government the world's latest and best
designs in antiaircraft material ; upon the development of which the U.S. Gov-
ernment has spent over $2,000,000.00.
You felt that this letter, calling attention to the fact that the
United States Government has spent $2,000,000 in developing these
•designs, would be very valuable to you as sales talk, of course?
Mr. Driggs. Yes, sir.
Senator Bone. Mr. Driggs, I am curious about one matter which
I think possibly we overlooked, and my interest arises out of the fact
that the world seems to be largely unaAvare of the existence of these
huge private stores of munitions held by various kinds of " hucksters "
around the world, including Soley in England and Bannerman m
this country.
Mr. Driggs. Bannerman has hardly anything left.
Senator Bone. They appear to be able to sell these vast quantities
of arms without much restriction. Did Vickers get this order where
the King interested himself in it? Do you recall?
Mr. Driggs. Oh, no.
Senator Bone. Who got that particular order ?
Mr. Driggs. Nobody has got it yet.
Senator Bone. Then apparently his efforts were being made but
nobody got an order out of that particular incident, is that right?
Mr. Driggs. The situation is this. Senator : I w^ent over last year —
in February a year ago — to close the contract, and just as it was
approaching signature we went off the gold standard, and that upset
our negotiations completely, because they did not know there whether
they could remain on the gold standard or not, and they w^anted to
see about the business they could get by barter, and they would be
able to purchase material — not the same, but howitzers, large howitz-
ers, from Skoda. They had been able to buy ships in Italy and pay
in coal, and it was that that upset our negotiations, and they could
not see why we could not.
502 MUNITIONS INDUSTRY
Senator Clark. How is that?
Mr. Drigos. They adopted the system of barter. Senator — the ex-
chan<re of pro(hiets for the material they wanted to buy — and the
proposition was put up that if we couhl take compensation in Polish
exports they would go through with the matter. I explored the situa-
ation with regard to coal, beer bottles, hops, and so forth. They
were able to buy howitzers from Skocla and pay in coal, and are
having two ships built in Italy, and are paying in coal; and although
they made concessions in throwing off the freight from the port, the
continual dropping of the dollar — the dollar kept dropping — was
sucli that you could not import any of that coal. So that we were
trying to see if anything could be worked out in the w^ay of com-
pensating exports.
Senator Clark. This is the same order on which you were advised
the King intervened ?
Mr. DrigoxS. Yes, sir.
Senator Clark. And so far neither yourself nor the King ha?
gotten the order up to date?
Mr. Driggs. Not up to date.
Senator Vandenberg. Mr. Driggs, I would like to refer to this
letter ,of February 20, 1929, '' Exhibit No. 232 ", in which you ar.e
speaking about the anti-aircraft development upon which the United
States Government has spent over $2,000,000, and which the War
Department is ordering be put to the use of the Turkish people,
provided sufficient orders are placed with American manufacturers.
I notice this sentence contained therein :
AVe must be careful that our competitors do not make it the basis of misrep-
resentation of the American Government's position on the reduction-of-armament
question.
That is a very challenging sentence. How is it possible to avoid
a clear anomaly when the American Government is assisting the
American manufacturers in the international sale of arms and the
King is assisting British manufacturers in the international sale of
arms ? Does it not make a j^aradox out of all governmental purpose?
to control armaments?
Mr. Driggs. Not at all, sir.
Senator Vandenberg. Why not?
Mr. Driggs. It should be controlled. We are not objecting to it
being controlled. It has nothing to do with the limitation of arma-
ments, either. It is merely taking this position: there are only
about six producing countries.
Senator Vandenberg. What are those six?
Mr. Driggs. The United States, England, France, Italy, Poland,,
to some extent
Senator Vandenberg. Japan?
Mr. Driggs. And Japan.
Senator Clark. Czechoslovakia?
Mr. Driggs. I do not mean Japan. I meant Spain and Czecho-
slovakia.
Senator Clark. The armament works in Czechoslovakia are con-
trolled by Schneider, are they not ?
Mr. Driggs. They are owned by Schneider. There are something
like 36 or 37 other nations which do not numufacture within their
MUNITIONS INDUSTRY 503
borders for their requirements, and even to have guns to fire salutes,
with the sunrise and sundoAvn gun, they have to go to these firms to
buy these materials, and they will do tliat, whatever action you take
liere. If we take the action of putting American manufacturers out
of the business, that merely throAvs the remaining international busi-
ness into the hands of the other manufacturers, and we will chiefly
benefit countries that may be our potential enemies like — I won't
mention the names.
Senator Vandenberg. I think that is probably so as an abstraction,
Mr. Driggs. The proposition is just this: Since this material is
used, and say there is a limitation of armaments — I am not opposed
to limitation of armaments and it ought to be — but, such as there is,
the share which belongs to this country ought to come here. It is
our manufacturing plants being sacrificed and the other countries
being benefited. That is the purpose, I take it.
Senator Vandenberg. You say it ought to be controlled. How
would you control it ?
Mr. Driggs. I would require complete reports to be made to our
own Government, confidential, of course, because otherwise they
would get into the hands of our competitors; also orders at destina-
tion of all material, and that a shipping license be required.
The Chairman. Is not that required now ?
Mr. Driggs. No, sir.
The Chairman. In no respect?
Senator Vandenberg. It is in some zones, is it not ?
Mr. Driggs. I think not.
The Chairman. Is it not required as relates to shipments of muni-
tions to South America ?
Mr. Driggs. Only with respect to Paraguay and Bolivia there is
an embargo on. There is an old embargo which has never been lifted
with regard to Nicaragua, but that was to shut off everything going
to the rebels.
The Chairman. Is there anything which requires you to speak the
truth with respect to what sliipments are made to other countries?
Are you not rather left free to label your shipments other than what
the shipments actually are ?
Mr. Driggs. You could do that in any event.
The Chairman. In reporting to the Commerce Department, can
you not report instead of guns that maybe it was pencils that were
shipped, or agricultural implements?
Mr. Driggs. Yes; but why do that? Why should we do it when
we do not have to disguise it at all?
The Chairman. The reason I ask is this: The statistics of the
Commerce Department are in a miserable mess as regards exports.
It is quite impossible to get a correct picture covering exports of
American munitions.
Mr. Driggs. I know that.
The Chairman. Was the thought which you were trying to conve}'
to the committee, that there should be a tightening up of those re-
quirements?
Mr. Driggs. Yes, sir.
Senator Vandenberg. The mere filing of reports does not show
anything unless there is an international policy behind it. What
83876— 34— PT 2 4
504 MUNITIONS INDUSTRY
control is there, if 3'oii merely send your entire correspondence file
to the ^overnnicntal control? What is controlled by that?
Mr. Diuor.s. For instance, we should not ship to a country or a
crowd or to a faction that are going to go over on to a friendly state,
with which the United States is at peace.
Senator Clark. That has frequently been done, has it not?
Mr. Dkiggs. Yes, sir; but we are not guilty of it.
Senator Clahk. I am not accusing you of being guilty of it. You
know, having been in the armament business, that that has been a
common practice, for instance, for munition manufacturers to sell
to prospective revolutionists for the purpose of getting up a revo-
lution ?
Mr. Dkiggs. I know, and they sell to both sides.
Senator Ci.ahk. Yes, sir; and they undertake to check a revolu
tion and sell to one side or the other.
Mr. Driggs. That has been done.
The Chairman. Why should we be alarmed with respect to
revolutionists because some foreign manufacturer should be getting
all the business, prolonging those revolutions?
Mr. Driggs. Not with regard to revolutions. Senator, but the
peace-time capacity of the full Government plant is totally inade-
quate for war-time need, and you must have a rapid expansion.
Now, if there is no private manufacturer here, then when war breaks
out, you put the Government plants on three shifts and you go on
to your maximum capacity.
Senator Vandenberg. Mr. Driggs, you would not have any con-
trol, would you, until competition is taken out of the international
trade in arms?
Mr. Driggs. Why should we take competition out?
Senator Vandenberg. So long as this everlasting battle for busi-
ness proceeds all over the world, how can there be any control ?
Mr. Driggs. There can be this: For instance, now in England a
license must be obtained for every shipment. If it was going to a
place which might be a potential enemy of Great Britain, they would
not grant the license, I suppose, and that should be done here. I
do not think material should be sold to a country that is a potential
enemy of the United States, or likely to be.
The Chairman. Senator Vandenberg, had you been here Tuesday
and Wednesday j^ou might have found out that Vickers and the
Electric Boat Co. found it possible to divide up the territory.
Senator Vandenberg. Yes ; I saw that. The limit of control which
you are speaking of is a control of reports and licenses?
Mr. Driggs. Yes, sir. In other words, that the Government have
full information as to where it goes. That of course is of impor-
tance and the destination must be shown and have the purpose of it
too.
Senator Vandenberg. Would it be feasible in any degree for the
American Government, for instance, to maintain a monopoly upon
its own developments, by way of national defense, instead of spread-
ing them all around the world ?
Mr. Driggs. Not unless, if a patent was very good, it would be
purchased by the Government, but as long as the Government does
MUNITIONS INDUSTRY 505
not do it, and with the patent laws as they are here and abroad,
■what is to prevent a manufacturer doing just as the Electric Boat
Co. did, for instance, to license people abroad to manufacture ?
The Chairman. Mr. Driggs. It is 1 o'clock. We will ask you
to return at 2 o'clock for a renewal of the examination, to which
time the committee will stand in recess.
(Thereupon the committee took a recess until 2 o'clock p.m.)
AFTERNOON SESSION
The committee resumed pursuant to the recess, at 2 o'clock, p.m.,
Hon. Gerald P. Nye (chairman) presiding.
The Chairman. The committee will be in order. Senator Pope,
you may proceed with the witness.
Senator Pope. I think I called your attention, Mr. Driggs, to a
letter of April 9, 1929, written to Mr. W. R. Palmer, treasurer of
the Smedley Co., New Haven, Conn., by yourself. I will offer that
letter as " Exhibit No. 233."
(The letter referred to was marked " Exhibit No. 233 ", and is
included in the appendix on p. 546.)
Senator Pope. I call your attention to the paragraph in the letter
which reads as follows :
With reference to the visit of the Raleigh to Constantinople the Turkish
Government sent a commission from Angora made up of officers from the
War Ministry and also a naval officer, as there is now a good prospect of our
obtaining some naval guns also.
With reference to this Turkish commission, what do you know
about that and what did they do ?
Mr. Driggs. I do not know any more than the information that is
in this letter and others from Allen that you had about the commis-
sion being sent from Angora to Constantinople.
Senator Pope. The commission came over here?
Mr. Driggs. Oh, no ; not here.
Senator Pope. It was not the Turkish commission ?
Mr. Driggs. No, sir.
Senator Pope. You stated this morning that this practice was not
unusual, to send a United States boat to demonstrate guns?
Mr. Driggs. I did not mean particularly guns. I think I used
the word extraordinary, did I not, instead of unusual? I think I
said there was nothing extraordinary about it.
Senator Pope. Do you know of any other instances where it was
done?
Mr. Driggs. Not where a ship has gone in and given a demonstra-
tion on the guns. But I mean to say where the Department has
given some assistance in other ways.
Senator Pope. What other ways did you have in mind?
Mr. Driggs. For instance, the reports by people in the naval mis-
sion down in Peru, and cases of that sort, where there has been
some cooperation from both the State Department and the Navy
Department in the past in various instances. I do not recall now
specific acts, but I mean where there has been an effort to help
American firms get an order for naval material.
506 MUNITIONS INDUSTRY
Senator Popk. I call your attention to the last para<>rapli in this
letter of April !>. which refers to another letter. This language
reads :
With rotoroiico to bis last k4t('i-. This refers to tlu' tlesii'i' of the I'lilish
Government that we either estal)lish a plant in Poland or supervise the manu-
facture of jiuns in an existiiii; plant simihir to such an arran^'ement as I hail
with Staracliowioe when 1 eanie biwk from Poland. This is sonietliing that, of
course, can't he settled by correspondence. Now that the business is assuretl
in Poland, tlie only point to determine is what jiroportion of the work we shall
produce here, and what proportion in Poland. The financins ought to be wound
up quickly now so that I can get over to Poland and deal on the spot.
As the result of all these efforts and of the visit of the RnJeighy
did 3^ou get the contract for furnishing tliose guns?
Mr. Driggs. You understand, Senator, that the Rulc'/gh incidents
had to do Avith Turkey solely?
Senator Pope. Oh, yes. JDid you get the Turkish contract?
Mr. Driggs. No; we did not.
Senator Pope. Did you get the Polish contract which we discussed
early in the hearing?
Mr. Driggs. You may remember that I said that the linal negotia-
tions were upset last year by our going off the gold standard and
they have had to be completely revamped. They are not entirely
settled 3^et. That is the situation there.
Senator Pope. Now, I call your attention to a letter dated April
22, 1929, which I will offer as " Exhibit No. 2M."
(The letter referred to was marked "Exhibit No. 234" and is
included in the appendix on p. 547.)
Senator Pope. This letter is written to David A. Buckley, Esq.,
New York City, by Mr. Osann, and I direct your attention particu-
larly to the last paragraph on the third page of the letter. The
paragraph reads :
In spite of the poor representation of Driggs and the doubt regarding his
capability of discharging bis obligation when the contract is signed, Emin
Bey appears to be confident that the contract is to go to Driggs. They have
information from the States and the visit of the Raleigh confirmed it, that the
United States Government is supporting Driggs in this affair.
Then I direct your attention further on in the letter to the para-
graph (c) as follows:
(c) The American authorities at Constantinople. They are thoroughly dis-
gusted. They lost no time informing me of Allen's critical financial situation.
They were frank in expressing their opinion of Driggs, who seems to them
to be endangering any future effort on the part of American exporters to
Turkey for years to come. They made inquiries of their own in Washington.
The information obtained does not seem to give in every respect with the
claims made by Allen in behalf of Driggs, but they found out that Driggs is
supported l)y the U.S. Government, or by some prominent officials thereof;
they did not hesitate to advance the information to the Turks that the York
plant may be Government-owned and leased to Driggs ; they opined when
asked where the skilled workmen were to come from for this job that they
may be military or naval arsenal employees, let out to Driggs for the purpose.
The visit of the Raleiffh set their minds at peace and they are convinced that
Uncle Sam is the real party behind this business and that he was only unlucky
in choosing Driggs as his agent and Allen as the latter's representative.
(d) Vickers-Armstrong and Sclmeidei'-Skoda, the competitors, both are repre-
sented by Turks, assisted by technical experts sent from France and England,
respectively. The Vickers reitresentative has especially strong relations in
Turkish Government circles. He is well posted relative to Driggs' standing
in the U.S. and is probably the party wlio put the doubt as to the exist-
MUNITIONS INDUSTRY 507
•ence of Dri2:g.s' factory in the mind of Emin Bey and through him in the mind
of tlie American authorities. The arrival of the Raleiyh destroyed tlie best
:sales argument of the competition, i.e.. that nobody had ever seen the Driggs
gun, while they. Schneider and Vickers, had working models. Their models
remained models, while the Raleit/h proved that the Driggs gun is in actual
use.
So you realized that this visit of the Raleigh was a very important
factor, did yon not ?
Mr. Driggs. Yes.
Senator Pope. In your behalf?
Senator Clark. You had the same advantage through the visit
of the Raleigh over these fellows that had only working models that
a peddler would have who could reach into his pack and pull out
the actual article over a fellow who was trying to sell that kind of
thing by mail through a picture, is that right?
Mr, Driggs. Yes. Before that, there had been a commission from
Turkey that had visited the plants both in England and in France.
I would like to say this in explanation of why we did not get that
order, that I never found out until about 2 years — while I was in
Poland — of what actually happened down there.
It used to be a custom in Turkey that the favored contractor
would put in a low bid and when he was offered the contract he
•declined to sign it. So, after negotiations it was awarded to him at
a high figure, at the price that he really wanted to get. That has
been cut out in Turkey now by Kemal Pasha and a law passed re-
•qiiiring that with the bid there be a bidding bond amounting to 7%
percent of the contract which required you, within 15 days from the
awarding of the contract, to sign a contract at the price you quoted
and put up a performance fund of 15 percent.
After this had occurred and Ave understood the order was awarded,
we heard nothing for a long while. Then we got a cable from Allen
that he had been compelled to sign a contract. Now, he had no
authority to sign a contract. Upon an explanation being asked, he
said that the agents of the different companies had all been obliged
to sign contracts so that they could take it when they want it. This
was for the reason that the appropriation was expiring, I think on
the 1st of July or the 5th of July, and they wanted to get it under
this appropriation before it lapsed.
Then we were called upon immediately to furnish a bidding bond
of $240,000 before we had ever seen the contract. So we cabled for
the contract but we were told that there was not time. I tried to
have the contract sent to the Turkish Embassy here and the matter
held up until we could see it, because it had to be laid before the
bonding company in order to get the bond. We could not get that
and they said there was not time, so we had to lose out on it.
While I was in Warsaw 8 years ago, the European field man
for the Caterpiller Tractor Co., McDonald, came \\\) through there.
He was on his way home and he came up there to meet me and
tell me what had actually happened down there. He told me that
Allen had made promises of commissions to different people that
were to help him and to make up for that, or for these commissions,
he had added to the price. And in not believing that we would
consent to that, he kept us in the dark for about 3 months after
the contract had been awarded, when we knew nothing about it.
508 MUNITIONS INDUSTRY
There would have been ample time to send the contract to us, but
he was afraid that we would turn it down so he waited until he
got us in this position where he said that we had to sign the con-
tract and we must function in 15 days.
Senator Clark. Wlio got that business finally?
Mr. Driggs. Vickers.
Senator Clark. Who was Allen? That may have been gone
through before I came in. Is he an American?
Mr. Driggs. Oh, yes. He had been our employee once, a great
many years ago, when our office was in Washington. He was a
young fellow here that came in as a stenographer, and then about
war time he was with the American-British Manufacturing Co., of
Bridgeport.
Senator Pope. Mr. Chairman, I would like at this time to intro-
duce as an exliibit a photograph that will be known as " Exhibit
No. 235."
(The photograph referred to was marked " Exhibit No. 235 ", and
is included in the appendix on p. 548.)
Senator Pope. You are acquainted with Mr. Allen?
Mr. Driggs. Yes.
Senator Pope. Have you seen the steamship Raleigh?
Mr. Driggs. I have.
Senator Pope. Would you recognize it?
Mr. Driggs. I do not Imow whether I would, by the picture.
Senator Pope. I hand you this photograph and ask you to examine
that. There seems to be two different pictures on this. One on
the left hand side — ^the onq that I have here — apparently shows a
steamship. That is the steamship Raleigh^ according to the infor-
mation that we have.
Do you recognize Mr. Allen on the picture ?
Mr. Driggs. Yes.
Senator Pope. Your representative?
Mr. Driggs. Yes.
Senator Pope. Do you also recognize your gun ?
Mr. Driggs. Yes. He is standing alongside of it.
Senator Pope. And then over on the other side in the other part
of the picture, do you recognize Mr. Allen in the back ?
Mr. Driggs. Oh, yes ; way back.
The Chairman. Who is Mr. Allen?
Mr, Driggs. He was our agent out there.
Senator Pope. Your salesman?
Mr. Driggs. Yes.
Senator Pope. Do you recognize any of the other officers or per-
sons in the picture ?
Mr. Driggs. No, sir. I never saw them.
The Chairman. Did you ever see this picture before?
Mr. Driggs. Yes ; I have seen the picture.
The Chairman. Where have you seen the picture before?
Mr. Driggs. I do not remember. Was it in our files?
The Chairman. No. Was it ever published?
Mr. Driggs. I do not know.
The Chairman. Where had you seen the picture before?
Mr. Driggs. I would not swear I have, but T thought I had.
MUNITIONS INDUSTRY 509
The Chairman, Mr. Allen probably sent it to you, did he not?
Mr. Driggs. I thought probably, although I do not know. I sup-
pose he did. I thought I had seen it in our files.
The Chairman. This Avas not taken from your files.
Mr. Driggs. It was not?
The Chairman. No.
Senator Pope. Do you know where the picture was taken? Did
Mr. Allen write to you ?
Mr. Driggs. Where it was taken ?
Senator Pope. Yes.
Mr. Driggs. I suppose at Constantinople. I know he did send a
picture. Whether it is the identical one, it would be hard to swear.
The Chairman. Look at the picture again. Do you recognize
any of the faces upon that picture. Do j^ou recognize the face of
what is evidently a naval officer, an officer of the American Navy?
Mr. Driggs. No, sir.
The Chairman. You do not recognize any other faces on the
picture ?
Mr. Driggs. No.
The Chairman. There are, however, in this group many men
dressed in uniform, evidently of the Turkish Government, of the
Turkish Navy?
Mr. Driggs. I do not know, I suppose these two prominent ones
here [indicating on photograph] are those, but I do not know.
The Chairman. That is certainly not the uniform of the American
Navy ?
Mr. Driggs. I am not familiar with the Turkish uniform.
The Chairman. You are sure it is not the uniform of the
American Navy?
Mr. Driggs. Yes ; of course.
The Chairman. There appear to be a number of civilians in this
picture, too. Do jou know who they might be ?
Mr. Driggs. No. The only one that looks at all familiar is the
right-hand one who looks like Emmen Bey.
The Chairman. Emmen Bey?
Mr. Driggs. Yes.
The Chairman. What is his official capacity?
Mr. Driggs. He has no official capacity now. He is at the head
of the automobile tire and tractor company down there. They rep-
resent Dodge and they were representing us when I sent Allen down
there. Allen worked with them.
Senator Pope. Do you have any idea who the man is just in front
of Emmen Bey with the stiff hat on ?
Mr. Driggs. No.
The Chairman. Mr. Driggs, is the possibility of pictures like this
a common thing?
Mr. Driggs. I do not know that there is anything uncommon about
it. These foreign commissions are always having their pictures
taken. Not only commissions, but it is sort of customary when these
people go around visiting to take a lot of pictures. I know it has been
so on two occasions of the Polish commissions being here. They
went around to the different arsenals and navy yards and every-
where we would go they would insist on lining us up, lining every-
510 MUNITIONS INDUSTRY
body up and takin<>- a picture. Then, when they left, they gave me
an album showin<r the itinerary of the trip, the history of the trip.
The Chairman. In this particular case where a picture is being
taken of a group of men on board an American naval vessel, and in
the grou]) are Turkish officers and evidently officers of the American
Navy, officers of this particular ship, the Raleigh and salesmen of
your company
Mr. Driggs (interposing). I do not know. I am not sure. The
only one that looks at all familiar to me is the one at the right
hand end.
The Chairman. It has all the earmarks of being, and I cannot call
the picture anything other than a very positive demonstration of the
use of the United States Navy as a salesman's sample case. Is not
that about what it is?
Mr. Driggs. I think that is pretty broad.
The Chairman. They were demonstrating these new guns on
board her?
Mr. Driggs. They were not new guns. Those guns had been in the
Navy since before the war; about the time of the war.
Senator Pope. Have you gotten any orders from the Turkish Gov-
ernment since that time?
Mr. Driggs. No, sir.
Senator Pope. Have you had your representatives or salesmen
down there at work since then ?
Mr. Driggs. I did not for a while. We have now again.
Senator Pope. Is Mr. Allen still your salesman?
Mr. Driggs. No, sir.
The Chairman. Mr. Driggs, have you seen any account of the
charge, along as early as June, that an American battleship or cruiser
had been made, as the term was used at that time, a show case ?
Mr. Driggs. No, sir.
The Chairman. You had not seen anything of it ?
Mr. Driggs. No, sir.
The Chairman. You had not heard that charge until now?
Mr. Driggs. No, sir.
The Chairman. You saw no denial in the press in June coming
from the Navy Department that there was no foundation for any
such charge? Did you see that?
Mr, Driggs, No; I did not. You remember the case. Senator, I
suppose, when the Idaho and the Mississippi were sold to Greece ?
The Chairman. Something of it.
Senator Bone. When was that?
Mr. Driggs. A good many years ago.
Senator Bone. Are they still the propert}'^ of the Greek Govern-
ment?
Mr. Driggs. So far as I know they are.
The Chairman, Do you know anything about what the price was
that Avas paid for those?
Mr, Driggs. I do not remember. I knew at the time, but I do not
remember now.
Senator Pope, How many companies in the United States are sell-
ing guns of the general type that you sell — ordnance?
Mr. Driggs. There have l)een only ourselves until last November,
when the American Armament Co. started up.
MUNITIONS INDUSTRY 511
Senator Pope. What would you say as to manufacturing concerns,
other than armament makers, manufacturing guns or parts of guns
in the United States ? Are there not other manufacturing concerns ?
Mr. Driggs. Do you mean making our size of gun^
Senator Pope. No ; any size of gun.
Mr. Driggs. None ; other than the small arms, I mean.
Senator Pope. There are a considerable number manufacturing
small arms?
Mr. Driggs. Well, there are only practically Winchester and Rem-
ington and at the present time they are producing sporting goods;
and Colt making the machine gun and automatic pistols and
revolvers.
Senator Clark. Mr. Driggs, who makes the Thompson machine
gun i
Mr. Driggs. The Colt Co. manufactures them for the Thompson
Co., but that is not being manufactured now. They have got a big
stock on hand.
Senator Clark. How is that ?
Mr. Driggs. That is not being manufactured at the present time.
They have a big stock on hand that they are liquidating.
Senator Pope. You do not manufacture any machine guns?
Mr. Driggs. No, sir.
Senator Pope. Do you know, Mr. Driggs, something of the Gov-
ernment's practice here of selling obsolete machine guns and other
guns^ Do you know anything about that?
Mr. Driggs. I know^ that there has been surplus stock sold, but
that is all.
Senator Pope. It is very interesting now that there are in exist-
ence a great many machine guns and some of them in the hands of
gangsters and others. Have you any information, or will you
express an opinion as to how those get into the hands of those
people ?
Mr. Driggs. By hijacking legitimate shippers.
Senator Pope. How do they do that?
Mr. Driggs. Just as the hijackers have hijacked the bootleggers,
intercepting shiploads of liquor and stealing it from the bootleggers.
Senator Bone. Where would those shipments of automatic
machine guns be going?
Mr. Driggs. Going to the cities — the police departments of the
cities.
Senator Pope. Do you know^ of any instance of that kind?
Mr. Driggs. I can't recall now any particular instance, but I
remember reading of it and that it was going on then.
Senator Pope. Do you know of any instance of legitimate sales
to concerns where they may have disposed of them to gangsters
and others?
Mr. Driggs. No; I never heard of it.
Senator Bone. Mr. Driggs, there are one or two questions I would
like to ask about this war material I referred to a few minutes agro.
Can you tell us whether or not the United States Government upon
occasions has sold surplus supplies of munitions it had on hand —
guns, for instance, or rifles or ammunition?
Mr. Driggs. No; I knoAv nothing about those sales personally.
512 MUNITIONS INDUSTRY
Senator Bone. Have you been advised sales of that kind have
been made by this Government of its surphis material to private
concerns? To make it more specific what the Government refers
to as obsolete material — maybe that will identify it a little better?
Mr. Driggs. I have been informed that there was a lot of some-
thing like 800,000 to a million rifles that were surplus because they
were not the standard type we later adopted, that were sold. But, the
reality of those sales I have not been able to verify, although I have
tried to do it.
Senator Bone. That is a tremendous number of guns to be sold,
and I wondered where they would be disposed of.
Mr. Driggs. I do not know of my own knowledge they were actu-
ally sold.
Senator Bone. What was done with them, how were they disposed
of, if they were not sold ?
Mr. Driggs. They may not have been disposed of. The Govern-
ment may still own them. It has been one of the mysteries.
Senator Bone. Can you advise us whether there are manufacturing
plants in this country that are outwardly and honestly, because I
am not trying to infer anything by this question, that are outwardly
and honestly engaged in some kind of nonwar manufacture, that
are manufacturing certain war material on this side, such as fuzes
or cartridge cases. For instance, there may be an electrical manu-
facturing company making electrical apparatus which on the side
manufacture cartridge cases, fuzes, and the like?
Mr. Driggs. Are you referring to
Senator Bone (interposing). I am not referring to any one firm,
but I am asking if it is a fact that there are in this country manu-
facturing concerns whose chief output has nothing to do with war,
but who as a side issue are not only capable of, but do manufacture
such things as cartridge cases?
Mr. Driggs. I would not put it in that way.
Senator Bone. Put it in your own way.
Mr. Driggs. I will put the fact to you, that is the best way.
Senator Bone. Yes; just do that.
Mr. Driggs. There is a concern in Boston, A. & J. M. Anderson
Co. part of whose business has been the manufacture of certain
electrical equipment, and during the war they made cartridge cases for
the Government. We used to, many years ago, make our own car-
tridge cases, but of late years there has not been enough continuous
work to justify a plant just for the making of cartridge cases, so I
went to the Anderson Co. and asked them could they on their
equipment make cartridge cases for us. They said they could, and I
made an agreement with them that they would manufacture cases
exclusively for us, although they have smce violated that somewhat
by making for someone else; but they were not selling ammunition
themselves.
Senator Bone. Do you know of any regulation or law in this
country that in any wise restricts or regulates the sale of large
quantities of guns, for instance, such as we have mentioned, or
that requires a report to be made to any recognized authority?
Mr. Driggs. No, sir; I do not.
Senator Bone. So that if I were able to buy a large number
of guns from the United States Government that were considered
MUNITIONS INDUSTRY 513
obsolete, that might with a little work in an armory or a factory
be made serviceable, there is nothing in our present laws that
would require me to report to any agency of this Government any
sale I might make of those arms ?
Mr. Driggs. I do not believe there is that I know of.
Senator Bone. Are there any statistics available anywhere cov-
ering transactions of that character.
Mr. Driggs. The Department of Commerce has certain statistics
representing shipments, I suppose made out from manifests in most
cases of small arms and small-arm ammunition, but so far as I know
there are no reports made of the manufacture or showing the des-
tination of orders.
Senator Bone. Those data are rather meager, are they not?
Mr. Driggs. Yes.
Senator Bone. They are hardly intelligible to one unless he has
access to outside sources of information?
Mr. Driggs. They are unintelligible to me.
Senator Bone. You are an expert in that line and you say they
are unintelligible to you?
Mr. Driggs. I cannot tell whether they are rifles or larger guns.
Senator Bone. There would be no way in which anyone having any
interest in that situation, whether a public official or a private
citizen could tell what was going on in that field ?
Mr. Driggs. No.
Senator Bone. Do you know Lieutenant Commander Strong, one
of the men who was assigned to Colombia — I think that was dis-
cussed this morning?
Mr. Driggs. Yes, we discussed that this morning.
Senator Bone. And at the same time he was in Colombia there
was a naval mission there?
Mr. Driggs. I want to make this point at this time, that in that
trouble down there we were not dealing with both sides. I know
that is the frequent charge made against people manufacturing arms,
and I do not want to say munitions business, because there is a
sort of stigma on that. I think there should be more of a matter
of ethics in that business as to dealing with both sides, but it is
not at this time.
Senator Bone. I know it should be but is not. I am correct in
that?
Mr. Driggs. Yes.
The Chairman, Mr. Driggs, in your line of work you are up
against a very severe competition.
Mr. Driggs. Abroad?
The Chairman. Abroad and at home.
Mr. Driggs. Yes, sir.
The Chairman. You have considerable competition right at home?
Mr. Driggs. There was not until lately. We had no competi-
tion out of American concerns from the time of the war until last
November.
The Chairman. Has the competition sprung up rather rapidly
^ince that time ?
Mr. Driggs. Yes; quite rapidly.
514 MUNITIONS INDUSTRY
Tiie Chaikman. What luis been the <jjeneral nature of the competi-
tion; has it been rather unscrupulous in its methods of getting
business ?
Mr. Driggs. It would strike me somewhat that way.
The Chairman. Has General Johnson provided a code for your
industry yet?
Mr. Driggs. Not that I know of ; no.
The Chairman. I think, Mr. Driggs, from conversations we have
had with those who have been at work with you upon subject, that
you have some very worth-while thoughts in connection with the
control or regulation of this industry. Is there anything you would
like to say along that line, as to what might be tlone to improve our
own lot?
Mr. Driggs. Well, I will make the suggestions 1 did this morning
with regard to there being complete reports made of the concerns.
The Chairman. We won't need to go over that ground again,
because that is a part of the record now.
Mr. Driggs. I think such reports ouglit to be confidential with the
Government or the Department to which it is made so that our
competitors naturally do not get it. and so that one country abroad
does not get what the other is doing, because they have no right to
disclose that.
I w^ould like to call your attention to this point. Senator, since you
brought it up, and that is with respect to the part that private initia-
tive plays in our national defense. I am not casting any aspersions
whatever on the Government in its work, but it is a fact that many
of the major improvements this country has had the benefit of, or
that amounted to anything, emanating from America, have been
due to private initiative.
Senator Clark. Everybody else has had the benefit of them as well
as the United States^ who were willing to pay for them.
Mr., Driggs. I think, just taking one instance where the Ignited
States has benefited very largely, and T refer to something that goes
back much further than anything we have discussed, and that is,
for instance, at the time of the Revolution I understand. that General
AVashington asked the du Pouts then to nuike powder for the Con-
tinental Army, and that covered a vital part of the success. But,
coming down to recent times, there was an invention of the Colt
revolver which was turned down by the De{)artment with the phrase
so often used that it was not suitable for military pur|)oses, and as
a result of which Colt went into bankruptcy until the Mexican War
came on, when this revolver was demanded anil from that time on
Colt prospered.
Then there was Maxim who invented the ]Maxim gun. He got
no encouragenumt here, but was turned down, and he went to Europe,
and his going there was the basis of the Vickers Co. of England.
After that Hotchkiss who got no more encouragement here than
Maxim did, and he then went to England where he got very little
more encouragement, and from there he went to France, after the
war, at a time when they wanted anything new that would help them
recou]), and they offered him a big bonus if he would locate a fac-
tory there, as a result of which when we went into the field for
guns, they were imported from France, when they shoidd have been
MUNITIONS INDUSTRY 515
made here. But, the Government had not seen fit to encourage it
when Hotchkiss made the offer.
The Chairman. We had a case here yesterday or day before
yesterday of a man named Davison developing a new gun. He liad
no success in selling this perfected instrument to the American
Navy or to the Army, but a retired officer of the Army, General
Sunimerall to be specific, advised him that the way to build a mar-
ket with the United States Government, was to sell his product
abroad and get it introduced over there first.
Mr. Driggs. Very much like a prima donna.
The Chairman. Yes; quite so. Now, how much of this develop-
ment of which you speak, of the devices that have been improved
and tlie perfections which have been offered by so-called " private
industries " — hoAv much of that has been offered by men who had
retired from the Army or the Navy and been absorbed by private
industry? Haven't those contributed largely to the development of
the more modern machines?
INIr. Drigg. Most of them were never in the Army, I think. I
believe that was the case with Colt in the beginning, and I know
it was with Hotchkiss and Maxim. In our own case my brother
was Avith the Navy in the beginning and he resigned to go in the
ordnance company.
Senator Clark. Take Thompson, he invented the deadliest ma-
chine gun in the world, the Thompson machine gun.
Mr. Driggs. No : I would not say it is the deadliest.
Senator Clark. Anyhow he invented a machine gun that is very
deadly, and he did it while he was Assistant Chief of Ordnance of
the United States Army, and as soon as he perfected it, he resigned
and set up a private business. Is that not correct?
Mr. Driggs. I thought it was the other way around. I thought
that it was after he resigned from the Army. Anyway, that gun
is hardly in this category we are discussing, because it is for a
special purpose.
Senator Clark. I realize it is not a heavy weapon, but it is a
deadly small machine gun.
Mr. Driggs. Yes.
Senator Clark. And the machine gun which the Germans used
during the war was a Maxim gun?
Mr. Driggs. They used a variation of the Maxim gun.
Senator Clark. They refer to it as a Maxim gun in the German
Army.
Mr, Driggs. Yes.
Senator Clark. So that even after Maxim left this country and
began to manufacture guns in England, the Maxim contribution to
arms was used by Germany in the World War.
Mr. Driggs. Yes, it was.
Senator Bone. It was an employee of the United States Govern-
ment who developed and made possible the instruments that are used
in blind flying. That is a fact, isn't it?
Mr. Driggs. I do not know.
Senator Bone. That is a fact. He was a Government employee
and there would be no blind flying if a Federal employee had not
invented it. Would you call that the exercise of private initiative?
516 MUNITIONS INDUSTRY
The inspiration of a man to build something does not have to be
based on employment by a corporation, does it?
Mr. Driggs. I am merely pointing out that in private initiative
the idea of achievement plays a great part.
Senator Bone. You are thinking of the profit in it?
Mr. Driggs. No, sir; that is the point I want to make. If the
artist paints a picture or the sculptor makes a statue, naturally
he expects to get paid, but at the same time to make money is not the
incentive.
Senator Bone. It is not the desire to make money that brings out
the God-given thing that is in him.
Mr. Driggs. It is not the idea of reward, it is the idea of achieve-
ment.
Senator Bone. It is not the idea of the Government giving him
anything for it.
Mr. Driggs. This Government does not do that, but foreign
governments do.
The Chairman. Let us assume our Government was to do so
drastic a thing as to establish what would amount to a govern-
mental monopoly, let us say, in the matter of shipbuilding or gun
making or such instruments that enter into the preparation of war
and enter into the waging of war, and assuming we had no private
industry in those lines, is it not likely that there would be developed
within the governmental institutions the same desire to experiment
and to achieve and to improve that exists in private industry now?
Mr. Driggs. I was attempting to show a moment ago that the
desire to achieve among the individuals where they are working
independently is a very potent factor in progress. But quite another
thing to my mind as an objection to the governmental monopoly in
manufacturing and improving is that the capacity in time of peace
is totally inadequate to the war requirements, consequently if there
is no trained personnel or machine-tool equipment in existence, if a
war starts, after you put your Government plant on a three-shift
basis you have your maximum output. Then you have more than
a year before private plants can organize sufficiently to make tliis
material, before they can get their equipment and trained personnel.
Senator Bone. During that time would it not be possible for the
United States to prepare. If it would take 1 year for a private
plant to get the production, why should not the Government do so
within that time?
Mr. Driggs. I just mentioned that, because that is what the English
Government and the French Government are doing today. If their
private plants are taken care of in the way of capacity, then as to
the equipment and training in the existence, instead of being one
plant, you have 4 or 5 plants you could quickly expand.
Senator Bone. The Government has large arsenals that are capable
of producing a great deal more materials than they are producing
now, and those plants are being expanded now to cover the whole
field. I do not believe you or anyone else would suggest that the
Government could not manufacture this stuff.
Mr. Driggs. No, of course; but I think the foreign policy is the
wisest, because they are capable of quicker expansion over there.
Senator Bone. Now, getting back to where we were, it now appears
that a man by the name of Sir Basil Zaharoff a character of mystery,
f
MUNITIONS INDUSTRY 517
a man who has not made a record for any individual achievement
worthy of note, who became a duke in Spain and the King of Eng-
land for some unexplainable reason made him a Knight of the
Garter
Senator Clark. I find Mr. Carse is wrong about that. He is a
Knight of the Bath, whatever the difference may be.
The Chairman. Is this the same Zaharoff who up to this week was
rather a great mystery in Europe ?
Senator Bone. Yes ; and he is also the holder of some high honor
at the hands of the French Government, I believe the Legion of
Honor, and I am astonished that the United States did not give him
some honor.
The Chairman. We had testimony that in 1919 the President
accorded some honor to him.
Senator Bone. Now here are hundreds of obscure inventors who
fill nameless graves with no reward to them, when these honors I
have referred to are reserved for the gentleman who has made
mass murder the pastime of the world.
Mr. Driggs. Don't you think, Senator, it is a question of prostitut-
ing a good thing. You can make an improper use of any weapon, or
any medicine or electricity or anything else.
Senator Bone. The whole picture we are having presented to us
in this inquiry is that the men who have contributed, not to the
arts or science, not to mechanical achievements, but to the sordid
business of mass murder are the men who have profited most out of
this whole business.
Mr. Driggs. Did you think the man who invented the superior
gun contributed to mass murder.
Senator Bone. Yes; the machine gun did contribute to mass
murder.
The Chairman. Most assuredly they do when they sell to one
country and then sell the same product to another country, because
the first country has armed itself with that particular weapon, and
that is the pretty general picture.
Mr. Driggs. I do not think it should be done, but it has been done,
and I agree with you entirely that it should not be done. But, where
do you draw the line between something that is fine for national
defense and may win a Avar for your countiy, and mass murder?
The Chairman. That depends entirely on what you term an ade-
quate national defense. Does national defense mean that people
should go to all corners of the earth to wage war?
Mr. Driggs. No; but do you think by having the peace-loving
Governments like the United States for instance, England and the
aggressive nations that won't let anything stop them being strong,
makes for peace. I am just taking the practical position about it.
The Chairman. What is your line of division as between the peace-
loving and the war-loving people?
Mr. Driggs. I mean a Government like ours that is trying to limit
arms, that is trying to prevent war and at the same time recognizing
that for a good many hundred years there is going to be war. There
are nations that will act as Germany has and others may act, and
you cannot stop them.
518 MUNITIONS INDUSTRY
The Chairman. Perhaps this has no place here, but do you agree
that a country such as ours can lead all of the world in the matter
of expenditures in the preparation for war, and shall really be as
peace loving as most of us would like to believe our country to be?
Mr. Driggs. I mean the figures are misleading, because the pay of
our Army and the cost of su})i)lies are so much higher than they are
abroad. A ton of coal or tlie monthly })ay of a seaman or an officer
are so much higher that those things bring the figures away up. We
have a very small army while the foreign countries have much larger
armies than we do.
Senator Clark. If we spend nearly twice as much money as any
country on military preparations and armament and still have an
army that is seventeenth in numerical strength, then if we should
go on the same basis of the other nations you would be absolutely
bankrupt.
Mr. Driggs. As other nations what?
Senator Clark. I say spending now twice as much as any nation
and being far down in numerical strength, if we attempt to compete
with them, it would cost so much money it would absolutely bankrupt
the United States.
Mr. Driggs. Perhaps it might, but we don't have to do it.
Senator Bone. You say we don't have to do it.
Mr. Driggs. Yes; our position makes us immune.
Senator Bone. Then why is there so much insistence from certain
quarters about national defense if we do not have to do it.
Mr. Driggs. I say our position makes the position of our standing
army much more favorable than others have. The same, however,
does not apply to the Navy.
Senator Bone. "VVe are spending 75 cents out of every dollar of
our income because of war.
Mr. Driggs. That is true, but there is a very large pension list.
Senator Bone. The financial problem remains, regardless of the
effect of the thing.
The Chairman. What is wrong with the pension list if those men
gave their services, their limbs, and their lives, while some of those
manufacturing instruments of war are making millions upon mil-
lions while the war is in progress. The thicker the blood flows, the
bigger the profit.
Mr. Driggs. Senator, I have not seen anybody in this country make
those millions.
The Chairman. You have not heard of the profits made during the
war ?
Mr. Driggs. Have you figured it out, or have you any report
on the percentage of profit on the orders. For instance there w^ere
tremendous orders placed for steel with us and in this war we built
up industrial organization and mass production. Now, if you take
everything that contributed to the munitions like steel, bronze,. brass,
and such things, you will have a huge amount, of course, but that was
all necessary for winning the war.
Senator Clark. You have heard of du Pont's profit increasing dur-
ing the war from an average of nonwar years of about 6 million to
about GO millions during the war?
Mr. Driggs. Yes ; but what was the percentage of the expenditure
and on the total orders.
MUNITIONS INDUSTKY 519
Senator Clark. That was the amount of their profit.
Mr. Driggs. Tliere was a tremendous volume turned out, bear that
in mind.
Senator Clark. Yes ; that is true, of course.
Senator Vandenberg. While I would like to observe I think
the committee is in unity in endeavoring to demonetize war, they
might not be a unit in demonetizing preparedness perhaps, so I
think we had better stick to the proceedings.
The Chairman. Mr. Driggs, have you anything to suggest to
control the industry?
Mr. Driggs. No, sir.
The Chairman. Do you believe a program that would limit the
profits that could be enjoyed in time of war would be of benefit?
Mr. Driggs. I don't think that could be done without great abuse.
I think it ought to be regulated at the time. For instance, as a
result of our lack of preparation, ' in our hurry to get ready and
furnish material, during the war the cost-plus system was introduced,
which proved to be the most costly thing that could have been done.
If there had been a proper program for preparedness, a lot of the
cost-plus contracts would never have been made.
Senator Clark. Then the cost would have been spread over a
period of years instead of just a few years. If you had been pre-
paring for war for 20 years, you would have spread the cost over
that period instead of the short period of our late war.
Mr. Driggs. No; it is a question of profit. A 10-percent profit is
small, but when there is no limit in the amount of men you will
employ you would spend a lot more, and that is a different thing.
One manufacturer may- make 20 percent, and not be as efficient on
a cost-plus basis as another manufacturer who would make only
10 percent.
The Chairman. Mr. Driggs, had you spoken of the Lewis gun ?
Mr. Driggs. No, sir. I did not.
The Chairman. What do you know about the Lewis gun ?
Mr. Driggs. I know something about it.
The Chairman. What do you know about it?
Mr. Driggs. It was a machine gim developed by Col. I. N. Lewis
of the Army, and was a very valuable gun particularly for aircraft.
The Chairman. Are there further questions of Mr, Driggs?
Senator Vandenberg. I would like to ask Mr. Driggs this ques-
tion. The War Policies Commission of 3 years ago recommended as
a formula for controlling war profits and dedicating them to the
common defense, the abstract formula that from the time America
entered war, 95 percent of all profits, either of a corporation or an
individual, in excess of the average earnings of the individual or the
corporation for 3 previous years, should be covered into the Treasury.
Is that impracticable?
Mr. Driggs. I should think it would be.
Senator Vandenberg. Why?
Mr. Driggs. Because there would be very great inequality as
between one plant and another, for instance, as to what their earn-
ings had been for the 3 previous years. For instance, if you take it
now, during the depression, with most plants closed, or practically
so, certainly their earnings through 3 years would not amount to
83876— 34— PT 2 5
520 MUNITIONS INDUSTRY
anything. Whether any formnla could be worked out or not. I am
not prepared to say. I think that that ought to be reguLated in some
way, but I do not see how you can lay down a sort of blanket arrange-
ment like that for a whole industry.
Senator Vandenberg. You would not have any quarrel w^ith the
general objective that, in the event of war, there should be no special
profits for anybody in connection with it, if it be possible to create
a practical formula to that end ?
Mr. Driggs. In general, I would not ; no, sir. I feel that way with
regard to our own Government, anyway.
Senator Vandenberg. That is what I mean.
Mr. Driggs. That is what we practice, too. We took these orders
for 3-inch guns and 1-pound guns at practically cost. T did it
deliberately so that we would not make much profit.
The Chairman. Mr. Driggs, had you planned to remain in town
over the week end?
Mr. Driggs. No, sir ; I did not.
The Chairman. The committee would like to have you remain this
afternoon at least until we have concluded this afternoon's hearing,
before the committee finally excuses you.
Mr. Driggs. All right, certainly.
The Chairman. There may be further questions which we will
want to ask you.
Senator George. Mr. Driggs, do you grant any licenses to use your
patents ?
Mr. Driggs. Have we?
Senator George. Yes, sir.
Mr. Driggs. Not outside the Government.
Senator George. Not outside the Government?
Mr. Driggs. Not outside the Government. We did to the United
States Navy.
Senator George. No foreign governments?
Mr. Driggs. No, sir.
Senator George. None whatever?
Mr. Driggs. No, sir.
The Chairman. Have you ever been asked for rights to produce
your products in other countries?
Mr. Driggs. Yes.
The Chairman. Who sought that right?
Mr. Driggs. It was part of the negotiations with regard to Poland,
for one thing, and we have some pending with another country
now at the present time.
The Chairman. If there are no further questions for the moment,
Mr. Driggs, you will be excused.
Mr. Driggs. All right, sir.
(Witness excused temporarily.)
This concludes the record of the Driggs Ortlnance and Engineer-
ing Co. The committee at this point took up the case of the Ameri-
can Armament Corporation, which is printed in part III.
APPENDIX
EXHIBITS
Exhibit No. 199
January 24, 192»-
JJk. Floejan Ziemba,
Wapolna 60, Warsaw, Poland.
My Dear Ziemba : I enclose confirmation of radiogram sent you tlie 21st.
While I suppose you have obtained the details of the dii Pont contract from'
the ministry, I would say they are as follows: The contract was for 1,000 tons
of powder and provided for payment in treasury notes. The notes bear 6-
percent interest and were taken at 98. The discount and interest were added
to each note. This made the total about $2,400,000. The conditions were as
follows : .
" The payment for the gross value of the contract is to be made in twelve
irrevocable treasury notes payable every four months beginning at a stipulated
date. These irrevocable notes are in the form of treasury bonds which read as
follows :
"The Polish Republic promi.ses to pay on the (date) to E. I. du Pont de-
Nemours and Company, Incorporated, Wilmington, Delaware, U.S.A., the suni
of (amount).
" The payment of the above sum will be made against the return of the-
present bond to the wickets of the National City Bank of New York, New York
City, New York." ,
These notes are to bear interest at the rate of 6 percent per annum, which
amount would be added to the note and naturally payable with each part
payment. In accordance with the arrangements and proportionate with the
amount involved in tlie contract, the Republic of Poland would present a given
number of the notes upon the signing of the contract, further notes to be
presented following part shipments or completion of the entire contract.
Upon the date a given note comes due, the same if presented to the National
City Bank of New York for payment. The Republic of Poland having deposited
the necessary funds to cover, payment is received, notes surrendered to the
bank and ultimately returned to the Republic of Poland by the bank for can-
cellation.
The contract was negotiated in August 1927. Upon signing the contract^
notes 1 to 6 were handed the du Pont Company. After 50 percent of the
powder was delivered, notes 7, 8, and 9 were received. After final delivery,
notes 10, 11, and 12 will be given du Pont.
Note 1 Received upon signing contract — without int., due Apr. 15, 192S.
Note 2 Received upon signing contract — int. from Apr. 1, 1928, due Aug. 15,
1928.
Note 3 Received upon signing contract — int. from Apr. 1, 1928, due Dec. 15r
1928.
Note 4 Received upon signing contract — int. from Apr. 1, 1928, due Apr. 15,
1929.
Note 5 Received upon signing contract — int. from Apr. 1, 1928, due Aug. 15,
1929.
Note 6 Received upon signing contract — int. from Apr. 1, 1928, due Dec. 15,
1929.
Note 7 After 50% contract delivered — int. from Apr. 1, 1928, due Apr. 15,
19.30.
Note 8 After 50% contract delivered — int. from Apr. 1, 1928, due Aug. 15,
1930.
Note 9 After 50% contract delivered — int. from Apr. 1, 1928, due Dec. 15,
1930.
521
522 MUNITIONS INDUSTRY
Note 10 After final delivery— int. from Apr. 1, 1928, due Apr. 15, 1931.
Note 11 After final delivery— int. from Apr. 1, 1928, due Aug. 15, 1931.
Note 12 After final delivery — int. from Apr. 1, 1928, due .
Regarding the Ministry's proposal that we direct that manufacturing of guns
at Ostrowisckie, we would be willing to undertake this under the same ar-
rangement that we had with Starachowice or some other fair and equitable
plan. You can assure the Ministry that we will gladly give our fullest co-
operation toward the manufacturing of the guns they wish made in Poland of
the latest designs and under the most efficient methods, not only in the pro-
duction of our own designs but such others as the Government desires manu-
factured.
Of course, we assume that we are to have a good-sized contract for manu-
facturing in our plant here together with the necessary tools for the produc-
tion in Poland. You will remember that when this matter was discussed with
me at the War Ministry, I stated that instead of beginning manufacture in
Poland after an order had been filled here, that if the Government wished, we
would begin practically simultaneously in the two countries ; that is — as soon
as the tools were finished and installed in Poland.
It is naturally understood that the credit we would extend under the du Pont
plan would be for the work done here.
As you know, the War Department is now cooperating with us 100 percent.
They have even changed the policy to a more favorable one to us than when
you were here. The Ordnance Department officials informed us a few days
ago that the Department was now more concerned in having our plant get
work than Government plants. They are pushing a bill now in Congress, on
which I enclose newspaper clipping. Y^ou will remember the release to us of
the latest designs of the antiaircraft guns to be furnished Poland is condi-
tional upon our having orders of satisfactory size for producti(m in our plant
here. The Government feels that the compensation for making public what has
heretofore been secret is in the building up of our facilities so they will be
available in time of necessity.
We are not prevented from building the same guns in Poland provided we
have a substantial portion of the business here.
A point of advantage for the Polish Government, if we are in charge of the
manufacture there, is that we will be able to keep the material itself and tho
production methods up to the latest developments.
The arrangement we had with Starachowice on the work produced in
Poland was :
1) 6% of the contract price.
2) % of the saving over the cost or estimated cost of the guns pro-
duced in Amex'ica. Under this arrangement % of the saving went to the Gov-
ernment, Vs to Starochowice, and % to ourselves.
3) A payment of $20,000 yearly for general reimbursement for journeys and
living expenses of Mr. L. L. Driggs or Mr. L. L. Driggs, Jr., or their nominee,
and a permanent engineering assistant.
The original plan for a loan, in our contract with Starachowice, provided for
the issue of bonds of the National Economic Bank guaranteed by the Polish
Government.
The Chase Securities people tell me that the bank has put out several such
issues that have been offered here, and this makes them undesirable. One
issue sold by F. J. Lisman is quoted at $85.90, n)aturing in 1945. It was there-
fore suggested that if payment is to be made through a loan, it had better be
done by increasing the amount of the pending railroad loan to include the re-
quirements for our material. This can go through. The whole should be known
as a " railroad loan " so that there need be no talk of borrowing for war mate-
rial. I don't know how long it will be before such a loan goes through. On the
other hand, I find the handling of the du Pont notes has been very satisfactory,
and that seems the best method to pursue.
Sincerely yours,
LLD : MS .
P.S. — The statement in the clipping from the New York Times that ever^i
gun the Department had was obsolete is, of course, a misquotation of the re-
porter. There are so far only a few of the very latest guns on hand, these
being the antiaircraft guns. Practically all the field and siege guns are obso-
lete. There are a few new-type guns, but the main supply on which the Gov-
ernment would have to rely for the first fifteen months of a war are obsolete.
MUXITTOXS INDUSTKY 523
Exhibit No. 200
(To insure prompt attention in replying refer to 00' No. 381/7.511, attention
of .)
Communications should be accompanied by carbon copy and addressed to —
War Department,
Office of the Chief of Ordnance,
Washington, February 18, 1927-
Mr. L. L. Driggs,
Driggs Ordnance d Engineering Co.,
19 West 44tJi Street, New York City.
Dear IMr. Driggs: We have been informed that you have applied to the
New York district office for certain information relative to ordnance work
which you are undertaking for other nations. It is the desire of the Ordnajice
Department that this work be encouraged in every way possible, but it was
not intended that you should use the letter which was signed by General
Ruggles some time ago to give you access to Ordnance drawings and informa-
tion outside of the Ordnance Office. In other words, we would very much
prefer that if you wish any further information you apply direct to this office,
where we can consider the matter and be best able to judge as to what can
and what cannot be released. General Ruggles desires me to inform you that
it is not intended to handicap your work in any way. In fact, we are in
full sympathy with the work and with the building up of munitions work,
both in your own company and in other companies in this country, and we
will be very glad to coopei-ate with you to the fullest extent possible if you
will simply let us know what you wish.
Very sincerely,
(Sgd.) TowNSBND Whelen.
Lt. Col, Orel. Dept., U.S.A.
Exhibit No. 201
April 7, 1928.
Technical information wantetl by Turkey.
Mr. Herbert F. L. Aixen,
% American Express Co., Stamboul, Turkey.
My DEi.\R Herbert: The Turkish business has gotten into the position I
feared it would, and about which I cautioned you before leaving. The con-
tinual asking of definite information before making any commitment is just
a method of stringing negotiations out while the dickering is going on, and
if negotiattions are allowed to get in such a condition they are dragged out
indefinitely, with a chance that all kinds of complications and difficulties will
arise to make them fail in the end.
I was up against the same thing in Poland until I told them that the per-
formance of our guns in this country and the general designs which I showed
them were sufficient to enable them to determine whether or not they wanted
them. Detailed designs, I told them, would be furnished by me when we got
the contracts, and we agreed that the details of the sighting devices would be
satisfactory and subject to their approval.
It aU comes down to this. Do they want the latest up-to-date material or
do they want the stuff which is in the catalogs of our foreign competitors?
I am told that the very latest French developments are kept secret and are
not being offered around Europe. I am also informed that their very latest
is still not up to ours. Our principle competitors in Poland sent trunkiuls of
drawings. They also had range tables and other data in bound books. I got
some of these which date from 1916 to 1917. In other words, all this stuff
didn't mean anything.
We have had lately good cooperation from our own Government. It is for
the purpose, however, of bringing these orders to this countx'y and furnishing
work for our plants and to be used as such, but not to be broadcasted and
merely serve the purpose of furnishing information to competitors. We have
already been allowed to go quite far with regard to the data of our guns.
We have furnished the Turkish Government with the muzzle velocity,
maximum ceiling, and maximum range, and also the weights of the ammuni-
tion, powder charge, rapidity of fire, and other data. On top of this we have
524 MUNITIONS INDUSTRY
now notified you that we can lurnish the new flasliless powder, which is very
valuable in night firing. The guns at Aberdeen liave made as good a record
at night as in the daytime. The above ballisticnl data gives all the informa-
tion needed for regarding the power of the gun. The ranges at other eleva-
tion or, in other words, the complete range table is purely an academic ques-
tion and of no use to the Government in advance of having the guns. I know
that the data above referred to cannot be matched by any competitor's mate-
rial. It is ample, therefore, to enable the Turkish Government to make up
its mind as to whether it wants our guns and to say so.
There is a wide difference between what the Government will allow us to use
in manufacturing if an order is received and the information they are willing
to give out merely during negotiations for contracts. This question has come
up with the War Department with regard to giving out the information that
.the guns we are offering were the Army's guns without qualification. I made
.-several trips to Washington in connection with this information business. I
>did not see what was finally sent in response to Col. Smith's request, but I
understand that the Department said that their latest guns use our breech
mechanism and semiautomatic mechanism. They of course cannot help saying
that, and can get in no trouble by doing so because it is a matter of record
that they are paying us royalties on the 3" and 105 m/m guns. They did not
want to say, what might be construed as stating that the Government designs
were being given out.
The Navy Department has not pussyfooted in this way, as you will see from
the letter we have just received from the Chief of the Bureau of Ordnance, of
which I enclose you two photostats. For your information I also enclose you a
certified copy of the recent decision of the Court of Claims, which shows that
the Army gun was t;iken bodily from the Navy gun. Of course, to anyone
familiar with ordnance, they know that the performance of a gun mechani-
cally and its rapidity of fire are all due to the breech mechanism and the
semiautomatic mechanism. The performance ballistically depends upon the
powder charge, weight, and type of projectile, and length of bore. None of
these features are patentable, and there is nothing to prevent us from making
our gims to correspond in all respects, which of course it does anyway.
The Army have lately adopted certain features of construction which do not
effect the functioning of the gun, and it is immaterial to us whether we use
them or not. One is in the recoil system of the 40-cal. gun, but has not been
incorporated in the 50 cal. We are not interested in using this anyway. The
system in the 50-cal. gun is better.
The main object in the Army making the limitations, they said was that
otherwise the impression might be given that the equipment we were offering
was the same in all respects including the new computer. We have asked per-
mission to use this and it is under consideration. If it is finally determined to
keep this particular instrument secret we can nevertheless furnish a fire control
system that will function just as well, provided this is required of us.
Please thank the Automobile Tire & Tractor Co. for writing us while you
were in Athens. I expected to send them the information earlier in answer
to their cablegram regarding sights.
With the present fire-control system the sights on the guns have been dis-
carded. Please let us know whether the Turkish Government wishes sights on
the guns anyway.
Sincerely yours,
LLD : BR
Exhibit No. 202
Mr. H. J. Leisenheimer,
Vice President in Chnrcje of Export Sales,
The Cleveland Tractor Company, Cleveland, Ohio.
My Dear Mb. Leisenheimer: Confirming our conversation of today, I am
enclosing you a statement showing our activities in the ordnance field, and
the opportunity we now have of obtaining a large volume of business, not only
from I'oland, but other countries. The immediate business offered us is
from Poland.
MUNITIONS INDUSTRY 525
As the culmination of 5-year contracts and negotiations, the Polish Govern-
ment is now ready to sign a contract with us for antiaircraft equipment
amounting to between nine and ten million dollars.
In 1926 I returned from Poland with a contract for 300 antiaircraft guns
and other materials amounting to $7,500,000, conditional upon our securing
a .$5,000,000, 10-year loan for Poland. I found, however, that all such financing
was taboo, until after the stabilization loan. After this loan finally went
through (in 1927), the Polish Government wished to send a military com-
mission to see the latest developments in antiaircraft material.
Before we could show the new type of mobile mount (to carry our guns)
which our Government had in the meantime developed, it was necessary to
obtain an agreement from the War Department to release the designs to us
for use in filling a foreign contract. This we obtained, and in the fall of 1928
the commission arrived here, having previously seen the latest developments
at the various European ordnance plants. Upon returning, the commission
reported that the American material was at least five years in advance of
that in Europe.
Following the official approval of the Polish War Ministry, the Chief of Ord-
nance informed us that they wished to purchase 500 guns, and I was requested
to come to Poland and conclude the contract. I have been there from the end
of December 1929, until a few weeks ago.
Most of this time has been consumed in overcoming the opposition of the
European firms, particularly the French, who have fought bitterly — not only
to prevent our securing this contract, but to prevent the introduction of
American material.
Owing to the necessity of keeping the expenditures within their immediate
budget possibilities, the number of guns has been reduced.
This material, which is purely for defensive purposes, is not only approved
by the League of Nations, but its acquisition required by the League, consists
of 348 units (guns and mounts).
The contract is to be divided into two orders, for 174 guns each, the
Government agreeing that, if the appropriations are not provided for the
second lot of this same type, they will give us the equivalent value in other
sizes.
I have returned for the purpose of completing our manufacturing and financ-
ing arrangements, and the Polish Government is ready to sign the contract
as soon as I can return to Poland and work out the details of the Polish part
of the manufacture.
The immediate order will be for 174 units, of which we expect to produce 80
in this country, and the remainder will be produced in Poland. This order will
amount to $5,000,000.
The profit will depend upon the arrangements we finally make for the Polish
portion of the production. The Polish Government would prefer that we
produce the guns in a well-equipped Polish plant which they have subsidized.
If we will do this, the Government assures us of not only future business for
Poland, but orders which they can infiuence from allied governments. Under
this plan, the profits per gun would be $10,000, of which our share would be
one-half, plus half of the profits on the present business which the Government
guarantees this plant.
An alternative plan is to license the Polish plant to build our guns upon
a royalty basis. Under this, our profit would be from $1,500 to $1,800 per gun,
plus the charge for engineering and supervision. This should bring our total
profit on the first order for 174 units to about $1,200,000.
As stated to you, some credit must be extended to Poland, of the same nature
as they are accustomed to receiving from others. This credit consists of
payments in installments over a period twice as long as the delivery period ;
the payments being secured by notes, issued by the Minister of Finance, known
as " Treasury bonds."
In our case, we would receive an advance or down payment of 35 percent
of the whole amount in treasury bonds, when signing the contract. The first
payment of these would be payable when deliveries began, and then one every
four months thereafter. The ratio of deliveries to payments can be so worked
out as to keep the " peak load " — that is, the difference between the cost of the
work and the paid notes — under $500,000.
526 MUNITIONS INDUSTRY
I wish to call your attention to the fact that the securing of this business for
America is an important victory, for it marks a definite breakaway from the
French material and means not only continued business with Poland, but,
especially, with the other countries to which she is allied, and other countries
which are in urgent need of adequate antiaircralt defense equipment.
Very truly yours,
LLD.FH President Driggs Ordnance & Engineering Co., Inc.
(Written on back of second page of letter to H. J. Leisenheimer, dated 7/9/31.)
P.S. — I prefer that until after I have had an interview with your people at
Cleveland, this entire matter be treated strictly Ci>nfidential between the two
companies.
Exhibit No. 203
Saturday, September, 5, 1931.
Dear Louis : I am hoping it will be possible for me to leave for Poland
on the "Acquitaniu " Wednesday night. I had expected to sail either on the
" Leviathan ", this morning, or the " Bremen ", Sunday night, but had not the
cash.
You may remember that Jockmus had agreed to lend us $7,900 in accordance
with a budget I prepared. Of this amount, $4,100 would have been left
for the trip to Poland, but $1,000 had to go to Barnes for the option on the
patents, leaving $3,100 which Jockmus agreed to let me have when I had
succeeded in getting the American part of the manufacturing provided for,
I have not met all the conditions demanded of me but have not been able to
get the money.
Some time after Jockmus died, I had Palmer sound out Leslie Jockmus (his
nephew and heir) on his attitude towards carrying out his uncle's agreement.
Palmer replied that, without doubt, Leslie Jockmus would carry it out.
As soon as we had concluded the agreement with the Magor Car Corpora-
tion, Palmer tried to see Leslie Jockmus — only to find that he had left that
day on an automobile business — pleasure trip to Chicago. For several days
he could not be reached but 3 days ago I received a copy of a telegram he had
sent to Palmer, agreeing to put up only $1,500 provided Palmer did the same,
and proposing that Palmer advance the whole $3,000 until his return. Palm-
er says that he cannot supply $1,500 nor can he advance even that much
on Jockmus' behalf. Of course, that is an impossible amount for the pur-
pose, but, even if I could start on that, I am stumped for the present.
I feel pretty sore over the entire matter because I have not only kept
within the original budget but have met all other conditions and now, with
everything else done, I find the contract in a dangerous position, and myself
unable to move. I should have been in Warsaw the 1st of September.
Sweetser, today, talked to Palmer, who has pi-omised to see Jockmus between
now and Tuesday. Sweetser thinks I am justified in booking my passage
for Wednesday, but as I have been thrown down this way before, I am skeptical.
I enclose copy of the arrangement with the Magor Car Corp.
On August 26th, the Irving Trust Co. sent the enclosed cable and confirming
letter. It is not as strong as either the Magor Corp. or I wished, but my friend,
Haigh, is out of the bank and Fischer, who is holding down the job now, is
'• in-growing."
I do not know whether or not our negotiations with the Magor Car were on
when you were here. They have plenty of money and a plant at Passaic, I
have known Robert Magor, the president, since the beginning of the war.
Their principal interests are in Canada — their Canadian company being the
National Steel Car Corporation, with plants at Montreal and Hamilton. They
do not pretend to know anything about ordnance, but expect us to supply that
end of the business.
I succeeded in getting practically all of the people supplying the material
to take their pay in Polish notes. This greatly reduces the amount of money
tied up before the notes begin to mature.
I lost a week trying to get in touch with Barnes, to secure the extension
provided for under the circumstances on the patent option. He was away on
leave, and on an automobile trip. He readily asst'nted to the extension. I
learned from him that, now, all three sections of the outriggers are aluminum.
MUNITIONS INDUSTRY 527
The September-October issue of "Army Ordnance", appearing on the 12th,
has an article by him on the new Truck-Mount for the Anti-Aircraft Gun. The
basis of this outfit is the Relay Model 60 Truck Chassis, description of which
I enclose. It seems likely that this outfit will eventually replace the present
type of mobile mount.
I am making efforts to raise, for my expenses and those of the office, $5,000,
on top of the $1,500 which is all I can count upon from Jockmus. The pros-
pects are that I will get this but not before I leave. This will provide suffi-
cient money to pay for any of your time and expenses on work for the
■company.
There may be a number of things that only you can handle :
(1) It may be necessary, for closer estimates, for you to examine the draw-
ings of the mobile outfit. These have already been released for this purpose to
the Sperry U.S. Pipe crowd, and Barnes agrees with me that the Department
could not refuse them to us should we demand them. However, I do not want
to run the risk of any delay or controversy at this time, which would delay
my sailing.
Of course, the Department might agree without question, especially if the
situation is changed since the U.S. Pipe crowd, through Lagenberg, requested
the drawings and made it appear that we were out of the picture, except as we
might work for them. That is not the case note.
Did I tell you that the Sperry people became convinced that the U. S. Pipe
were in no position to function with regard to this contract, and therefore rec-
ommend that the U. S. Sperry Ordnance stay out of it? Sperry has agreed to
cooperate with us and have given us new quotations on the fire control.
It occurs to me that if I find KaufEman in position to function properly, as
he claims, that he may be a good one to sell the pistols and flares, with Den-
mark as headquarters, covering Norway, Sweden, Denmark, Finland, also Hol-
land and Belgium.
As you know, I have mistrusted Kauffman because of his habit of sending us
inquiries for antiaircraft guns without giving the name of the country. I
called him down for this while in Warsaw. I got no reply, and suspected him
of getting information for Bofors. I may possibly have misjudged him, as
I found on returning he had written the office. It is just possible he was too
dumb to find out whether or not I had yet left Poland.
(2) Have just closed an agency agreement with the Auto Ordnance Co, for
the sale of Thompson submachine guns in Poland, Esthonia, Latvia, Lithuania,
Turkey, Bulgaria, Norway, Sweden, and Denmark.
I enclose copy of telegram sent you today, in case you want me to take any
data or information with me regarding the pistols and flares.
The other matters I will send you in the form of a memorandum on Monday.
I hope all of the family are well. Shall try to say good-bye over the telephone
before sailing.
With love to you all,
( Sgd. ) Fathek.
LLD— Sr/FLH
Exhibit No. 204
January 21 st, 1932.
Major General Samubx Hof, U.S.A.,
Chief of Ordnance, War Department,
Washington, B.C.
Deiar Sir: We are pleased to inform you, as stated verbally yesterday, we have
been awarded a contract by the Polish Ministry of War for 70 3-inch antiair-
craft guns, the order amounting to $1,800,000. Deliveries of these guns are to
begin in 10 months and be completed in 40.
We are thus enabled at last to comply with the conditions of the letter of
Assistant Secretary of War, of May 8th, 1928, that the designs of the latest
antiaircraft material would be released to this company upon our having a
contract with a foreign government for a production quantity.
In view of the quantity now ordered, we respectfully request the Depart-
ment supply us with the Van Dyke prints of this material.
We have an agreement with the Magor Car Corporation, in which they join
us in the execution of the contract in their plant at Passaic, N.J. Our equip-
ment will be immediately moved there and will be supplemented by additional
528 MUNITIONS INDUSTRY
machine-tool equipment, such as will be necessary to round out the complete
facilities of the plant.
We invite the Department's attention to the efforts and expenditures incurred
by this company to secure foreign business that would justify the maintenance
of an efficient munitions plant, the capacity of which would be of some benefit
to our Government as a measure of national defense.
Except for the support of your Department, we have for several years car-
ried on this fight entirely single-handed. We have not only the opposition of our
competitors to overcome but also the political pressure which their governments
bring on their behalf. This has made our negotiations long drawn out and
very costly.
We have finally been successful and now have the opportunity and the means
to secure and execute other contracts which are available and which we have
not been in position to handle until an initial order of the magnitude of the
present one was closed.
We hand you herewith a copy of the letter of the Magor Car Coi-poration,
enclosing their balance sheet. Their financial rating is the higliest possible,
" Gaa " over $1,000,000.
Very truly yours,
LLD.FH. Enclosure.
-, President.
Exhibit No. 205.
February 22, 1929.
Mr. H. F. L. Allen,
o/o American Embassy, Angora, Turkey.
Dear Herbert: I enclose copy of cable sent you yesterday, also ours of the
19th. I could not understand why you requested a repetition of tlie whole of
that cable. These cables cost money and it turned out not to be necessary.
We try, even at the expense of extra words to make our cables clear.
Captain Osann was formally in the Army and was for some time Intelligence
officer with the Army of occupation at Coblenz. He is well posted on the whole
situation in Europe, speaks several languages and has a large acquaintance
among our officials and others. He has since being in the Army been with
the Department of Justice, he is now associated with David A. Buckley's law
firm. As he was going to Europe on business for Buckley, it was thought that
his experience would be of assistance to us in our negotiations in Europe, and
especially that he would be available to run down to Turkey and give you a
hand in closing up the Turkish contract, he is therefore leaving Germany now
for that purpose.
With Captain Osann working with you, you will not feel that you are play-
ing a lone hand against the Vickers crowd.
FIFTY-CALIBER HIGH VET^OCITY GUN
I suppose you have been helpless in the matter of putting over the high-
powered gun instead of the 40-caliber gun. Your cable of January 24th shows
they are still harping on the 40-caliber gun. Our competitors are offering
40-caliber guns, but as I have before stated there is no competitor that can
offer a gun of the power of our 50-caliber combined with the rapidity of fire
and mobility of that outfit. (It is upon the latest developments in this mate-
rial, which are now released to us with the purpose of supplying guns to
Turkey, that our Government has spent .$2,000,000 ; this is otlicial and not our
estimate. I cannot conceive Turkey throwing away the tremendous benefit
which would put her antiaircraft material ahead of any otlier European
country.) Bear in mind tliat tli(> 40-('aliIier gmi with the 2!)()-cuhic-inch cham-
ber (same volume as Ihe fifty calil>er) must be tlie same size over the chamber
as the 50-caliber gun. By increasing, as we have done, the physical qualities
of the steel, we have been able to bring the weight of the 50-caliber gun to
that of the 40-caliber, the difference being, as we have previously informed you,
only V.'A lbs.
You speak of the possible objection to the Mobile mount being the character
of terrain in Turkey and that this mount cannot be broken up into light-weight
units, in this you are mistaken. The load on the original f<mr wheels can be
made very light by putting the gun together with its top carriage, and also
the out-riggers on another four-wheel trailer whi<'h could be provided for that
purp\)se. The outriggers are made of alluminum alloy, but despite this fact
they form a considerable part of the weight because of their lengths. This
p
MUNITIONS INDUSTRY 529
great spread in the form of a spider web is necessary for complete stability in
the firing position. This factor has never been sufliciently understood abroad,
the European guns having been notoriously unstable in spite of their low power.
In one of your recent letters you showed your own doubt in the mobility of this
outfit by stating that it would require caterpillar 6<J to transport it over any
and all kinds of ground, whereas the Universal could be hauled by the " thirty."
You also say that they are not ready to discard horses or mules. Evidently
both you and the Turks are thinking in terms of weight, certainly if a few
men can push this outfit around the field, horses and mules can do the same over
hills and valley. The wheels have very large balloon tires which increase
the surface contact so that the pressure per square inch is less than the
former type of trailer which is used with the forty-caliber gun. We could, of
course, furnish the same type of tires with the Universal mount but it seems
to us here that the ability to break up the load as I suggest should remove
any objection to its use even over the worse ground.
AtJTO FRETTAGE
You need not be afraid of auto frettage if the ministry wants the guns
formed that way we can do it by the latest method here which is far superior
than any used in Europe. Auto frettage is the cold working of the gun forging
to bring up the strength of a single forging gun to that of the jacked gun using
steel of the same elastic limit. I provided for the contingency of the ministry
wanting a single forging g"un with a removable linei*. The liner, if of the
removable type, so that it can be removed in the field, should be finally worked
by auto frettage, and we prepared to furnish them so made. With regard to
the gun body, however, we can either start with the metal of the elastic limit
usually used and bring the strength up to a jacketed gun by auto frettage. or
use a special alloy steel giving us the same physical qualities, when propexiy
forged and heat treated, that we would obtain by using the other steel and
auto frettage (cold working). By using the special alloy steel, properly heat
treated in oil, we bring the elastic limit of the steel up to 80,000 pounds per
square inch, which will give them a better gun than one auto fretted. It also
reduces the cost of manufacture, but if they want an auto frettage gun, we
can give them what they want. To make it clear to you the extra cost of
the finer steel is less than the cost of auto frettage, and the production is
speeded up.
POWDER
Can you not settle the question of detailed powder specification at this time
by the provision that the powder will be manufactured to the specifications of
the United States War Department? We have asked the Ordnance Department
to actually do the inspection if the Turkish Government will accept this, and
the Department is willing, but we must arrange for this through the State
Department.
GUN-STEEL SPECIFICATIONS
In the chemical properties of the gun steel we must have the following range :
Carbon .30— .40 Silicon .12^— .24
Manganese .50 — .70 Chromenum .55 — .75
Phosphorous .025 maximum Molybdenum .20 — .25
Sulphur .025 maximum
By keeping the phosphorous and sulphur within the above limits we would
want the jirivilege of changing the other properties, provided we gave the same
physical qualities. In other words, we wish to be free to use a suitable nickel
content, to give our physical properties in place of the molybdenum, so as not
to be tied down to certain steel plants. Of course, in our cable I gave the
means of the chemical qualities for tlie sake of brevity.
SPECIFICATIONS FOR MOUXT CASTINGS
Physical qualities: Tensile strength 95,000, elastic limit 55,000, elongation
in 2" 22%, contraction of area 407o.
Chemical analysis about as follows :
Carbon .36 Phos. and suip. below .0,'.
Mang. 1.50 Silicon .48
We enclose herewith sketch of test specimen which is sul^stantially the same
as the sketch you sent. You will note that tlie prick jmnch marks are two
530 MUNITIONS INDUSTRY
incht"s apart, and with tlie same requirements as stated Ijy you that the l)reak
shall be within two marks, which are provided for measuring the elongation.
Sincerely,
FM : LLD
Note. — Colored drawings will be mailed by next steamer.
Shell steel runs .40 to .55 carbon ; full analysis will be mailed you by next
steamer.
You have lately said nothing about liners; do they want them and how
many per gunV
How many tire controls are required, do they want one set for each battery,
and also how many spares?
Exhibit No. 206
WAR DEPARTMENT,
Office of the Assistant Secretaey,
Washington, D.C., May 8, 1928.
Mr. L. L. Driggs,
President, Driggs Ordnance and Engineering Company, Incorporated,
JO West J/ith Street, New York, New York.
Dear Sir: Reference is made to your letter dated Washington, D.C., March
14, 1928, in which you request authority to utilize the latest United States
Army designs of antiaircraft material in your manufacture of antiaircraft
material for sale to European countries.
The Driggs breech and semiautomatic mechanisms have been standard equip-
ment on U.S. Army antiaircraft guns for a number of years. These mechan-
isms are very satisfactory, and are utilized in the latest 3" and 105 mm
antiaircraft guns developed by the U.S. Army.
It is the desire of the War Department to encourage the manufacture of
munitions in the United States by commercial manufacturers. The War
Department would be willing to release to your company the designs of our
latest antiaircraft material with the exception of certain secret portions, pro-
vided you had a contract with a foreign government for a production quantity
of antiaircraft material which you would agree to manufacture in the United
States. You can readily appreciate that an order from a foreign source for
only two or three of these new antiaircraft materials would only serve to dis-
close to the foreign power the latest United States developments in antiair-
craft artillery, and would not develop any munitions manufacturing capacity
in your plant. The size of the order will, therefore, have to receive the
approval of the War Department before any design information is released
to your company.
Design information on the following components pertaining to the latest
United States antiaircraft material both of the 3" and of the 105 mm types
will be released to your company :
Guns
Mounts, except hydropneumatic recuperators
Data transmission systems
Sights
Fire-control instruments
A.A. telescope with wind-component indicator
A. A. observation instrument
Speed computer
Sound locator
The antiaircraft director (Wilson type) being developed by the U.S. Army
is classed as secret, and no manufacturing details of this instrument can be
released to your company.
Considerable data and information regarding the efficiency and performance
of the new^ types of U.S. antiaircraft material have been published. The
article on Antiaircraft I'rogress, by Major G. M. Barnes, Ordnance Depart-
ment, published in the March-April 1927 issue of "Army Ordnance " is a
very excellent r^sum^ of the present status of antiaircraft development in the
United States, and should serve as very good .vales literature in convincing
foreign governments of the efficiency of U.S. Army antiaircraft artillery mate-
MUiSriTIONS INDUSTEY 531
rial. Developments since the publication of this resume about a year ago have
been in the nature of refinements, all of wliich would be included in the
design information furnished to your company.
In supplying design information to your company, it should be understood
that the War Department assumes no responsibility for the use of any pat-
ents, and that your company must assume full responsibility and liability for
any patented features which you might make use of in the manufacture
of this antiaircraft material. It is also manifest that the U.S. War Depart-
ment can assume no responsibility for the correct functioning of any anti-
aircraft material built by your company and sold to a foreign power, as
tlie United States would have no supervision or jurisdiction over the manufac-
ture, inspection, proof, or test of these materials.
The War Deiiartment hopes that your company may be successful iu
obtaining an order for the manufacture of a considerable number of these
new antiaircraft materials of the latest U.S. Army design.
Very truly yours,
(Signed) C. B. Rorbins,
The Assistant Secretary of War.
("Exhibit No. 207" has been stricken from the record upon instructions
from the chairman of the committee.)
("Exhibit No. 208" has been stricken from the record upon instructions
from the chairman of the committee.)
("Exhibit No. 209" has been stricken from the record upon instructions
from the chairman of the committee.)
("Exhibit No. 210" has been stricken from the record upon instructions
from the chairman of the committee.)
Exhibit No. 211
Head ofHce, Tokyo, Japan ; Amoy, Antung, Bangkok, Batavia, Bombay, Buenos
Aires, Calcutta, Canton, Chang Chun, Chefoo, Chemulpo, Dairen, Foochow,
Hakodate, Hankow, Harbin, Hongkong, Karachi, Karatsu, Kirin, Kobe,
Keelung, Kuchinotsu, London, Manila, Melbourne, Kiike, Moji, Mukden,
Muroran, Nagasaki, Nagoya, Newchwaug, Otaru, Osaka, Peking, Porthmd,
Rangoon, Saigon, San Francisco, Seattle, Semarang, Seoul, Shanghai, Singa-
pore, Swatow, Sydney, Sournbaya, Tainan, Taipeh, Tieling, Tientsin, Tsing-
tau, Vladivostok, Wakamatsu, Yokohama, e.c, etc.
In reply please refer to Engineering Dept. Cable address for all offices:
" Mitsui."
Mitsui & Co. Limited,
(Mitsui Bussan Kaisha. Ltd.)
€5 Broadway, Nexv York, Telephone 7520 Bowling Green,
New York, Sept. S, 1927.
Driggs Ordnance & Eng. Co.,
19 West Uth St., New York City.
Gentlemen : In reply refer to M.F. #6221 — J.T.
Regarding the 37 mm antiaircraft gun and 47 mm semiautomatic gun, we
beg to confirm the conversation had with your Mr. Driggs yesterday in your
office, that you would willingly quote us your best export prices f.o.b. New-
York for each of the above guns. You will also let us> have five copies of
rough sketches of 37 mm antiaircraft gun under your design, the same as those
which you showed us yesierday.
532 MUNITIONS INDUSTRY
As you nro well aware frcm tli'- CciivPrsatii:!! had with Colonel S. Oynizu,
he is very niu;h interested in the ahove guns and desires to send full informa-
tion ahout the same to the Japanese Government, recommending >our goods
as the best in this line. Under the circumstances, we are now doing our best
to ohiain their order for our mutual benefit.
We shall be much obliged if yuu will give this matter ymir special attention
and jjeud us all your documents, as requested by us, as quickly as possible,
along with a description of your company's history and all your references,
as we have to send all this information to our Tokyo oftice as well as the
Jai)anese Government.
In the meantime, we would ask you not to (iiuite to others in case you i"e-
ceive any inquiries from our competitors for this business, but if this is
imiiossible, please quote them higher prices than for us, after you have been
in touch witli us.
Thanking you for your kind cooperation, we are.
Yours very truly,
Mitsui & Company, Ltd.
(Sgd) S. KoHNO,
Engineeving Dept., New Ynrk Bran ih.
Exhibit No. 212
[Excerpts]
September 7, 1931.
Dear Louis : Supplementing my letter to you of Saturday, the following
memorandum is for your records :
(1) We have an inquiry from Jugo-Slavia for: 100 to 250 infantry accom-
panying guns, with 150 rounds of ammunition each.
This seems a ridiculously small amount of ammunition. Kauffmann states
that they want only our guns and that we are sure of the order, but we must
keep the price down, as Jugo-Slavia is working on a reduced budget.
I expect to see Kauffmann as I go through Berlin, and determine whether I
should run down there from Poland.
I have sent the finished gun-body drawing to Wilder, for quotations on fin-
ishing them, completely machined, except for rifling, chambering, and the
hook-slot for securing the gun to the cylinder and the extractor dish.
(2) We have some quotations pending with the United Aircraft Export Cor-
poration for infantry accompanying guns (57 m/m anti-aircraft gun — McClean)
and 30 2-pounder Hotchkiss mountain guns, which we will buy from Banner-
man. These are new guns but an old model. (All of this material is for
China. )
(3) We have an inquiry, received through W. D. Shearer, for rifles, ma-
chine guns, and TNT for China. The rifles and the 150 3-inch field guns on
which we have also quoted, can be obtained from Poland. (Machine guns can
be obtained from Soley.)
On the TNT we are awaiting advices from Shearer as to the quantity. The
two firms. Atlas Powder, and Barton Explosives, Inc.. will make it — if the
quantity is sufficient. Of course, a deal that would enable us to buy the above
material from Poland would put our present negotiations in perfect shape, as
Poland could thus make us a cash payment of $250,000 on account of our
contract.
(4) Another inquiry pending (South American), includes 25,000 Mauser
rifles which we will obtain from Poland; some machine guns, wliich we will
obtain from Soley Armament Co. (England) : 6, S, or 10 75 m/m or 3-inch
field guns, and 4 37 m/m antiaircraft guns.
Of these latter, we have 1 at the shops, 1 in the office here, and 2 we can
obtain from Poole.
The mounts must be built and I have Trulsou at work detailing the general
design we have.
(Three paragraphs omitted.)
(Sgd) L. L. Driggs, Sr.
MUNITIONS INDUSTRY 533
Exhibit No. 213.
The Soley Armament Co., Ltd.,
3, Incin Street, London, 8th March, 1929.
Confidential.
The Driggs Ordnance Co.,
19 West Uth Street, New York, U.S.A.
Dear Sirs : We acknowledge receipt of your two cables of 6th and 7th March.
We have replied as follows :
1. " Lee Enfield, made by Remingtons 1917, unused quantity 100,000 or more.
Lewis 3.000 ammunition 25 millions, particulars battery posted today."
2. " Ammunition quantity should read 125 millions instead of 25 million."
Rifles.— Pattern 1914 calibre .303. There are 200,000 available, with spare
parts, bayonets, and scabbards. Delivery could be made in about 30 days,
whicli time is required for packing. Credit for full amount would be required
to be opened in London and guarantee of delivery would be given against the
opening of credit. Terms, cash against shipping documents London. Inspection
and acceptance would have to be London. Price: For quantities above 50,000,
the ]irice of a rifle, bayonet, scabbard, and one thousand rounds of ammunition
would be five pounds five shillings, £5 5s ; f.o.b. London.
Lewis machine guns. — These guns were made by the B.S.A. and are calibre
.303. They are all in first-class-service condition, those which are not new
having been reconditioned and tested by the W.O. This means that they are
equal to new from the service point of view, and as you may be aware, the
British W.O. are extremely strict on such classification. The guns are complete
with all spare parts and tools. Price, One gun, spare barrel, 4 magazines,
spare bolt, extractors, return spring, etc., packed in wooden chest, for quantities
above 500, £30 (thirty pounds) each; f.o.b. London.
Mountain battery, calibre 2.15 B.L. — These guns are new and have never
been used. By " shells " we mean the projectile, as there are no cartridge
cases in a B.L. gun, the propellant is loaded behind the shell, and is contained
in a silk bag. Handbook sent by post yesterday gives full particulars.
Trench mortars " Stokes ". — We can supply sixty of these, new, complete with
bipods, at £10 (ten pounds) each, extra bipod if required at a cost of £4 each;
f.o.b. London. No ammunition available, but it is cheap and simple to make.
Hotchkiss Machine guns, calibre .303. — There are approximately 8,000 of these
aviailable, complete with spare parts and loading strips or belts. First-calss
service condition.
Steel helmets. — 85,000 of these are available, good condition most being new,
price 2/6d. (two shillings and sixpence) each, packed in sacks of 50; f.o.b.
Mills hand grenades. — 200,000 unfilled. 2/6d. (two shillings and sixpence)
each ; f.o.b. Cost of filling about 4d. each.
China. — -Should you have good connection with the Chinese market, we can
advise you that the arms embargo may be removed shortly, and it is worth-
while investigating the possibilities there.
As we informed you previously, the sale of this material is subject to the
export licence being granted by the British Government; but most countries
are now free except Russia and China, and China will soon be freed.
Yours faithfully.
For the soley Armament Company, Ltd. :
John Ball, Director.
P.S. — We have marked this letter " confidential " as we do not wish it to
be generally known that such large stocks of rifles and macliine guns exist,
and as a matter of fact they are much larger than stated here.
Exhibit No. 214
Pencil notation: "Copy for Mr. Driggs" (Excerpts.)
November 4th. 1932.
" Via air mail "
Messrs. Uruenta & Samper,
Bogota, Colombia.
confidential
Dear Sirs : Our mutual friend, Mr. Owen Shannon, of the Curtiss Wright
Export Corporation has been kind enough to give us your name and recommend
534 MUNITIONS INDUSTRY
your firm to look after our negotiations in Bogota witli the Government of
Colombia. Accordingly, we took the liberty of cabling ymi on October 29th.
as per copy enclosed, and are pleased to acknowledge your cable reply of No-
vember 2nd, reading :
"accept await fuix details, ubsan "
(2 paragraphs omitted)
At present our guns are standard with the United States Army, Navy, and
Marine Corps, in all the sizes in which we manufacture them. They also have
been adopted and are being used by a number of foreign governments. We
feel that no better recommendation can be offered for the efficiency of our
material.
Whilst our line of artillery comprises the most widely accepted types from
37 m/m to 152 m/m (6 inches), our Driggs antiaircraft guns in sizes of
37 m/m and 3 inches, stand out from all others, being at least five years ahead
of any other antiaircraft guns in the world.
(4 paragraphs omitted)
In view of the publicity attendant to the International situation between
Colombia and Peru, the Colombian consulate here has been deluged with pro-
posals for all kinds of war material, mostly second-hand, obsolete material,
offered by brokers. To safeguard the interests of the Colombian Government
and save the time of the consulate and of the war ministry in Bogota, the
United States Government has " loaned " to the Colombian consulate one of its
naval officers, to act as advisor on the merit of the material offered.
The officer in question is Comdr. James Strong, U.S.N. Inasmuch as our
guns have been the standard used by the Army and Navy for more than forty
years, and their efficiency has been amply demonstrated in past wars (par-
ticularly the Woi'ld War), Commander Strong is thoroughly acquainted with
our equipment and not only has he approved our proposals but strongly recom-
mended the acquisition of our material as being the finest obtainable. Consul
General Olano has conveyed that recommendation to the President.
(16 paragraphs omitted)
The hand grenade we have offered is absolutely the latest developed for the-
U.S. Army, and we know from comparative tests made with the latest similar
material developed in Europe, that ours are far ahead of all competition.
As you will see, the amount of material required by the Government makes
a substantial business. We have no competition here. We are the only manu-
facturers of artillery and the only ordnance engineering company in the U.S.A.
The material we offer your country is the latest type, used by the U.S. Army
and Navy. Our only competition is from Europe ; however, that competition is
only in the matter of price, not in design and efficiency of equipment. We pro-
duce the most advanced, the most efficient material in the world.
(7 paragraphs omitted)
Very sincerely,
Driggs Ordnance and ENGiNEEaaNO Co.
(Signed) A. J. Miranda, Jr.
AJMJR/IJ
November 25th, 1932.
Exhibit No. 215
[Excerpts]
Sres. Ueueta & Samper H. (Sucesores)
Banco dc Colombia No. 404, Bogota, Colombia.
Dear Sirs :
(16 paragraphs omitted)
Now, ^^■e have another matter pending before your Government, of great
Importance and of extremely confidential nature, i.e.
Your Government finds it absolutely indispensable to fortify the Pacific ports
of Buenaventura and Tumaco, and has requested the Consul here to have C'om-
MUNITIONS INDUSTRY 535
mander Strong make n thorough analysis of the situation and offer his rec-
ommendations. Because of our exi)erience, the Consul and Commander Strong
have requested our cooixa-ution.
Assisted by hydrograpliical cliarts which we have procured from the U.S.
Navy Department, we have been able to formulate an excellent plan of defense.
To apprise you thoroughly on this matter, we enclose copy of the reports sub-
mitteed by us and by Commander Strong on this subject. The reports have
gone forward from the Consul to the President.
This matter is of prime importance to your Government and we are confident
tliat a more thorough and intelligent report and plan of defense will not be
mapped out — either there, by your General Staff or in Europe, if such request
should have been made.
Our proposal will run about two millions of dollars, but will assure the safety
of your country's gateway from the Pacific and of its proposed Pacific naval
and aerial base at Tumaco. and its defense will be of the latest.
Please post yourselves thoroughly with the detailed information which we
send herewith in strict confidence. Make your inquiries very discreetly as this
is a matter that has been treated only by the President with the Consul. Your
comments will be welcome.
We will keep you posted on developments.
Faithfully yours,
Driggs Ordnance & Engineeeing Co.
A. J. Miranda, Jr.
Exhibit No. 216
[Copy]
Angora, Turkey, Nov. 30, 1921.
(Excerpts)
Dear Louis : I hesitate always to write. It is one thing today ; another
tomorrow. Since writing you much has liappened and nothing has happened,
I don't know whether to begin at the beginning or first tell the latest situation.
Always we must consider the oriental mind. It is absolutely impossible to get
a signature on the dotted line. If you appear anxious they will lose confidence.
The country is a storehouse of potential wealth, but the people have never
known anything about business. We must remember that the Republic and the
people are no more advanced than Americans were immediately after the
victory of Washington over the British. Essentially the control is military and
they are occupied in trying to make a capital out of Angora. In this, in 3
years, they have done more than America did in the city of Washington in
50 years. This is no exaggeration. They have electricity and some paved
streets. Until about 1870 Washington was a quagmire. They are ambitious,
but terribly and damnably sensitive. They want to get rid of French, German,
and English influence. They want America and America is deaf.
(Omission of 1 paragraph)
I must divide my operations in sections. For weeks I occupied myself to
unravel the most difficult and mysterious of intrigues — knowing the oriental
mind I waited. It was impossible to work in American fashion. The char-
acters on the sage were Heinekin, Roehr, Chorinsky, Hitzigroth, Captain Rudshi,
and Kemal Ochri. Heinekin and Chorinsky tried to get me to Berlin. In
Pera, Hitzegroth tried to represent Roehr who was so sick that when " Jawus "
urged your coming here; he was so sick that at times in delirium he knew not
his wife. Chorinsky was trying to get rifle contracts from Turkey, Roelu-'s
operations for Jonkers smelled to heaven. One way to finance new projects
and return to favor was to get American financial credit. If the German group
could do this they might retrieve their former influence. They believed we
might be the means of accomplishing this. The competitors for contracts were
French, English, and Swedish. We were the only German hope. I upset their
plans by coming directly here. They hoiied to ride on American shoulders. By
coming here directly this was circumvented. Daily Hitzigroth came to see me.
83876 — 34— PT 2 6
536 MUNITIONS INDUSTRY
I tempted liim with the bait of representing us and eliminating Heinekin. He
fell and revealed i)rnof of Heinekin's treachery. He was willing but 1 told him
Heinekin had himself forfeited his arrangements with you by failing to work
with Noury Pacha. Finally he acknowledged this and was willing to throw
Heinekin, overboard. I refused to name my intermediary until after the show-
ing of the films. This had been arranged by a letter of Colonel Smith, the
military attache, but was delayed by failure to receive your remittance which
instead of coming for the 12th came on the 17th.
(One paragraph omitted)
When in Paris, Kaufman told me that he had some indirect negotiations
under way with Abysinnia, through Steffin. It seemed possible Heinkein had
learned of this so I replied to Hitzigroth. I was sure I already knew the
country and to get Heinekin to reveal the country in confidence to him and we
would compare, but I would not leave Turkey. If it was something we did not
know about we wouhl take care of him for informing us but under no circum-
stances would I accept Heinekin's posing as our representative. Nothing
resulted. Daily Hitzigrowth sought to find the day of my departure for
Angora. Finally I arrived. Another digression. I have often referred to the
Automobile Tire & Tractor Co. of Turkey, representatives of Dodge. Holt and
Goodyear and to whom I gave the agency for Wright. They have agencies
throughout Turkey. Ahmed Emmen one of their principal stockholders is a
Turkish Jew who attended Columbia in New York. Kemel Bey a real Turk,
another. In Angora, they have a branch with a subsidiary comiumy composed
of Arkel Bey and Mahmoud Nedim ; both influential and the latter a deputy,
viz. a member of congress. They have no senate here only the chamber of
deputies. Because of their representing the Wright for us, they volunteered to
give every assistance. They told me they understood the situation and would
do all possible in a complimentary way. I sent for Noury Pacha and discovered
that he had definitely taken appointment with Vickers, because of Heinekin's
failure to work with 'him, but it is a question if he had not already made this
arrangement when he wrote you his letter of about June 15. He is capable of
doing this to get the dope of competitors. I sent for Ochri Bey (Kemal O 'hri)
and he suavely and smoothly deprecated all others. He was surprised when I
asked him if he has been the principal in the Jonkers airplane deal, which
smells to heaven and which makes the Turks so sore. It developed he was
Roehr's right hand in that deal. Later I learned he and Chorinsky were also
partners in selling some hor.ses to Turkey which resulted in Chorinsky leaving
Turkey and not since returning. It was another Chorinsky net; but fortunately
avoided. Noury Pacha played with me without giving up Vickers. Tried to
learn my prices and other conditions. Finally I had, without committing us. the
collaboration of the Embassy, Noury Pacha and all the associates of the A. T. &
T. Co. as to the film. Last Sunday morning this took place with great success.
The General StafC was represented by the Chief of Staff and Quaizim. Pacha
and Quiazim Pacha, each asistant chief of staff; one the brother-in-law^ of
Noury Pacha and the other of no relation ; but equal in rank, and in the cinema
they sat together. Noury's uncle, dark and saturine, the other a charged
battery of electricity throwing sparks all about him.
(Last part of foregoing paragraph omitted)
(2 paragraphs omitted)
Furthermore Noury could not get free from Vickers. He wanted to be
friendly. He said if Kemal Bey of A. T. & T. stayed in Angora it would insure
success. Kemal decided to stay. I wanted Kemal and Noury together.
Finally Noury proposed to Kemal to work for us secretly and double-cross
Vickers. This Kemal and I have not agreed to. Then Noury tried to arouse
my interest in cruis<?rs and wanted American prices only for me to discover
through friendly government agencies that Vickers had offered to construct
certain cruisers and boats for $80,000,000' (Turke) but demanded bank guaran-
tee for the deferred i);iynients. Vickers also decided to abandon the field on
the 100,000 shell. These are for Skoda guns. Last night Vickers people were
prepared to return to England, but at the last minute decided to stay longer.
I asked for time on the Howitsiers and shell. I must find out what the other
companies are going to accept in terms of i>ayincnt. They are equally anxious
to discover what I will offer. Meanwhile I will offer nothing. If they make
a price I will knovr it in 24 hours. If I make one they will know mine.
MUNITIONS INDUSTRY 537
Yesterday another letter from Marsha Bey of Hitzigrath. In the afternoon
a show down and definite decision. Sent a telegram to Heinekin because of
notation of your letter about working with Noury he was fired. Advised
Hitzigrath also. Proved to Marsha Bey he had been duped by Heinekin and
Koehr. He proved that ho was not resiionsil)le for telegrams urging contract
was ready for closing and admitted before three witnesses that it was at no
time the "situation. Therefore today definitely rid of German group. Learned
also Army definitely wants anti-air on mobile mounts.
(1 paragraph omitted)
The Turks are trying to feel me out on the possibility of an American loan.
Three times an emiss'ary of the Government has sought me out on this. Always
I am friendly but never much I show interest. But at last I am on the right
track. I have learned their export duties are unpledged. This would be good
security. Last night I got copies of the contracts with Sweden for $.15, 000,000
credit and the so-called " Belgian group '" for about .$15,000,000 for railroad con-
struction. They are in French and Turkish. After studying them until late
last night I gave them to the eml^assy to make copies for their archives. In
return they liad dug up dope about the mineral resources for me and liad
Frank Blacklnirn, assistant to the Oriental Institute of the University of
Chicago, there to see me. Blackburn is an archeologist who with some others
has been digging and exploring the sites of the Hittites of over 4,000 years
ago. He has seen much iron earth and copper and knows the location of a
copper mine richer by far than D.iakaber the one the Germans have got hold
of. He brought me samples tonight and has jiresented me with an iron ring
a little too small for my little finger which was a Hittite coin between 4,000
and 5,000 years ago. If there is really iron in this country the governments
ambitious plan of steel rolling mi!ls\ etc., can l)e realized. It is up to you
how much of all this we can get into. I can get all you want. If you cannot
finance me for God's sake explain it to someone tvlio can, for copper and iron.
Go see William Loch, Jr., 1:20 Broadway of Guggenheim & Co. show him un-
hesitatingly this whole letter. You can do so with greatest confidence. He
knows me well but due to my loyalty to you I cannot write to him or Gulick
directly. I can get iron and copper mills concessions on almost my own terms.
Will the Guggenheinis finance my stay here and send me an engineer of mines
w^hose report they will accept as to copper and iron. This is no dream but the
coldest of facts.
(3 pai'agraphs omitted)
With kindest regards,
(Signed) Herbert Allen.
Sesptembek 14, 1926.
Exhibit No, 217
[Excerpts]
I. C. MUNTHB KaUFFMANN,
Vpsalagac 18,
Copenhagen, Denmark.
Infantry Accompanying Guns — Denmark.
Dear Sir:
*******
(.3 paragraphs omitted)
Until now tlie European firms have had such a monopoly, thrcmgh political
influence or otherwise, of the ordnance business in Europe and in the Near
East that American firms have been unable to break it,
I found during my recent visit to Europe, that the guns being l)uilt there
are not up to date and the prices are higher than ours. I believe that an
energetic campaign on your part will get us considerable business.
*******
(6 paragraphs omitted)
Very truly yours,
Driggs Ordnance & Engineering Co., Inc.,
By , President.
538 MUNITIONS INDUSTRY
Exhibit No. 218
[Excerpts]
Address :
Ins. Floi-jaii Zienibu
Wsjioliia OO
Wuisuw, Poland
Warsaw, June 13, 1927.
Mr. L. L. Driggs,
President Driggti Ordiianre d Engincerina Co.,
J!) West J,'ith Street, New York City.
Dear Mr. Driggs :
Coiumission and Mr. Pisarek.
I have taken into the serious consideration your suggestion of cooperating
with Mr. Pisarek and I was going to make him a concrete proposal. How-
ever, after investigating the exiienses that will be connected with the securing
of orders I have found out that it is impossible for you to yield anything from
my 5% commission. The number of people that have to be " influenced " is
larger than I expected, and in order to conduct any effective work the expenses
will take the larger bulk of my coiumission and I shall be satisfied if at the
close of the deal I would be left with net 2% for myself. You undoubtedly
understand by yourself that this hardly could be shared with anybody. Realiz-
ing, however, that the cooperation of Mr. Pisarek would be of great service
to us I would like to ask you to provide him with a commission of 1%. In
view of the fact that your company does not furnish any means for advertis-
ing progaganda, etc., I find it quite justified if you would secure for us the
services of a man who would conduct excellently the routine work but will
be al^o of a great use by writing articles, influencing otficers of Artillery
Corps and doing general progaganda work.
^ « H: * :ic 4: 4:
(6 paragraphs omitted)
Very sincerely yours,
(Sgd.) F. ZlEMBA.
Exhibit No. 219
[Excerpts]
Angora, Januwry 22, 1929,
My Dear Louis :
*******
(8 paragraphs omitted)
Having accomplished this much the commission next decided to take up a
description of the gun and we covered again the questions of tube, jacket, and
breech ; they wanted to know what process we used for jacketing and I ex-
plained the method used at Bridgeport. I was only afraid they would bring
up the question of auto frettage and some other ideas prevalent in Europe.
There was much general discussion as to the powder specifications and I then
showed them the photos of the new mobile mount. I told them of the report
of the Polish Commission but the member who I suspect of being too friendly
with Vickers remarked in Turkish that they could not attach so much im-
portance to Polish military reports as they were not very expert and very well
informed. I suspect Landa with the other members of Vickers have tried
to offset the favorable attitude of the Polish Government to us. The Vickers
crowd are the dirtiest opponents here. They have almost an entire embassy
in number working for them and use women of doubtful character freely. I
have not seen Noury Pacha this trip and from something overheard I suspect
they are not using him to get all their information.
There is an Englishman living in Stamboul connected with local representa-
tion of the Remington Typewriter Company and a few nights ago the Vickers
crowd staged a dinner with the Remington representatives present. None of
these representatives are from America. The next day this Englishman of
the Remington, left Landa's table and going to another table asked a certain
MUNITIONS INDUSTRY 539
man there, " Have you got the copy of the Driggs specifications which they
filed yesterday?" This was aslied in English and the reply "No" was in
English. So far I have been unable to identify the second nian, but expect
to in a few days. Kemember he is not a Turk; also that such matters never
interest Emin Bey or his Turkish associates, as they believe each and every
single oflBcial or under-official is absolutely honest and beyond crookedness,
out without naming a certain ambassador of my acquaintance he does not
think so; yet he believes it is confined to those lower down than higher up.
Just as an indication of what these European competitors will do. About
two weeks ago, the Caterpillar tractor man, demonstrating to the military here,
was called upon to drive his sixty witli a large eight-inch Russian howitzer
to the general staff headquarters, which is on a large hill on the outskirts
of Angora. His competitors were also required to make the trip, because Fevzi
Pacha, the great chief of staff, was going to review the maneuvres. The Cater-
pillar driver soon discovered that someone had removed the plug from his
radiator and had lost a lot of water. He remembered tightening that plug
himself and so it could not have come loose. That same morning several of
his special toi)ls had disappeared. All this with a tractor required to be
guarded by soldiers at the military garage.
After this sidelight on the situation I will return to the commission's dis-
cussion. There is a question of pulling tests which I must write to you about.
(a) There is a fixed ratio of diameter of tests specimens to the length.
(b) The test specimen shall be divided into four parts, theoretically, and the
test specimen shall not break or rupture outside of the two inner quarters. As
follows below :
-Yesterday's discussion in regard to powder brought rather strongly the
commission's attitude with reference to Dupont. From one source many
months ago I had heard that Dupont had been here to get a l)ig contract for
powder but had some difficulty over the guarantee and lost the contract. The
Government's specifications here ask for a 15-year guarantee, which to me ap-
pears to be ridiculous without any mental or expressed reservations. It would
seem that European manufacturers are not above making such guarantees
and then trusting to the future to evade any difficulty. Undoubtedly Nobel
has no hesitancy to do this, and I have been asked if we could offer our
proposal based on Nobel powder. I replied that there was a question of our
guaranteeing the performance of the guns and we might consider the subject
if Nobel would give us adequate guarantees. I asked why we could not make
our own tests with Dupont powder and if the government wanted to buy
Nobel powder we might drop out of the powder end of the contract. I am
not sure if you have some financial arrangement with Dupont either involving
credits for Turkey or otherwise and while I would like to protect Dupont
we cannot afford to lose the gun contract on a question of powder. These
■considerations have justified my asking of you that a Dupont man be sent here.
I have learned they have a Mr. Taylor in Paris, whose assistant handled the
situation here for him and that this assistant had a former artillery officer
as his representative here. This Turkish officer is known to some of my friends
and we ai'e now trying to get hold of him so as to use him in our behalf
as well as Dupont's because perhaps he can review the specifications and collab-
orate with us.
So much for this letter.
Sincerely yours.
(sgd) Herbert Aixen.
Note. — Diagram is sketched on letter showing length of test specimen, with
the notation : " Must break between a — h. If between C — D or E — F will be
rejected."
Exhibit No. 220
[Copy]
Letter No. 3.
Angora, January 22, 1929.
My Dear Louis : I have scotched a snake. He is a certain man named Pasano,
<;onnected with the Paris office of the Electric Boat Co., of the United States.
Sometime ago in one of my letters I told you that a report was current
in official quarters here that the American Government would not permit us
540 MUNITIONS INDUSTRY
to soil war material abroad. Of course, I knew tins to be an iinvarnislieil lie,
aud I was more concerned in locating the man spreading this report than in
denying it. It was rumored at that time that the information came from Danish
sources, and I asked you about it.
Recently an official in the military, rather high placed, when I called to
see him brought this to my attention in a friendly way, attaching no special
importance to it. He hunted for the card of the man who had told this to him
and brought forth the card of this I'asano of the Paris office of the Electric
Boat Company. He told me that Pasano has stated that they, too, were
interested in furnishing ordnance.
Now what is their iiame? Do you suppose it has any oriuiu in the States,
or is it perhaps some move on the part of tlu'ir representative in Paris to
help some foreign competitor. If you can locate any explanation of the attitude
of the company in U.S. kindly advise me. Remember in inquiring that I might
have the name slightly changed. I am sure of the Pasan, but the last letter
may be " o " or " u ", and he may not be the head of the Paris office.
From other sources about two months ago I had heard that some electric-
boat man was out here in Staniboul about boats.
Why not take me into your confidence as to where you expect to have
the patrol boats, or torpedo boats manufactured. Sooner or later the Gov-
ernment officials will ask this information.
If you hooked up with Cramp it would have a good effect here, because
of their having built the cruiser Med.ide, the contract for which General William
secured. The cruiser was sent out in command of Bucknam who the Sultan
afterward made an admiral and Pacha. He is now dead but I undei-stand
the estate of Sultan Abdul Hamidis still paying his Midow a pension. Perhaps
you made the deal with Fletcher or someone else. Do you not realize that I
cannot tell anyone even where our factory is? Please let me know the answers
to these things.
Very sincerely,
(Signed) Hekbekt Allen.
P.S. — He definitely said Driggs Ordnance Co. had not yet succeeded in getting
autliority of the American Government to sell abroad.
Exhibit No. 221
Coupon no. (?). 8 No. of words. Translation made by . From Ger-
man into English.
Manufacturers' Translation Bureau. 220 Broadway, New York (Telephone
Cortlandt 3489)
Berlin W 35, Germany,
January 19. 1927.
Driggs Ordnance and Engineering Co.,
19 West Uth Street, New York.
Gentlemen: We sent to you under date of September 24, 1926, as well as
under date of December 1, 1926, two letters, to which we have not received
any reply so far. We suspect that the letters were not sent out or got lost on
the way, owing to an irregularity which took place in the fall of last year in
connection with our registered letter department.
We therefore now repeat the essential contents of our letters.
Our letter of September 24, 1926, dealt with the general situation of the
traffic in firearms the way we judge the same from Berlin. We said the fol-
lowing therein among other things:
Buyers for firearms are the Balkan States (Jugoslavia, Greece, Roumania.
of late also Bulgaria), moreover the Baltic boundary states (Latvia, Lithu-
ania, Esthonia. Finland), also the near Orient (Turkey, Persia, Siam, Afghan-
istan, Arabia, Abyssinia), and finally China, in which connection, of cour.se,
only those Chinese generals enter into consideration who fight against the
bolshevism which is threatening from Russia.
The other large European countries get their supply of firearms for the
greater part from their own large factories, and therefore only enter into con-
sideration as buyers on rare occasions.
MUNITIONS INDUSTRY 541
The first-mentioned countries, which are of medium or small size, send their
military commissions to central Europe for making purchases, i.e., in the first
place to Berlin. Although, due to the Versailles peace treaty, Germany has
lost her pre-war position as the chief purveyor of firearms, she still enjoys
with the countries mentioned the reputation of having the most experience iu
the manufacture of war material ; the result of which is that Berlin (besides
Paris) has today become the center of Europe as regards the trade in fire-
arms. On the strength of this fact our firm has developed as a special concern
for dealing in firearms and annnunition, as well as war supplies of all kinds.
In the course of the years we have already furnished war material to all the
mentioned states, and we maintain with all the war departments of these coun-
tries, either direct connections, or we have well-connected representations in
the respective capitals. In Athens (Greece), in Belgrade (Jugoslavia), and in
Teheran (Persia).
(8 paragraphs omitted)
Yours,
(Sgd.) Steffen & Heymann.
Exhibit No. 222
DuESsELDORF, GERMANY, January 19, 1929.
Mr. David A. Buckley, Jr.,
Ne^D York City.
Re the L. L. Driggs Ordnance & Engineering Co.
Dear Me. Buckley : I am herewith submitting a summary of the various steps
which I have taken since my arrival in Germany in accordance with the
arrangement made between you, Mr. Driggs and myself, previous to my
departure from New York :
I called at the office of the commercial attache of the American Embassy at
Berlin who, as you may remember, has been in correspondence with Mr. Driggs
regarding the subject of suitable representation iu Europe and who had
recommended to him the firm of Steffen &; Heymann of Berlin. I had a lengthy
conference with Mr. Douglas Miller, assistant commercial attache, with whom
I am acquainted for a number of years. Mr. Miller being a U.S. Government
official, I did not hesitate in acquainting him with the fact that the War
Department assured Mr. Driggs of the release of the designs of the U.S. Army
antiaircraft materiel, provided he has a contract with a foreign government
for quantity production which would be agreeable to the Government. Mr.
Miller was very much impressed with this feature and called Major Zornig,
Ordnance Corps, U.S.A., at present assistant military attache of the American
Embassy at Berlin, into conference. Both gentlemen advised me that they
consider Steffen & Heymann well qualified to represent an American ordnance
concern in foreign countries, especially in the Balkans and the Near East,
and asked me to keep them informed of any progress made in this direction.
Mr. Miller arranged for a meeting between myself and Major Hans Steffen
of Steffen & Heymann, whose correct address is Steffen & Heymann, 17
Blumeshof, Berlin W 35, cable address, Aviamotor, Berlin.
Messrs. Steffen & Heymann occupy business quarters of ample size and
good appearance in a relatively large oflice building in the better part of the
city.
The firm is apparently a partnership composed of Major Hans Steffen, form-
erly of the air service of the Imperial German Army, a Mr. Heymann who
remained invisible, and a Dr. Von Cramon who at present is in Teheran,
Persia, but is expected to return within a few weeks. Dr, Von Cramon is a
member of the Reichswirtschaftsrat, one of the numerous German semiofficial
economic bodies, the importance of which you have to guess. There are some
additional members having the right to sign for the firm ; most of these gentle-
men appear to be ex-German army officers of some standing.
Major Hans Steffen, who seems to be the leading spirit in the enterprise,
is about 40 years old, of excellent appearance and manners and certainly has
more brains than I credit the average German officer with.
The firm concedes upon its stationery as well as in the city and telephone
directory that it deals in arms and ammunition ; it has a special patent
department and seems to feature an airplane camera.
542 MUNITIONS INDUSTRY
In my conversation with IMajor StofCen a nuinl)er of interesting and some-
times startling features were disclosed which I will attempt to relate here:
Steffen is without any doubt a political expert in affairs toucliing the Near
East. He tried to impress me with the fact that he is in good standing with
the German foreign otiice. I not only believe him, but liave reasons to assume
that any commercial transaction engaged in by Mr. Driggs with Steffen &
Heymann as agents will have not only the sympathy of the German Govern-
ment, but its wholeheai'ted cooperation. The motive will, of course, not be
an urgent desire to assist the Driggs Ordnance Co., but to resume a share of
its former control of the supply of certain foreign countries with arms and
ammunition.
Immediately after making my acquaintance, Steffen expressed his anxious-
ness to cooperate with Mr. Driggs ; this desire did not weaken in the course
of our conversation and has been repeated over and over again. I just received
a letter from one of his associates, also a former major of the German Army,
who again asks me to inform Mr. Driggs that the firm has an extraordinary
interest in the speedy establishment of business relations with Mr. Driggs.
My Intention of gradually acquainting Steffen with the scope and possibili-
ties of the Driggs Ordnance Co. was frustrated by the discovery that Steffen
knows more about Driggs ordnance than I do. It developed that tliis
knowledge is based upon information imparted to him by one Von Seebeck,
very much known to me as former representative of the Concord Finance Co.,
a personal friend of Pagenstecher, a quondam resident of Fort Oglethorpe, Ga.,
in 1917 and 1918, and an intimate friend of George E. Williams and Charley
Johnson. One Kautz, known to me as former assistant of Seebeck and inci-
dentally a former intelligence operative of the German Government in the
occupied zone of the Rhineland during my secret service days, is in close
relations with Steffen & Heymann, if he is not an actual member of the firm.
Kautz impressed me some years ago when I met him in the infamous Hackfeld
deal as a rather resourceful roughneck. Steffen conceded that he has seen
photographs and complete descriptions of the Driggs ordnance which were
shown to him by Kautz.
What Seebeck missed, Sherman seems to have finished. I gathered tliat
Sherman called on Steffen & Heymann during his last European trip ; the
result was that Munthe Kaufmann, Mr. Driggs' present agent, immediately
became an active associate of Steffen <& Heymann. According to Steffen,
Munthe Kaufmann cooperated some months ago wath a former German officer
in the manufacturing of hand grenades ; the deal miscarried and Munthe
Kaufmann is at present in bankruptcy proceedings.
Steffen stated at the time I made my initial call that he had just re-
turned from Angora, the capital of Turkey, and expected to return there some-
time in January 1929 in order to negotiate a deal involving the purchase of a
large number of antiaircraft guns on the part of the Turkish Government. A
discreet inquiry, made by me after some time had elapsed, whether he had
heard at any time of a certain Mr. Allen, connected with the Driggs Ordnance
Co., was answered in the negative with a facial expression too innocent to be
sincere.
Steffen professed to know everything about the possible purchase of Driggs
antiaircraft guns on the part of the Polish Government.
Steffen explained his apparent anxiety to enter into business relations with
the Driggs Ordnance Co. by stating that European ordnance is higher in price
than that produced in the U.S.A. Two months ago I would have considered
such statement preposterous ; I am now inclined to believe it and to extend
it to almost any quality article in whatever line you may mention. What
Steffen wanted to say is that the cheap French antiaircarft material, which
relies upon the use of quantities of ordinary field guns, proves in the end to
be more expensive than the special antiaircraft equipment as produced by
Driggs.
However, Steffen may have had in mind a comparison with the prices de-
manded by a European concern, i. e., Bofors of Sweden. I have made a little
private investigation of my own regarding this interesting enterprise; I will
not bother you with details, but can resume the result by stating that Bofors
is Krupp and Krupp is I.G. Dycworks. The frequency with which I refer to
I. G. Dyeworks in my various reports to you is not due to the interest which I
am taking in this concern with regard to a certain matter, but six weeks in
Germany have convinced me tliat I. G. Dyeworks is the real octopus embracing
almost everything in the economic, and a large part of tlie political, life of post-
war Germany. Whenever you mention the name of I. G. Dyeworks to anybody
MUNITIONS INDUSTKY 543
in Germany, he registers awe, fear, admiration, and the desire to be soraeliow
involved in a transaction wliicli might bring him closer to that giant organiza-
tion. Steffen, representing the once-tiourishing, now inhibited, trade in arms
and ammunition, and enjoying apparently the benevolent sympathy of the Ger-
man Government, is too interesting a figure to have been passed up by I. G. Dye-
works. Since Bofors, Sweden, would be the connecting link between Steffen
and I. G., I am afraid that tlie relations between Steffen & Heymann and Mr.
Driggs' rival concern in Scandinavia are not merely theoretical.
When approached by me regarding the possible financing by a German bank
of any contract passed between the Driggs Ordnance Co. and a foreign govern-
ment through the sales agency of Steffen & Heymann, Steffen emphatically
stated that no German financial institute will entertain the financing of any
deal involving the sale of arms and ammunition and cited several examples, all
of which, however, involved contracts with the Russian Soviet Government. Of
course, every German bank will deny that it finances any business whatsoever,
and such denial is perfectly sincere, if one understands the German mind ;
Bayer-Leverkusen denies in good faith that it ever had any patents in the
U.S., but Francis P. Garvan considered Synthetic Patents, Inc., to be identical
with Bayer-Leverkusen, and was probably correct.
Steffen seems to understand that Mr. Driggs is not in a position to forward
samples; he insists, however, that he would liave to be supplied with blue-
prints, photographs, descriptions, etc., in case an arrangement l)etween Driggs
and Steffen & Heymann should become an accomplished fact.
Steffen appears to understand tliat I am acting in this matter solely as
technical adviser of Mr. Driggs' legal counsel and that I am not in a position
to make definite arrangements for the Driggs Ordnance Co., but that my task
is simply to transmit such suggestions as he may have brought before me.
Stett'en & Heymann ask me in writing whether Driggs Ordnance Co. can
produce the 37-mm wire projectile, explaining in detail that this shell is used
in antiaircraft defense and operates by thi'owing small wire nets in front of
the target ; the wire net remains a few seconds stationary and the propeller
of the airplane is likely to get entangled in the net. I wouldn't be surprised
if Steffen & Heymann had a patent for such a thing and are anxious to sell it.
Steffen in writing speaks of various serious inquiries regarding antiaircraft
materiel and mentions Hungary as one of the inquirers. I called his attention
to the fact that that country is inhibited by the Versailles Peace Treaty from
purchasing arms other than those allowed by the Interallied Control
Commission.
From all the foi'egoing I conclude :
That Steffen & Heymann appear to be an unusually qualified sales agent for
ordnance in Eastern Europe, the Balkans, and the Near East.
That their standing with the controlling element in Germany's government
and industry makes them valuable if on friendly terms, and dangerous if
otherwise.
That Steffen & Heymann have, through indiscretion or worse, been able to
follow the trail left by Mr. Driggs' former sales agents.
That in all possible transactions which Mr. Driggs may engage in with
Steffen & Heymann, a strict surveillance imposes itself, not because of possible
dishonesty in financial matters, but because of the danger that Steffen &
Heymann may involve the Driggs Co. in a political situation of which the
U.S. Government would not approve, and of the further danger that Mr.
Driggs' trade secrets may be disclosed to Bofors, Sweden.
That, while none of the big German banks will openly engage in the financ-
ing of contracts between foreign manufacturers of arms and ammunition and
foreign governments, subsidiaries of these banks may do so.
As answer to the questions opened by the foregoing, I submit the following
suggestions :
It appears to me that the logical thing to do in order to establish contact
between Driggs and Steffen & Heymann, or for that matter any other German
or European concern which is to act as sales agent, would be the organization,
or the use of an existing financial institute in the U.S. with close relations to
a German or European bank, such American financial institute to deal inde-
pendently with Driggs in the U.S. and in Europe with Steffen & Heymann or
whoever is to be the sales agent. This would avoid any direct connection
between the manufacturer and the sales agent and would probably simplify
the necessary financial transactions. The whole proceeding would graphically
appear as follows :
544
MUNITIONS INDUSTRY
Manufacturer Driggs ; Seller, U.S. financial institute; sales agent, Steftcn
& Heymaun ; buyer, foreign government.
Inasmuch as you intimated in your letter of Dec. 27th — incidentally the
last communication that I received from you — that you have made some inroads
into Johnson &, Co., the International Germanic might be the proper or^aniza-
tiun to fill the place of tlie U.S. financial concern. Much capital would not
be needed since the notes issued by the buyer could be subjected to a double
discount, once in Europe and then, bearing the discount of a reputable Euro-
pean bank, again in New York.
The surveillance indicated in dealings with Steffen & Heymann could, of
course, be exercised by myself as long as I am in Europe.
While you and Mr. Driggs are mulling this over, I suggest that Mr. Driggs
make some innuediate inquiries in Constantinople where his Mr. Allen resides,
regarding the alleged relations between Steffen & Heymann and the Turkish
Government. I further suggest that Mr, Driggs send me, through you, some
materiel which will keep Steffen & Heymann interested without giving them
anything which might become dangerous in their hands.
With my best regards to you and Mr. Driggs, I am,
Sincerely yours,
H. E. OSANN.
P.S. — While writing this letter, I received the following communication,
w^ritten in good English :
Exhibit No. 223
[Postal Telegraph]
Copy of translation of cable received by us, dated Warsaw, Jauary 20th, 1932.
" King of Great Britain .summoned our ambassador in London and inter-
vened in 3-inch or 75 mm AA 50 cal. gun on new mobile mount letter Dec. 15th,
1928 contract. Stop. Chief stands high pressure but great difficulty hold
situation. Stop. You must hasten summoning commission to America. Anx-
iously await your telegram promised for today."
(FLH)
Exhibit No. 224
Penciled notation. "Allen."
My Deiab Louis :
Constantinople, April 10, 1928.
[Excerpt]
(9 paragraphs omitted.)
* * * To offset that I am working on a plan, with the Embassy's coop-
eration, to have the cruiser Detroit, now in the Mediterranean, come here
to show our guns on board to the military commission or to have the com-
mission visit the ship in Italian waters. To accomplish this, the Turkish
Government must invite the ship to come here through the Foreign Dept.,
and immediately this is done Ambassador Grew will cable the State Dept.
asking that the visit of the Detroit be arranged. The Turkish War Depart-
ment has asked their Foreign Minister to make the invitation and it may come
out tomorrow. Meanwhile Eruin Bey, the head of the A.T. & T. Co., left today
for Angora, and I may go tomorrow instead of going to Greece. In fact the
action of the Technical Dept. will probably come to a head before the first of
May and if in our favor the discussion of the financial matters should be
concluded by June 1st. The typewritten offers enclosed are literal trans-
lations from the Turk which accounts for the phrasing used.
(3 paragraphs omitted.)
Sincerely,
(Signed) Hkrbekt F. L. Allen.
MUNITIONS INDUSTRY 545
Exhibit No. 225
[Radiogiain]
(Western Union)
Herbert Allen
Aniexco,
Stamboiil (Turkey) May 4, 1928.
When invitation received Detroit at Leghorn en route France if nearer
Department would have ordered Constantinople. Stop. Due Ville, France, 10th
May; Cherbourg 16 to 28. Department anxious to cooperate. Will delay de-
parture Ville, France, until 12th May if notified by 7th. May try to arrange
examination France Telegraph promptly.
(Translation of code.)
Exhibit No. 226
[Cablegram]
(Western Union)
" Via Ital Cable ", May 5, 1928.
M. L. Pisarek,
Mostowa IS Warsaw {Poland)
(TRANSLATION)
U.S.S. Detroit carrying our guns at Cherbourg from 16th May to about
28th May, Navy Department will telegraph instructions show guns Polish
commission. Try to arrange visit of commission or representative.
(Signed) Driggs.
("Exhibit No. 227" appears in text on p. 498.)
("Exhibit No. 228" appears in text on p. 498.)
("Exhibit No. 229" appears in text on p. 499.)
("Exhibit No. 230" appears in text on p. 499.)
( " Exhibit No. 231 " appears in text on p. 500. )
Exhibit No. 232
February 20, 1929.
Subject : U.S. Government's permit to manufacture latest-model antiaircraft
guns and mounts for foreign governments.
Mr. H. F. L. Allen,
% American Embassy,
Angora Turkey.
Dear Hekbert: In order to answer statements that the American Govern-
ment would not allow us to manufacture the latest antiaircraft material for
a foreign power, you can state, as we have previously informed you, that the
War Department has agreed to release these latest designs for filling orders
for foreign powers when the orders are of sufficient size to give adequate
work to our plant. Under date of May 8, 1928, the War Department, Wash-
ington. D.C., wrote us as follows :
546 MUNITIONS INDUSTRY
" Reference is made to your letter, dated Washington. D.C, March 14, 1928,
in which you request authority to utilize the latest United States Army designs
of antiaircraft material in your manufacture of antiaircraft material for
sale to Eux'opean countries.
" The Driggs breech and semiautomatic mechanisms have been standard
equipment of U.S. Army antiaircraft guns for a number of years. These
mechanisms are very satisfactory, and are utilized in the latest 3" and 105-mm
antiaircraft guns developed by the U.S. Army.
It is the desire of the War Department to encourage the manufacture of
munitions in the United States by commercial manufacturers. The War
Department would be willing to release to your company the designs of the
latest antiaircraft material, provided you had a contract with a foreign govern-
ment for a production quantity of antiaircraft material which you would agree
to manufacture in the United States. The size of the order will, therefore,
have to receive the approval of the War Department before any design infor-
mation is released to your company.
" Design information on the following components pertaining to the latest
United States antiaircraft matei"ial, both of the 3" and of the 105-mm types,
will be released by your company :
" Guns, mounts, data transmission systems, sights, fire-control instruments,
A.A. telescope with wind component indicator, A.A. observation instrument,
speed computer, sound computer.
" Considerable data and information regarding the efficiency and perform-
ance of the new type of U.S. antiaircraft material have been published. The
article on antiaircraft progress, by Major G. M. Barnes, Ordnance Department,
published in the March-April 1927 issue of "Army Ordnance " is a very excel-
lent resume of the present status of antiaircraft development in the United
States, and should serve as a very good sales literature in convincing foreign
governments of the efficiency of U.S. Army antiaircraft artillery material.
Development since the publication of this resume about a year ago have been
in the nature of refinements, all of which would be included in the design
information furnished to your company.
" The War Department hopes that your company may be successful in obtain-
ing an order for the manufacture of a considerable number of these new anti-
aircraft materials of the latest U.S. Army design.
" Very truly yours,
" C. B. ROBBINS.
" The Assistant Secretary of War."
The above is for the confidential information of the Turkish Government,
We must be careful that our competitors do not make it the basis of misrepre-
sentation of the American's Government's position on the reduction-of-arma-
ments question.
As you will see, this permission is conditional upon the size of the order
which, of course, is met by an order of the size contemplated by Turkey at the
present time.
If you have not already done so, j^ou should drive home the fact that this
proves we are offering the Turkish Government the world's latest and best
designs in antiaircraft material ; upon the development of which the U.S.
Government has spent over ,$2,000,000.
Very sincerely,
, President.
LLD : MS
Exhibit No. 233
[Exeerjyts]
April 9th, 1929.
Mr. W. R. Palmer.
Treasurer, The Smedleij Company,
New Haven, Conn.
(One paragraph omitted.)
With reference to the visit of the " Raleigh " to Constantinople, the Turkish
Government sent a commission from Angora made up of officers from the
War Ministry and also a naval officer, as there is now a good prospect of our
obtaining some naval guns also.
(One paragraph omitted)
MUNITIONS INDUSTRY 547
The priucipal fire-control instrument is the case III computer. IE you re-
member the letter from the Secretary of War releasing the latest designs to
us for manufacture under contracts from abroad, the new Wilson computer
being developed was excepted, the Department hoping to keep that secret.
However, Major Wilson died last fall, and there being none in the Department
to carry on the development work, it was turned over to the Sperry Gyroscope
Company. The result is a very wonderful instrument, and quite different
from the " Wilson." It is far in advance of anything existing in Europe. We
have been working with the Sperry Company to get a release on this instru-
ment which they already had obtained for the sound locators and searchlights.
This the Department granted a few weeks ago but only for manufacture after
an order was obtained. That would not help us in getting the order since
we must give the Turks an idea of what we are going to furnish. We there-
fore got the Sperry Company to request the War Department to release the
descriptions and general specifications in advance of an order.
As the matter was pressing, I went to Washington last week and got the
War Department to wire the Sperry Company its consent. The Sperry Com-
pany got all the descriptions and photographs over to me Friday, and they
were mailed that night to Allen, so that we have been able to meet the Turk's
requirements.
(Two paragraphs omitted.)
With reference to his last letter. This refers to the desire of the Polish
Government that we either establish a plant in Poland or supervise the manu-
facture of guns in an existing plant similar to such an arrangement as I had
with Starachowice when I came back from Poland. This is something that,
of course, can't be settled by correspondence. Now that the business is
assured in Poland, the only point to determine is what proportion of the
work we shall produce here, and what proportion in Poland. The financing
ought to be wound up quickly now so that I can get over to Poland and deal
on the spot.
Very truly yours,
• , President.
LLD : MS •
Exhibit No. 234
[Excerpts]
33 SCHABNHORST StRASSB,
Duesseldorf, Germany, Apr. 22, 1929.
Da\t:d a. Bucklety", Esq.,
Neto York City.
Del\r Mb. Buckley :
(Nineteen paragraphs omitted.)
In spite of the poor representation of Driggs and the doubt regarding his
capability of discharging his obligation when the contract is signed, Emin Bey
appears to be confident that the contract is to go to Driggs. They have infor-
mation from the States and the visit of the " Raleigh " confirmed it, that the
United States Government is supporting Driggs in this affair.
(c) The American authorities at Constantinople. They are thoroughly dis-
gusted. They lost no time informing me of Allen's critical financial situation.
They were frank in expressing their opinion of Driggs who seems to them to be
endangering any future effort on the part of American exporters to Turkey for
years to come. They made inquiries of their own in Washington. The informa-
tion obtained does not seem to give in every respect with the claims made by
Allen in behalf of Driggs. But they found out that Driggs is supported by the
U.S. Government, or by some prominent ofiicials thereof ; they did not hesitate
to advance the information to the Turks that the York plant may be Govern-
ment-owned and leased to Driggs ; they opined when asked where the skilled
workmen were to come from for this job, that they may be military or naval
arsenal employees, let out to Driggs for the purpose. The visit of the " Raleigh "
set their minds at peace and they are convinced that Uncle Sam is the real
party behind this business and that he was only unlucky in choosing Driggs as
his agent and Allen as the latter's representative.
(d) Vickers-Armistrong and Schneider-Skoda, the competitors. Both are
represented by Turks, assisted by technical experts sent from France and
548 MUNITIONS INDUSTRY
England, respectively. The Vickers representative has especially strong rela-
tions in Turkish Government circles. He is well i)ostc(l relative to Driggs'
standing in the U.S. and is probably the party who put the doubt as to the exist-
ence of Driggs' factory in the mind of Emin Bey and through him in the mind
of the American authorities. The arrival of the " Raleigh " destroyed the best
sales argument of the competition; i.e., that nobody had ever seen' the Driggs
gun, while they, Schneider and Vickers' had winking models. Their models
remained models, while the " Raleigh " proved that the Driggs guns is in actual
use.
(Six paragraphs omitted.)
Sincerely yours,
H. F, OSANN.
Exhibit No. 235
Exhibit No. 235
Photo showing Ilerbert Allen, the Drigcs Co. representative in Turkey, standing along'^ide a Driggs gun
on board the U.S.S. Jiuleigli, when that vessel visited Constant inople.
CO
CI
6
m
MUNITIONS INDUSTRY
HEARINGS
BEFORE THE
SPECIAL COlklTTEE
INVESTIGATIN& THE MUNITIONS INDUSTBY
UNITED STATES SENATE
SEVENTY-THIED CONGRESS
PURSUANT TO
S. Res. 206
A RESOLUTION TO MAKE CERTAIN INVESTIGATIONS
CONCERNING THE MANUFACTURE AND SALE
OF ARMS AND OTHER WAR MUNITIONS
PART 3
SEPTEMBER 7 AND 10, 1934
AMERICAN ARMAMENT CORPORATION
Printed for the use of the
Special Committee Investigating tUe Munttipns Industry
^
J
UNITED STATES
GOVERNMENT PRINTING OFFICE
83S76 WASHINGTON : 1934
^^ 18 1935
/(}A)i^
f
SPECIAL COMMITTEE INVESTIGATING THE MUNITIONS INDUSTRY
GERALD P. NYE, North Dakota, Chairman
WALTER P. GEORGE, Georgia ARTHUR H. VANDBNBERG, Michigan
BENNETT CHAMP CLARK, Missouri W. WARREN BARBOUR, New Jersey
HOMER T. BONE, Washington
JAMES P. POPE, Idaho
Stephen Raushenbush, Secretary
II
Char^ to credit acct
^ 88pL «t Oocwnenb
CONTENTS
Testimony of— Pase
BraytOD, Harold Morgan, technical director, American Armament
Corporation 549, 561, 617, 632
Driggs, Louis L., president Driggs Ordnance & Engineering Co., Inc_ 653
Green, Joseph C, Division of Western European Affairs, United
States Department of Commerce 624
Johnson, Frank, director American Armament Corporation and presi-
dent Elevator Supplies Co 549, 557
Miranda, Alfred Joseph, Jr., president American Armament Corpo-
ration 549, 581, 628, 634
Sweetser, Frank Elliot, secretary American Armament Corporation- 549, 558
Corporate structure of American Armament Corporation 549
Business relations with Bolivian Government 559
Business relations vpith Cuban Government 562
Foreign agents and methods used in obtaining business 565
Relations with United States naval officials 573
Relations with South American republics 581
Relations with Soley Armament Corporation 612
State Department and embargo on arms to Bolivia and Paraguay 623
Competition in South America for munitions business 634
INVESTIGATION OF MUNITIONS INDUSTRY
FRIDAY, SEPTEMBER 7, 1934
United States Senate,
Special Committee to Investigate
THE Munitions Industry,
Washington^ D. G.
The hearing was resumed at 10 a.m. in the Caucus Room, Senate
Office Building, pursuant to taking of recess, Senator Gerald P. Nye,
presiding.
Present: Senators Nye (chairman), George, Clark, Bone, Pope,
and Vandenberg,
The Chairman. The committee now wishes to hear Mr. Miranda,
Mr. Sweetser, Major Brayton, and also Mr. Johnson. Mr. Johnson
was not summoned to appear, but since he is here there may be
matters on which he can aid us.
TESTIMONY OF ALFRED JOSEPH MIRANDA, JR., HAROLD MORGAN
BRAYTON, FRANK ELLIOTT SWEETSER, AND FRANK JOHNSON
CORPORATE STRUCTURE OF AMERICAN ARMAMENT CORPORATION
(The witnesses were duly sworn by the chairman.)
The Chairman. Mr. Miranda, your full name and residential and
business address, please.
Mr. Miranda. Alfred Joseph Miranda, Jr., of 255 West End
Avenue, New York City; and No. G East Forty-fifth Street, New
York City.
The Chairman. What are your business connections ?
Mr. Miranda. American Armament Corporation and Miranda
Brothers, Inc.
The Chairman. What is your official capacity Avith those com-
panies ?
Mr. Miranda. I am the president of the American Armament
Corporation and vice president of Miranda Bros., Inc.
The Chairman. Mr. Sweetser, your full name and residence and
business address.
Mr. Sweetser. Frank Elliot Sweetser, Cold Springs Harbor, Lons
Island, N.Y.
The Chairman. Are you secretary of the American Armament
Corporation ?
Mr. Sweetser. Yes.
The Chairman. Are you connected with any other company that
is engaged in the manuifacture of munitions or ordnance?
Mr. Sweetser. No.
549
550 MUNITIONS INDUSTRY
The Chairman. Major Brayton, what is your residence and
business address i
Mr. Bkayton. My residence is 42 Edgemont Place, Teaneck, N.J.,
and my office is at 1515 Willow Avenue, Hoboken, N.J. My full
name is Harold Morgan Brayton.
The CiiAiuMAN. What is your connection with the American
Armament Corporation ?
Mr. Brayton. I have the title of technical director.
The Chairman. Technical director?
Mr. Brayton. That is right.
The Chairman. Mr. Johnson, what is your full name?
Mr. Johnson. Frank Johnson; residence. Glen Ridge, N.J., and
my main office is 420 Lexington Avenue, New York City.
The Chairman. What is your connection w^ith the American
Armament Corporation ?
Mr. Johnson. I am a director.
The Chairman. Not an officer?
Mr. Johnson. Not an officer ; no, sir.
The Chairman. All right, Senator Bone, will you proceed?
Senator Bone. Mr. Miranda, when was the American Armament
Corporation organized?
Mr. Miranda. December 15, 1933.
Senator Bone. Is it a New York corporation ?
Mr. Miranda. It is a New York corporation ; yes, Senator.
Senator Bone. What is your stock set-up?
Mr. Miranda. We have 500 shares of stock.
Senator Bone. Does it have a par value or is it nonpar ?
Mr. Miranda. Nonpar.
Senator Bone. That is your actual capital?
Mr. Miranda. That is our actual capital; yes, sir.
Senator Bone. Is it fully paid in ?
Mr. Miranda. Fully paid in ; yes, sir.
Senator Bone. What do you consider your stock to be worth?
Mr. Miranda. Today?
Senator Bone. Yes.
Mr. Miranda. It is hard to tell.
Senator Bone. What was it carried at on your books at the time
it was issued?
Mr. Miranda. It was issued for a consideration.
Senator Bone. What was that consideration?
Mr. Miranda. The consideration was our services.
Senator Bone. Your services?
Mr. Miranda. Yes, sir.
Senator Bone. Do you control any patents ?
Mr. Miranda. Some patents have been acquired through the issue
of stock.
Senator Bone. And by your " services " you mean your experience ?
Mr. Miranda. In foreign trade.
Senator Bone. In the business in which you were about to engage ?
Mr. Miranda. Particularly the experience in foreign trade.
Senator Bone. This stock was issued, I take it, to the incorpora-
tors, and will you please tell us who got that?
Mr. Miranda. The incorporators were — there are usually three
dummy incorporators that are taken care of by the attorney.
MUNITIONS INDUSTRY 551
Senator Bone. I mean the men who had actually had the bona
fide interest in the company. Who were they and how much stock
was issued to them ?
Mr. Miranda. My brother, myself (conferring with associate).
I find that the stock was all issued to Miranda Bros.
Senator Bone. Did they allocate it subsequently to the others?
Mr. Miranda. Yes, sir ; they subsequently allocated it to the pres-
ent stockholders.
Senator Bone. This record which I have before me shows that F.
E. Sweetser is secretary of the corporation; is that correct?
Mr. Miranda. That is correct.
Senator Bone. There was no actual cash put into the corporation ?
Mr. Miranda. Not at all ; I mean, except the expenditures that
I bore out of my own pocket.
Senator Bone. That was in connection with the formation of the
corporation ?
Mr. Miranda. Exactly.
Senator Bone. Now, Mr. Johnson testified or stated, I believe,
that he was president of the Elevator Supplies Co. and also was a
director of the American Armament Corporation.
Mr. Miranda. That is correct.
Senator Bone. How much do you yourself own of this stock?
Mr. Miranda. Personally?
Senator Bone. Yes, sir.
Mr. Miranda. Forty-nine percent — I beg your pardon, eighty
percent of the stock of the corporation is owned by Miranda
Brothers, Inc.
Senator Bone. That is, you and your brother?
Mr. Miranda. Myself, my brother, and my father.
Senator Bone. Yourself, your brother, and your father?
Mr. Miranda. I own 49 percent of Miranda Bros., and my brother
owns 49 percent of Miranda Bros., and my father owns 2 percent.
Senator Bone. And in turn, Miranda Bros, own 80 percent of
the stock of this corporation?
Mr. Miranda. Yes, sir.
Senator Bone. Mr. Sweetser holds 10 percent of the stock?
Mr. Miranda. That is correct.
Senator Bone. Mr. Higgins 5 percent and Mr. Joyce 2 percent,
and the record indicates 3 percent is held in the treasury.
Mr. Miranda. That is correct.
Senator Bone. During the war you had some service or saw
some service with this Government, did you not?
Mr. Miranda. I was with the Office of Naval Intelligence.
Senator Bone. How long were you connected with the Navy?
Mr. Miranda. I think it was from the spring of 1918 until the
end of the war.
Senator Bone. After the war, you engaged in the export business
in New York City ?
Mr. Miranda. That is correct.
Senator Bone. With Boomer & Co.?
Mr. Miranda. With Boomer & Co.
Senator Bone. About that time you organized an export corpora-
tion there and in 1922 organized this firm of Miranda Brothers,
Inc., to which you have referred?
552 MUiSriTioxs industry
Mr. Miranda. That is right.
Senator Bone. I will hurriedly go through this history, so that
we will get a picture of the situation for the record.
Mr. Miranda. Yes, sir.
Senator Bone. What was Miranda Bros, engaged in selling?
Mr. Miranda. Mostly automotive material, automobiles, trucks,
tires, and some machinery occasionall3^
Senator Bone. Did you dispose of any war supplies?
Mr. Miranda. No; not at all.
Senator Bone. Did you handle the sale of airplanes?
Mr. Miranda. Yes; we handled the sale of airplanes, not war
supplies.
Senator Bone. Commercial airplanes?
Mr. Miranda. Yes; when the aircraft industry began thinking
about foreign business we went right after that, and we have been
handling a number of aircraft accounts.
Senator Bone. So that we can better understand this picture as
we go along, are we to understand that your activities were almost
wholly confined to South America?
Mr. Miranda. Yes.
Senator Bone. When did Miranda Bros, first come in contact with
the munitions business ?
Mr. Miranda. In 1920, I believe. A mission came up from Co-
lombia, where we had some agents and dealings in automobiles and
trucks, and this mission was recommended to us to take care of.
The members of the mission did not speak English, and at that time
they were interested in purchasing some material. They were inter-
ested in purchasing some guns, and I first came in contact with Mr.
Driggs, and I took this Colombian mission in to see Mr. Driggs.
Senator Bone. That was in 1920?
Mr. Miranda. 1920 or 1921.
Senator Bone. You brought the Colombian military or naval mis-
sion into contact with the Driggs Ordnance & Engineering Co. ?
Mr. Miranda. With the Driggs Ordnance & Engineering Co.
Senator Bone. And endeavored to interest them in some of that
material, I take it.
Mr. Miranda. In some of the material which Mr. Driggs had left
from his war contracts ; yes, sir.
Senator Bone. It appears that in 1925 a second Colombian mili-
tary mission came to this country.
Mr. Miranda. That is correct.
Senator Bone. Did they contact you?
Mr. Miranda. Right away; and we took them over to Driggs'
office, although from the first visit no business had resulted. From
the second visit a small order resulted, I think $8,000 or $9,000 was
offered.
Senator Bone. Do you know or can you tell us what inspired these
missions to come to this country ? What was the inspiration down
south ?
Mr. Miranda. I do not knoAv. At the time it was strange because
they had never sent any missions up to this country.
Senator Bone. Can you advise us whether or not American Gov-
ernment officials were down in that country suggesting a course of
defensive measures for them ?
MUNITIONS INDUSTRY 553
Mr. Miranda. I do not believe so. I really was not payin<? very
much attention to the munitions business. It was incidental with us
and I did not look into it.
Senator Bone. Now, getting down to 1932, there was considerable
discussion in the press about the trouble between Colombia and
Peru, as you will recall, over a boundary dispute.
Mr. Miranda. Yes, sir ; Leticia, on the Amazon River.
Senator Bone. Did you talk to Mr. Driggs at that time about the
possibility of some business ?
Mr. Miranda. Yes; it happened that shortly before that time I
had had to discontinue my efforts in the sale of automobiles, and
therefore I had some spare time. I called on Mr. Driggs and sug-
gested contacting the Colombian consul and trying to interest him in
some of the material that Mr. Driggs still had left from the time
of his war contracts.
Senator Bone. Were you able to sell any of the materials pos-
sessed by the Driggs outfit?
Mr. Miranda. Yes, sir; we sold the Colombian Government
about $300,000 worth of material.
Senator Bone. About $300,000?
Mr. Miranda. Yes, sir ; between, I think, September or October of
1932 and the spring of 1933.
Senator Bone. At or about that time did you make a visit to
Colombia or Peru ?
Mr. Miranda. Not to Peru. I went to Colombia in 1983.
Senator Bone. Along in March?
Mr. Miranda. March 4, 1933.
Senator Bo>s'e. Did you visit Bogota?
Mr. Miranda. I went to Bogota and I spent several weeks there.
I think it was 2 or 31/0 weeks.
Senator Vandenberg. Senator Bone, before you leave that par-
ticular point, may I clear up a question which was in controversy
this morning?
Senator Bone. Yes ; these questions are largely preliminary. Go
ahead.
Senator Vandenberg. I want to inquire from you, Mr. Miranda,
about the letter as to which I interrogated Mr. Driggs this morn-
ing, " Exhibit No. 208." This is the letter which you wrote to the
Consul General of Colombia, and in which the phrase appears " the
unusual already known to you."
Mr. Miranda. That is a typographical error, Senator.
Senator Vandenberg. That is a typographical error?
Mr. Miranda. Definitely so.
Senator Vandenberg. You mean usual terms?
Mr. Miranda. Yes, sir; usual terms. We had already done some
business with Colombia — with the Colombian Government — and so
that they knew our terms, and what we stated was the usual terms.
Senator Vandenberg. If they were unusual, naturally, it would
merit scrutiny.
Senator Bone. There is one thing I omitted. What commissions
were paid you or your firm for negotiating these sales for the Driggs
people ?
Mr. Miranda. They ranged from 12 percent to 15 percent, and we
ourselves had to pay our Colombian agents.
554 MUNITIONS INDUSTRY
Senator Bone. In other words, out of your commission yon paid
for the sales costs of the work?
Mr, Miranda. The sales cost in Boojota ; yes, sir.
Senator Bone. Who was United States Minister to Colombia at
that time, at the time you were down there ?
Mr. Miranda. Mr. Jefferson Caffery, the present American Am-
bassador to Cuba.
Senator Bone. There was some controversy at that time over dam-
ages, or alleged damages, growing out of a vessel which failed to
measure up to what they thought were the requirements, was there
not?
Mr. Miranda. Yes, sir; they claimed the cruising radius of a
vessel which we had sold them was not what we had stated.
Senator Bone. Did the American Minister to Colombia interest
himself in the adjustment of that claim?
Mr. Miranda. We claimed that they had not given us ample time
to run the necessary tests in order to adjust the vessel to the cruising
radius they wanted. They were in such a hurry to get it to the
Amazon that, as soon as it was finished it sailed.
Senator Bone. What was the name of that boat ?
Mr. Miranda. The name of the boat, the new name of the boat in
Colombia ?
Senator Bone. Yes, sir.
Mr. Miranda. The Meriscal Suo^e.
Senator Bone. What is the American name?
Mr. Miranda. Flying Fox.
Senator Bone. What was she, a yacht ?
Mr. Miranda. She had been designed as a yacht but along torpedo
lines. Yarrow built. She was built by Yarrow in Scotland.
Senator Bone. What was she intended to be used for down there ?
Mr. Miranda. A light gunboat.
Senator Bone. A light gunboat?
Mr. Miranda. Yes, sir.
Senator Bone. In ocean service or the river?
Mr. Miranda. River. One of the interesting points was that she
was a very shallow-draft boat.
Senator Bone. While you were there did you suceed in obtaining
any new orders for ammunition?
Mr. Miranda. Yes, sir; we secured an order for, I think, 2,000
rounds of ammunition for the guns that w^ere mounted on the boat.
Senator Bone. What did that order amount to? Do you know?
Mr. Miranda. Roughly $30,000 or $35,000.
Senator Bone. That was for the Driggs concern?
Mr. Miranda. Yes, sir ; I was still acting as a commission salesman
for the Driggs concern.
Senator Bone. During the year 1932 were you able to sell anything
to Venezuela?
Mr, Miranda, In 1932, yes; a small order for about $65,000.
Senator Bone, Now at that time, when you saw some prospects
of this trade coming to the Driggs Co., you saw prospects for opening
up South America to a somewhat wider field of operations, did
you not?
Mr. Miranda. Not quite. I went down from Venezuela — I was
sent to Brazil. I had learned in Colombia and Venezuela that there
MUNITIONS INDUSTRY 555
was quite a call for munitions going to Europe and practically
nothing coming to this country. I spent three months in Brazil,
because the Government was interested in the purchase of a large
number of guns.
Senator Clark. What kind of guns were they trying to purchase?
Mr. Miranda. 75 millimeter and 125 millimeter, field guns and
mountain guns.
Senator Bone. Was the Driggs Co. in position to turn out that
sort of equipment?
Mr. Miranda. I do not think so. Eather, I felt they were not.
Senator Bone. Where would you have had them built, if you had
gotten the order?
Mr. Miranda. I do not think we could have gotten the order with
the set-up we had. An order for about 6 million or 8 million dollara
is not gotten unless one has a very definite industrial and financial
condition.
Senator Bone. Would it have paid to put up a new plant for that
and to have assembled the machinery, and so forth, for a 6- or
8-million dollar order.
Mr. Miranda. I do not know, but I do not think so. I spoke
about it with Mr. Bardo, and he thought if we only got that order
and spent quite a bit of money for tooling up and we did not get
any more business, it was going to be difficult.
Senator Bone. Mr. Bardo was president of what?
Mr. Miranda. New York Shipbuilding Co.
Senator Bone. Do they make or attempt to make armament of
any kind?
Mr. Miranda. No. At the time Brazil had a naval program for
about $40,000,000, and we thought that we might be able to interest
the New York Shipbuilding Co. in some sort of combine with the
Driggs Co. in creating a company into which both Driggs and New
York Ship would go, and that Driggs would take care of making
the guns and New York Ship would go after the shipbuilding.
Senator Bone. The New York Shipbuilding Co. at that time was
beginning to interest itself in possible Brazilian business?
Mr. Miranda. Yes.
Senator Bone. When did you leave the Driggs organization?
Mr. Miranda. I think it was some time in November. I do not
remember very accurately.
Senator Bone. The record I have here indicates November 27,
1933. Would that be about right?
Mr. Miranda. Yes, sir ; about that date.
Senator Bone. When you left the Driggs Co. what did you do
about creating your own organization? Was it created immediately?
Mr. Miranda. No; not quite. As a matter of fact, I had to look
around for connections with a manufacturer that had a plant, with
a record of being able to build very accurately, and also that would
have the necessary financial backing to post any bonds that might
be required for the fulfillment of the contract.
Senator Bone. Your company appears to have been organized in
December 1933, so that you were a month or more making these
preliminary arrangements for the creation of this American Arma-
ment Co.?
Mr. Miranda. That is right.
556 MUNITIONS INDUSTRY
Senator Bone. Did you take over anj^ of the assets of the Driggs
Co. at the time you created your corporation?
Mr. Miranda. No; not at all. As a matter of fact, there were no
assets.
Senator Bone. No assets?
Mr. Miranda. There was an unfortunate condition in the Driggs
Co., where they came over and closed up the office.
Senator Bone. Did the American Armament Co., having no paid-
in capital, but its capital being reflected solely as the reward for
services rendered to the company, or rendered by its officers, find
itself in this position : That you had to make some arrangement for
manufacturing?
Mr. Miranda. Correct.
Senator Bone. What arrangement did you make to manufacture
the stuff which you got in the way of orders ?
Mr. Miranda. We made an arrangement with the Elevator Sup-
plies Co.
Senator Bone. Where is their plant?
Mr. Miranda. At Hoboken.
Senator Bone. Hoboken, N.J. ?
Mr. Miranda. Hoboken, N.J. ; yes, sir.
Senator Bone. Did they have a plant capable of manufacturing
ordnance ?
Mr. Miranda. Yes, sir.
Senator Bone. Up to what size?
Mr. Miranda. I believe up to 3-inch.
Senator Bone. Up to 3-inch ?
Mr. Miranda. Up to 3-inch. Is that true, Mr. Johnson?
Mr. Johnson. Yes, sir.
Senator Bone. Can you manufacture a gun of larger caliber?
Mr. Miranda. Major Brayton might know.
Mr. Brayton. Six inches would be the maximum.
Mr. Johnson. Not with the tools we have now, but of course you
can always buy tools.
Senator Bone. Major Braj^ton, you say you could manufacture a
gun up to 6-inch caliber?
Mr. Brayton. Most of the parts. We have no forging equipment.
Senator Bone. Where would you get the forgings, if you had an
order?
Mr. Brayt(>n. There are many companies in this country that do
that sort of thing. Bethlehem Steel, National Forging & Ordnance
Co. in western Pennsylvania, and the Midvale Steel.
Senator Bone. Have you the tools and machinery to put the fin-
ishing touch on the guns?
Mr. Brayton. I believe the tools there would be suitable for a
6-inch gun, but that would be the limit.
Senator Clark. You made an arrangement Avith them to manu-
facture the guns if you got the order?
Mr. Miranda. A little bit more than that. Senator. They were to
be our manufacturing affiliate, and they were to put up the necessary
money for us, carry on our activities, and they were to put up the
necessary funds for us to bid on foreign business, and put up per-
formance bonds.
MUNITIONS INDUSTRY 557
Senator Clark. Do yon have any interest in that company ?
Mr. Miranda. No; I have no interest in that company.
Senator Clark. Do they have an interest in yours ?
Mr. Miranda. Yes, sir; they have an interest in ours.
Senator Clark. How much interest do they have ?
Mr, Miranda. They have an interest of 20 percent. It is not a
stock interest, but purely a profit-sharing interest.
Senator Bone. So that we may have the picture in an accurate
shape, the Elevator Supplies Co. is the agency that will build the
product when you get the order ?
Mr. Miranda. That is correct.
Senator Bone. Yours is merely a skeleton organization which is
largely in the nature of a sales organization ?
Mr. Miranda. Sales and designing.
Senator Bone. Sales and designing?
Mr. Miranda. Yes, sir ; which is very important.
Senator Bone. And the Elevator Supplies Co. merely takes the
blueprints, drawings, plans, and specifications and hand back the
finished commodity to you?
Mr. Miranda. That is correct.
Senator Bone. They also underwrite any necessary financial opera-
tions, they, I take it, being more substantial financially and having
a better rating than your company ?
Mr. Miranda. Yes, sir.
Senator Bone. That is not suggested as an invidious comparison
Mr. Miranda. That is perfectly all right.
Senator Bone. What we want to get at is just merely the facts.
Mr. Miranda. That is all right.
Senator Bone. How long has the Elevator Supplies Co. been
operating ?
Mr. Johnson. Forty years.
Senator Bone. For how long, Mr. Johnson, has it been capable
of manufacturing war supplies of any kind ?
Mr. Johnson. I do not know exactly, but I think about 3 years.
Senator Bone. Prior to that time, to what field did you confine
vour activities?
Mr. Johnson. Elevator work of various kinds, mostly to elevator
signals, the up-and-down lights, you see, closures for elevator doors,
hangers and tracks for elevator work, and all work of that kind.
Senator Bone. What induced your company to enter the munitions
field?
Mr. Johnson. The building field went down to nothing.
Senator Bone. It was an adventure into a new field due to eco-
nomic conditions?
Mr. Johnson. Economic conditions, exactly.
Senator Bone. Due to the fact that the world picture looked more
health}^ for the munitions business ?
Mr. Johnson. No; due to the fact that we had a plant with
several hundred men, and we wanted to keep our organization and
men together.
Senator Bone. There must have been some reason for entering
that field.
Mr. Johnson. We had the tools to do it and the other people
did not.
558 MUNITIONS INDUSTRY
Senator Bcjne. Was that business showing more life then than
other forms of business?
Mr. Johnson. Yes, sir.
Senator Bone, Did you have to acquire much in the way of new
tools and equipment to enter this field?
Mr. JoiixsoN. No, sir.
Senator Bone. You could handle it wath your elevator equip-
ment ?
Mr. Johnson. Yes, sir.
Senator Bone. Is there anything in manufacturing ammunition
which requires other tools, outside of rifling equipment?
Mr. Johnson. You have to have tools which are precise and the
work must be ver}^ accurate.
Senator Bone. Are those tools easily obtained?
Mr. Johnson. They can be bought.
Senator Bone. They can be bought? They are sold in the open
market?
Mr. Johnson. They are sold in the open market.
Senator Bone. There is nothing very difficult about going into
that tj-pe of business and quickly organizing a plant?
Mr. Johnson. You could organize a plant almost over night.
Senator Bone. Could you start it operating quickly ?
Mr. Johnson. It would take a certain amount of time and your
personnel would have to get used to the tools and handling them,
and all that sort of thing.
Senator Bone. What type of men do you use in tlie plant? Ex-
pert machinists ?
Mr. Johnson. Yes, sir.
Senator Bone. Men familiar with lathes and machinery and so
forth?
Mr. Johnson. Yes, sir.
Senator Bone. What connection had Mr. Sweetser had with the
Driggs Co.?
]\Ir. Sweetser. I was secretary of the Driggs Co.
Senator Bone. When did you join the American Armament Or-
ganization ?
Mr. Sweetseij, Shortly after the 1st of January of this year.
Senator Bone. During the month of January?
Mr. Sweetser. Yes. sir.
Senator Bone. Of 1934?
Mr. Sweetser. Right.
Senator Bone. The present year?
Mr. Sweetser. Yes, sir.
Senator Bone. Did Mr. Joyce, who was formerly with the Driggs
Co., likewise join the new organization?
Mr. Sweetser. Yes.
Senator Bone. Major Brayton, had 3^ou been connected in any
way Avith the Driggs concern?
Mr. Brayton. As a consulting engineer from time to time only.
Senator Bone. You were not on their pay roll ?
Mr. I5rayton. As a consulting engineer only, being paid for what
I did.
Senator Bone. Did you affiliate yourself with the new American
Armament Corporation?
MUNITIONS INDUSTRY 559
Mr. Brayton. Yes, sir.
Senator Bone. When did you join?
Mr. Brayton. Almost immediately, or I would say immediately,
because I played some part in helping Mr. Miranda get the thing
going, so far as I could, and advising them as to what we could do,
and that sort of thing.
Senator Bone. Mr. Johnson, did your concern, prior to the or-
ganization of the American Armament Co., manufacture anything
for the Driggs Ordnance Co.?
Mr. Johnson. Yes, sir.
Senator Bone. What did you make for them?
Mr. Johnson. I do not know exactly. Senator ; shells, that is. these
shells that Mr. Miranda sold to Colombia and Venezuela, part of the
equipment of this Flying Fox, and things of that kind.
Senator Bone. Did you do any ordnance work for them ?
Mr. Johnson. I do not think so.
Senator Bone. How long had you been with the American Ele-
vator Co., if that is the name of the company?
Mr. Johnson. I came there on the 1st of January 1933.
Senator Bone. What had been your business connections prior to
that time?
Mr. Johnson. The Elevator Supplies Co. was an amalgamation
of two other companies in 1917. At that time I was the treasurer
and vice president of one of those companies, and I went with the
Elevator Supplies Co. as general manager for about a year until the
amalgamation was completed. My people have held their stock in-
terest in the concern ever since, but I have not been active in it.
Senator Bone. How old is the Elevator Supplies Co.?
Mr. Johnson. At least 40 years old. It was organized in 1892;
that is, the Elevator Supplies Co. was organized in 1917, but it was
a combination of two firms that had been organized in 1892 and 1893.
Senator Bone. The Elevator Supplies Co., does this manufacture
for this Government or any foreign governments on direct orders
that are not ]3ut through the American Armament Co. ?
Mr. Johnson. No, sir.
Senator Bone. Do you have any working arrangement with the
American Armament Corporation whereby all that business goes
through them?
Mr. Johnson. We have not any working arrangement, but we
have not any salesmen or any set-up to get that business.
Senator Bone. If any of that business came to you, you would
manufacture it and sell it direct?
Mr. Johnson. We might, although I do not think so.
Senator Bone. Did you ever get any business or have any con-
nections with the Bolivian Government?
Mr. Johnson. No, sir.
BUSINESS RELATIONS WITH BOLIVIAN GOVERNMENT
Senator Bone. Mr. Miranda, has the Bolivian Government done
any business with you ?
Mr. Miranda. Oh, yes.
Senator Bone. Will you kindly indicate when that was accom-
plished and the amount of it.
560 MUNITIONS INDUSTRY
Mr. Miranda. We have had altogether six contracts with the Bo-
livian Government.
Senator Bone. What is the type of ammunition and war material
covered by those contracts ?
Mr. Miranda. Mortars and mortar ammunition.
Senator Bone. What sort of mortars were they ?
Mr. Miranda. The small trench mortars. I see you have a cata-
log of ours here.
Senator Bone. Trench mortars?
Mr. Miranda. They are called " trench mortars " ; yes.
Senator Bone. That is a small mortar that will throw a shell only
for a short distance?
Mr. Miranda. Well, not very short; up to 3,000 meters.
Senator Bone. Translated into English, what is that distance?
Mr. Miranda. About 3,300 yards.
Mr. Brayton. Two miles.
Senator Bone. Is this a picture of the bomb [indicating in
catalog] ?
Mr. Miranda. That is the picture of a bomb that is thrown by this
mortar, a picture of the projectile.
Senator Bone. Can you tell us anything about the explosive force
of that bomb and its capacity for the destruction of life ?
Mr. Miranda. I think it would be better if Major Brayton would
tell us about that.
Senator Bone. Will you tell us about that, briefly, Major?
Mr. Brayton. These mortars can be made in various sizes. We
have actually made for the Bolivian Government two sizes only, one
of the 47 mm, which is small, you see, 1.85 inches and the 105 mm,
which is 4.1 inches approximately.
The smaller one, the 47 mm one is, of course of short range rela-
tiA^ely, 2,000 meters and is designed primarily for use in attacking
enemy troops while in trenches or behind a hill or woods or upon
ground that is very high, so that the shell would go very high and
fall down on them.
Senator Bone, In other words, it is designed for high-angle fire.
Mr. Brayton. For high-angle fire; yes. All mortars of this type
are. It is used for relatively short range work. They are used ex-
clusively against personnel, in trench warfare or in warfare in
rugged country, in mountainous areas or wooded areas, and so forth.
The 47 mm gun carries just one size of shell weighing about 4.3
pounds. It contains about a third of a pound of high explosives, a
fairly deadly little item. It does not do any destruction to material
objects, but is designed principally for use against troops in trenches,
and so forth, to get down into them. Each shell would do a rela-
tively small amount of destruction, but they are small and they can
be fired rapidly and in the aggregate may cause considerable damage.
They are cheap to manufacture and are very popular in the smaller
countries in South America.
'J'he larger size, 105 mm, is in a different class, although it is a
smooth-bore model. We furnish two sizes of projectiles with that,
one weighing 14 pounds and the other weighing 24 pounds, the
14-pound one having a 3,000- or 2,900-meter range.
MUNITIONS INDUSTKY 561
These larger projectiles are designed primarily for the destruc-
tion of material objects such as the destruction of a road or a bridge
or a sand bank or a trench, or that sort of thing. If personnel get
in the way of the shell fragments, why, they are eliminated, of course.
But the primar}^ object of that mortar is to destroy material objects.
Senator Bone. I take it that it would have a terrific explosive
force.
Mr. Brayton. Not so terrific, but sufficient to do considerable dam-
age. The smaller shell contains 2 pounds of high explosive and the
larger ones 4 pounds.
Senator Bone. Are they used for disseminating poison gas or
purely for explosives.
Mr. Brayton. No, sir; just high explosives. They could be loaded
with gas, but we have not done anything of that sort. We are not
in that business.
Senator Bone. Can you tell us whether any of these guns that were
shipped there were used in the Chaco trouble?
Mr. Brayton. I have no knowledge, personally.
Senator Bone. However, they were acquired by the Bolivian Gov-
ernment.
Mr. Brayton. That is right.
Senator Bone. Major, I take it from j^our title that you were
in the military service.
Mr. Brayton. I was in the military service during the Avar; yes,
sir.
Senator Bone. With this Government?
Mr. Brayton. With this Government.
Senator Bone. How long did you serve?
Mr. Brayton. Just during the period of the war, from the latter
part of July 1917 until December 1918.
Senator Bone. Did you go into the Army from civilian life ?
Mr. Brayton. Yes, sir.
Senator Bone. What branch of the service were you in?
Mr. Brayton. Ordnance Department.
Senator Bone. You had, of course, a university training?
Mr. Brayton. I am a graduate of Massachusetts Institute of Tech-
nology in Boston.
Senator Bone. Did you see service overseas?
]\Ir. Brayton. I did not. I spent my whole time at the Frankford
Arsenal in Philadelphia.
Senator Bone. The record indicates that the Bolivian contract
amounted to nearly a million dollars, is that right?
Mr. Johnson. One contract?
Senator Bone. Yes.
Mr. Miranda. There is one contract that we have not filled that
is for a million and a half.
Senator Bone. You have delivered so far to the Bolivian Gov-
ernment how much in the way of munitions, represented in money ?
Mr. Miranda. I think about $800,000.
Senator Bone. There is a record of an order from the Bolivian
Government of $1,600,000.
Mr. Miranda. That is correct.
9:;87C — .-U— PI- 3 2
562 MUNITIONS INDUSTRY
BUSINESS RELATIONS WITH CUBAN GOVERNMENT
Senator Bone. Have you done any business with the Cuban Gov-
ernment ?
Mr. Miranda. Indirectly.
Senator Bone. What other countries in South America have you
solicited for business?
Mr. Miranda. We have solicited every country by this time.
We have had orders from all of those countries except Paraguay.
We have not solicited in Paraguay.
Senator Bone. AVhen you referred to the Cuban negotiations as
being indirect, what did you mean?
Mr. Miranda. We had an order from a firm in New York, the
International Ordnance & Instrument Co. A man by the name of
Figuerola. He gave us a small order for artillery ammunition and
mortar ammunition that he obtained from the Cuban Government.
Senator Bone. That amounted to about $14,000 ?
Mr. Miranda. I think it was just $14,000.
Senator Bone. Did you have any trouble over the order?
Mr. Miranda. Yes, sir.
Senator Bone. What was that trouble?
Mr. Miranda. Well, Mr. Figuerola did not furnish us with all
the information that we needed and when the ammunition was tested
it proved defective.
Senator Bone. What happened?
Mr. Miranda. Perhaps Major Bray ton will tell you in his tech-
nical terms.
Senator Bone. You understand, gentlemen, that it is perfectly
all right for any of you to interrupt the other, so far as the com-
mittee are concerned, to supply information.
Mr. Miranda. I would like to have you get the story first hand.
Mr. Brayton. I do not know how much detail you want me to go
into, Mr. Senator.
Senator Bone. Just tell us the story briefly, Major.
Mr. Brayton. If I go into too much detail, just tell me and I
will stop.
The order originally came to us in this way: First of all a man
came to see me having heard that we were starting in the business.
That was this Mr. Figuerola. He sat down in my office and intro-
duced himself first, of course. I had not met him before. He told
me that he was in the business of getting orders for munitions
wherever he could ; that he had a small order at the present time that
he had to fill; that he was in the habit, whenever he got such
orders, of sending over to Europe and getting the munitions there to
fill the orders, he functioning as a broker or commission merchant on
it, but that he had heard that we were starting in business and that
he would like to locate an American source of supplies to fill the
orders he got.
He pictured this to me as a situation where what he had now
was but a very small order, it was really only a trial order ; that he
had very good connections in some of the South and Central Amer-
ican countries, and that if we could get together he could get quite
a good bit of business for us.
MUNITIONS INDUSTRY 563
He outlined to me exactly what he wanted. My first reaction
was that the quantity was so terribly small that there was no sense
of our bothering with it, because we would have to charge for
the tools and all of the equipment necessary to make the stuff and
the price necessarily would be so much higher than he could get in
Europe that he might just as well get it in Europe. I was ready
to show the man out of the office ; it was something that we thanked
him for coming to us about, but it was so small that there was no
use of our bothering with it.
He was somewhat insistent that I go into the matter of cost, that
it really did not matter so much, that he might be willing to pay
for this small amount what we asked in order to establish relations
with us, that he could get more business, and so forth.
So I went ahead and estimated on the cost of furnishing this
material, which was really just ordinary stuff although we had no
tools for making it. I turned the cost figures into our New York
office, to Mr. Miranda, and he, in turn, made a proposal.
There were some negotiations back and forth and finally we re-
ceived the order.
Senator Bone. Were these for the Cuban Government?
Mr. Brayton. We did not know that. He did not tell us the
source, or who it was for.
Senator Bone. He did not disclose his principal?
Mr. Brayton. It was not disclosed until the material was ac-
tually ready to ship and we had to mark the boxes. It was then
disclosed to us, but not before. We really were not interested. We
just figured that it was his business and perfectly legitimate, so far
as we were concerned.
We got the order and as the order was received, it read like this :
Four hundred rounds of ammunition for the 3-inch Stokes trench
mortar. That was the mortar that was used by our Army and all
the other allied armies extensively during the war and now obsolete,
so far as our Army is concerned.
Two hundred rounds of ammunition, the low-explosive ammuni-
tion, for the 37-millimeter Navy type gun, the American Navy type
gun.
Five hundred rounds of ammunition for the 75-millimeter
Schneider field gun, which the Cuban army had, a foreign gun.
Of course, we immediately told Mr. Figuerola that we would have
to have certain information, particularly on that Schneider gun.
We had no information at all as respects the size of the chamber, its
ballistic characteristics, what velocit}^ they expected to get out of the
ammunition, and so forth.
We did have information on the ammunition for the Navy type
gun, because that has been in use for probably 30 years or more,
and the old 3-inch Stokes is a gun that is known everywhere.
He agreed to furnish us with a sample round of ammunition of
the two weapons, the 37-millimeter and the 75.
Somewhat immediately after he gave us the order, he left for
Europe, destination unknown to us, and his office would not give it
to us. We waited for quite some time and yet got no sample round
of ammunition. We kept after his office, and his secretary, and she
apparently kept after the place where the stuff was coming from,
but several weeks went by.
564 MUNITIONS INDUSTRY
In the meantime, we could not move on certain phases of that
and were under contract to deliver it. In. due time, instead of get-
ting a round of ammunition, we got a sample cartridge case — 3 of
them, not 2 — the 3T-millimeter proved not to be the Navy gun, but
proved to be the Army gun.
Senator Bone. Which gun?
Mr. Brayton. The ST-millimeter Army field gun, our Army field
gun, which is really a French gun taken over during the war, known
to the trade as the " Puteau gun."
In addition to the 75-millimeter gun that our order called for, we
got two cartridge cases and we were then told that the order instead
of being 500 rounds for the 75 Schneider field gun was split up into
two units, 250 rounds for the Schneider mountain gun and 250
rounds for the Schneider field gun. That changed the complexion
of the order, which we had already taken at a price. It put us to
the expense of making an extra-size cartridge case for only 250
rounds.
In addition to that, he had given us no ballistic information on
the weapons and we had no way of getting it. We did not know
where the material was going. If we had, we could have contacted
the Cuban Government directly, in order to get the information.
We would be taking the risk of suit by him against us for failure
to fill our contract.
I had to make the best estimate I could on what the ballistics
of those weapons would be; in other words, the best intelligent
scientific guess that we could make and go ahead and produce the
stuff.
Senator Bone. This certainly could not have been a Cuban order
or the Cuban Government would have known precisely what they
wanted.
Mr. Brayton. The point of this, I learned later, was this. The
Cuban Government had turned over to the International Ordnance
& Instrument Co. all the information, but they had not turned it
over to us. I got that directly from the second in command of the
Cuban Arni}^, personally, when I was in Habana.
Senator Bone. What do you suppose was the purpose of this
man Figuerola withholding this information ?
Mr. Brayton. I do not think he did it intentionally. I think he
just went to Europe and forgot about it; I do not know.
Senator Bone. What were his connections in Cuba?
Mr. Brayton, That I do not know.
Senator Bone. Do you know what his business was? What was
his business there?
Mr. Brayton. Outside of this particular deal, I do not know.
Mr. Miranda. His business was in New York, but he was supposed
to be well connected with the Grau administration. That was the
administration that came after Machado was sent out.
Senator Bone. Was that still in the saddle ?
Mr. Miranda, No. My understanding is that the Grau adminis-
tration gave him a blank amount of money, sixty or seventy or
eighty thousand dollars, whatever it was, to buy so much material.
He just took the money and went out to buy the material. He came
to us and bought the ammunition from us and it seems that before
MUNITIONS INDUSTRY 565
they got the material, the Grau administration was out and another
administration was in.
Senator Bone. Do you know what happened to the $80,000?
Mr. Miranda. I do not know, except that when the material
reached there and it did not function satisfactorily — it worked, but
not satisfactorily — it seems that the Cuban officers thought that we
were in cahoots with Figuerola to furnish defective material so that
if the material had to be used against the new administration, it
would not work. They were quite incensed. As a matter of fact,
they held him in one of the Army camps until we sent Major Bray-
ton down to conduct the test and find out just what was wrong, and
we assured the Cuban Government that we would rectify whatever
was wrong.
Senator Bone. In your negotiations in South America, have you
had occasion to do any business with Uruguay?
Mr. Miranda. No; neither Uruguay nor Paraguay.
Mr. Bratton. Just to finish up my little point, Senator, on this
Cuban matter. When I was sent, as Mr. Miranda says, to Habana,
we started to get wild, exaggerated statements regarding the thing.
Many of those we knew were not correct. We run into that often
in these foreign countries. They get material and take it out and
test it or shoot it in a way in which it could not possibly work, like
shooting it against a sheet of paper or something of that sort
equally absurd. So we get a lot of wild statements as to what is
wrong, most of which, when I get there I found were not true. But
the principal trouble was that due to a lack of ballistics informa-
tion, which we could not get, I had not made a perfect guess as
regards the powder charge in one of the weapons in particular, the
powder being too slow and did not produce quite the velocity that
they had been in the habit of getting. The pressure was low and
it simply needed what they call in the trade a " faster " powder,
and that we are correcting.
FOREIGN agents AND METHODS USED IN OBTAINING BUSINESS
Senator Bone. I am going to read for the purpose of the record
the names of your agents in South America, and I wish you would
indicate if these are correct for the purpose of the record.
In Cuba, Jose Merla?
Mr. Miranda. That is correct.
Senator Bone. In Mexico, Pietro Merla?
Mr. Miranda. That is correct.
Senator Bone. In Colombia, Urueta & Samper?
Mr. Miranda. That is correct.
Senator Bone. In Peru, V. Menozzi?
Mr. Miranda. That is correct.
Senator Bone. In Chile, Domingo Grez?
Mr, Miranda. That is correct.
Senator Bone. In Bolivia, Webster & Ashton?
Mr. Miranda. That is correct.
Senator Bone, Is that an American firm?
Mr. Miranda. They are Bolivians of British ancestry.
Senator Bone, In Argentine, Larreta?
Mr, Miranda, That is correct.
566 MUNITIONS INDUSTRY
Senator Bone. In Brazil, Soiiza Sampio & Co.?
Mr. Miranda. That is correct.
Senator Bone. In Venezuela, B. de Santa Ana?
Mr. Miranda. That is right.
Senator Bone. Who is he?
Mr. Miranda. Colonel Santa Ana.
Senator Bone. Is he related to the Mexican Santa Ana?
Mr. Miranda. He is a grandson of Santa Ana.
Senator Bone. A grandson of old General Santa Ana?
Mr. Miranda. Yes.
Senator Bone. In Ecuador, F. Sefzic?
Mr. Miranda. That is correct.
Senator Bone. Do you have European representatives?
Mr. Miranda. We have a number of people that will doubtless
have rei:)resentation, but I do not believe that we have as yet — have
we, Mr. Sweetser ?
Mr. Sweetser. We have given two sort of trial agencies for a
very short time. They have got 2 or 3 months to run.
Senator Bone. Are you attempting to do any business in Europe ?
Mr. Miranda. Yes. We hope to do business all over the world.
Senator Bone. You have lines out where you are trying to make
some contact?
Mr. Miranda. Yes, sir.
Senator Bone. What are your business relations, if any, in the
Far East — Japan and China?
Mr. Miranda. Well, we have recently made an arrangement with
a firm, Anderson Meyer & Co. in China.
Senator Bone. Where are they located?
Mr. Miranda. I think their main office is in Shanghai, but they
have offices all over China. They represent a number of American
machine manufacturers.
Senator Bone, What about Okura?
Mr. Miranda. In Japan Miranda Brothers for a number of years
has done business through Okura & Co.
Senator Bone. What are they, general importers and exporters?
Mr. Miranda. Yes; they are importers and exporters. They are
one of the largest firms in Japan.
Senator Bone. Do they deal in munitions of war as well as other
things ?
Mr. Miranda. I do not know, because we have never dealt with
them in munitions of war. We have dealt with them in aircraft.
Senator Bone. Who represents you in Siam?
Mr. Miranda. The firm of Suphan Phanich.
Senator Bone. Have you done any munitions business Avith any
of these Asiatic countries?
Mr. Miranda. No. The only munitions business has been with
Bolivia, this indirect order with Cuba and with the Government of
the Dominican Kepublic.
Senator Bone. Getting down to Japan, have you sold any air-
planes to Japan?
Mr, Miranda. Yes. In the last 3 years we have sold 3 planes.
Senator Bone. What type of planes?
Mr. Miranda. Lockheed.
MUNITIONS INDUSTRY 567
Senator Bone. Are they the latest type ?
Mr. Miranda. We have recently sold them one of the latest type.
Senator. Bone. The very last type.
Mr. Miranda. Yes.
Senator Bone. What are you going to use that for — passenger
service ?
Mr. Miranda. No. I understand Okura & Co. have sold that plane
to the Japanese Imperial Navy.
Senator Bone. So that the Japanese Imperial Navy is now equipped
with the latest model Lockheed plane?
Mr. Miranda. That is correct, Senator.
Senator Clark. What were the other two planes that you sold
to Japan?
Mr. Miranda. They were two single-engine transport planes.
Senator Bone. In connection with the sale of these planes — and I
take it the Lockheed is a very fast plane
Mr. Miranda. It is one of the fastest in the world.
Senator Bone. One of the fastest in the world ?
Mr. Miranda. Yes.
Senator Bone. It represents, I understood you to say, the latest de-
velopment in airplanes?
Mr. Miranda. Yes. I think that the Lockheed and the Douglass
are the two foremost developments of the American aircraft industry.
Senator Bone. Does the United States Government lay any em-
bargo on the free sale of planes to Japan ?
Mr. Miranda. Not thus far.
Senator Bone. Out on the Pacific Coast, I might suggest to you,
we are interested in this because we are being told by the newspapers
out there all the time that the Japanese are preparing to fly the
Great Circle route and bomb our Puget Sound cities. I am a bit
curious to know about the type of plane that is going to blow me off
the earth.
Mr. Brayton. How are they going to get back. Senator?
Senator Bojce. I do not know how they are going to get back,
but we are advised out there that they are coming.
Mr. Miranda. Senator, as a possible point of interest, the French
Government recently bought the rights to the Lockheed Electra, the
latest model.
Senator Bone. You say that the French Government has bought
the rights to the Lockheed plane ? Will von explain what vou mean
by that ?
Mr. Miranda. They bought the plane and the right to manufac-
ture the Lockheed in France. I think it is the first instance where
France has bought a plane outside of France.
Senator Bone. They are doing that I take it for the purposes of
national defense as well as other purposes?
Mr. Miranda. Probably.
Senator Bone. You represent the Soley Armament Corporation
of England, in North and South America ?
Mr. JNIiranda. That is correct.
Senator Bone. Will you tell us just briefly what the Soley Arma-
ment Corporation is. Give us a little word picture of that organ-
ization ?
568 MUNITIONS INDUSTRY
Ml'. MiRAXDA. I can only <iive you tlie word picture that I jiet
from my correspondence with them. I have never been there my-
self— to the Soley Co, My understandin<r is that it is a corpora-
tion that is used by the British Government for the disposal of its
surplus war materials, or the material that they want to oet rid of.
Senator Bone. Is it an official or semiofficial agency of the British
Government for that purpose?
Mr. Miranda. I would consider it a semiofficial agency, I say
semiofficial, because they will only sell with the consent of the British
Government.
Senator Bone. Then, of course, the Government, in retaining that
control over the corporation, makes it in effect the arm and agency
of the British Government. That is correct, is it not?
Mr. Miranda. Well, my interpretation is as I have given it to you.
Senator Bone. If the British Government can control its sales,
the British Government manifestly is acting through that agency.
Have you done an}^ business with Belgium or with any firms in
Belgium ?
Mr. Miranda. Just a sample order. We imported a sample sight
of one of the firms in Belgium.
Senator Bone. From them?
Mr. Miranda. Yes.
Senator Bone. You were doing that in connection with your own
research work?
Mr. Miranda. With our own mortar development. We wanted
to know whether it would be cheaper to buy the sights abroad or
manufacture them here.
Senator Bone. In these Latin- American countries, particularly in
South America, it appears from the evidence that we have before
us, that the military group down there is really the political power
in those countries; is that correct?
Mr. Miranda. I think in most cases it is.
Senator Bone. They are really, then, semimilitary dictatorships
in practical effect?
Mr. Miranda. You will find that the military are, as a rule, well-
educated i^eople — people that may have been educated abroad and
therefore they hold the upper hand.
Senator Bone. Are these military groups that are dominant down
there tied in with the bigger business groups in the country ?
Mr. Miranda. In each country?
Senator Bone. In those countries; for instance, mining groups?
Mr. Miranda. I imagine that they have something to do with
them.
Senator Boxe. Has that been your experience growing out of your
contacts with them?
Mr. Miranda. No; I cannot say that. It is just a surmise on my
part.
Senator Bone. It appears also that European nations have, for a
great many years, been sending so-called '' military and naval
missions "' to those countries.
Mr. Miranda. Yes.
Senator Bone. How far back does that practice extend?
Mr. Miranda. I do not know, probably 30 or 40 years.
MUNITIONS INDUSTRY 569
Senator Clark. As a matter of fact that was started since the
World War, was it not— about 1920^
Mr. Miranda. No; I do not believe so. I think they have had
missions right along, for 30 or 40 years.
Senator Clark. As a matter of fact, these missions that are now
sent down there are sent down there in pursuance of a law passed in
1920; is not that so^
Mr. Miranda. You mean American missions?
Senator Clark. Yes.
Mr. Miranda. I am not talking about American missions. I am
speaking about European missions.
Senator Clark. Oh, I beg your pardon.
Senator Bone. When a mission goes for instance from Great
Britain or France to a South American country, what does it do?
Let us take a naval mission, for example. What does it do, when it
arrives, for instance, in Chile or Peru?
Mr. Miranda. Well, sir, the mission is immediately assigned to
the — let us say it is a naval mission — to the naval academy of the
country, if there is one. If there is no naval academy, they will
probably talk the country into establishing a naval academy, and
they become instructors.
Senator Bone. Why would England want to establish a naval
academy in Peru?
Mr. Miranda. It would be a Peruvian academy. They train the
Peruvians in British naval methods, and the logical thing is they
will create an interest in British battleships, torpedo boats, and
destroyers, and the order should go to Britain.
Senator Bone. In other words, the order then would go to Great
Britain ?
Mr. Miranda. Yes.
Senator Bone. So that these missions are just sales agents?
Mr. Miranda. I think that is all they are. No; they are more
than that.
Senator Bone. Just go ahead and explain the idea a little further,
so that we will get the facts.
Mr. Miranda. As I said before, the military are in favor in
every country almost in South America, and it happens that the
young well-to-do people Avant to go either to the army or the navy.
The officers go to the local military school, and in later years they
come in contact with the foreign officers and are trained and taught
by the foreign officers, and they gain the manner of tliinking that
the foreign officers have given them, not only as regards war
material, but as regards all material, generally speaking.
Senator Bone. Then, as well as to sell war material, it is to
build up a sort of caste system along with it?
Mr. Miranda. To make them feel they should go to that country,
or look to that country for most of their requirements, not only
military requirements, but most of their requirements.
Senator Bone. Do these South American countries pay the
expenses of the foreign missions?
Mr. Miranda, No; they are sent there and paid by the European
government.
570 MUNITIONS INDUSTRY
Senator Bone. Then the taxpaj^ers of these governments pay for
these missions?
Mr. Miranda, That is all right, they get back enough to offset
the cost of the mission.
Senator Bone. That does not offset the huge army on the dole
in England and it does not help to balance the budget.
Mr. SwEETSER. I guess it does Avith the amount of business they
are getting.
Senator Bone. They do not appear to be making a very satisfac-
tory job of it, that is what I was thinking.
I take it along with this sales talk that accompanies these expedi-
tions there is a very gradual infiltration of European ideas into
the South American mind.
Mr. Miranda. Unquestionably.
Senator Bone. Then also, aside from the sales aspect of it, it has
another different aspect, that is to impregnate the South American
mind with European culture as a superior culture.
Mr. Miranda. You can say most of the South American well-to-
do boys of the army or navy are sent to Europe to be educated. Very
few get over here.
Senator Bone. I take it, this desire to bring European culture to
South America might lead to somewhat of a race between the Euro-
pean countries to get their culture established in these countries.
Mr. Miranda. What they are interested in is the foreign market.
Senator Bone. Now, Mr. Miranda, let us be just frank with our-
selves. It all simmers down to a market in the last analysis.
Mr. Miranda. To capture the market; yes.
Senator Bone. A la Zaharoif, is that right? Of course dukes,
titles, and the bangles come along later when the market is estab-
lished. Is that right?
Mr. Miranda. Probably.
Senator Bone. Do you think as the result of these years and years
of activity on the part of these European naval and military mis-
sions there has been established in the minds of youthful Latin-
America the idea that European culture is superior to ours ?
Mr. Miranda. Unquestionably.
Senator Bone. That Avould be well recognized?
Mr. Miranda. Yes, sir.
Senator Bone. Are you a Latin-American?
Mr. Miranda. Yes; I was born in Mexico.
Senator Bone. So that you understand that mind more than any
of us born in the United States?
Mr. Miranda. I am of the Latin race and of Latin education, and
I try to see both viewpoints.
Senator Bone. You have been favored then, in being able to an-
swer the ciuestions I cannot answer. Your opinion is that the sales
efforts on the part of the European naval and military missions has
inculcated in the South American mind, especially the youth, the
idea that European culture is better than ours?
Mr. Miranda. I think it has been a factor.
Senator Bone. Do you think it has any tendency to create any
stronger militaristic attitude or mind among the young people of
South America?
Mr. Miranda. To some extent; yes, sir.
MUNITIONS INDUSTRY 571
Senator Bone. Has it tended to make them more belligerent in
their attitude?
Mr. Miranda. They are bellicose enough.
Senator Bone. Well, that is in their blood, is that right?
Mr. Miranda. Yes.
Senator Bone. Do you think under those conditions, with this
constant stimulus of Europe, with all of the high-pressure salesmen,
with the dukes, and with all these successful operations, there is not
much chance of building up a real strong Pan-American relationship
here, a relationship that is based on comity and good will?
Mr. Miranda. I think so. I think when this country goes to the
same effort that the Europeans do to make those nations of the
South American continent better friends, that a greater degree of
harmony will exist.
Senator Bone. Do you think we can accomplish something in that
direction by shipping munitions to them ?
Mr. Miranda. I think shipping munitions to our people will help.
Senator Clark. Your idea is, Mr. Miranda that the more means
we furnish these South American people for killing each other, the
more they will be inclined to love us ?
Mr. Miranda. That is because it is not only furnishing the ma-
terial, but along with it will come the American training methods,
American instructors, and that is what is going to help get the
American idea into the mind of the South American people.
Senator Bone. Let me call your attention to a letter dated Habana,
Cuba, April 10, 1934, and signed Jose Merla and addressed to your-
self, which I offer as " Exhibit No. 236."
(The letter referred to was marked " Exhibit No. 236 ", and will
be found in the appendix on p. 655.)
Senator Bone. This letter may enable us to get a little better
picture of the naval situation down in that section of the world.
He says :
My patron here is the paymaster general.
What does he mean by "" patron." Has that any significance in a
Latin- American country?
Mr. Miranda. Probably he means that he is his sponsor.
Senator Bone. That does not illuminate it any further. What is a
sponsor ?
Mr. Miranda. It would be his friend.
Senator Bone. Does that have any reference to a purchasing agent
he might not have otherwise any access to ?
Mr. Miranda. I would not be surprised.
Senator Bone. Here is another letter from V. Menozzi to your-
self, dated Lima, December 4, 1933, which I offer as " Exhibit No.
237."
(The letter referred to was marked " Exhibit No. 237 ", and will
be found in the appendix on p, 655,)
Senator Bone, In this letter, " Exhibit No. 237 ", Mr, Menozzi tells
of his close connection with Peruvian officials and says his wife is a
niece of the former president. He says :
I And myself in a very advantageous position for a foreigner, because from
the very first I moved in the best Peruvian social circles. I have many personal
friends and so has my wife, who is a Peruvian, niece of the ex-President of
572 MUNITIONS INDUSTRY
the Peruvian Republic, Don Nicholas De Pierda, who no doubt was the best
Presideut Peru ever had since the period of independence.
Was he your agent down there ?
Mr. MiKANDA. He was our agent; yes, sir.
Senator Bone. Were you able to do any business as the result of
his activities?
Mr. Miranda. No; not yet.
Senator Bone. I call your attention to anotlier letter dated March
25, 1933, signed F. Sefzic and addressed to the Driggs Ordnance &
Engineering Co., Inc., which I offer as "Exhibit No. 238."
(The letter referred to was marked " Exhibit No. 238," and will
be found in the appendix on p. 656.)
In this letter I find the following statement:
The Bethlehem Steel Co., of Bethlehem, Pa., has been so kind to give me
your address and stating tliat your finn are engaged in the manufacturing
and selling of war materials. In view of this I desire to bring the following-
facts to your attention with the object of offering you my personal services
as exclusive indent agent.
And then further on it says :
It may interest you that I have very good contacts with the Ecuadorian
Government officials and the general staff of the army and may frankly state
will be secretly connected with the commission to be appointed in buying the
necessary requirements.
Was this agent afterwards connected with that commission?
Mr. Miranda. I do not know.
Senator Bone. Reading further, the letter says :
Doubtless you know the international situation in South America is not very
peaceful and that Colombia and Peru are more or less even though oflScially no
war has been declared are fighting. Unfortunately Ecuador is in between two'
fires and it feels the necessity of preparing itself for armed neutrality.
Senator Clark. What is the date of that letter, Senator ?
Senator Bone. That is March 25, 1933.
The Chairman. Senator Bone, we might as well have the under-
standing now to avoid later trouble, and for the information of the
reporters, let the record show when these exhibits are offered, that
they are for printing in the appendix unless the Senator or other
examiner stipulate they be i)ut in the main body of the record itself.
Senator Bone. Does your firm advertise in the magazine Bolivian ?
Mr. Miranda. Yes.
Senator Bone. You advertise also in the Army Ordnance Maga-
zine published in this country?
Mr. Miranda. Yes.
Senator Bone. What is your opinion of the Army Ordnance Mag-
azine?
Mr. Miranda. I believe it is a very interesting journal.
Senator Bone. You think it is the best we have ?
Mr. Miranda. I think it is probably the best in the world. It is
the widest read.
Senator Bone. Where does it circulate?
Mr. Miranda. It circulates all over.
Senator Bone. Do you think it is helping you make sales?
Mr. Miranda. No; we have not been in business long enough.
Senator Bone. I mean by giving your concern information through
advertisement and information in the magazine that you might not
otherwise have?
MUNITIONS INDUSTRY 573
Mr. MiRAXDA. No ; I think we have all of those records.
Senator Bone. In comparing that with foreign munitions journals,
do you think it has more information in it?
Mr. Miranda. I do not think there are any foreign munitions
journals.
Senator Bone. Do you belong to the Nav}^ League or the Army
League?
Mr. Miranda. We are members of the Army Ordnance Associa-
tion, and that is the way we get the magazine.
Senator Bone. Is that the only organization of that type that
you belong to, or any member of the firm, or the firm itself?
Mr. Miranda. That is all.
The Chairman. What is the Army Ordnance Association?
Mr. Brayton. If I may answer that?
The Chairman. Yes.
Mr. Brayton. Immediately after the war many of the leaders in
this country recognized the need for interesting all industry in the
ordnance problem, and the result was that in early 1920 a group of
influential men, some of whom were in the Army during the war,
organized this Army Ordnance Association, with the full backing
of the War Department and the United States Army.
The Chairman. Were they necessarily affiliated with any manu-
facturer of ordnance?
Mr. Brayton. No; they were not necessarily so, neither then nor
since. I have been a member since its organization. They publish
this journal I think four times a year, and during my period of
activity as a civilian engineer in the Ordnance Department I used
to contribute articles to it, among others. Anyone can write for it
as a matter of fact. They put out a very splendid journal and have
done very splendid w^ork in keeping the industry up on the ordnance
problem.
Senator Bone. Mr. Miranda, what were the relations of the Driggs
Co., when j^ou were with them, with the Curtiss-Wright Corporation?
Mr. Miranda. I do not believe that the Driggs Co. had any rela-
tion with the Curtiss-Wright Corporation. Of course, my brother
having the handling of aircraft in our business from the beginning,
naturally has been in close contact with members of other companies
that handle the foreign end of their business.
Senator Bone. Do you know Mr. Owen Shannon ?
Mr. Miranda. I know him very well.
Senator Bone. He is with Curtiss-Wright?
Mr. Miranda. Yes.
Senator Bone. They maintain an export corporation to look after
their foreign business?
Mr. Miranda. That is correct.
relations with united states naval officials
Senator Bone. Under date of November 4, 1932, there is a letter
signed by yourself for the Driggs Ordnance & Engineering Co., ad-
dressed to Messrs. Urueta & Samper, Bogota, Colombia, which I offer
as " Exhibit No. 239."
(The letter referred to was marked " Exhibit No. 239 " and will
be found in the appendix on p. 657.)
574 MUNITIONS INDUSTRY
Senator Bone. In this letter, " Exhibit No. 239 ", you state :
Our mutual friend, Mr. Owen Shannon, of the Curtiss-Wright Export Cor-
poration, has been kind enough to give us your name and recommend your firm
to look after our negotiations in Bogota with the Government of Colombia.
Accordingly, we took the liberty of cabling you on October 29th, as per copy
enclosed, and are pleased to acknowletlge your cable reply of November 2d.
Mr. Miranda. Yes; I wrote that.
Senator Bone. Now, further down in the second paragraph below
it says :
In view of the publicity attendant to the international situation between
Colombia and Peru, the Colombian consulate here has been deluged with pro-
posals for all kinds of war material, mostly second-hand, obsolete material,
offered by brokers.
Can you give us any information about those brokers, who they
would be?
Mr. Miranda. Yes, sir; I believe the International Ordnance &
Instrument Co. was one, probably Bannerman, of New York, offered
them some, and then there is, I think, the Export Consolidated Co.
Senator Bone. The Consolidated Export Co.?
Mr. Miranda. Yes ; that is it ; the Consolidated Export Co.
Senator Bone. Was the United States Government at this time
taking any official notice of the conditions that existed in the
Colombian-Peruvian situation?
Mr. Miranda. I imagine they were watching the situation, but they
have made no statement.
Senator Bone. Do you know what this Government did in that
connection?
Mr. Miranda. I don't think they did anything.
Senator Bone. I call your attention in this letter to a further
statement which I read as follows:
To safeguard the interests of the Colombia Government and save the time
of the consulate and of the War Ministry in Bogota, the United States Govern-
ment has " loaned " to the Colombian consulate one of its naval oflBcers, to act
as adviser on the merit of tlie material offered.
Is that correct?
Mr. Miranda. Yes.
Senator Bone. Can you tell us the the name of that officer?
Mr. Miranda. Commander Strong.
Senator Bone. So the letter is correct when it says the name of
the gentleman is Commander Strong?
Mr. Miranda. Yes.
Senator Bone. He was a commander in the United States Navy?
Mr. Miranda. Yes, sir.
Mr. Bone. Do you know when he resigned from the Navy?
]SIr. Miranda. I understand he resigned from the Navy in Feb-
ruary of this year.
Senator Bone. So he was with the Navy a year and several months
after this letter was written, and a year and several months after
this Government loaned him to Colombia as adviser.
Senator Clark. Wasn't this the situation, Mr. Miranda, there were
hostilities between Peru and Colombia, and the United States sent
a mission to Peru and only loaned Colombia this one man and
Colombia got the worst of it?
Mr. Miranda. The naval mission to Peru Avas many years ago.
MUNITIONS INDUSTRY 575
Senator Clark. The naval mission was down there in 1930 when
President Leguia was run out.
Mr. Miranda. But this was 1932.
Senator Clark. The naval mission was down there telling them
to bu}^ submarines so as to protect itself from Colombia.
Mr. Miranda. No; from Chile.
Senator Bone. Now, Mr. Miranda, I have this further question to
ask. You go ahead in this letter I have just referred to and say :
Inasmuch as our guns have been the standard used by the Army and Navy
for more than forty years, and their efficiency has been amply domonstrated in
past wars (particuhxrly the World War), Commander Strong is thoroughly
acquainted with our equipment not only has he approved our proposals but
strongly recommended the acquisition of our material as being the finest
obtainable.
It appears that Commander Strong went down to Colombia as a
sales agent, with his mind made up that Driggs ordnance was the best,
and he went down there only as military adviser and also to use your
or Driggs armament.
Mr. Miranda. I know that he explained the whole thing.
Senator Bone. Well, you tell us, if you can, what that meant.
Mr. Miranda. As I said before, when the difficulty between
Colombia and Peru came up I went to Mr. Driggs and said, let me
go down to see the consul and see if I can stir up some business.
So I went down and took my catalog down and spoke with the
consul, and the consul said, well, we have now an expert to pass on
all of the material we are going to buy, and he called in Commander
Strong and introduced him to me. He said all of the material we
are going to buy is going to be passed on by this expert. Now,
then, the only guns available in this country at the time were the
Driggs gun, and Commander Strong told me, " I remember the
Driggs gun, I remember it was in our book at the Naval Academy."
He said he remembered it and spoke very highly of the Driggs gun,
that he was familiar with it in the Navy. There was no other gun
he could recommend; he had to recommend the Driggs gun or let
the business go to Europe.
Senator Bone. In other words, he would not let any business go
to Europe if he could prevent it?
Mr. Miranda. Then in addition to that, there is the question of
the merit of the gun.
Senator Bone. What is your opinion of the Government sending
a man down to Colombia?
Mr. Miranda. He was not down there, he was here in New York
all of the time.
Senator Bone. Was he advising on defense from New York?
Mr. Miranda. Yes.
Senator Bone. Then the only advice he could give would be to buy
the Driggs gun?
Mr. Miranda. That is about all.
Senator Pope. Mr. Miranda, were you present this morning when
Mr. Driggs testified ?
Mr. Miranda. Yes.
Senator Pope. You recall he testified Commander Strong and he
were present and prepared the report to Colombia which I introduced
576 MUNITIONS INDUSTRY
in the record this morning, as to defenses, there being two reports,
one November 19 and the other December 2?
Mr. Miranda. Yes.
Senator Pope, Which were followed immediately by a letter on
November 19 to Colombia and one on December 3, which he testified
were prepared at the time the reports of recommendations Avere pre-
pared. Were you also present at that time?
Mr. Miranda. Yes, sir. I went down to the Colombian consulate.
The consul sent for me, and he told me he had instructions from the
Colombian President to have Commander Strong draw up plans for
the defense of their ports. Then, inasmuch as we had already done
some business with him and inasmuch as he knew there was no other
company in this country that could furnish the guns, he wanted to
know if we could cooperate with Commander Strong to give him
whatever information we could in connection wdth the guns to be
supplied, and I said certainly.
Senator Pope. You were present when the recommendations were
prepared and also when the letters were wa-itten by Driggs Ordnance
Co. to Colombia ?
Mr. Miranda. Yes.
Senator Clark. What type of guns were to be supplied Colombia ?
Mr. Miranda. What we recommended was the 6-inch coast defense
guns.
Senator Pope. That was very valuable service to you in connection
with your efforts to sell munitions, to have Commander Strong pre-
pare the recommendations which you were to follow by a letter?
Mr. Miranda. They had no other alternative, they could not get
guns from anyone else.
Senator Pope. But that was very valuable to you in making sales ?
Mr. Miranda. You mean his recommendation of our gun?
Senator Pope. Yes.
Mr. Miranda. He was working for the Colombian Government and
had to meet their request. Suppose we had said, No, we were not
in position to furnish those guns, then the consul would have cabled
down to Colombia that the United States was not in a position to
furnish the guns, and they would look to England or France for the
guns.
Senator Pope. Now, for that service, which was undoubtedly a
very valuable service to you, what compensation did you pay Com-
mander Strong?
Mr. Miranda. We never considered it as a service to us. He was
in the employ of the Colombian Government.
Senator Pope. Yes ; but did you pay him anything for his services ?
Mr. Miranda. Why should we pay him? In the first place, no
sale was made.
Senator Pope, Did you pay him anything?
Mr. Miranda. No ; we did not pay him anything.
Senator Pope. Did you pay him anything or help him to obtain
any compensation indirectly?
Mr. Miranda. Not at all.
Senator Bone. And does Commander Strong work in conjunction
with you in acquiring new business?
Mr. Miranda. No; he is in the employ of the Colombian
Government.
MUNITIONS INDUSTRY 577
Senator Bone. He is now in the employ of the Colombian
Government ?
Mr. Miranda. He has been in the employ of the Colombian Gov-
ernment since the end of February.
Senator Bone. In that connection he is frequently in and out of
your place of business?
Mr. Miranda. He comes to our office whenever it is necessary for
him to do so.
Senator Bone. Now, I call to your attention a letter dated Decem-
ber 4, 1933, from yourself to Joaquim Samper in Bogota, which I
offer in evidence.
(The letter referred to was marked " Committee Exhibit No. 240 "
and will be found in the appendix on p. 658.)
Senator Bone. In this letter, " Exhibit No. 240 ", you say this :
In tbe meantime, Commander Strong came to town and contacted me. As
you know, Strong and I are very, very good friends ; we understand each
other perfectly, and lie will do everything possible to throw the business
our way. I want you to bear this in mind and remember that he is one of
our strongest allies, and, therefore, whenever possible boost his stock with
the Government.
You had been trying to boost your stock with the Colombian Gov-
ernment to redound to your benefit?
Mr. Miranda. Naturally, we were competing against European
business.
Senator Bone. I read farther from this letter :
He told me that he has been in conference with the Minister at Washington
(Lorenzo) for 2 weeks, and that the Government now realizes the negotiations
at Rio are getting nowhere.
What negotiations were those ?
Mr. Miranda. Peace negotiations between Peru and Colombia.
Senator Bone. They were being carried on in Rio Janeiro ?
Mr. Miranda. Yes.
Senator Bone. And getting nowhere?
Mr. Miranda. That is correct.
Senator Bone. I read further from the letter :
They are trying to arrange for the U.S. Navy to release Commander Strong
so that he can go to Columbia as an adviser to your Government.
What do you mean by that?
Mr. Miranda. The United States Government.
Senator Bone. Trying to get the United States Government to
release him?
Mr. Miranda. Yes.
Senator Boxe. Reading further the letter says:
He is a very competent man with a splendid record in the American service,
one of the youngest full-fledged commanders in the Navy, and I am certain that
if he goes to Bogota for a while and you people give him decent support that
he will be able to organize matters for you along modern lines.
Now, subsequent to this letter the United States Government ac-
tually loaned Commander Strong to the Columbian Government?
Mr. Miranda. No; they had loaned him a year prior to this
letter.
8,3876— .34— PT 3 3
578 MUNITIONS INDUSTRY
Senator Bone. The United States Government had actually loaned
Commander Strong to the Columbian Government to advise them
on military matters?
Mr. Miranda. Yes.
Senator Clark. May I ask a question?
Senator Bone. Indeed.
Senator Clark. Were you familiar with this defense plan that
Commander Strong was preparing?
Mr. Miranda. Yes, sir.
Senator Clark. That had particular reference to protection
against Peruvian submarines?
Mr. Miranda. No; Peruvian cruisers.
Senator Clark. You did not have any provision for submarines?
Mr. Miranda. Yes; I think we had made provision for a sub-
marine net at one port.
Senator Bone. What compensation were you paying Mr. Strong
for the services rendered in stimulating the sale and your nego-
tiations?
Mr. Miranda. None at all.
Senator Bone. Were you doing anything for him at all?
Mr. Miranda. I was not.
Senator Bone. Was your company doing anything at all for him?
Mr. Miranda. No.
Senator Bone. Were you handling an account for him on the New
York stock market?
Mr. Miranda. I could not tell you except that I did hear it.
Senator Bone. When did you hear it?
Mr. Miranda. The first thing I heard about it was from the
investigators.
Senator Bone. Who was handling the account?
Mr. Miranda. My brother was.
Senator Bone. Here is the statement of the account of I. J.
Miranda with Estabrook & Co., which shows a pencil memorandum
on it saying : " Bought for Jim, July 17, at 191/2, $2,133.45." Under-
neath that is a deduction of $1,962.50, showing a gain to him of
$170.95J and I offer this memorandum as " Exhibit No. 241."
(The paper referred to was marked " Exhibit No. 241 " and will
be found in the appendix on p. 659.)
Senator Bone. This memorandum shows that gain I have just
read?
Mr. Miranda. If that was for the account of Commander Strong:
yes, sir.
Senator Bone. As a result of that there was a gain to him. Com-
mander Strong, of $170.95?
Mr. Miranda. Yes; as I said, if that was for the account of Com-
mander Strong.
Senator Bone. The Driggs Co. was handling the account for
Commander Strong at that time ; is that right ?
Mr. Miranda. Yes.
Senator Bone. Now, we have a letter from Commander Strong,
signed " Jimmy Strong ", dated " Cherry Cottage, Box 35, Leni,
Pennsylvania ", under date of August 14, 1933, on the letterhead
stationery of the United States Navy Yard, Philadelphia, Pennsyl-
MUNITIONS INDUSTKY 579
vania, Naval Aircraft Factory, written in ink, addressed to " Dear
Iggy-" Whois"Iggy"?
Mr. Miranda. My brother.
(The letter referred to was marked "Exhibit No. 242" and was
read in full by Senator Bone, as follows) :
[Written in ink]
Estabrook Co. * * * File.
United States Navy Yard, Philadelphia, Pa.,
Naval Aircjraft Factoey, Cherry Cottage,
Box 85, Leni, Pa., August Uf, 19S3.
[Excerpts]
De.\r Iggy: Many ttianks for your note regarding the sale of New York
Ship. I agree with you in taking a little profit and then grabbing the stuff
back again in the reaction of another little gain.
I was expecting you down to Trenton last week with the Brazilian mission,
but Switlik has since informed me that it will probably be this week.
*******
[1 paragraph omitted]
Sincerely yours,
(Signed) Jimmy Strong.
Senator Bone. Who was Switlik, to whom Commander Strong
refers in the letter?
Mr. Miranda. Switlik Parachute Co.
Senator Clark. The copy of the letter which I have reads in the
last paragraph : " Has Alfred left for Paris this week ? "
Who is "Alfred"?
Mr. Miranda. Me.
Senator Bone. This is signed " Jimmy Strong." That is James
Strong of the United States Navy ?
Mr. Miranda. James H. Strong ; yes, sir.
The Chairman. The committee will take a recess at this time until
10 o'clock Monday morning, at which time, gentlemen, we hope you
will be back here.
Mr. Johnson, it is understood that you may be excused now.
(Thereupon the committee took a recess until Monday, Sept. 10.
1934, at 10 a.m.)
INVESTKUTION OF MUNITIONS INDUSTEY
MONDAY, SEPTEMBER 10, 1934
United States Senate,
Special Committee to In\testigati: the
Munitions Industry,
Washington, D.O.
The hearing was resumed at 10 a.m., in the Caucus Room, Senate
Office Building, pursuant to the taking of recess. Senator Gerald P.
Nye presiding.
Present: Senators Nye (chairman), George, Bone, Pope, and
Barbour. Present also : Donald Wemple, investigator.
The Chairman. Let the committee be in order, and let the record
note that the committee members who are absent this morning. Sena-
tor Vandenberg and Senator Clark, will be joining the committee
again on Thursday morning of this week. They are absent at their
home b}^ reason of calls.
Senator Bone, you may proceed with the witnesses.
TESTIMONY OF ALFRED JOSEPH MIRANDA, JR., HAROLD MORGAN
BRAYTON, FRANK ELLIOTT SWEETSER, AND FRANK JOHNSON—
Resumed
relations with south AMERICAN REPUBLICS
Senator Bone. Mr. Miranda, can you tell us who General Vargus
was, in the United States of Colombia?
]\Ir. Miranda. General Vargus was one of the officers of the Co-
lombian Government. He was retired I believe for the last 3 years
until he resigned and went down with the Flying Fox to Colombia
in 1933. He was with the Flying Fox during the campaign; then
he returned to the United States and retired again.
Senator Bone. Is he living in this country now?
Mr. Miranda. He is living in this country now, I understand.
Senator Bone. There was some discussion in the latter part of
1932 about making him general military and technical officer of the
Colombian Government, but instead of that Lieutenant Commander
Strong was made such officer of the Colombian Government.
Mr. Miranda, Strong had been an officer of the Colombian Gov-
ernment since September or October of 1932. Their w^ork was en-
tirely nonconflicting.
Senator Bone. This reference in your letter of December 4, 1933,
which I think has been placed in evidence, says the government had
an idea of making him the official inspector of purchases, but the
minister prevailed with the president to appoint Strong, and that
681
582 MUNITIONS INDUSTRY
refers back to this appointment of Commander Strong which we
have heretofore been discussing, and that was the appointment
Strong had secured sometime prior to that date. You will note that
in the sixth paragraph of your letter.
Mr. Miranda. That is right.
Senator Bone. So this merely referred to the old appointment of
Strong?
Mr. Miranda. Yes; the old appointment of Strong.
Senator Bone. At the time this letter was w^ritten, December 1933,
Commander James Strong was having a conference of some sort with
a party of the name of Goulding. Whom did he represent?
Mr. Miranda. Goulding is in the employ of the Curtiss-Wright
Co.
Senator Bone. That is an American airplane company?
Mr. Miranda. Yes.
Senator Bone. Were they in the field for the sale of airplanes to
Colombia at that time?
Mr. Miranda. They had been supplying practically all of the
airplanes to Colombia from several years past.
Senator Bone. Were those militaiy or ordinary commercial type,
or both.
Mr. Miranda. I think they were mostly the military planes.
Senator Bone. Can you tell us anything about the character of
the planes, whether they were generally the latest design and type?
Mr. Miranda. I understand they were the latest type the Govern-
ment had released for export.
Senator Bone. Who was Mr. Bell mentioned in this letter?
Mr. Miranda. Mr. Bell, I believe, is vice president or general sales
manager of the Consolidated Aircraft Co.
Senator Bone. Where are they located?
Mr. Miranda. In Buffalo.
Senator Bone. Buffalo, N.Y.?
Mr. Miranda. Yes.
Senator Bone. Were they also selling airplanes down in that
country ?
Mr. Miranda. They also had sold, I think, one airplane to
Colombia ?
Senator Bone. Was it a military type of plane?
Mr. Miranda. Yes ; it was a military type.
Senator Bone. Was Commander Strong at that time pushing the
purchase of other types of materials down there besides trying to
be friendly with your firm?
Mr. Miranda. Commander Strong was trying to push the sale, if
you want to put it that way, of American material. The European
governments were bidding for this Colombian business in hand.
Senator Bone. That would be indicated by the statement that he
was " pushing for the acquisition of this material." Meaning mili-
tary material from America?
Mr. Miranda. Yes.
Senator Pope. In the event Mr. Strong was able to sell these air-
planes for either the Curtiss-Wright or any others, was it understood
that you would arm them with your guns ?
Mr. Miranda. No. We did not manufacture machine guns, and
that is all the equipment they would carry. We were then develop-
MUNITIONS INDUSTRY 583
ing an airplane gun, and we hoped that certain of the types of
airplanes that might be purchased would carry these airplane guns.
But, as a rule, most of the airplanes only carried machine guns, and
we did not manufacture machine guns.
The Chairman. Mr. Miranda, did you job in supplies you did not
manufacture j^ourselves ?
Mr, Miranda. We actually have not, although we would not be
averse to doing it. That is the reason we made the connection with
Soley in England. They have stocks of rifles and machine guns and
ammunition and stuff that we do not manufacture, and not infre-
quently in our negotiations with the Government they would say
" Have you any machine guns for sale, or any rifles for sale ? "
Senator Bone. Where did the Bellanca airplane outfit get into
the picture in South America ?
Mr. Mieanda. You mean in all countries in South America?
Senator Bone. Yes; let me call your attention to a letter dated
April 26, 1933, which I offer as " Exhibit No. 243."'
(The letter referred to was marked " Exhibit No. 243 ", and is in-
cluded in the appendix on p. 659.)
Senator Pope. Senator Bone, before you go to that letter, there is
one further question I would like to ask about the letter of Decem-
ber 4, 1933.
Senator Bone. Yes.
Senator Pope. Mr. Miranda, in this letter of December 4, 1933,
written by you to Mr. Samper, you make this statement:
Nevertheless, Cortes Vargas and I. personally, are on very friendly terms.
I believe that he is going to be given some sort of military position in Colombia.
After the last campaign he certainly deserves an Al rating and will be a good
leader for yonr troops. Possibly you feel antagonistic towards him but do not
let that mar the business possible. Cortes Vargas and I have thrashed our
differences and we are on very friendly terms and I know that he will recom-
mend our equipment. You will see that I have tried to cover myself by every
possible means, that is to m'ake certain that this time substantial business
available will come to this country and will come to us.
What differences did you thrash out with Cortes Vargas?
Mr. Miranda. General Cortes Vargas was very much in favor of
Colombia buying British boats. They had bought, during the time
he was there different ordnance or different stuff in Colombia, prob-
ably 10 years ago when they had purchased some gunboats from
the Yarrow Co. in England, and when we sold the Flying Fox to
the Government, he felt it was a mistake to purchase a boat which
had been expressly built not for military service, and he thus ex-
pressed his thoughts to the Colombian Government, and it was
not very favorable to us. Nevertheless, when he returned from the
campaign — and he was on the boat all through the campaign and
found the boat had given service very efficiently — he returned to
New York, and he and I got together, and he said I agree that with
the price for which you furnished the boat, and the quick time in
which it was furnished, it covered the job.
Senator Pope. Then your reference to covering yourself by every
possible means, simply meant you did talk to him and protected
yourself from any adverse report?
Mr. Miranda. It was not a matter of any adverse report, because
that had already been done. He had a prejudice but I did make him
584 MUNITIONS INDUSTRY
feel by that time, we were in a position to furnish a certain class
of material to his government, and had gained his confidence.
Senator Pope. You referred in the very last paragraph of that
letter to the following:
Keep on pushing, and keep me tlioroughly posted and do not forget that
the " Sucre " needs a range finder and additional ammunition.
The Sucre was the same as the Flying Fox?
Mr. Miranda. Yes; the Sucre was the same as the Flying Fox.
The Sucre was the Colombian name of that boat.
Senator Pope. You refer there to selling the Sucre to the Colom-
bian Government?
Mr. Miranda. Yes.
Senator Pope. Your company did not; but the Driggs Co. did?
Mr. Miranda. Yes ; that was before the formation of the American
Armament Corporation.
Senator Bone. Now, going back to this letter of April 1933, I be-
lieve I asked you where the Bellanca crowd got into this picture.
Can you give us any light on that ?
Mr. Miranda. Yes; during the spring and summer of 1933 my
brother of course was pursuing his airplane business, and you must
bear in mind that the American Armament Co. was not established
at that time, and I was in Brazil on behalf of the Driggs Ordnance
Co.
Senator Bone. This was referring primaril}^ to — just go ahead and
make your explanation.
Mr. Miranda. So my brother was pushing his airplane business
as he had for a number of years. At that time Strong
Senator Bone. That is Commander Strong of the United States
Navy ?
Mr. Miranda. Yes ; Commander Strong of the United States Navy.
In this connection, with this business, he recommended the Bellanca
plane, and that is the way my brother became introduced to the
Bellanca Co.^
Senator Bone. Through Commander Strong?
Mr. Miranda. Yes; through Commander Strong.
Senator Bone. Can you tell us whether' Strong was in touch with
different organizations in this country furnishing military supplies?
Mr. Miranda. No ; I think he was chief of ordnance.
Senator Bone. That was in connection with Colombia ?
Mr. Miranda. No; this was not in connection with Colombia.
Colombia had not bought any Bellancas, but Commander Strong, be-
cause of the nature of his position was in touch with the aircraft
companies so that he could offer suggestions as regards aircraft
equipment. This has nothing to do definitely with his capacity as
advisor to the Colombian Government.
Senator Bone. Your reference there to the Lockheed amphibian,
evidently they are the manufacturers of the Viking plane. What is
that reference.
Mr. Miranda. As a matter of fact Groes Bros, had acquired finan-
cial control of the Lockheed Co. just about that time.
Senator Bone. Who are they?
Mr. Miranda. I do not know, sir.
^ In a telegram to the committee wliich was entered into the record of Sept. 18, 1934,
Immediately preceding the noon recess, the Bellanca Aircraft Corporation denied tha^
Mr. Miranda handled their business in Colombia (see pt. VII).
MUNITIONS INDUSTRY 585
Senator Bone. Where is the Viking plane manufactured?
Mr. Miranda. It is manufactured in New Haven, Conn.
Senator Bone. Were those both American outfits, the Lockheed
and the Groes outfit?
Mr. Miranda. Yes.
Senator Bone. When you refer to " Waco ", is that Semper — that
is referred to in the P. S. later in the letter?
Mr. Miranda. Oh, yes; that is correct.
Senator Bone. What is that, some sort of nickname ?
Mr. Miranda. Yes; that is his nickname.
Senator Pope. Who is Colonel Escallon referred to there?
Mr. Miranda. Colonel Escallon is the chief of the materiel division
in Colombia.
Senator Pope. I notice you say you sent a pair of sportaculars to
Colonel Escallon. What was that?
Mr. Miranda. It was a pair of glasses, just as a present.
Senator Bone. Who is Mr. Wilcox?
Mr. Miranda. Mr. Wilcox was the name that Mr. Olano, the coun-
sel of Colombia, adopted in all of his negotiations for armament
material.
Senator Bone. What was his name?
Mr. Miranda. Mr. Olano.
Senator Bone. So that the reference to Mr. Wilcox in the letter
of April 8, 1933, refers to Mr. Olano, that is correct, is it?
Mr. Miranda. Yes.
Senator Bone. Just give his official connection again.
Mr. Miranda. He was the consul general of Colombia in New
York.
Senator Bone. And that is who you referred to in the letter of
April 8, 1933, when you say Mr. Wilcox, and at this time, I will offer
this letter in evidence.
(The letter referred to was marked " Exhibit No. 244 ", and is
included in the appendix on p. 660.)
Senator Bone. In this letter here you are stating that you had
communicated to him the confidential information that Peru had
ordered seven Hawks from the Curtiss-Wright Co. How did you
come into possession of that information?
Mr. Miranda, I am sorry, Senator, but it was my brother who
wrote that letter. I was away from this country at that time, and
just how he came in possession of this information I could not tell
you.
Senator Bone. Where is the plant of the Curtiss-Wright Co. ?
Mr. Miranda. I understand one of their plants is in Buffalo.
Senator Bone. Do they maintain a plant in Chile?
Mr. Miranda. Yes; I believe they have a factory in Chile, or an
assembling plant.
Senator Bone. Do you know whether the Curtiss concern has
plants in other countries?
Mr. Miranda. I do not know, Senator. The fact is that it has
not been within my province to handle the aircraft end of our busi-
ness, so that I am a little vague on some of those details.
Senator Bone. You were authorized by Seversky Co. to negotiate
the sale of planes in Brazil at one time, that is Miranda Bros.?
Mr. Miranda. Yes.
586 MUNITIONS INDUSTRY
Senator Pope. I am interested in this man "Wilcox. He was the
consul general?
Mr. Miranda. Yes, that is correct.
Senator Pope. Why did you call him Wilcox?
Mr. Miranda. That was the recommendation he made to all of
the firms he was dealing with in military supplies. He was fearful
that the Peruvians were watching him or perhaps tapping his wires,
and he wanted to keep matters quiet. Possibh^ those were the in-
structions that he had from his government, but his request to us,
and the understanding to all of the firms he was dealing with in
military supplies was that he was to be called Mr. Wilcox, and
when they telephoned to the consulate they were to ask for Mr.
Wilcox, then Mr. Olano would answer.
Senator Pope. Just one other question. The purpose undoubtedly
was, in communicating to Mr. Wilcox this information that Peru
had ordered geven Hawks, to stimulate the desire by Colombia to
purchase planes?
Mr. Miranda. Not at all. We had no aircraft account to sell
to Colombia at all, so that could hardly be possible.
Senator Pope. You did hope to arm the aircraft?
Mr. Miranda. No ; that was not the case, it was simply the matter
of service. Wlien Colombia and Peru had their differences, we de-
cided we would stay with one of the tw^o sides not both. We ob-
tained substantial business from Colombia, so that we were on the
Colombia side, and we tried to render them services in such way
whenever we had the information.
Senator Bone. What is the Barr Shipping Co., of New York?
Mr. Miranda. That is a shipping and forwarding company.
Senator Bone. What do you mean by a shipping and forwarding
company, do they manufacture anything?
Mr. Miranda. No; their business is to handle shipments to all
parts of the world.
Senator Bone. They are simply forwarders, and not a manu-
facturing company?
Mr. Miranda. Yes; they take care of the insurance, the inland
transportation and all of the details of shipping.
Senator Bone. The same thing applies to the American Steel &
Copper Plate Co., of New York, or, tell us who they are?
Mr. Miranda. They have no militarj^ business at all. That is Mr.
Pittman, who is the owner of the company and he is a very old
friend.
Senator Bone. What do they manufacture?
Mr. Miranda. They manufacture engraving plates.
Senator Bone. Do they manufacture any war equipment of any
sort?
Mr. Miranda. Not that I know of.
Senator Bone. You have had occasion in behalf of Miranda Bros,
to refer to them as to your financial standing and ability to make
deliveries in addressing a letter to an Italian commercial bank and
trust company of New York, and that is why I asked about it.
Mr. Miranda. Mr. Pittman, the owner of the concern known as
the American Steel & Copper Plate Co., was the man who originally
financed my brother and I when we started in business in 1919. He
MUNITIONS INDUSTRY 587
has known us throughout our business career, and we always feel
free to refer to him in such instances.
Senator Bone. Now, in the latter part of November 1933 Miranda
Bros, of which you were a member were handling the export busi-
ness of Lockheed?
Mr. Miranda. That is right.
Senator Bone. And the Detroit Aircraft Corporation?
Mr. Miranda. Yes.
Senator Bone. And of the Switlik Parachute & Equipment Co.
Did this latter company make airplanes?
Mr. Miranda. No; they made parachutes and such equipment.
Senator Bone. Were the Detroit Aircraft Co. able to manufacture
airplanes for military use?
Mr. Miranda. No; they have always manufactured commercial
planes. As a matter of fact, none of those three companies you
have mentioned manufacture military planes.
Senator Bone. Now, can you tell us whether along in the early
part of this 3'ear there was any kind of an understanding between
Peru and Colombia as to composing their differences, some sort of a
cessation of at least verbal hostilities between those two countries?
Mr. Miranda. There was a cessation of hostilities accomplished
on May 1, 1933, and an armistice was declared for a year's time.
That armistice was to end on May 1, 1934.
Senator Bone. That was over the Leticia affair?
Mr. Miranda. That was over the Leticia affair in 1934. As May
1, 1934, approached — I mean January, February, and March of
this year, the outlook for a definite cessation of hostilities was not
very favorable. So that both countries began preparing again so
that in case at the end of the armistice warfare should be resumed.
Senator Bone. Now, your brother along about May 28, 1934, the
letter bearing that precise date, wrote to the Seversky Aircraft Cor-
poration of New York, directing particular attention to Mr. North.
I want to introduce that letter as " Exhibit No. 245 " and have it
shown to 3'OU, Mr. Miranda.
(The letter referred to was marked " Exhibit No. 245 " and is in-
cluded in the appendix on p. 660.)
Senator Bone. That letter states in part as follows [reading] :
As you know, the armistice with Peru comes to an end in about 60 clays;
both Peru and Colombia are making great preparations and a big time is
expected by all.
By " big time " you of course were figuring on the big time when
the bullets would begin to fly again? Is that right?
Mr. Miranda. That is just an expression.
Senator Bone. I understand it is mere verbiage, but that is what
he meant?
Mr. Miranda. I do not know, but it is more or less of an idiomatic
expression.
Senator Bone. In that letter your brother goes on to say [read-
ing] :
It being Impossible to sell both to Peru and Colombia because one would not
buy from you if the other one did, we have chosen Colombia —
" We " — meaning Miranda brothers —
first and foremost, because they have money (which Peru has very little
of) * * *.
588 MUNITIONS INDUSTRY
What was the matter with Peru ? Had the bankers finished Peru,
Juan Leguia, and the rest?
Mr. MiKANDA. I could not tell you.
Senator Bone. Your crowd was better qualified to tell what was
haj^pening in Peru than anybody else?
Mr. Miranda. They did not seem to have the money. To begin
with, Peru's resources and Colombia's resources are very different.
Colombia is an infinitely wealthier country than Peru.
Senator Bone. Peru had been through the banking mess, the flota-
tion of huge loans in this country, which practically destroyed their
credit. That is what actually occurred?
Mr. Miranda. That probably was the case.
Senator Bone. You have heard a lot of testimony about the
Peruvian situation, have you not? I have noticed you sitting here
throughout most of the hearings and you have heard the witnesses
tell about the Peruvian finances. Without aslring you to verify each
of those statements, I will ask you if that is not a correct picture of
Peruvian finances, which you have heard placed in the record here
by these witnesses?
Mr. Miranda. Yes, sir ; that is what I have heard.
Senator Bone. That would save us going into detail on that.
You say here :
* * * because of the fact that our connections in official circles in Colombia
are just made to order.
Can you be a little more explicit about that ?
Mr. Miranda. You know in the Latin American countries that the
subject of personal contact and personal relations plays a very im-
portant part in doing business with the government. Suppose
an American manufacturer will contact with one of those countries
and he does not know anyone there, and he may have a first-class
product which he wants to sell, and he may go to see the war office
or the minister of public works — this does not necessarily apply to
munitions but applies to doing business in general with the gov-
ernment of Latin American countries — and if he does not have a
sponsor, or if he does not have some means of introduction, he is
liable to cool off his heels for one or more weeks. That would not
be the case with us because I know and my representatives in
Colombia know most of the people in the government, so that we
would at least have a hearing within a very reasonable time.
Senator Bone. Would you say that the business relations that
have to be established down there are such that you would prefer to
take a fellow off to one side and tell him about it rather than write
him a letter about it?
Mr. Miranda. I would not tell him anything. I would just leave
that matter to my agents to handle. What they were to do
Senator Bone. If you were going, for instance, to tell me about
how the business was gotten in South America, and sort of give
me the " low down " on it, would you rather take me somewhere,
say, to my office, and tell me, rather than write a letter?
Mr. Miranda. Senator, I would have to follow the practice they
follow down there.
Senator Bone. I do not know whether you get my point. I will
put it more bluntly. Would you rather tell me than put it in
writing? If I were the business agent down there, and we finally
MUNITIONS INDUSTRY 589
got together on this matter, -would you rather tell me in person or
write a letter?
Mr. Miranda. I think it is always safer to tell things than to write
them.
Senator Bone. That would explain why " Iggy " says :
Aside from that, the writer's brother is down in Bogota —
Perhaps we can sympathize with that viewpoint, understanding the
situation down there. [Continuing reading:]
Aside from that, the writer's brother is down in Bogota —
That would be yourself ?
Mr. Miranda. That is right.
Senator Bone (continuing) :
where we are negotiating sales of war material running into several millions
of doUars.
That was in March of this year ?
Mr. Miranda. March 28, 1934; that is correct.
Senator Bone (reading) :
By the very nature of our business we find it necessary to contact the very
highest Government officials. The President, the Finance Minister, the War
Minister, and Chief of Staff of the Colombian Army have also approved the
Seversky and are in full accord with our view to the effect that this type of
ship is eminently suited for their local conditions.
By " local conditions " that meant the possibility of war arising ?
Mr. Miranda. No, sir; they mean the high mountains and the
large number of rivers. The Seversky is an amphibian plane.
Senator Bone. It can land on the river?
Mr. Miranda. It can land on the river and on the plateaus.
Senator Bone. The purpose of my question was to suggest to you
an answer as to whether or not those planes could and would be used
for military purposes.
Mr. Miranda. Yes, sir; we were talking about military purposes.
Senator Bone (reading) :
Mr. Miranda, Jr.
Which would be yourself
During his stay in Bogota, has lined up for us a contract for 18 Severskys.
Do vou know whether or not the Severskys did much work down
there f
Mr. Miranda. No; the contract did not go through.
Senator Bone. This letter seems to be something of a report.
Senator Pope. Pardon me, Senator.
Senator Bone. Go right ahead.
Senator Pope. With reference to this letter to which Senator Bone
referred, in the fourth paragraph of that letter, the very last part
of the paragraph, there is reference to Commander Strong again.
The Avriter says :
* * * The Seversky has met with the most enthusiastic approval which is
of the utmost importance for us inasmuch as he is the one who will determine
what is going to be purchased.
Mr. Miranda. Yes, sir; no purchases would be made unless he
passed on the technical side of the question.
590 MUNITIONS INDUSTRY
Senator Pope. In effect, it placed the sole final responsibility on
him as to what guns and other material would be purchased by
Colombia ?
Mr. Miranda. If they were purchased from America; yes.
Senator Bone. You refer here to your representative in Brazil?
Who was he? That is, the writer of the letter refers to him, your
brother. Would that be Sonza Sampaio & Co.?
Mr. Miranda. No, sir; Sonza Sampaio & Co. only handle our
armament business. Sonza Sampaio & Co. handle the Curtiss-
Wrioht account in Brazil, so that for that reason they could not
handle the Seversky account.
Senator Bone. This is a high naval officer, retired, as referred to
by your brother. Wlio would that be?
Mr. Miranda. Commander Figueira.
Senator Bone. There is reference here to his very close intimacy
with the Chief of the Air Service, the Chief of Staff, and the War
Minister.
The Chairman. Mr. Miranda, referring to this letter of March
28th, 1934, " Exhibit No. 245 ", which has been under consideration,
your brother speaks of the armistice with Peru having come to an
end. When did that come to an end ?
Mr. Miranda. The armistice with Peru did not come to an end
until the 30th of April or the 1st of May.
The Chairman. But it was in effect at the time this letter was
written ?
Mr. Miranda. Yes.
The Chairman. Then would not it
Mr. Miranda. It says here :
As you know, the armistice with Peru comes to an end in about 60 days.
The Chairman. I see. So that this letter was written while the
armistice was in effect?
Mr. Miranda. Yes, sir; this letter was written while the armistice
was in effect.
The Chairman. Down in the fifth paragraph of this same letter
I find this language [reading] :
By the very nature of our business we find it necessary to contact the very
highest Government officials.
And then the letter makes reference to you personally having lined
up large orders there in Colombia. Are we to understand that jj^ou
were lining up these orders during the armistice ?
Mr. Miranda. Oh, yes; we were working for them.
The Chairman. And the contracts which were then being entered
into were dependent upon the armistice coming to an end?
Mr. Miranda. No, not at all. Both governments were preparing
in case that the armistice failed. In other words in case that perma-
nent peace negotiations were not terminated prior to the termination
of the armistice. So that both countries had requested, both coun-
tries had approached manufacturers of armament material for their
jDossible requirements in case that the armistice failed.
The Chairman. You say " had opposed ? "
Mr. Miranda. Had approached .
The Chairman. There were no terms in the armistice, then,
against building up in preparation for a renewal of hostilities?
MUNITIONS INDUSTRY 591
Mr. Miranda. That I would not know. An armistice like that
is a secret document between the two governments, but both govern-
ments were going ahead and making very large purchases of war
material during the armistice, preparing in case the armistice failed,
or, rather, in case that permanent peace terms were not arrived at
during the period of the armistice.
The Chairman. Were you sworn to secrecy by Colombian officials
against revealing their contracts and their plans with you?
Mr. Miranda. Generally you are not sworn to secrecy, but you are
expected to keep all negotiations with foreign governments abso-
lutely confidential.
The Chairman. The fact remains that during the armistice you
were soliciting and receiving orders for Colombian munitions?
Mr. Miranda. We were soliciting, but we did not receive any.
The Chairman. You had the orders lined up? You had reported?
Mr. Miranda. Yes, we were hoping to get them.
Senator Bone. I want to get this gentleman identified. Will you
pronounce his name again, that is, Figueira?
Mr. Miranda. In Brazil. Figueira.
Senator Bone. What is his first name ?
Mr. Miranda. Raoul.
Senator Bone. That is the gentleman whom you said was a retired
naval officer?
Mr. Miranda. That is correct.
Senator Bone. What had been his connection with Brazil in the
navy? Was he a captain?
Mr. Miranda. He was a lieutenant commander.
Senator Bone. A lieutenant commander?
Mr. Miranda. Yes, sir.
Senator Bone. That was his status when he was retired ?
Mr. Miranda. Yes.
Senator Bone. In the Brazilian Navy?
Mr. Miranda. In the Brazilian Navy; yes, sir.
Senator Bone. And he became your representative there to help
you make a sale of some of your American products in Brazil?
Mr. Miranda. That is correct.
Senator Bone. You refer to him later, and we will come to that, as
being one of the best men you could have had for that purpose on
account of his local knowledge of the conditions there ?
Mr. Miranda. Not particularly that, but on account of his techni-
cal knowledge. He is a man who had been in this country for I
think a year.
Senator Bone. When you talked about war munitions he knew
what you were talking about?
Mr. Miranda. He knew the technical side of it.
Senator Bone. The writer of the letter states here " who is on
the most intimate terms with the Chief of the Air Service, the Chief
of Staff and the War Minister."
Mr. Miranda. Yes.
Senator Bone. He appears to have been a good man, and you say :
He has followed up our work beautifully; he has had wholesale copies
made of the photographs which we have sent him, printed the Seversky speci-
Pcations on the backs and distributed them to all army and navy aviators. He
592 MUNITIONS INDUSTRY
lias published featured articles in the Brazilian newspapers with large photo-
graphs of the Seversky and detailed descriptions as to performance, specifica-
tions, and background of experience of Major Seversky.
So that he was laying a foundation there for the Seversky plane,
if it was purchased by the Brazilian Government ?
Mr. Miranda. Yes, sir.
Senator Bone. When was this $3,000,000 appropriation made by
the Brazilian Government for the purchase of aircraft? Can you
tell us?
Mr. Miranda. I imagine it was made this year 1934, or in the
latter part of 1933.
Senator Bone. So that apj)arently Brazil is now in the market for
a lot of airplanes?
Mr. Miranda. Oh, yes.
Senator Bone. Military and naval planes?
Mr. Miranda. Yes, sir.
Senator Bone. Do you know how strongly they are going in for
commercial aviation down there, or is that in the hands of the
outside corporations ?
Mr. Miranda. There are three companies operating commercial
planes in Brazil, Pan-American Airways, the Condor Co., that is
a German company, and a French company. That is, I think they
call the French company Air France.
Senator Bone. Those are outside companies?
Mr. Miranda. Yes, sir.
Senator Bone. They are controlled outside Brazil?
Mr, Miranda. There are no Brazil transportation passenger com-
panies. The purchases of the Government of Brazil heretofore
have been mostly of military planes.
Senator Bone. Did the Brazilian Government ever acquire the
rights to build the Seversky plane?
Mr. Miranda. Not yet.
Senator Bone. They are negotiating for that?
Mr. Miranda. Yes, sir.
Senator Bone. Your brother in this letter was advising the
Seversky Co. of the interest of Brazil and other South American
countries in such business. There is nothing particularly significant
in this fact except you were advising the Seversky people of the
possibility of business in South America.
Now coming to a letter dated June 13, 1934, addressed to the Lock-
heed Aircraft Corporation, Burbank, Calif., signed by J. Mivata
for Okura & Co., I will ask that it be marked '• Exhibit "No. 246.*"
(The letter referred to was marked " Exhibit No. 246 " and is
included in the appendix on p. 661.)
Senator Bone. In this letter he states :
We have had the great pleasure of having secured an order for the Japanese
Navy for one (1) complete set of your Electra Model 10-A and the order has
been placed through Mr. A. J. Miranda, Jr., who is your I'opresentative in this
city for the Far East.
I take it from that that you Avere representing the Lockheed Cor-
poration in the sale of this Lockheed plane. Is that correct ?
Mr. Miranda. That is corrert, sir.
Senator Bone. That has been testified to, or there has been testi-
mony here as to the latest model of Lockheed plane.
MUNITIONS INDUSTRY 593
Mr. Miranda. It is not a military plane.
Senator Bone. What kind of plane is it?
Mr. Miranda. A passenger plane.
Senator Bone. A passenger plane?
Mr. Miranda, A lO-passenger commercial plane.
Senator Bone (reading) :
In the meanwhile, we were advised by our head oflSce in Tokyo to the effect
that the following naval officers are coming to the States very shortly and that
they have recommended them to visit your plant on their way to the east.
That is to say, the Lockheed plant [continuing reading].
These officers accompanied by our Mr. T. Imai, who is also arriving per S.S.
Chichibu Mary which is due at Los Angeles on June 29 are
And then appear the names of four naval officers of Japan. Did
they come over?
Mr. Miranda. Yes, sir; they came over and visited the Lockheed
plant.
Senator Bone. Do you know what was shown them down there ?
Mr. Miranda. The commercial planes.
Senator Bone. Were they interested only in commercial planes ?
Mr. Miranda. That is the only thing Lockheed manufactures.
Senator Bone. What would be the difference betAveen a Lockheed
engine on a very fast plane, like that, and the engine on a military
plane ?
Mr. Miranda. The difference in the engine?
Senator Bone. Yes, sir. The engine being the heart of the plane,
because when an engine fails there is not any plane, and what is the
difference between the engine on this very fast Lockheed Electra
model and the engine on a military plane?
Mr. Miranda. My understanding — and, as I said before, I am not
an expert on aircraft matters
Senator Bone. But your firm is selling these planes and you have
to be something of an expert to sell them ?
Mr. Miranda. But vcij understanding is that military plane engines
are built in such a manner that they will develop their maximum
horsepower at very high altitudes, which are the altitudes at which
the fighting is mostly done, while commercial engines are built in
such manner that the engine's maximum efficiency is reached at 2,000,
3,000, or 5,000 feet.
Senator Bone. That difference in efficiency is due to little gadgets
put on the engines, superchargers, and so forth ?
Mr. Miranda. I would not call a supercharger a little gadget.
Senator Bone. But those are incorporated in the engine and are
simply not part of the engine as a usual thing, are they ?
Mr. Miranda. No ; I do not believe so. Senator.
Senator Bone. There is nothing mysterious about a supercharger
and everybody knows about it.
Mr. Miranda. No, As a matter of fact, the Japanese are making
just as good aviation engines as we are making.
Senator Bone. But they would be very much interested in know-
ing the kind of engines we are making over here ?
Mr. Miranda. I imagine if they were interested in that they would
go to the engine manufacturers over here.
83876— 34— PT 3—4
594 MUNITIONS INDUSTRY
Senator Bone. Does the Lockheed Co. make its own engines?
Mr. Miranda. No.
Senator Bone. What engine do they use?
Mr. Miranda. Curtiss-Wright or Pratt & Whitney.
Senator Bone. Is there any stock ownership between them or any
tie-up between the companies?
Mr. Miranda. You mean the Lockheed Co.?
Senator Bone. Yes, sir.
Mr. Miranda. No. Lockheed is an independent company.
Senator Bone. Under date of March 17, 1933, which is while you
were still operating your own company, before the creation of the
American Armament Corporation, a letter was written by I. J.
Miranda to Mr. Carl B. Squier of the Lockheed Aircraft Co. at Bur-
bank, Calif. Are you I. J. Miranda?
Senator Bone. No. That is my brother.
Senator Bone. I will offer that letter as " Exhibit No. 247."
(The letter referred to was marked " Exlxibit No. 247 " and is in-
cluded in the appendix on p. 662.)
Senator Bone. That letter in part reads as follows :
Don't forget that whatever price you quote to the mission should include an
adequate commission for me.
He was covering his own commission in the transaction, if there
should be a contract. To what mission is he referring?
Mr. Miranda. I do not know. Senator. I was away from this
country at the time. If I may read the letter perhaps I can get
some information from it.
Senator Bone. I was wondering if that was a Chinese mission, a
Japanese mission, or what it referred to. It seems to refer to some
mission coming to this country.
Mr. Miranda. I am sorry, but I cannot help you, Senator.
Senator Bone. You cannot enlighten us on that?
Mr. Miranda. No, sir.
Senator Bone. Can any of the other members of your group here
enlighten us on that?
Mr. Miranda (examining exhibit). It says here a Chinese Govern-
mental Mission.
Senator Bone. There may have been a little pencil note there.
Were the Chinese having a mission here at that time?
Mr. Miranda. I think they have been having missions here right
along.
Senator Bone. How can you tell what sort of an outfit you are
doing business with in China under the conditions that prevail there ?
Mr. Miranda. It was very difficult in the beginning. Now no
shipments can be made to China or no shipment caui be made to
South America of armament material without a permit from the
State Department. The State Department will not grant that per-
mit unless the Chinese Ambassador at Washington requests it.
Senator Bone. How long has that condition existed ?
Mr. Miranda. I believe about a year.
Mr. Sweetser. I think that has been in effect for 2 or 3 years.
Senator Bone. We will show vou, Mr. Miranda, a letter dated
March 20, 1933, addressed to Mr. 1. J. Miranda from L. E. Gale, the
president of the L. E. Gale Co., at Hankow, China.
MUNITIONS INDUSTRY 595
(The letter referred to was marked " Exhibit No. 248 " and is
inchided in the appendix on p. 663.)
Senator Bone. That letter, " Exhibit No. 248 ", was in your files,
and you are familiar with the letter, in which the writer says :
On March 13 we wired asking for a net price c.i.f. Shanghai on eight standard
Wasp Vega Lockheeds.
What sort of plane is that ?
Mr. Miranda. The Vega Lockheed is a single-engine, high-wing,
six-passenger transport plane.
Senator Bone (reading) :
This is in response to an enquiry from the Hunan Government.
Evidently those planes were to be used for military purposes in
China.
Mr. Miranda. They might have been used for the transportation
of officials. They have bought a number of fast American transport
planes for that purpose.
Senator Bone (reading) :
It sounds almost too good to be true, I must say. I doubt if they have the
money to buy eight of these planes. However, I understand on pretty good
authority that they do have a little money and it seems we should be able to
sell at least two or three.
The airplane business in China is more competitive than the motor-car busi-
ness and every possible nationality is putting in quotations.
In discussing things informally with the military it appears that in order to
meet competition in carrying capacity, power and speed pay the necessary
squeeze we will have to buy these Lockheeds at about $14,000 ea. net to us c.i.f.
What was Mr. Gale referring to when he used the term " squeeze " ?
Do we understand that that is synonomous with " grease " in South
America?
Mr. Miranda. Or " doing the needful."
Senator Bone. Or " doing the needful " in other places ?
Mr. Miranda. Evidently.
The Chairman. Mr. Miranda, you have had contacts in Nica-
ragua?
Mr. Miranda. No, sir; not at all.
The Chairman. None at all?
Mr. Miranda. Not that I remember. Senator.
The Chairman. Do you know Sandino?
Mr. Miranda.. No, sir ; not at all.
The Chairman. Do you know anything of the supplies that were
sent to him?
Mr. Miranda. Not at all, sir.
Senator Bone. What is the plane which may be designated as
"T.G.-rs"and"G.L.'s"?
Mr. Miranda. Great Lakes trainer and training plane.
Senator Bone. What is " T.G. "?
Mr. Miranda. It is an index.
Senator Bone. What type of plane does it indicate, and by what
company?
Mr. Miranda. Great Lakes trainer.
Senator Bone. You had had occasion, or your firm had had oc-
casion, in March 1932, to approach the Japanese Government with
respect to the sale of those planes. What company makes those
planes ?
596 MUNITIONS INDUSTRY
Mr. Miranda. The Great Lakes Aircraft Corporation.
Senator Bone. Was the Japanese Government interesting them-
selves in those planes at that time?
Mr. Miranda. I do not know; sir. I am sorry, but I did not
handle that matter.
Senator Bone. I will refer to a letter under date of March 19,
1932, sent by I. J. Miranda to Mr. Edward Rembert, Great Lakes
Aircraft Corporation, Cleveland, Ohio, which will be " Exhibit No.
249."
(The letter referred to was marked "Exhibit No. 249" and is
included in the appendix on p. 663.)
Senator Bone. This letter, " Exhibit No. 249 ", calls attention to
the fact that your brother and Okura & Co. had approached the
Japanese Government " with regards to the new T.G.'s and the two
G.L.'s. It states in part ;
Captain Sunaga, in charge of aviation matters at the Japanese Government's
Inspector's Office here in New York, is very much interested in the G.L.'s. I
am endeavoring to get liim up to Clevehmd so that he may personally examine
and if necessary test G.L.'s. His recommendation to headquarters in Tokyo
will carry tremendous weight.
Do you know whether any deal for the sale of those planes was
subsequently consummated through your firm ?
Mr. Miranda. I am certain that it was not.
Senator Bone. In this letter you say " a Chinese military mission
has just arrived in America, and I shall also contact them on the
subject."
This letter was dated 2 days after the one in which the term
" Mission " was used, and concerning which I inquired, so that
evidently he was referring to the Chinese Mission.
Mr. Miranda. It said so in the letter to which you called my at-
tention,in the complete record.
Senator Bone. The letter continues some further references, and
then states :
I am intimately acquainted with such well-known fliers and/or executives as
Major Aid r in—
This letter being signed by I. G. Miranda, your brother —
vice president, Standard Oil Co. in charge of aviation. * * *
Is the Standard Oil Co. in the aviation game ?
Mr. Miranda. Not so far as I know, except that they have bought,
I think at different times, one or more Lockheeds for the transpor-
tation of their officials. I think all the oil companies use plane
transportation for their officials.
Senator Bone. Then the use of the term " in charge of aviation "
simply means in charge of those planes ?
Mr. Miranda. No ; I think they have an aviation-gasoline depart-
ment, and I think that Major Aldrin is in charge of that department.
Senator Bone. The writer also states that he's intimately ac-
quainted with Clarence Chamberlain. Is he the flier who flew across
the Atlantic with a passenger?
Mr. Miranda. Yes, sir.
Senator Bone. Roger Williams — who is he ?
Mr. Miranda. Another flier.
Senator Bone (reading) :
MUNITIONS INDUSTKY 597
* * * the entire executive personnel of Curtiss-Wright, the entire person-
nel of Pan-American Airways, including Presster, the chief engineer and
Gledhill, the purchasing agent, Ruth Nicholls," * * *
Is she the girl flyer that we have read about so much ?
Mr. Miranda. Yes.
Senator Bone (reading) :
Elinor Smith, Amelia Earhart,^ Luther Bell, and Charles Parker of the
chamber, * * *
AVhat chamber is that a reference to ?
Mr. Miranda. I imagine the Aeronautical Chamber of Commerce.
Senator Bone. The Aeronautical Chamber of Commerce ?
Mr. Miranda. Yes.
Senator Bone (reading) :
Bernarr McFadden,^ etc., etc.
Does Bernarr McFadden fly ?
Mr, Miranda. He is a flying enthusiast. He has flown several
Lockheeds.
Senator Bone. He flies them himself?
Mr. Miranda. I believe he is a pilot ; yes.
Senator Bone. This Bernarr McFadden is a publisher ?
Mr. Miranda. Yes.
Senator Bone (reading) :
All of these people I know well and I find them most useful in the pursuit
of business.
Can you just briefly tell us how they are useful to you in the
pursuit of business ?
Mr. Miranda. I guess most of them are either Lockheed owners
or Lockheed users. They maintain their planes in and about New
York and when foreign missions come to New York or when foreign
customers come to New York, it is possible to show them the private
planes of some of these people.
Senator Bone. In other words, these people are willing to say
that Lockheed is a very fine plane?
Mr. Miranda. Yes. It is.
Senator Bone. ^Vlio is Nick Bates?
Mr. Miranda. Nick Bates?
Senator Bone. Yes.
Mr. Miranda. Nick Bates I think — his official title is assistant to
the chief of the military sales division of the du Pont Co.
Senator Bone. Of which?
Mr. Miranda. E. I. du Pont de Nemours.
Senator Bone. What are his business activities in South America?
Mr. Miranda. I think he travels all over South America as a
supervisor for the du Pont Powder Co.
Senator Bone. As a supervisor?
Mr. Miranda. Yes.
= In a telegram to the committee which was entered into the record of Sept. 11, 1934,
immediately preceding the noon recess, Miss Nicholls denied Mr. Miranda's allegations
(see pt. IV).
' In a telegram to the committee which was entered into the record of Sept. 11, 1934,
immediatel.v preceding the noon recess, Miss Earhart denied Mr. Miranda's allegations
(see pt. IV).
■* In a telegram to the committee which was entered into the record of Sept. 18, 1934,
immediately preceding the noon recess, Mr. McFadden denied Mr. Miranda's allegations
(see pt. VII).
598 MUNITIONS INDUSTRY
Senator Bone. What do the du Fonts have down there that re-
quires supervision?
Mr. Miranda. My understanding is that they do a substantial
business in South America and they have representatives in ahnost
every country. Mr. Bates calls on one representative and the other,
goes from one to the other.
Senator Bone. Do you know the particular type of their business
he supervises, the sale of powder?
Mr. MiBANDA. I think it refers mostly to the military powder.
Senator Bone. Under date of May 27, 1933, writing from Rio de
Janeiro to " My dear Frank " — that would be Mr. Johnson, I take it?
Mr. Miranda. "My dear Frank?"
Senator Bone. Yes.
Mr. Miranda. No; it would be Mr. Sweetser.
Senator Bone. Who was then in your company, which was the
Driggs Co.?
Mr. Miranda, He was then secretary of the Driggs Co.
Senator Bone. You make reference to some of the matters I
want to ask you about. You were at that time in Kio?
Mr. Miranda. Yes.
Senator Bone. I will offer this letter as " Exhibit No. 250."
(The letter referred to was marked " Exhibit No. 250 ", and is
included in the appendix on p. 664.)
Senator Bone (reading) :
I am glad to say that the patient has taken a turn for the better.
The patient you referred to is your own business ?
Mr. Miranda. Yes, our negotiations in Brazil.
Senator Bone (reading) :
It seems as if we needed just this attack to show us the number of friends
that we have in the War Department.
What was the attack being made on you ?
Mr. Miranda. The attack that was being made on the standing of
our company by our European competitors.
Senator Bone. They were challenging your credit and responsi-
bility and the like?
Mr. Miranda. Yes.
Senator Bone (reading) :
Again I cannot commend Figueira too highly for his tireless and loyal work.
This Figueira is the lieutenant commander of the Brazilian Navy ?
Mr. Miranda. Yes,
Senator Bone (reading) :
He certainly is a peach and when (notice that I do not say "if") we get
an order from this Government, you can become certain that Figa is the
best possible agent the company could have in P.razil. Immediately after the
attack — because you can bet your life that the rather premature and liasty
inquiry into our company's affairs was prompted by the opposition — Figa
drew a plan of campaign and we went to work. Jackson, the commercial
attach'^, and Sackville, the military attache, who was the respective spokesman
for the Embassy here on commercial and military matters, have been 100
percent helpful.
How were they aiding you?
Mr. Miranda. The government wanted to get some references of
our company. We referred them to the office of the commercial
attache. Mr. Jackson had been acquainted with our work for a
MUNITIONS INDUSTKY 599
number of years. He had visited with Mr. Driggs when he was up
here and had been to our office and heard our story, and so forth and
so on.
Senator Bone, How was Nick Bates of the du Pont Powder Co.
helpful to you down there?
Mr. Miranda. The du Pont Powder Co. has a very large standing
there. They set up a powder plant for the Brazilian Government
several years ago and they inquired from Bates if he knew the Driggs
Co., and he said " yes." They inquired if he thought the Driggs Co.
was capable of handling the contracts such as they had in mind and
he told them he thought that if we got the contract, we would be able
to make the necessary arrangements to handle it satisfactorily.
Senator Bone. When did the du Ponts build this powder plant
in Brazil?
Mr. Miranda. I believe several years ago.
Senator Bone. Did they retain any interest in it?
Mr. Miranda. No; I do not think so. I think they just have a
technician there to help the Brazilian Government.
Senator Bone. They have a technician there ; in other words, they
built the plant for the Government and they have a technician there
to show the Brazilian Government how to make military powder,
Mr. Miranda. Yes, just to check up.
Senator Bone. Further on in this letter you say that [reading] :
Nick Bates * * * had the opportunity to make an excursion witli some
of tlie higli ranking oflScers, led by the Secretary of War, * * *.
What did you mean by that?
Mr. Miranda. They made a trip to this powder plant. It is about
200 miles away from Rio. He went up there with the Secretary of
War and several other high ranking officers. It was at that time
that they questioned him about the ability of the Driggs Co. to
handle such contracts.
Senator Bone. There is a reference here to the fact that a number
of his officer friends — I take it those were officers in the Brazilian
Navy or in the Army — had spent from 6 months to 2 years at the
du Pont powder plants, training. What sort of training did these
military and naval men get at the du Pont powder plant? Would
that plant be the one in America or in Brazil ?
Mr. Miranda. No, here ; training in the manufacture of powder.
Senator Bone. The du Pont Co. have missions of that sort that
come up here and take training?
Mr. Miranda. If the du Pont Co. or any company — for instance
if our company were to sell a plant to the Brazilian Government and
install it in Rio for the manufacture of our equipment, unquestion-
ably in the contract would be a provision whereby some of their
officers would come up and spend some time in our plant.
Senator Bone. Let me digress for a moment at this point. I
should like to ask you whether or not the du Ponts, if you know,
have put in powder plants in other sections of the world.
Mr. Miranda. I do not know.
Senator Bone. In any other South American country?
Mr. MiiiANDA. Possibly Argentina, but I am not certain.
Senator Bone. Do you knoAV whether the du Ponts have put plants
in other South American countries ?
Mr. Sweetser. No, sir; I do not.
600 MUNITIONS INDUSTRY
Senator Bone. Any member of this group?
Mr. Brayton. I have not positive information, but I believe they
have in certain places in South America.
Senator Bone (reading) :
The Chief of Staff, General Andrade Noves, who is Figa's sponsor, and the
most highly accredited general in Brazil, also has been helping us. * * *
Does that term " sponsor " imply anjrthing other than merely a
good friend?
Mr. Miranda. No; General Noves has known Figueira since
Figueira was a youngster. He was the one who induced him to go
to a military school and he has followed his military career.
Senator Bone. You are familiar with j'our reference to " coffee "
here, without my going into detail. Did anything ever come of that
negotiation over coffee? Will j'^ou just read those few lines in which
that reference is made?
Mr. Miranda. I do not think that anything has come out of that,
but that is a fact. We buy most of Brazil's coffee. We have felt
in this country or rather, firms trying to get business from the Bra-
zilian Government have felt, that it would be only fair to have
our Govermnent in some manner indicate to the Brazilian Govern-
ment that if we are their best customers, they should, in turn, try
to give us some of their business.
Senator Bone. There is a statement in this letter — whether it be
accurate or not you will probably know — that we buy four times
as much from Brazil as they buy from us and that a substantial
part of our purchases from Brazil is coffee. So that what Brazil
buys from us bears only that ratio to the total amount of the traffic.
Is that mostly munitions of war?
Mr. Miranda. What they buy from us?
Senator Bone. Yes.
Mr. Miranda. No; they have bought no munitions from us.
Senator Bone. Then you were trying to get in on that business
which would be built up there by a demand for more war munitions
of one kind or another?
Mr. Miranda. As a matter of fact, Brazil has had a plan, running
into about 50 or 60 million dollars for the purchase of warships,
cannon, and so forth. All of that business it was expected would
go to Europe.
Senator Bone. You say that she has a plan?
Mr. Miranda. A plan.
Senator Bone. Do you mean an appropriation?
Mr. Miranda. The appropriation for the purchase of warships has
been made ; yes. That contract was let to the Vickers Co., I believe,
early this year.
Senator Bone. Were those ships to be manufactured in England
or in Brazil?
Mr. Miranda. I think about 70 percent in England.
Senator Bone. Does Vickers have a plant in Bi*azil ?
Mr. Miranda. No; there is no foreign plant in Brazil.
Senator Bone. So, because of what you considered to be an unfair
division of this traffic, you were urging the military and naval
attaches and commercial representatives of the United States Gov-
ernment to help you with this business down there?
MUNITIONS INDUSTRY 601
Mr. Miranda. To help us to bring part of that business to this
country.
Senator Bone. You felt that this country was entitled to get some
of that business instead of the English munition makers?
Mr. Miranda. It resolved itself into this, that if they were mak-
ing most of their money by selling their stuff to us, they should
spend some of their money here, instead of sending it to Europe.
Senator Pope. You make this statement in this letter. This letter
was written by you personally, I believe?
Mr. Miranda. Yes.
Senator Pope (reading) :
I learn very confidentially that tlie Minister of Finance liere has been able
to keep off the American coffee tax by promising the Roosevelt administration
that the preference will be given by tlie Government to purchases from tlie
U.S.A. and General Neves wants to suggest that it would be a fine gesture of
friendship to have the orders pending for armament, planes, ships, etc., go
to the U.S.A.
How did you get the information that they were having difficulty
in keeping the tax off coffee by the United States ?
Mr. Miranda. May I read that first, Senator, please? I do not
remember how I learned about it, possibly through one of the mem-
bers of the American colony down there.
Senator Pope. That argument to the high officials and responsible
people with whom you were dealing was a very effective argument
in urging them to buy munitions and guns, was it not?
Mr. Miranda. It was not a case of urging them ; they had decided
to buy them. We were trying or urging them to buy them here.
They had a definite plan to buy so much of munitions. All I was
trying to do was to bring some of that business to this country in-
stead of having it go to Europe, and particularly using the argu-
ment that they were literally going to use the money that they were
getting from us from coffee that we were buying from them, to pay
for those munitions abroad.
Senator Pope. That is all I have. Senator.
Senator Bone. There have been some military and naval mis-
sions from other countries to Brazil in years gone by; have there
not?
Mr. Miranda. Oh, I should say.
Senator Bone. A great many of them?
Mr. Miranda. Well, I dare say that you know the Italians sent
a mission down there. They sent General Balbo with 21 planes.
Before General Balbo made his flight to this country he made a
flight to Brazil, you may recollect, about 2 or 3 years ago.
Senator Bone. He brought his fleet to the World's Fair in
Chicago ?
Mr. Miranda. He came to our World's Fair last year. He went
to Brazil from Italy, I think, 2 years previous with 21 planes and
he sold 21 planes.
Senator Bone. Do you know whether our Government finally got
around to sending a military or naval mission to Brazil?
Mr. Miranda. I believe recently the Brazilian Government has
obtained from the American Government 2 or 3 officers in a con-
sulting capacity, that is about all.
602 MUNITIONS INDUSTRY
Senator Bone. Was there a French mission down there?
Mr. Miranda. A very extensive one.
Senator Bone. A very lar^je one?
Mr. Miranda. Yes ; about 30 or 40 officers.
Senator Bone. What were they doing down there?
Mr. Miranda. Well, they were doing everything.
Senator Bone. Extolling the virtue of the Schneider-Creuzot guns
and the like?
Mr. Miranda. They were instructors in almost every military
school in Brazil ; instructors in aviation.
Senator Bone. The French Government does not manufacture
arms and ammunition itself; does it?
Mr. Miranda. No.
Senator Bone. So that if they were down there stimulating the
sale of firearms, munitions of war, guns, cannons, powder, and the
like, they were down there engaged in a business and in promoting
a deal which, if successful, would have meant the sale of privately
manufactured arms and ammunitions, would it not?
Mr. Miranda. Yes.
Senator Bone. So that we may get this picture perfectly plain
and clear, they would have been pouring water on the financial
wheel of Schneider-Creuzot in France?
Mr. Miranda. Yes.
Senator Bone. And that was a French governmental mission?
Mr. Miranda. Yes; of course, it is not only Schneider-Creuzot,
but other manufacturers of French material — aircraft, and so on.
Senator Bone. Yes; and I am using them as a typical example,
taking it by and large.
This letter winds up by saying [reading] :
And if we can do likewise in the ottier countries, we will have a regular busi-
ness every year, if not from one place, from another.
So, apparently your purpose was to establish these contacts all
over South America so that you would build up particularly a South
American business?
Mr. Miranda. Yes, Senator; it was not a case of just organizing
and promoting a market for armament material. That market has
existed for years, year in and year out; sometimes it is larger than
at other times. What we have tried to do is to bring some of that
business to this country instead of letting it go to Europe entirely.
Senator Bone. Who is Mr. Meeker?
Mr. Miranda. Mr. Meeker is the vice president of the Elevator
Supplies Co.
Senator Bone. Which company?
Mr. Miranda. Elevator Supplies Co.
Senator Bone. That is a concern that does the manufacturing
for the American Armament Corporation?
Mr. Miranda. That is right, sir.
Senator Bone. Mr. Johnson's firm?
Mr. Miranda. Mr. Johnson's firm; yes.
Senator Bone. I call your attention to a memorandum dated
January 22, 1934, which I will offer in evidence as " Exhibit No. 251."
(The memorandum referred to was marked " Exhibit No. 251 ",
and is included in the appendix on p. 665.)
MUNITIONS INDUSTRY 603
Senator Bone. This is a memorandum for Mr. Meeker, signed by
you in which this is set forth [reading] :
With reference to Brazil : It is necessary in order to establisli our position
witli the Government and continue negotiating for the artillery business pend-
ing from that country that we send them photostatic copies of the letters
received by you from tlie War and Navy Departments. We can do this irre-
spective of the fact that the War Department does not authorize the release
of the dravrings for Latin American countries as yet.
Will you give us some light on that statement? What did that
actually mean ?
Mr. Miranda. Yes. It has been the policy of the War Department
and the Navy Department to a certain extent to release drawings
that are not of a confidential nature to American manufacturers,
if it will assist them to obtain substantial orders for this country,
for the building up of a private munitions industry in the United
States.
When we started the American Armament Corporation, Mr.
Meeker and I came down to see the War Department and the Navy
Department and told them what we were going to do, and told
them that investigation of our efforts would lead them to extend to
us that courtesy that they had extended to other companies or
seemed to be willing to extend to other companies.
They asked us to write a memorandum on the subject so that they
would have it a matter of record. We did so and Mr. Meeker ad-
vised me that both the War and Navy officers had been willing to
release drawings under certain conditions to us. That is just what
I was referring to in that memorandum.
Senator Bone. There is a letter dated April 28, 1934, to Com-
mander Raoul Figueira, by Miranda Bros., Inc., I. J. Miranda.
This Commander Figueira is the Raoul Figueira whom we have
been discussing.
Certain statements are made therein which I should like to inter-
rogate you about. I will offer this letter in evidence.
(The letter referred to was marked " Exhibit No. 252 ", and is
included in the appendix on p. 666.)
Senator Pope. Senator, may I interrupt you? Were you through
with the previous " Exhibit No. 251 " ?
Senator Bone. Yes. Do you wish to interrogate him on that?
Senator Pope. I want to ask one question or two about it. You
make the statement there that you could get these drawings or plans.
You say [reading] :
We can do this, irrespective of the fact that the War Department does not
authorize the release of the dravpings for Latin-American countries as yet.
Mr. Miranda. Yes.
Senator Pope. How did you manage to get the release of drawings
for the Latin countries, irrespective of the fact that the War Depart-
ment had not released them ?
Mr. Miranda. That is not the case, Senator. All I wanted was a
copy of the letters from the War and Navy Departments to the
Elevator Supplies Co. telling them that they would be willing to
release the drawings.
Senator Pope. That you would release them ?
Mr. Miranda. No; that they would be willing to release the
drawings so that we could show that, if a substantial and satisfac-
604 MUNITIONB INDUSTRY
tory oontrnrt was oWv.vcA iis, (lie, VVur Dcpjirtmoiit would release to
UK (Iriivviii^s tliiiL vvci'e not of u (loiilidc.iitiul nature.
Senator J'oi'k. Did you {fvi the release of these drawings before
they were «^iv(ui out generally?
IVfr. MlHANOA. No.
►Senator Jio>JK, In this letlci', which we luivo niaiked " Kxiiibit
No. 252", Mr. I. J. Miranchi states that you have secured an order
from the Coh)inhi!ui (iovernnient for a number of these shij)s, refer-
ring to the Seversky am})hibians. lie says | reading] :
T Ix'licvc (llic.v) arc ^r<)iii>; lo l)c used up iii-diiiid Ijjiclcciii when; tlic I'.ra-
ziliiiiis will lie iihic \<> li.'ivo >i ko'mI I""I< 'it, tJicm.
J)o you know whether the ships were actually used in and aioiind
L('( iciji ^
Mr. MiifANDA. No; they luivc not hccn dclivci'cd as yet. The
armistice camc; along, iind the ('oloml)ian (jiovcrnmcnt stated that
they were not in any piirticuhir hurry for them, so that they have not
been delivered as yet.
Senator Bonk. The letter further states [reading] :
'I'lic (iflicijil report, wlii<-li I lie Air ( 'orpH liiiK Hciil, to the Wiir JVIinlHlry in
VViiHliiii^'toM r(';^iir(liiiK I lie Scvcrsliy Is oik; of tlic /iii(!.sl liiaL I iiuv*! ever
Ix'ci) pri\ ilc^'cd to lool< jil.
You were i)rivilege(l (o h)<>k al a ((iiifidcntial report of the Air
Corps'^
Ml'. MiitANOA. I (lid not write lliis ictlcr.
Senator Honk. Well, 1. d. Miranda is writing it. (^an you explain
how li(> riima to look at the coidideni iai report of the Air Corps ^
Mr. MiKANDA. I liav<'. not the leas! idea.
Sciuitor I'oNK. We have not, cillicr, and (liat is why we wani (his
infoi'tnation.
Mr. MiHANDA. Possibly it is (Mislouuti'y for a copy of Ihosci rcpoi'ts
(,o be furnished (o tlie niatni fact urcr.
Scnalor lioNK. The conrKlciil ia I reports fi'oni the War I)e|)art-
menl/^
Mr. MiitANOA. It is a, conliderilial i'e|)ort (d' <he test. The Se\'ersUy
(/(). submiis to Wright I*'ield at Dayton, tiie Army field, one of their
ships for a test.. They make a test.
Semitoi' Honk. If you wanted to use that coididential iufoi'nuition
dealing with ('Idle or I'olivia. or I'erii for the stde of your e(|uii)-
menl or the sah* of airplanes, you would be fi-(M' to use it, would
you not '^
Mr. MiRANUA. I woidd; if the company gave it to me. It woidd
be entii'ely U|) to the company.
Semdor Honk. And if one- of the company r(>presentat ives got it
fi'om the ollicials of the War I)e|)ai'timent when they were testing
out this e(|uipment, you would feel free to use it?
Mr. MiKANOA. Why not'^ It is not/ a unit that has been ado|)ted
by the (Jovernmeiit.
S(.MUitoi- Honk. What. I am getting at. is that, this infoimation
coidd be siphoned through your firm or through any other firm into
foi-eign comd.ries, if you wanted to use it ?
Mr. MiifANDA. Yes; I imagine so.
MUNITIONS INDUSTRY G()5
Senator Bonk. The letter says [reading] :
The rciior), is oxtn-iiicly (•oiitldciiCiMl ninl only with n ^rciil donl of trouble
I liiivi! l)C(Mi nlilo to sc'ciirc ii fopy of i(, \vlii(;li I am ciulnsiiiK luTcwilli I'oi'
your own comI'kIciiI ial iiil'onnation.
Obviously the rejjort bciiifj: liiglily coiifidoiitiiil, you were com-
]")ell('(l to assure. <lio ojeutlcMiaii in South Amci-ica who was the con-
fldunt of the Brazilian (jlovei'iiuiciit that it was hio;li|y confidential
and that he must hold it as such. That is ri*!;ht, is it not?
Mr. MiKANOA. Yos.
Senator lioNK. Do you know how your brollier ojot ji copy of it?
Ml'. MiKANOA. I have not the least idea.
Senator Bone. lie said he had a <(reat deal of trouble jj;ettin<jj a
copy of it. How would a- private munitions oro;ani'/ation o;et a copy
of one of these confidential o^overnmental re|)or't,s?
Mr. Miranda. As 1 said, the only way 1 can fieure it out is that a
co])y must be ^iven to the nuuiufacturer of the product that is tested.
Senator Bonk. Tlien all of this talk about beinj.; confidential is just
so nnu'li loose talk?
Mr. Miuanda. It may be so mu<;h sales propajjjanda.
Senator lioNE. Is it a sort of War Department proi)a<i:anda, or do
they really mean it when they say that?
Mr. SwKETSKU. Do you not believe that the ])hi'ase "confidential "
may have referi-ed to its bein<^ confidential as far as the factory was
concerned rather than the Government?
Senator Bonk, There is nothino; in this letter to indicate that.
Mr. SwKKTSKR. Is not that a fair inferences?
Senator Bonk. You give this gentleman th(s inference that you have
gotten hold of something that is very confidential. Of course, we
civilians and laymen and private citizens are told all the time that
these arc; highly confidential nudt(;rs.
Mr. Brayton. Senator, uuiy I offer a thought there? I have had
nothing to do with this particular business and therefore any of my
remarks would not aj)i)ly. T^ut T do know from my past ex|)eiMence
as a Govenm)ent man that it was not un(;onnnon foi- a ])rivate matiii-
facturer to submit to the War Department some of his matcM-ial foi-
test, in which the Department believes that thciy will be interested;
generally that a manufactui-ei- re(|uests the War Department to writ,e
a confidential r(!j)ort. In other words, it is a I'cport that would not be
T)ublished in the Arjuy Ordnance Journal or sometliing of tluit sort,
but the War D(!partment may or may not have an interest in that.
Tliey have generally no control over the inat(!ria]. It is g(>nerally
biiilt under patents of the pi'ivate nianufactui'cir. The (jJovernuKsnt
could not yiossibly write anything into that report that woidd be
confidential from the company or the use of the company unless it
wanted to ol)tain (sxeliisive rights and buy all of those rig'lits of that
particular article, whether it is a gun oi" uinnntnition or what not.
So it is possible, if this is marked confidential by the I)(!pai'tment,
it means that it is confidential to the coinpany and whatever the com-
l)any wanted to do with it was their own privilege.
Senator Bone. In this particular case your coiii)>any was the repre-
sentative of the Seversky Corporation concerning whose product this
606 MUNITIONS INDUSTRY
statement of this report was made. So manifestly you had all of the
low-down, if I may use that term on the Seversky equipment.
Mr. Bratton. Not necessarily. These Government tests may
have shown up things which the Seversky Co. themselves had not
tested.
Senator Bone (reading) :
For goodness sakes, treat this report as confidential and do not let it get
out of your hands, although you may, of course, show It to a few chosen
people in high official circles.
Who were these chosen people in high official circles, if you
know ?
Mr. Miranda. Well, I would imagine the head of the aviation
service or one of the high ranking officers.
Senator Bone (reading) :
I repeat that this is a thoroughly official report rendered by the Air Corps
to the War Ministry in Washington.
There is not any further comment to make on. that statement;
that is plain enough, is it not ?
Then there is a quotation on the prices of some land planes.
Are those Severskys ?
Mr. Miranda. Yes.
Senator Bone. In lots of ten, $32,350, c.i.f. And the price of
each set of floats, " amphibian floats ", in lots of six, $6,450. The
letter also says :
The above prices are c.i.f. and the accrued commission of 10 percent for
yourself.
That means Figueira.
There is then a discussion in the letter as to selling the manufac-
turer's rights after the Government has placed an equipment order.
Has that proposition been effected yet, or has that arrangement
been effected?
Mr. Miranda. No ; no business has resulted.
Senator Bone. On the next page there is a reference to later im-
provements to be passed on to the Brazilian Government or the
licensees in Brazil. So that any improvements that are not of a
United States Army or Navy confidential nature would be passed on
to the licensee in Brazil. That would refer, of course, to later im-
provements that were made, that were not held exclusively by our
War Department. Those would be passed on to them?
Mr. Miranda. That is correct.
Senator Bone. What concern in this country is called the Federal
Laboratories ?
Mr. Miranda. The Federal Laboratories, Inc.
Senator Bone. Where are they located?
Mr. Miranda. Pittsburgh.
Senator Bone. What do they manufacture?
Mr. Miranda. As I understand, they manufacture chemical-war-
fare equipment.
Senator Bone. That would be poison gas.
Mr. Miranda. No. Smoke gas, tear gas, police equipment; also
they manufacture aerial bombs.
Senator Bone. Are they equipped to manufacture any kind of gas ?
MUNITIONS INDUSTRY 607
Mr. Miranda, I do not know. I do not know very much about it.
They are one of our competitors, and I do not know very much about
them.
The Chairman. Mr. Miranda, in the letter of May 27, 1933, ad-
dressed " To my dear Frank " by Alfred, which has become known
as " Exhibit No. 250 ", there is a reference to one Sackville, military
attache. Who was Major Sackville?
Mr. Miranda. United States military attache to the Brazilian
Government.
The Chairman. Who was it that signed this letter ?
Mr. Miranda. I signed it.
The Chairman. You say in the concluding paragraph of this
letter :
I asked you to mail me registered on the boat that should sail from N.Y.
today or tomorrow $250 in bank-notes. The exchange is dropping terrifically
and consequently the cost of living is jumping. You appreciate that in nego-
tiations of this nature there are many little extra expenses here and there,
this officer for lunch, and the other for dinner, and Sackville for cocktails, etc.,
etc. and I am trying to get the best exchange possible so that my money will
go the farthest possible.
How generally did the agents of the American Government accept
this hospitality in your negotiations in South America?
Mr. Miranda. There was not very much hospitality as a matter
of fact. They were stationed down there, and some of them had their
home and had their friends, and when they would invite you out to
their homes and take you to dinner, luncheon, and so forth, naturally
you had to reciprocate.
The Chairman. Was that quite an item of expense in South
America?
Mr. Miranda. No ; not the entertaining of Americans down there,
but the entertaining of Brazilians or foreigners there was quite an
item of expense.
Senator Bone. In a letter bearing date May 13, 1933, I desire to
call your attention to certain statements and will first introduce the
letter as " Exhibit No. 253."
(The letter referred to was marked " Exhibit No. 253 ", and is
included in the appendix on p. 669.)
Senator Bone. This letter, " Exhibit No. 253 ", was sent to Urueta
& Samper, the agents of the Driggs Ordnance Co. at Bogota, Colom-
bia. There is the statement that Wilcox, who was Mr. Olano, their
consular representative at New York, was very much surprised that —
I should have this information about Federal bombs and asked immediately
where I had gotten it. I merely told him that, in the same manner as I often
secured confidential information for him I was often in a position to know
a great many things that he had no idea about.
Was this another one of those cases where information that came
to you through business channels was transmitted to the representa-
tive?
Mr. Miranda. I imagine that must have been the case. This letter
was written by my brother when I was away from the United States.
Senator Bone. And the letter further says :
Furthermore I threw a bombshell into Mr. Wilcox's camp by telling him
that the large bomb (.300 and 600 lb.) which Federal built are no longer in
accordance with the latest U.S. Army practice. Very recently it was discovered
608 MUNITIONS INDUSTRY
that the shaft on which the small propeller operating the rear fuze is mounted
is so short that the air stream after passing the bomb body itself does not hit
the rear propeller and therefore wlien the bomb falls the rear fuze still
having Ihe propeller attached to it is absolutely useless.
The above fact only came to light some three months ago and a nevp and
longer shaft for the rear fuze propeller was immediately designed by the U.S.
Army engineers or to be more specific, by said engineers under the direction
of our technical adviser, Major Brayton. It will be months before this develop-
ment is actually put down on the official U.S. Army drawings which are
released to companies such as Federal and ourselves. However, inasnmch as
our bombs are built under the supervision of Major Brayton, had we built this
new lot of bombs we would have now fitted them with the longer shaft which
would allow the rear fuze to operate.
I pointed out to Mr. Wilcox that the fitting of these large bombs with the
rear fuze, taken by and large, increased the cost of each bomb by possibly
$75.00 to $100.00. Federal has supplied the rear fuze but it is absolutely no
good because of the facts already mentioned and thus if the nose fuze fails
to function the rear fuze which is carried as a safety measure against such an
emergency, will also fail to function and your bomb will be a " dud ".
Mr. Wilcox was very anxious to learn whether the bomb which we supplied
in these larger sizes were fitted with the larger shafts. As a matter of fact they
were not, because of the fact that the deficiency had not as yet been discovered
at that time. However, I told him that they were and he was tremendously
concerned. My thought was that very possibly the ridiculously small number
of bombs initially purchased from us may by this time be all used up.
The argument of the longer shaft may very possibly be used by you to
excellent advantage in order to point out to your war ministi-y that when they
buy from us they are actually getting the latest developments in the art of
bomb making. Naturally such technical advice as we have on the subject is
costly ; likewise the materials that we use in the making of the bomb are of the
finest that money can procure, and consequently our prices are higher than those
of the competition. Common sense will tell you that it is decidedly preferable
to pay more for these bombs but be sure that they are going to work than to
pay less and risk men and equipment to no good purpose.
Was this in connection with this Leticia dispute or just the en-
largement of their ordinary defenses ?
Mr. Miranda. No ; I do not think that was in connection with the
Leticia dispute, because there was an armistice at that time.
Senator Bone. They were getting ready to call off the peace, were
they not?
Mr. Miranda. That was right after the armistice was signed, and
it had a year to run, and they were just complementing their pur-
chase, whatever it was.
Senator Bone, Do you know whether our Government arsenals
had ever manufactured equipment such as ordnance shells and the
like for private concerns in this country?
Mr. Miranda. I do not believe so, but Major Brayton probably
can answer that better.
Mr. Brayton. After 15 years with the leading American arsenals,
I think I am qualified to answer that. Except during the great war
when they manufactured supplies for the small countries like Cuba
and those in the Antilles, it has never been the policy for the Govern-
ment to manufacture for private industry. There is one little excep-
tion in the law and that is this, that if a private concern in its
development is doing some research and development work mostly
of a private nature which when completed the War Department will
more likely be interested in, if that concern needs a small amount of
material like a half a dozen injectors loaded, the Government will,
through the War Department, probably furnish that material in
such small amounts.
MUNITIONS INDUSTRY 609
Senator Bone. I am talking about large amounts being supplied
to ship to foreign countries?
Mr, Brayton. No, sir.
Senator Bone. There evidently was some thought of that kind in
your mind, Mr. Miranda, in writing your brother from Rio in 1933.
Mr. Miranda. I think the suggestion was given me by Major
Sackville, the military attache, who thought that this Government
might possibly be interested in helping the Driggs Co. to get the
order.
Senator Bone. What is his position in the Army?
Mr. Miranda. He was a major at that time.
Senator Bone. He was suggesting the possibility of the Govern-
ment arsenals manufacturing stuff for your company, because it is
stated in this letter that the Government arsenals are very hard up
for work.
Mr, Brayton. The major did not understand the law.
Senator Bone. He might not have understood the law, but he knew
that the Government arsenals w^ere hard up for work and that the
private plants were beginning to step up production.
Mr. ]\IiRANDA. There was no step up of production.
Senator Bone. You evidently were getting ready to do the type of
work done in arsenals?
Mr. Miranda. Yes; so Major Sackville thought it would be a
help to the arsenals if they could do some private manufacturing
and he gave that suggestion.
Senator Bone. And it continues further :
I believe Lewis can tell you of the merits of the suggestion.
Mr. Miranda, That is Mr. Driggs, Jr.
Senator Bone. Then further along you say to your brother :
The Government (Navy) decided it needed certain types of ships for the
Amazon air-mail work.
That would be in Brazil ?
Mr. Miranda. Yes.
Senator Bone. And the ship, it says, that answers the need is the
L/Ockheed. Is that right?
Mr. Miranda, Yes; that was not a military ship, it was a mailship.
Senator Bone, And then, the letter reads further :
There is nothing that requires expert brains or connections?
Mr, Miranda, Yes,
Senator Bone, That is pretty nearly true in all forms of business,
it does not require much to arrange about the graft in the business,
Mr, SwEETSER. I am glad you do not confine that to the munitions
business alone.
Senator Bone, Unfortunately it is true in all business, but we are
trying to find out what part graft plays in the munitions business.
This letter then reads further :
I have not discouraged the other applicants, as I do not want to antagonize
any firms until the 6-plane order is in the bag, so I tell them to write to you,
and you stall along for a while. I want Figueria to handle Lockheed, Iiiter-
Jiational Flares, and the Viking amphibians.
83876—34 — pt 3 5
610 MUNITIONS INDUSTRY
Were you of the opinion Figueria could arrange the graft details
as well as the others?
Mr. Miranda, I did not know anything about the graft, but I be-
lieved he was the best qualified representative.
Senator Bone. Just read along and tell me whether or not you
thought Figueria could arrange those details as well as anyone else?
Mr. MiifANDA. Yes, I believed if there were such details to be
arranged, that he was qualified.
Senator Bone. Sackville in the meantime was suggesting to you
that the Government might be helpful in manufacturing articles
in the arsenals, but nothing came of that?
Mr. Miranda. Yes, that is right; nothing came of that at all.
Senator Bone (reading further from the letter) :
It might be helpful if you could reach the right niiin.
Who was the right man to make the suggestion to ?
Mr. Miranda. Where is that in the letter?
Senator Bone. That is in the second paragraph, starting with
the words:
Since starting the above I have lunched with Major Sackville and Com-
mander Figa. Sackville insists that tliis new administration will be helpful
in remanufacturing in arsenals, etc., if we can reach the right man.
Who would be the right man ?
Mr. Miranda. I have not the least idea.
Senator Bone. The letter reads further:
He (Major Sackville) suggests we use Sperry's cooperation as he saj's the
Army stands ready to help Sperry, and after all Sperry hre-control appa-
ratus go with Driggs antiaircraft guns.
Who is Sperry?
Mr. Miranda. The Sperry Gyroscope Co.
Senator Bone. Going on further the letter says :
After all Sperry fire-control apparatus go with Driggs antiaircraft guns.
That is part of what I just read and I would like to ask if you
have any further comment to make on that other than you have
made?
Mr. Miranda. No, sir.
Senator Pope. The very first part of the excerpt I have here,
which I think is the second paragraph of the letter of May 12,
1933, states the following:
Since his return from the Amazonic war zone, Major Sackville, who is
American military attache here and was sent to represent the United States
as observer in that region, and I have become very good companions. We
lunch and dine together frequently, has had me to play golf with him at the
club, etc. He is now pushing 100 percent with us and helping Figueria a lot
with additional technical information, inasmuch as he is a first-class United
States General Staff officer.
Just what did he do to assist you that 100 percent ?
Mr. Miranda. He would invite some of the Brazilian officers
to his office and go into the technical details with them, on the
American guns.
Senator Pope. And was doing all he could to bring about a sale
for you ?
Mr. Miranda. He was doing all he could to make them feel
American material is what they should have.
MUNITIOIsS INDUSTRY 611
Senator Pope. And your material in particular?
Mr. MiRAXDA. It was the only one in this country and it was
a case of having to come to us or go to Europe.
Senator Pope. Was there any compensation involved in his case
from you to him ?
Mr. Miranda. Not at all. I felt if the American representative
in foreign countries wall not help to bring business to this country,
from whom can I expect that help ?
Senator Pope. The same thing was being done by European
representatives.
Mr. Miranda. No ; the European representatives were doing about
a million percent more than that.
Senator Bone. The evidence in here, in our files here, and testi-
mony in the record, is that in Europe private munitions concerns
were able to go right up to the very top of the social ladder to get
men to help them and to push across deals in Poland, Turkey, and
other places. You were aware of the technique in that respect, and
you felt your Government representatives in South America should
be equally courteous and generous to you ?
Mr. Miranda. I did not expect that equality, but I wanted some
help.
Senator Bone. And you knew, as all other munitions people did,
that their governments were helping their plants to get business?
Mr. Miranda. Yes.
Senator Bone. That was common knowledge in the munitions
game ?
Mr. Miranda. It was.
Senator Bone. So you felt you were justified in asking your Gov-
ernment military attache to help you break into this field and get
business from them?
Mr. Miranda. Yes, sir.
Senator Bone. And you also felt that those representatives in the
South American countries could be helpful in that way to private
munitions manufacturers ?
Mr. Miranda. Very helpful.
Senator Bone. I take it some of the representatives in South
America had quite a little fun keeping your business negotiations
out of some of the other fellows' hands who were making bad boys
of themselves. For instance here is a letter signed Joaquin, who
would be Samper ; is that right ?
Mr. Miranda. Yes.
Senator Bone. I offer this letter as ''Exhibit No. 254."
(The letter referred to was marked "Exhibit No. 254", and is in-
cluded in the appendix on p. 671.)
Senator Bone. In this letter I read as follows :
Two damiieil interesting letters from you. I cannot give you the date right
now, because tiiey are both, together with the rest of my files, in the safe vaults
of my bank, in order to keep 'em away from the Peruvian secret service.
You can imagine by that how things are going here with us. To give you a
little more information and a better idea as to it, my home was assaulted, gone
over by expert hands, everything was emptied on the floor, and since no
important papers or documents were found, the valuables were left untouched !
That would indicate what the gentlemen were lookinir for, which
would be your correspondence with whom?
612 MUNITIONS INDUSTRY
Mr. Miranda. Those gentlemen who have various interests in
Colombia.
Senator Bone. I read further:
Toll Iggy that I have to wash my hands off with reference to his last letter
to me, because I am covered and by that I mean it. It is too dannied danger-
ous for me to undertake that activity.
What activity was being suggested there?
INIr. INIiKANDA. My brother was desirous of having handled our
Sikorsky account after Mr. Samper, his agent for Curtiss-Wright,
got the full lines of all competitors, then he wanted to continue
with Curtiss-Wright, so he decided he would not touch the Sikorsky.
Senator Bone. Now, I would like you to give us a little picture
of your South American business. You, of course, in the beginning
of 1934 established your own business, you had made a contact
there which I take it was very satisfactory to you with the Elevator
Supplies Corporation, so you had a manufacturing establishment
that vv'ould give you anything j^ou wanted in your line and you were
able to go into South America and offer wdiatever you felt was
desirable to offer that would afford you any profit. Were you able
to make contracts outside to handle any outside lines or side lines?
RELATIONS WITH. SOLEY ARMAMENT CORPORATION
Mr. Miranda. Only such line as we handled as the representative
of the Soley Armament Corporation.
Senator Bone. That is a name that has been brought into this
inquiry and becomes very important. I want you to tell the com-
mittee what the Soley Armament Co. of England is, and tell us
when you first got in touch with it.
Mr. JNIiranda. Will you repeat that last question; I did not get
it all.
Senator Bone. Just tell us for the information of the committee
what this Soley Armament Co., Ltd., is, and the scope of its activity.
Mr. Miranda. Of course you appreciate my only information
is what I have gathered from correspondence. I have never been
to the Soley Co. in England and have never met John Ball, the
managing director of the company. So, the only information is
what I have gathered from their correspondence with me. It is
my understanding it is one of the government licensed companies
in England to do a munitions business and therefore a company
that has had access to the British Government stocks of surplus
war materials.
Senator Bone. Captain John Ball, or leave off the " Captain ",
because I do not know whether he signs his name Captain or not,
is the managing director of Soley Armament Co.?
Mr. Miranda. That is my understanding.
Senator Bone. You gather that from your correspondence with
him ?
Mr. Miranda. That is right.
Senator Bone. Didn't you contact them first, or did they contact
you?
Mr Miranda. No; I contacted them first. I knew that they had
available certain quantities of material at the time I first contacted
them, when I was planning to offer a gunboat to one of the South
MUNITIONS INDUSTRY 613
American countries, and I knew Soley Company had available a
number of naval guns, so I contacted them, and they sent me the
information.
Senator Bone. They were able to furnish naval ordnance of con-
siderable size?
Mr. Miranda. I think up to 6 inches.
Senator Bone. They carry their stock in England.
Mr. Miranda. I tliink most of them are in England but I under-
stand some are carried in Belgium.
Senator Bone. They have a depot in Belgium?
Mr. Miranda. I believe so; yes.
Senator Bone. Can you tell us when you first contacted Soley?
Mr. Miranda. I knew of Soley through the Driggs Ordnance and
I first contacted Soley, it must have been December 1933 or early in
Janunary following.
Senator Bone. When did you first have knowledge of the opera-
tions of the Soley Co. ?
Mr. Miranda. When they wrote me they more or less explained
what they were and what they had.
Senator Pope. They had very large stocks of armaments?
Mr. Miranda. Yes; I understand that they have around seven or
eight hundred thousand rifles, and I think about fifty or a hundred
thousand machine guns and a great amount of other material. I
mean, they have access to it, but I do not know whether they own it,
or what.
Senator Bone. Now, on January 1, 1934, there is the following
letter from the Soley Armament Co., Ltd., addressed to the Ameri-
can Armament Corporation, 6 East Forty-fifth Street, New York,
which letter I ofi^er in evidence.
(The letter referred to was marked "Exhibit No. 255" and was
read in full by Senator Bone.)
Senator Bone. This letter, " Exhibit No. 255 ", appears to have
been signed b}^ John Ball, director. On the letterhead appear certain
statements indicating the nature of the business of the Soley Arma-
ment Co., Ltd., director John Ball, so that his name is printed on
their stationery and evidently he is the chief executive of the com-
pany. Then it states, " Contractors to. War Office and Air Ministry."
Can you advise to what those terms mean ?
Mr. Miranda. I do not know just what a British firm would
mean by being a contractor to the War Office and Air Ministry.
Senator Bone. They set forth on their letterhead they are special-
ists for all war material, for gas, or air use, light artillery, machine
guns, rifles, revolvers, ammunition, and military equipment and
appearing below their statement is some sort of insignia surmounted
with a crown.
In this letter, " Exhibit No. 255 ", they say :
In reply to your cable request of yesterday, asking for details of the 4-incli
Q.F. guns.
What are Q.F. guns?
Mr. Miranda. Quick-firing.
Senator Bone. They say further:
We send you herewith an Admiralty handbook of the gun and one blue-
print.
614 MUNITIONS INDUSTRY
These are on loan to you for information purposes only as the !)ooks are out
of print, and we have no negatives of the blueprint.
As probably you are aware, very few handbooks are printed for British
naval gmis, and the few that are, cannot be got easily.
You will find inserted in the handbsjok a few typed particulars concerning
the guns, which are offered to you subject unsold, but the range tables caiinot
be given to unless the guns are purchased.
The guns are not " new " but have had very little use. The calculated " life "
of this type of gun is 2,000 rounds, before it requires to be retul)ed, and the
two guns offered have only fired 47 and 57 rounds, respectively, so that their
remaining life should be about 1,950 each. There is, of course, a special history
sheet with each gun, which records every shot fired, and the date of firing.
We regret that we cannot give you more information on the guns, but as
you can understand, the British Admiralty is not a commercial firm, and they
do not have descriptive catalogs giving details of anything they may sell to
us as a favour.
The two 4-inch guns were made in 1915.
The eight G-inch guns were made in 1914 and are little used. Their " life "
is calculated at 700 rounds, and they have all fired less than 100 rounds. No
handbooks for the 6-inch gun exist.
The price includes sights, and a few tools and spare parts. We think you
can find details of the above guns in the correspondence of Driggs, if you have
access to it, and possibly prints and handbooks, for Driggs had them from us,
and did not return them, in spite of our requests for them.
We hope the information given will suflice.
Yours faithfully,
John Ball.
Now, under date of February 3, 1934, the Soley Armament Co.
again writes the American Armament Co. and I am calling your
attention to some statements in this letter, which I offer as " Exhibit
No. 256."
(The letter referred to was marked " Exhibit No. 256 ", and ap-
pears in the appendix on p. 672.)
Senator Bone. This letter starts with this statement :
We thank you for your letter of Jan. 27th to hand.
Do you know what that letter was referred to, or did you bring
down any files with you?
Mr. Miranda. No; I thought all the files necessary were in the
hands of the investigators. But if you will let me read this letter, it
may be that I can enlighten you.
Senator Bone. The next statement in the letter is as follows :
Your requests regarding the 51 carbines, 7.65 m/m will be carried out, and
we hope to ship from Antwerp in about 10 days or maybe less.
Mr. Miranda, I think that was an order for 51 carbines.
Senator Bone. What caliber is that?
Mr. Miranda. It is 7.65 mm.
Senator Bone. About what caliber would that be?
Mr. Bratton. A little over three-tenths of an inch.
Senator Bone. Something over .30 caliber.
Mr. Brayton. Slightly over; yes.
Senator Bone. Did you buy those carbines?
Mr. Miranda. Yes.
Senator Bone. How many?
Mr. Miranda. Fifty-one.
Senator Bone. What would they be used for?
Mr. Miranda. They were to be used as a sample lot shipped to
Bolivia.
MUNITIONS INDUSTRY 615
Senator Bone. The letter proceeds further [reading] :
Regarding payment: Will you please open a credit for the full amount of
the payment, in tlie Bank ef China, Palmerston House, Old Broad Street,
London, in our favor, the sum to be paid to us against the presentation of
shipping documents and our invoices. The shipping documents and receipted
invoices will then be forwarded to you by the Bank of China.
We note your remarks aliout competition in the U.S.A. from other Arms
offering our' stocks, and on consideration, we beg to place the following sug-
gestions, which you might think over and let us have your views upon:
Do you recall whether you ever ultimately set out your views to
the Soley Co. as to the general field of business here?
Mr. MiiLVNDA. It was not a matter of the general field of business,
it was this. For instance, in connection with Bolivia we were offer-
ing Soley guns and several others were offering the same guns.
Senator Bone. You were trying to handle this so that you would
represent Soley and not somebody else?
Mr. Miranda. Exactly. I wrote them that if that is going to
be the case we do not want to bother with it.
Senator Bone. You wanted the exclusive representation to sell
their stuff in the field you were selling?
Mr. Miranda. Yes.
Senator Bone. Do you know who else were handling their stock?
Mr. Miranda. The Consolidated Export Co., I believe it is, then
the firm of Figorola and the International Ordnance & Instrument
Co.
Senator Bone, Put it in this fashion, were there other munitions
concerns trying to get the agency for Soley ?
Mr. Miranda. There were other firms in this country, I would
not say trying to get the agency, but offering the same stocks we
were offering from Soley.
Senator Bone. And now, Mr. Ball of the Soley Co. goes on fur-
ther to say in this letter:
As we are really the sole selling channel for small arms, etc., whieti belong
to the British War Office, and as we are to a very great extent controlled
by the varying policy of the Government, it is rather difficult to us to enter
into firm and fast agreements with other armament firms.
The stocks we control are of such magnitude that the sale of a big block
of them could alter the political balance of power of the smaller States, in-
volving corresponding complications from the point of view of finance .and
industry.
"Wliat does he mean by that. Just give us your idea.
Mr. Miranda. Your idea is as good as mine, Senator.
Senator Bone. You were called upon to interpret this letter, be-
cause it was addressed to you, so what would you feel he meant?
Mr. Miranda. I felt they have such large stock of rifles, machine
guns, and ammunition that if they are not careful where they sit,
they will upset some small government.
Senator Bone. In other words, if they put those large amounts of
stuff at the disposal of any small group, they could upset a gov-
ernment.
Mr. Miranda. Yes.
Senator Bone. Reading further from this letter, he says :
You will, we are sure, fully appreciate that under these conditions we have
to suljmit to a fairly strict control by the authorities concerned, and we cannot
always supply the demands by certain would-be buyers, for political reasons.
616 MUNITIONS INDUSTRY
However, we think that it might be in our interest to have one single
firm in the U.S.A. who wouhl act an our ai>pointed representative, and who
deal with all the inquiries we get i'mm the U.S.A.
Yourselves, as the people on the spot, would know the strength of many
inquiries and would be promptly able to sift the serious ones from those
of the " hot-air " variety, and if you are reasonable regarding profits, we
think that the obvious advantages to us would be worth the slight sacrifice
of price entailed in covering your firm.
The question now arises as to how we could arrange such a combination,
and in a manner which would meet the needs of both sides without interfering
with the government control here, which must absolutely be observed.
We suggest the following arrangement:
We would be prepared to appoint you our sole selling agents for the U.S.A.
and you would have the handling of all the sales to the State of Latin
America only, which would be left entirely to yourselves.
Arms for other destinations, such as China or European States, could not
be offered by you without our previous consent, and you would be expected
to observe this rule in the very strictest manner.
The Chairman. Senator Bone, is this a sale of British manufac-
tured material entirely?
Senator Bone. I am coming to that. Let us pause at this point to
say that here we are discussing and reading a letter of a firm which
probably controls more mimitions of war than any private outfit in
the world; that is, having the stuff available for immediate sale.
A.m I correct in that?
Mr. Miranda. I think that they probably would be as great; I
understand that there are one or two other firms in Europe that arc
very large.
Senator Bone. And one, I believe, in Germany.
Mr. Miranda. And one in Germany; that is the one I have in
mind.
Senator Bone. This outfit has all the stuff which the British War
Office got rid of at the end of the war and is getting rid of right
along ?
Mr. Miranda. That is my understanding.
Senator Bone (continuing reading).
Now, such an arrangement as is suggested above would have to be what we
call here a " gentleman's agi'eement ", that is, one of mutual trust and con-
fidence without any hard and fast legal ties or commitments which would exist
in the usual case.
What do you think he meant by that, this term " gentleman's
agreement? "
Mr. Miranda. I think he meant that we could not enter into a
very complicated contract for the reasons that he gave before. For
instance, if he offered a lot of merchandise to us and we found an
outlet for it and we went back and the British Government would
not release that stuff, he felt he was not going to be bound by his
agreement with us to supply the material.
Senator Bone. He further states in this letter [reading] ;
For instance, we believe that the U.S.A. does not wish arms to be sold to
Nicaragua, and therefore we must observe this veto, for if our rifles were
sold to this State, and some U.S.A. oflieial saw them there, we should be in
serious trouble at once with our own Government, who insist that we must
not violate the wishes of other world powers by arming revolutionaries, etc.
Can you tell us where these various revolutionary movements in
South America and Central America have gotten their firearms?
They all seem to be fairly well equipped.
MUNITIONS INDUSTRY 617
Mr. Miranda. I do not know, Senator. There have not been very
many revohitions in the hist year and a half, which is the time that
I have given to the munitions business, and theretofore in our export
business we never had that kind of trade.
Senator Bone. He goes on to state [reading] :
If j'ou think that you would like to come to some such arrangement with
•us, wo think your desires could be met, but we nuist be first informed of
the ultimate destinations of all quantities of arms which exceed sample
quantities, in order that we can submit the name of the purchasing govern-
ment to the British authorities, and obtain their permission for the arms
to be sold to that State, and we suppose that also, before you sell arms from
the U.S.A. to a Latin American State, you will obtain the permission of your
Government to do so, in order that the policy of the U.S.A. cannot be upset.
Then comes this further statement [reading] :
For your information in confidence, the value of the stocks here under our
control is approximately 6 million pounds —
about 30 million dollars in normal times —
so there is no great risk that tliey will all be disposed of in a short time,
but you must remember that in the event of a serious war breaking out
anywhere affecting British interests the stocks might be withdrawn from
sale.
The principal stocks are as follows:
Rifles, pattern 1!>14, caliber .303, which we can convert to most of the
Mauser calibers —
Quantity 800,000 with enough spares to build up another 200,000.
So that apparently they have a million rifles ready for use in a
very short time. [Reading] :
Machine guns, Hotchkiss, 34,000 with spares. These can also be convei'ted
to Mauser calibers.
Machine guns, Lewis, 20,000 with spares. These cannot be converted to Mau-
ser calibres except at serious expense and difficulty. These are infantry pattern.
Machine guns, Lewis, aerophine pattern, 8,000 with spares. These are
mobile or " free " guns, for use by the observers. Machine guns, Vickers,
infantry pattern, 5,000 with spares. These can be converted to Mauser
calibres.
I note the use of the term "" Mauser " frequently in this letter,
Mr. Miranda. What is the meaning of that? Is that a rather
superior type of gun?
Mr. Brayton. A German type adopted by many smaller states
throughout the world, and when a smaller country buys a new lot
of rifles or machine guns, they naturally have to buy a type which
will take the same cartridge which they are already using, and
require them converted to what they have.
Senator Bone. Then to continue with the letter [reading] :
Machine guns, Vickers, aeroplane pattern 6,000 with spares. These are
" fixed " guns for firing through the propellor of the plane. These can be
converted to Mauser calibres.
Revolvers, Webley calibre, .45-5
That is a little over a .45-calibre jzun
(, takes the American .45 shells), quantity 4,000, length of barrels 4".
Revolvers, Smith & Wesson
An American manufacturing company
5,000, calibre .455 takes .45 shells, length of barrels 61/2".
618 MUNITIONS INDUSTRY
How did they get 5,000 Smith & Wesson .45 calibre revolvers?
Mr. Brayton. Practically all the stocks of American munitions
left in France during the war were left in Europe, and practically
nothing returned.
Senator Bone. If they were left in France, how did the English
firm get them?
]Mr. Brayton. They might have been shipped through France to
England.
The Chairman. Might these have been American stocks?
Mr. Brayton. No; the American Government does not sell stock.
If they have any scrap material, they destroy it.
Senator Bone, (reading) :
Revolvers, Colt, calibre .455 (takes .45 shells) quantity 10,000 (9,016 with
51/2" barrels.
Quantities of spare parts exist for the Colts and the Smith & Wessons, but
no stock of spares for Webleys.
Webley is a British company?
Mr. Brayton. Yes, sir ; I believe so.
Mr. Miranda. Yes, sir.
Senator Bone, (reading) :
Ammunitions, none for revolvers, but for rifles and machine guns in calibre
.303 there is about 120,000,000 rounds in good condition.
That would stage a pretty good war in any country, 120,000,000
rounds of ammunition, would it not ?
Mr. Brayton. The chances are that that ammunition was made
during the war and none too good.
Senator Bone. How about at fairly close range?
Mr. Brayton. Yes, sir ; it would kill you.
Senator Bone. You would not want to take a chance on it, would
you?
Mr. Brayton. I would not bet on it not firing.
Senator Bone. You would not want to offer a " dud " to your
South American client?
Mr. Brayton. We would have to have assurances about it and
probably get it over here and fire it ourselves.
Senator Bone. To be sure that the cartridge would be all right,
and " doing the needful " in case of war.
Mr. Brayton. All the things which you have read, Senator, are
in the small arms category, and no army is complete with small
arms unless it is a revolutionary group or a small country.
Senator Bone. That is true, but there are the 4-inch and 6-inch
guns.
Mr. Brayton. But the quantity of the stuff is very small.
The Chairman. You do not consider that machine guns fall in
the category of small arms, do you ?
Mr. Brayton. I mean this. Senator: A modern army cannot do
anything without artillery, other than go on a raiding party or
something. They could not upset the stability of a state without
artillery also.
Senator Bone (reading) :
The general condition of the arms are " serviceable ", which means either
quite unused or having hud very little use, but the greater portion is " new."
Possibly there may be a slight marking or rubbing of the arms while being
MUNITIONS INDUSTRY 619
re-greased in the stores depots, and if given a little time to deliver, we usually
remove all scratches before shipping, and in the case of rifles or M.G.'s con-
verted to Mauser calibres, the entire arm is rebrownetl.
Then the letter goes on to state [reading] :
To return to the question of cooperation with you —
If you think that your interests would be served by such an agreement as
suggested, you can begin right away and deal with any future enquiries from
South America, and we will try out the arrangement with you, and see how
it works.
There were not any strings on your right to sell the South Ameri-
can countries? The only exception would be in Nicaragua where
we were busy civilizing the natives at that time. Is that not right ?
Mr. Miranda. That is right.
Senator Bone. Now on February 3, 1934, there was apparently
some meeting of the minds and getting together. Did you consum-
mate this agreement?
Mr. Miranda. Yes.
Senator Bone. So that you are now their representative?
Mr. Miranda. Yes, sir.
Senator Bone. The document to which I referred under date of
February 3, 1934, from the Soley Armament Co., Ltd., to the Ameri-
can Arament Corporation will be introduced as " Exhibit No. 257."
(The document referred to was marked " Exhibit No. 257 " and is
included in the appendix on p. 674.)
Senator Bone. Now on February 6, 1934, there appears another
letter from the Soley Armament Co., Ltd., signed by John Ball,
addressed to the American Armament Corporation, which I will
introduce as "Exhibit No. 258."
(The letter referred to was marked " Exhibit No. 258 "' and is
included in the appendix on p. 674.)
Senator Bone. I desire to read certain parts of the letter last
referred to [reading] :
We have today received an enquiry for Springfield rifles, cal. .30, from the
Export Consolidated Co., whose letter we attach.
That is an American corporation which they are referring to?
Mr. Miranda. Yes, sir.
Senator Bone. And they were in the market for Springfield rifles.
Do you know where those were going ?
Mr. Miranda. No, they would not disclose the information to us.
Senator Bone [reading] :
We have informed them that we have no Springflelds, but that if the buyer
wouhl accept a tolerance in the calibre of three thousand of an inch, and take
rifles with a barrel calibre of .303, we could modify the chamber and the maga-
zine of the 1914 rifles we have, in order to use the standard American cartridge
in them, and alter sights accordingly. This operation is not very simple, and
entails much expense, but if a fair quantity were taken we think we could keep
the price of such rifles down to about three pounds seven shillings six pence
each.
We shall therefore be obliged if you will get in touch with the Export
Consolidated Co., and see what can be done for them.
And then there is some further reference to samples they are
sending over.
Proceeding with the letter [reading] :
In view of the expense in your getting the above, we will see if it is possible
for us to persuade the authorities to agree to some nominal amount, instead of
620 MUNITIONS INDUSTRY
the full price (which, is of course returnable if you return the samples) but
we have not great hopes of doing this.
Alternatively, >()u cuuUl if you so desire select from the above list the items
which you consider essential to you, and leave the samples of the rest until
some definite need arises for them, when they could be sent to you.
Please let us have your views on this question.
Among these samples there were the following:
One Lewis machine gun, infantry pattern, calibre .303 ; one Lewis machine
gun of the aeroi»lane pattern, same calibre; one Ilotchkiss machine gun, infan-
try pattern, calibre .303 ; one Ilotchkiss machine gun, infantry pattern, calibre
7.65 millimeters (or 7 millimeters) ; one Vickers machine gun, infantry pat-
tern (in either !3(j:i or Mauser calibre) ; one Vickers machine gun, aeroplane
pattern, in either .303 or Mauser calibre ; two revolvers, calibre .455 Colt,
5%" barrels; two revolvers, Smith & Wesson, calibre .455, O^^" barrels; two
revolvers, Webley, calibre .455, 4" barrels; two rifles, pattern 1914, calibre
.303; two rifles, jiattern 1914, calibre 7.05 millimeters; two rifles, pattern 1914,
calibre 7 millimeters, and two signal pistols, calibre 1".
Those were the samples which yoii wanted to have so that you
coitkl see them and utilize them in promoting South American
trade?
Mr. Miranda. Yes, sir.
Senator Bone. Mr. Ball goes on to state in that letter :
Another point we should like you to bear iii mind : Owing to the financial
constipation all over the world, it often happens that the United States require
arms badly, but have no cash to pay for them. As it is far too risky to sell
arms on credit in these times, some alternative has to be found, and sometimes
goods or produce can be accepted in lieu of cash, and the barter converted
into cash over a period of time.
Have any deals been consummated so far where they have made
that arrangement?
Mr. Miranda. No; not at all.
Senator Bone. You, however, were authorized to do so and accept
payment in coffee, rubber, timber, and so forth from South Ameri-
can States?
JNIr. Miranda. I do not think they would authorize us to make a
deal, but they would be interested in hearing such a deal could be
made.
Senator Bone. He says in this letter [reading] :
For instance, provided that the deal was a fairly big one, we could accept
coffee, rubber, timber, etc., in payment.
That means disposing of it through their British connections?
Mr. Miranda. Yes, sir.
Senator Pope. Do you know of another armament firm making
sales and accepting products like this?
Mr. Miranda. I do not believe it would be unlikely for European
manufacturers to handle the business that way.
Senator Pope. Do you know of any instances of that kind ?
Mr. Miranda. I do not know of any instances of that kind, but
I have heard that it is not unusual. You see he himself brings up
the point in this case.
Senator Bone. Then Mr. Ball goes on to state as follows :
There have also beoti cases where certain concessions were given, and the
concessions sold to interested financiers or companies, but — and this is the
snag — we have either got to arrange a definite sale of the product beforehand,
or to peddle oft" the concession to some interested group, beforehand.
What sort of concession will that be?
Mr. Miranda. Oil concessions.
MUISriTIOXS INDUSTRY 621
Senator Bone. Oil concessions?
Mr. Miranda. Timber concessions.
Senator Bone. Do you know whether there have been such con-
cessions offered or sought in the Chaco country in your experience
down there?
Mr. Miranda. I do not know, Senator.
Senator Bone. Did you hear any discussion of it down there?
Mr. Miranda. No; I did not.
Senator Bone. Evidently that is not an unusual situation in South
America, that is, the idea of securing concessions from some gov-
ernment, because otherwise Mr. Ball would not have mentioned it
so freely.
Mr. Miranda. I think probably it is a European practice to some
extent.
Senator Bone. Now, he goes on with a still more interesting
observation [reading] :
We fully understand that arms deals are not usually done without some
officials getting " greased " but if any " palm oil " is required
Is that another polite term for " grease ? "
Mr. Miranda. Evidently,
Senator Bone (reading) :
but if any " palm oil " is required, it has to be added to the price ,and as our
prices are at least 50 percent less than factory prices for the same arms,
they will stand a lot of " grease " and still be cheaper than the manufacturers'
prices.
Do you know whether the British Government, through this semi-
official arm of the Government, approves of peddling of " grease "
by the organizations?
Mr. Miranda. I do not know. Senator. I would have no means
of knowing that.
Senator Bone. Of course some of the stuff which comes out of
Europe might be in that category, but is it not rather unusual for
a semiofficial agent of the great British Government to talk so freely
of "peddling grease", "palm oil", and so forth, in, in a sale of
arms to other countries ? Does it not strike you as being a free way
to put it, between ourselves?
Mr. SwEETSER. They are taking conditions as they are.
Senator Bone. I know they are very practical men. Is that not
right ?
Mr. Miranda. They are practical men.
Senator Bone. And being practical men, they are going to do
business in a practical way, and if they have to " grease " the boys
and girls down there, they are going to " grease " them ?
Mr. Miranda. There is a condition down there which they recog-
nize, and which they have to give effect to, and they figure if they
are going to do business down there they have just got to meet that
condition.
Senator Bone. I wish you would amplify the statement you have
just made about the condition which all practical men understand
exists, and all^ practical men meet. I am speaking of the condition
which exists in South America. Do you mean that the condition
which exists requires those people to be " creased " ?
622 MUNITIONS INDUSTRY
Mr. Miranda. I guess they have been doing business that way for
a great many years, Senator. Maybe the Europeans taught them
to do business that way.
Senator Bone. Do you think the Europeans seduced and de-
bauched the South Americans, or were the South Americans willing
to meet them more than half way?
Mr. Miranda. Let us give them an even break.
Senator Bone. It is 50-50, or something of the sort? Of course
we cannot work miracles, but enough " palm oil " and " grease "
ought to work miracles, do you not think, if there is enough of it?
Can you tell us in this connection whether the European operators
down there resort to the use of "palm oil" and "grease?"
Mr. Miranda. Probably.
The Chairman. Taking the Senator's question in a general way,
what do you have to compete with in South America ?
Mr. Miranda. Europeans.
The Chairman. Do they resort to the same methods pretty much,
as you do in getting the business ?
Mr. Miranda. No; our methods are cleaner.
The Chairman. Your methods are cleaner than theirs?
Mr. Miranda. Yes, sir; infinitely so.
The Chairman. Are you prepared to advise the committee what
some of their methods are?
Mr. Miranda, Not now, Senator.
Senator Bone. Have you any reluctance to discuss it with the
committee here, or do you feel you should not ?
Mr. Miranda. I will be very glad to discuss it in executive ses-
sion. It is a matter of discussing the methods of Europeans. It
is a matter of ethics.
Senator Bone. We do not want to insist on the use of names, but
tell us the technique of the game. We do not care about indicting
any individual.
Mr. Miranda. They have gotten the business, and when we try
to get the business we find certain conditions which have to be met
if we want to touch their business.
Senator Bone. One of the best-known European outfits, knowing
full well the European technique, writes over here and tells you to
use plenty of " grease " and " palm oil " because he is familiar ^
with the way the thing is operated. Is that right ?
Mr. Miranda. Evidently; yes, sir.
Senator Bone. Perhaps he is following the Zaharoff technique,
where he refers to the necessity of " doing the needful." That would
be its equivalent, would it not?
Mr. Miranda. Yes, sir.
Senator Bone. We will leave the Soley matter for the moment and
take up another matter.
Under date of June 9, 1934, which was only a few weeks ago,
you wrote your agents in Bolivia, at La Paz, Webster & Ashton,
being your agents, did you not?
Mr. "Miranda. That is right.
MUNITIONS INDUSTRY 623
STATE DEPARTMENT AND EMBARGO ON ARMS TO BOLIVIA AND PARAGUAY
Senator Bone. I offer that as " Exhibit No. 259."
(The letter referred to was marked " Exhibit No. 259 " and is
inchided in the appendix on p. 675.)
Senator Bone. This letter was directed to your agents, written by
Mr. A. J. Miranda, Jr., in which you were discussing the so-called
" embargo " resolution which had been passed by the Congress of
the United States, and you were concerned, of course, as all muni-
tion companies were, with the effect that that embargo would have
on your business. Is not that correct ?
Mr. Miranda. Yes, sir.
Senator Bone. And in this letter I call your attention to some
paragraphs on page 3, which I will read, the letter being written
by 5^ou for the American Armament Corporation. There you state
[reading] :
The State Department would issue no permits, recognized no exceptions,
would not attempt to interpret what was war material and what is not war
material, nor would it give au opinion as to the time of action covered by the
President's proclamation, that is, whether the proclamation embodied or not
sales made previous to May 2Sth, the day of the Presidential decree. The
State Department's attitude was :
" Try to ship your stuff and if the Government's agencies (presumably the
customs) block your way, hire the best lawyer available and get an injunction
against the Government."
Then, proceeding further, you say :
This, of course, was rather unsatisfactory. So, I again held additional
conferences with the Minister,
Is that the Brazilian Minister?
Mr. Miranda. Yes.
Senator Bone (continuing reading) :
pointed out to him that the attitude of the Government towards American
coi"porations is going to be, in my opinion, rather dictatorial and that the
best protection of his Government's interests would be to strictly carry out
the terms of the contracts ; that is, we would deliver the material here, as
agreed, and the consul general, acting as the commercial representative of
Bolivia, would seek to clear the material in question.
Then there is some further discussion as to this material.
Does this statement here fairly and accurately reflect your
■■ understanding with the Department?
Mr. Miranda. Yes, sir.
Senator Bone. There is nothing further to add to it except that
that seemed to be their attitude ?
Mr. Miranda. No, sir. That was their attitude?
Senator Bone. Was their attitude one of direct advice?
Mr. Miranda. I beg your pardon ?
Senator Bone. How was that communicated to you? By letter?
Mr. Miranda. From the State Department?
Senator Bone. Yes.
Mr. Miranda. I was there myself.
Senator Bone. You went up to see them ?
Mr. Miranda. Yes, sir ; I went up to see them.
624 MUNITIONS INDUSTRY
The Chairman. Did the State Department advise you precisely
in the manner which you have outlined in this letter?
]\fr. Miranda. Yes, sir.
Senator Bone. Did your firm hire counsel at the time?
Mr. Miranda. No, sir ; not at the time.
Senator Bone. You subsequently hired counsel?
Mr. Miranda. Yes.
Senator Bone. Do you mind telling the committee whom you
hired ?
Mr. Miranda. No. Mr. Edwin W. Sims.
Senator Bone. Where does he practice law ?
Mr. Miranda. From Sims, Stansky & Brewer, of Chicago.
Senator Bone. Why did you happen to hire a Chicago firm of
attorneys ?
Mr. Miranda. Because Mr. Sims has been Mr. Johnson's attorney
for 20 years.
Senator Bone. That is, the Elevator Supplies Co. ?
Mr. Miranda. The Elevator Supplies Co.; and he is a director in
the Elevator Supj)lies Co.
Senator Bone. He is a director in the Elevator Supplies Co.?
Mr. Miranda. Yes, sir.
Senator Bone. Naturally he would throw the business that way?
Mr. Miranda. As a matter of fact, he had nothing to do with it.
Mr. Johnson just called Mr. Sims into the picture.
Senator Bone. Why did you turn that particular business over to
Mr. Johnson, when it affected your business and not his, except
indirectly through the firm ?
Mr. Miranda. It affected his business also. They do the manu-
facturing for us.
Senator Bone. I understand that. You just stepped aside and
let him take care of it ?
Mr. Miranda. Yes.
Senator Bone. Were they the only attorneys which were retained
and hired ?
Mr. Miranda. Yes.
Senator Bone. You paid no attorney's fees to anyone else?
Mr. Miranda. Not to anyone else.
Senator Bone. Or brought any other lawyers into the business at
all?
Mr. Miranda. No, sir.
The Chairman. Mr. Miranda, will you just stand aside long
enough so that we may hear a representative of the State Depart-
ment at this time ?
Mr. Miranda. Yes, sir.
(Witness excused.)
TESTIMONY OF JOSEPH C. GREEN
(The Avitness was duly sworn by the chairman.)
The Chairman. Proceed, Senator Bone.
Senator Bone. You are a representative of the State Department
of the United States, Mr. Green ?
Mr. Green. Yes, sir.
Senator Bone. What is your official connection there^Mr. Green?
MUNITIONS INDUSTRY 625
Mr. GitEEN. I am an officer in the Division of Western European
Affairs.
Senator Bone. As such, do you have direct charge of the activities
of this particular thing?
Mr. Green. In the matter of arms exports ?
Senator Bone. Yes, sir.
Mr. Green. Yes, sir.
Senator Bone. So that you, of all men down there, would know
more of just what has happened, in connection w^ith Avhich we have
been having this discussion, than anj^body else in the Department?
Mr. Green. Yes, sir.
Senator Bone. Have you any comments to make on the testimony
given by Mr. Miranda as to the matter of an embargo and the attitude
of the Department toward it?
Mr. Green. Yes, sir; I think I can express the attitude of the De-
partment in a very few words. During the war which has been rag-
ing in the Chaco for approximately 4 years, the Department of State
has been consistently opposed to the shipment of arms and munitions
of war from the United States to either of the belligerents. The
Department made every effort over a long period to secure legislation
which would enable this Government to put an end to those ship-
ments. The necessary legislation was approved on May 20 of this
year, and although the proclamation which made that legislation
effective empowered the Secretary of State to make exceptions to the
general prohibitions contained therein, the Secretary of State has
made no exceptions except those announced on July 27. The rea-
sons for those exceptions were set forth in the public announcement
made at that time. At the same time it was announced that no
further exceptions would be authorized.
Now, immediately upon the signature of the President's proclama-
tion and for some weeks thereafter, interested companies wrote to
the Secretary of State and their representatives called at the De-
partment requesting an interpretation of the joint resolution of Con-
gress and of the President's proclamation. The Department uni-
formly refused to exceed its authority by attempting to interpret the
joint resolution. The interpretation of this joint resolution, like that
of any other statute, is a function, in the first instance, of the De-
partment of Justice which is charged with the prosecution of of-
fenders and, in the last analysis, of the courts of the United States
before which cases arising under it would be tried. The companies
which wrote to the Secretary of State and the representatives who
called at the Department were so informed.
Senator Pope. Among those representatives who called upon you,
representatives of armament makers, was Mr. Miranda?
Mr. Green. Mr. Miranda called upon the Department, but not
upon me personally. He called upon the officer who was in charge,
one of the officers in charge of Latin-American affairs.
The Chairman. Did you, Mr. Green, give any of those making
inquiries the advice to engage counsel and bring an injunction
against the Government?
Mr. Green. I gave them the first advice, that they might engage
counsel in order to get legal advice explaining how this resolution
83876 — 34— PT 3 6
626 MUNITIONS INDUSTRY
should be interpreted, but I never advised anyone to bring an
injunction against the Government in this connection.
Senator Bone. Your Depai-tment was not giving legal advice to
anyone ?
Mr. Green. No, sir; they were consistently refusing to do so.
The Chairman. Mr, Miranda's direct testimony was that he had
been directly advised to engage counsel and institute injunction pro-
ceedings. To your knowledge then, that was not done?
Mr. Green. No, sir.
The Chairman. Might it have been done by others in the State
Department?
Mr. Green. Not without my knowledge, sir.
The Chairman. And such was not done, to your knowledge?
Mr. Green. No.
Senator Bone. Your idea, of course, was that the quickest way to
determine just exactly what this resolution of Congress meant was
to have it tested in the courts.
INIr. Green. Yes, sir.
Senator Bone. Which, of course, would necessarily have to be
done before any of us would know exactly where we stood with
respect to it.
Mr. Green. Yes, sir.
Senator Pope. The question was as to what constituted a sale
under the act passed by Congress.
Mv. Green. There was that question and there was another ques-
tion, sir. There was always the question of what were arms and
munitions of war and how were they to be defined? That we also
refused to attempt to interpret.
Senator Bone. Can you tell the committee whether the United
States has treaty relations with both Bolivia and Paraguay ?
Mr. Green. Yes, sir.
Senator Bone. Do those treaties contain restrictive provisions
which might circumscribe the powers of Congress with respect to
the passage of this kind of legislation ?
Mr. Green. Yes, sir.
Senator Bone. Will you explain to the committee, so that the
record may show, just what those restrictions are? I think it is
well to have that explanation, because there are a lot of folks in
this country who are wondering what this is all about. You, as a
representative of the State Department, can tell the country now
just what those restrictions are, if there are restrictions, in the
treaties.
Senator Pope. And why the term " sale " of munitions is used
rather than " export."
Mr. Green. Yes, sir; the treaties with Bolivia and Paraguay
both contain similar provisions to the effect that neither party to
the treaty will prohibit the export from its own territory to" the
territory of the other, of any commodities unless that prohibition is
made general to all nations. For that reason it would have been
impossible without a breach of the treaty to prohibit the export of
arms and ammunitions from this country to those particular coun-
tries without making that a general prohibition on the exports to
all countries.
MUNITIONS INDUSTRY 627
Senator Pope. And that is why the term " sale or sales " was used
in the embargo act?
Mr. Green. Yes, sir; it is not, strictly, an embargo act. It is
simply a resolution authorizing the President to prohibit the sales
to the Governments of the two specified countries or to any person
or corporation acting in their interest.
Senator Bone. Mr, Green, I wonder if you would do this for the
committee: The treaties themselves are probably rather lengthy
documents ?
Mr. Green. Yes, sir.
Senator Bone. I wonder if you could have your secretary strike
off those provisions of the treaty between the United States and
Paragua}'^ which are involved in this matter, so that we may, at a
point after your testimony has been concluded, insert that in our
record? I am referring to just those parts that we have been
discussing.
Mr. Green. Yes, sir.
Senator Bone. I think it would be illuminating and those who
read this record later will understand what you have been discussing.
True, you have explained it, but I think it would be wise to have
those provisions shown in the record. If you will do that, we
should appreciate it.
Mr. Green. I shall furnish them to the committee at the first
opportunity.
The Chairman. Let us have an understanding now that that
memorandum that Mr. Green furnishes will be put in the record at
a point following his testimony.
Senator George. Mr. Green, did the first resolution or bill intro-
duced in the Congress provide against exports directly and in terms ?
Mr. Green. The first bill which was introduced some years ago?
Senator George. Yes, sir.
Mr. Greex. Yes, sir; but it was a general bill. It did not apply
specifically to these two countries.
Senator George. I know. But the joint resolution to which you
referred and which was passed and approved in May of this year,
was that preceded by another bill somewhat more drastic?
Mr, Green. Yes, sir.
Senator George. Which had some consideration at the hands of
the Foreign Relations Committee, I believe.
Mr. Green. Yes, sir.
Senator George. The final legislation was in the form of a joint
resolution which merely prohibited the sale in this country
Mr. Green. It authorized the President to prohibit the sale.
Senator George. It authorized the President to prohibit the
sale in this country?
Mr. Green. Yes, sir.
Senator Bone. You may proceed now with your statement, Mr.
Green.
The Chairman. Had you finished, Mr. Green ?
Mr. Green. Yes, sir.
The Chairman, If there are no further questions, you may be
•excused with the thanks of the committee.
Mr. Green. Thank you.
628 MUNITIONS INDUSTRY
(The following letter and memorandum are included in the record
at the direction of the chairman. vSe proceedings of Sept. 12, in
Part V:)
Department of State,
Washington, Septeniber 11, 1934.
Gbhiaxd p. Nye,
United States Senate.
My Dear Senator Nye: In compliance with the request expressed to Mr.
Green when he appeared as a witness before the Special Committee Investi-
gating the INIunitious Industry on September 10, I take pleasure in enclosing,
for the information of the committee a memorandum in regard to those por-
tions of our treaties with Bolivia and Paraguay which were referred to in IMr.
Green's testimony.
Sincerely yours,
CoRDEix Hull.
Enclosure: Memorandum.
memorandum
Article 6 of the treaty of 1858 with Bolivia contains the provision that —
«'* * * nor shall any prohibitions be imposed on the exportation or im-
portation of any articles the produce or manufactures of the United States or
of the Republic of Bolivia, to or from the territories of the United States, or
to or from the territories of the Republic of Bolivia, which shall not equally
extend to all other nations."
Article 4 of the treaty of ISoO with Paraguay provides, in part, that —
«* * * nq prohibition shall be imposed upon the importation or exporta-
tion of any article of the growth, produce, or manufacture of the territories
of either of the two contracting parties into the territories of the other, which
shall not equally extend to the importation or exportation of similar articles
to the territories of any other nation."
TESTIMONY OF ALFRED JOSEPH MIRANDA, JR., HAROLD MORGAN
BRAYTON. AND FRANK ELLIOT SWEETSER— (Resumed)
Senator Bone. Do you recall whom you contacted in the State
Department, Mr. Miranda?
Mr. Miranda. I do not remember the name of the gentleman.
May I say a word in connection with that?
Senator Bone. Yes.
Mr. Miranda. The reason we did not write in was that we had
two shipments which were about ready at that time. So I felt
that the best thing for me to do was to come down here and see the
State Department and try to get some interpretation, try to get
some ideas as to what had to be done.
Senator Bone. To what extent has this prohibition against the
sale to these belligerent countries involved your firm financially?
Mr. Miranda. You mean in dollars and cents?
Senator Bone. In dollars and cents.
Mr. Miranda. $1,600,000. That is exclusive of the contracts that
had been accepted by the State Department already.
Senator Bone. In other words, in addition to the contracts al-
ready accepted, and which probably will go through, there were
munitions of the value of $1,600,000 that are now involved in this
misunderstanding ?
Mr. Miranda. That is correct.
Senator Bone. Has that stuff been shipped?
Mr. Miranda. No; that stuff has not been shipped.
MUNITIONS INDUSTItY 629
Senator Bone. In a letter dated March 24, 1934, from the Soley
Armament Co., Ltd., to your firm, there is a reference to Figuerola,
whicli I shouki like to ask you about and I will first offer this
letter in evidence as '' Exhibit No. 260."
(^The letter referred to was marked " Exhibit No. 260 " and is
included in the appendix on p. 678.)
Senator Bone. AVas Figuerola your representative in South
America ?
Mr. Miranda. Figuerola ?
Senator Bone. Yes.
Mr. Miranda. No.
Senator Bone. Where was he operating?
Mr. Miranda. I believe that he operates all over South America.
But he is not connected with us. He is a competitor of ours. You
will see from this letter that he had called in the Soley Armament
Co. ill connection with a price or a quotation that he wanted on
rifles and he was referred to us ; that is all.
Senator Bone. In other words, when they got this inquiry they
simplj' sent Figuerola around to see your company?
Mr. Miranda. Because we had already made the arrangement
with them.
Senator Bone. On March 13 Figuerola had cabled Soley for a
■quotation on 200,000 khaki uniforms; no destination is mentioned,
but presumptively the}^ w^ere for South American use. Further
down in that reference to Figuerola & Co., Soley says:
Now for your private information, the biggest stock of complete uniforms
available is belU by the U.S.A. War Department and consists, we believe,
of about 400,000 jackets and breeches, only no trousers.
By breeches, they mean those pieces of apparel that have the leg-
gings laced upon them ?
Mr. Bratton. They are pants.
Mr. Miranda. What is the difference between pants and trousers?
Mr. Brayton. Well, the breeches will lace down so that they take
in the puttees.
Senator Bone. What I had in mind was that they were used in
connection with puttees ; yes. They say, continuing :
We did hear a short time ago that a London firm of Army clothing dealers
either actually had or were trying to get an option on the stock, and we are
at present investigating the position, but in any ease — well, use your own
judgment as to what you can or what to do.
Further on the letter says :
We have of course heard from several sources that Bolivia wants AA guns
quickly,—
That is a reference to anti-aircraft guns, I suppose.
But we do not think for a moment that a shipment or a sale to Bolivia
could be made direct, while that country is at war.
What does Mr. Ball mean by underlining that word " direct " so
as to emphasize that it cannot be shipped direct. How would they
ship to Bolivia indirectly?
Mr. Miranda. Well, as you see in the paragraph following
that
Senator Bone. Does that illuminate the thouglit?
Mr. Miranda. Well, that is the interpretation.
630 MUNITIONS INDUSTRY
Senator Bone. They say:
If, however, an American armament firm of some standing bought the guns,
for eventual resale, things might be easier * * *
How would things be easier?
Mr. Miranda. He means that the British Government was not
giving any license for material to be shipped to Bolivia.
Senator Bone. So, if the British Government, using this semi-
official agency could sell to a responsible and reputable American
firm, its conscience would be easy, it could wash its hands of the
transaction and forget it; is that right?
Mr. Miranda. I can only interpret what you see there. Senator.
Senator Bone. Is that a fair interpretation, the suggestion that
I have made? That is what it says in practical effect, is it not?
Mr. Miranda. Surely.
The Chairman. Why could not they sell direct to them?
Mr. Miranda. To Bolivia?
The Chairman. Yes.
Mr. Miranda. Because the British Government has a policy of
having to license every shipment and they have, I believe, stopped
licensing shipments to Bolivia for the last year or so.
The Chairman. Resulting to what amounts to an embargo against
shipments to Bolivia?
Mr. Miranda. Yes.
Senator Bone. So the Soley Co. accomplishes or suggests the
accomplishment by indirection of what cannot be done directl3^
Mr. Brayton. Another interpretation can be put on that. It
might mean that the British Government were sympathetic toward
the other side, Paraguay. Of course, we do not know that.
Senator Bone. Is there anything in the picture in South America
that leads you to believe that might be the case ?
Mr. Brayton. Nothing except the natural feeling of friendship
betw^een the British Empire and Argentina and Paraguay.
Senator Bone. What does this natural feeling of friendship arise
out of?
Mr. Brayton. They are not competitors in the world's market
like the United States and Argentina are.
Senator Bone. They might feel, then, that the United States was
taking a more friendly interest in Bolivia?
Mr. Brayton. The embargo would not indicate that, sir.
Senator Bone. There would be nothing in the attitude of the
United States that would tend to make England or the British
Empire hostile to Bolivia, would there?
Mr. Brayton. No.
The Chairman. Senator Bone, if you are about to leave the subject
of that letter, I should like to make an inquiry. It was suggested
here in this same paragraph from which you have been quoting,
revealing that [reading] —
If, however, an American armament fii'm of some standing- bought the guns for
eventual resale things might be easier — or if the Colombian Government, who
are not at war, bought the guns they could no doubt have thorn. We arc Investi-
gatinii the questidu witli tlie war othf-e hci-e re.uarding a direct supply to Bolivia
through yiurselves, and will inform yon of the results as soon as we can. but
in principle we are not so hopeful of permission being given.
MUNITIONS INDUSTRY 631
What follows?
Mr. Miranda. Nothing. We never heard anything.
The Chairman. Did you carry out any one of these suggestions ?
Mr. Miranda. No; we never heard anything further from Soley.
The Chairman. Do you know whether or not Bolivia was supplied
directly or indirectly?
Mr. Miranda. I do not believe they were, sir.
Senator Bone. Mr. Ball, in this very interesting letter, it goes on
to say this [reading] :
Before we close, there is another matter which may one day be of interest to
you. It is rather a lengthy one, but we will condense it as follows:
As you are no doubt aware, China consumes a vast quantity of small arms
per year, and they have bought large quantities of rifles from us, mainly
Mausers (over 100,000 in 1931-32) but have slacked off lately owing to the loss
of Mancliuria, and the shortage of ready money in the south, i.e., Canton and
Nanking. In spite of all the dreams of the idealists, who imagine that homo
sapiens is filled with honor, justice, love, and self-sacrifice, Japan is going to
take a still larger slice of China, and comparatively shortly, while the getting
is good. To place herself in a favorable position, Japan must either buy over
the Soviet or fight them — and Japan will do one or the other, before attending
to some more of China.
Such a move on Japan's part would seriously affect the U.S. interests in
China, and we think that the U.S. would under the above circumstances sup-
port the Chinese, suiiply them with arms, etc. In such an eventuality, some-
thing might be done with the big stocks of rifles here, also M.G.s, and we
think it might be very advisable for you to approach the U.S. Dept. for
Foreign Affairs and the War Dept., and hand them a list of what stocks
there are over here, informing the Depts. at the same time that you are the
sole representative for the U.S.A.
Did you find it desirable to tell the Department that Soley could
supply the Chinese with plenty of firearms in case we wanted to get
into that mess over in the Orient?
Mr. Miranda. You see. Senator, this letter reached my office while
I was in South America. When I got back I was so busy with our
other affairs that I never followed Mr. Ball's suggestion.
Senator Pope. Do you know whether anyone representing your
firm did so?
Mr. Miranda. No ; I am sure no one did.
Senator Bone. The letter goes on as follows [reading] :
This is only our suggestion to you, and you may possibly have other ideas
of your own as to how such a matter should be handled — for instance, it might
be better to bring the stocks to the notice only of some of the "big business"
gentlemen, * * *
You do not know to whom he might be referring as the " big busi-
ness " gentlemen ?
Mr. Miranda. I have not the least idea.
Senator Bone. Do some of our big business gentlemen arrange
these wars that are going on around the world ?
Mr. Miranda. I do not know, Senator.
Senator Bone. Have you any idea wdiat he meant by that?
Mr. Miranda. I have not the least idea.
Senator Bone. Evidently he had some very definite purpose in
suggesting the " big business " gentlemen. Continuing, he says
[reading] :
* * * and leave any possible angles to them, for they even might see quicker
possibilities in such a stock? Nothing would surprise us, but bear in mind
that the world's stocks of small arms have shrunk very much during the last
632 MUNITIONS INDUSTRY
three years, and we certainly think tliat our stock is the only one left of any
importance.
It is doubtful if your authorities arc aware of the stocks here, for the U.S.
does not ferret around with spies or " intelligence " people to the extent
that Europe does; and if some sudden emerjiency did arise in the Far East,
there would be a big rush for serviceable material for immediate delivery,
and not many lirnis could produce about 700,000 rides, about 50,000 m.i chine
guns, all of the same calibre, with spare parts and annnunition for immediate
delivery, delayed by only the time to pack and put on the steamers.
The idea may be a tride problematical, but it ndglit arise one day, and if
you had already "sowed the seed "
What sort of sowing of seeds ^volll(l this semiofficial British muni-
tions agenc}^ have in mind when tliey suggested that?
Mr. Miranda, Maybe bringing the matter to the attention of the
(V^ar Department or the State Department.
Senator Pope. Which might have the effect of stirring them up to
buy some of these guns?
Mr. Miranda. It might.
Senator Bone. This letter continues [reading] :
The Japanese Naval Department have lately bought large quantities of Lewis
<uns, in our calibre .303, for their Hotchkiss and similar types are not equal
to the Lewis for aero use by the observer, neither has the 6.5 bullet as much
effect as the .303 armour piercing type, or the incendiary or " tracer " type.
What is a tracer type bullet?
Mr. Bratton. A tracer type bullet is one which permits the gun-
ner to follow the flight of the bullet. It has loaded into its interior
■exposed to the rear a mixture which burns while the bullet is in
flight and some types give off just a trail of smoke. But most of
them, and the better types, give a spot of light.
Senator Bone. They are called " incendiary bullets " because they
will set fire to anything that they strike?
Mr. Bratton. The incendiary bullet is a somewhat different type ;
but anything that has a material that is burning will set fire to a
highly inflammable thing, like a gas balloon or dry wheat fields or
buildings, thatched huts, and so forth.
Senator Bone. If it liits the gasoline tank of an airplane, it would
explode it or set it on fire ?
Mr. Brayton. It is doubtful that it would. It would probably go
right through it.
Senator Pope. This tracer type would not be technicallj'' an in-
cendiary type, which is prohibited?
Mr. Bratton. The tracer type is also incendiary, but the better
types of incendiary are not the tracer. They would have some ma-
terial like white phosphorous in them which, when they struck some-
thing, would break up and give a big flame. The tracer bullet is also
incendiary, but that is not its main function.
Senator Bone. Mr. Ball is a very practical gentleman, as he indi-
cates in his very free use of the term " palm oil " and " grease." He
•goes on, does this very practical gentleman, to add this thought :
As you know, " incendiary " bullets are prohibited, so they have become
"tracers" — what is in a name?
So a tracer bullet is, according to Mr. Ball, about as effective as
the incendiary bullet.
Mr. Bratton. That is news to me. As a matter of fact, I did not
know that the incendiary bullet had been banned by anybody any-
where. They are very ineffective.
MUNITIONS INDUSTKY 633-
The Chairman. When by treaty or understanding there is accom-
plished the elimination of some particular instrument used in war,
to get around that, all you need to do is change the name of the
thing that has been barred from you. Is that the remedy?
Mr. Brayton. I do not know.
The Chairman. It seems to be here.
Mr. Brayton. As a matter of fact, incendiary bullets were de-
veloped b}^ all nations during the war, but were found to be very
ineJffective.
Senator Boxe. Here is Mr. Ball, chief executive officer of the con-
cern that has the largest stock of small arms in the world — private
stock. So when he says that, " as you know, ' incendiary ' bullets
are prohibited", that means by international treaty, does it not?
Mr. Brayton. I did not know that.
Senator Bone. He evidently knows it. So he says, " So they have
become ' tracers.' " He evidently knows what he is talking about.
Mr. Brayton. The tracer and incendiary are two different things.
Senator Bone. But he makes it quite plain that in his own mind
there is not much difference.
Senator Pope. They may be two different things in the interpre-
tation placed upon them.
Mr. Brayton. The incendiary bullet is not a tracer. A tracer is-
to a small extent an incendiary also.
Senator Pope. A tracer bullet in fact would be an incendiary
bullet ?
Mr. Br-vyton. It is a very poor incendiary. A tracer bullet is a
very poor incendiary. If you fired it through an inflammable gas
like hydrogen mixed with sufficient oxygen, you would get an
explosion.
Senator Bone. Mr. Ball, in this letter which I will offer as " Ex-
hibit No. 261 ", refers to their Liege branch. That is another Belgium
branch of the firm, I suppose. I will offer this letter as " Exhibit
No. 261."
(The letter referred to was marked " Exhibit 261 ", and is in-
cluded in the appendix on p. 681.)
Senator Bone. He saj^s :
We also hear that Vickers-Armstrong are much annoyed by the persistent
competition of Mr. Miranda, Jr., in Bogota, and that he has delayed certain
orders fur Vickers material. We suppose this will be the question of the
Tickers aircraft pilots guns, and you may be sure that Vickers-Armstrong
will do all possible to spoil Mr. Miranda's efforts in that direction.
Did you run across the gentleman in the Vickers-Armstrong Co.
down there in j^our business relations ?
Mr. Miranda. Yes, sir.
Senator Pope. What did they do? What Avas the nature of their
operations against you there?
Mr, INIiRANDA. I do not know. They were just fighting very hard
for the business.
Senator Pope. How were they fighting you — through their agents?
Mr. Miranda. Through their agents.
Senator Pope. What were they doing, or what were their agents
doing ^
Mr. Miranda. They were tr3'ing to convince the officials that the
business should go to Vickers.
634 MUNITIONS INDUSTRY
Senator Pope. What did they do to try to convince them?
Mr. Miranda. I do not know.
Senator Bone. You remember what was said about the Vickers
firm in one letter, in connection -svith Turkey, do you not?
Mr. Miranda. Yes. I have had simihir experiences.
Senator Bone. Where they were using women of doubtful char-
acter freely?
Mr. Miranda. Yes.
Senator Bone. Do they use women of doubtful character in South
America ?
Mr. Miranda. They do sometimes.
Senator Bone. Are the women effective?
Mr. Miranda. Not with me.
Senator Bone. I mean, with certain folks in South America ?
Mr. Miranda. Yes; they seem to be.
The Chairman. The committee will now take a recess until 2
o'clock.
(Whereuj3on, at 1 p.m., the committee took a recess until 2 p.m.)
after recess
(The committee met at 2 p.m., pursuant to the taking of recess.)
TESTIMONY OF ALFRED JOSEPH MIRANDA, JR., AND HAROLD
MORGAN BRAYTON— Resumed
competition in south AMERICA FOR MUNITIONS BUSINESS
The Chairman. The Committee will be in order. Senator Bone,
you may proceed.
Senator Bone. Going back to this letter of March 25, 1934, from
Soley, he says :
We have also heard from Figuerola of the International Ordnance and Instru-
ment Company that he might be able to sell about 100,000 rifles, herewith
extract from his letter.
And the extract referred to is as follows :
In reference to the rifles I have a certain plan with one of my government
connections which might materialize into real business and if this does hap-
pen it is probable that a large amount of your rifles might be used, something
between 100,000 and 150,000. Of course the price you have quoted me I have
taken into consideration, but I would like to ask you in a confidential way not
to be passed on to anyone else, how far can I go in a transaction of this
magnitude as to price.
Would that be for South American consumption ?
Mr. Miranda. I do not know, Senator.
Senator Bone. Where was Figuerola operating?
Mr. Miranda. He operates out of New York.
Senator Bone. In what countries was he ?
Mr. Miranda. I think he operates mostly in Central and South
America.
Senator Bone. This refers to the use of 100,000 to 150,000 rifles,
would that be Central or South America ?
Mr. Miranda. It would seem to me too large an amount for South
America. I would think it would be for the Orient.
MUNITIONS INDUSTRY 635
Senator Bone. Further along he says :
For your further information we liear that Brazil has just placed an
order for 100,000 Mauser rifles from the factory in Czechoslovnkia.
What factor}^ would that be ?
Mr. Miranda. That would be the Skoda Works.
Senator Bone. Mr. Miranda, who is Senor F. Prado Uchoa ?
Mr. Miranda. I do not know. The only time I ever saAv his
name was in that Soley letter you have before you.
Senator Bone. He is a Bolivian?
Mr. Miranda. So I understand from that letter.
Senator Bone. Reading from the letter of March 24, 1934, which
is already in evidence as " Exhibit No. 260 ", Mr. Ball has to say, on
page 6, the following:
We have been approached here by certain people interested in 3" A. A. guns
for Bolivia. The principal person appears to be Senor I*". Prado Uchoa, and
we think lie is connected with the Bolivian diplomatic service. He began
by saying that he wanted 1214% on anything the Bolivian Gobernment bought
from us. and that ho was the only person who could put througli such deals,
etc.
And can you enlighten us as to just what his connection was with
that government?
Mr. Miranda. I don't know, Senator. All I know is what is in
this paragraph. I never heard anything further from Soley, and
evidently this gentleman was discouraged.
Senator Bone. Mr. Ball, speaking further, says :
AYe informed him that we should require oflicial confirmation of his authority
to negotiate, etc., and that although certain .3" A.A. guns were in stock (about
10 with a possible 15 more) we did not think we could help him as regards
Bolivia, for the A.A. guns were really property of British War Office, and a
sale of material emanating from a Bi-itish otficial dept.
What does he mean by the British official department, the Soley
outfit ?
Mr. Miranda. No; I imagine he means guns as come from the
British Government.
Senator Bone. They would come through Soley?
Mr. Mieanda. Yes.
Senator Bone. So that would be carrying on the negotiations with
the British Government.
Mr. Miranda. He would be trying to get the guns from the British
Government.
Senator Bone. Continuing this letter he says:
And a sale of material emanating from a Britisli official department to a
Latin-American country then at war, might lead to some diplomatic shindy,
for it might be said that Britain was supporting Bolivia against Paraguay.
Can you tell us anything about the relations of the British Gov-
ernment with Bolivia ?
Mr, Miranda. I do not know anything about the relationship.
Senator Bone. Has the Government made a survey of your plant
and facilities, including the Elevator Supplies Co.?
Mr. Miranda. And the Elevator Supplies Co., yes.
Senator Bone. How does the United States Government make
a survey of a plant of the type of yours, or what does that survey
consist of?
636 MUNITIONS INDUSTRY
Mr, Miranda. Will you answer that. Major Brayton?
iSIr. Braytox. It has been the policy of the United States Gov-
ernment ever since the National Defense Act of 1920 to survey all
of the plants of any importance in the United States to determine
just what that plant can make in the line of munitions in the event
of emergency. The plant Avith which we have the tie-up in Hobo-
ken has been surveyed as has been many others, to determine just
what type of war orders the plant ought to take care of with its
line of equipment and the type and condition of it, the floor space,
the number of men the}^ can employ, about the amount of the par-
ticular article they were the best equipped to make, and how many
of them could be turned out working 24 hours a day.
Senator Bone. Does that examination have to do with possible
sales abroad, does the Government interest itself in sales abroad?
Mr. Brayton. None whatever.
Senator Bone. Is that only in national defense?
Mr. Brayton. Only for national defense.
Senator Bone. In the letter to the Soley Armament Co. from Mr.
Miranda dated February 22, 1934 — and I now offer that letter in
evidence.
(The letter referred to was marked "Exhibit No. 262", and is
included in the appendix on p. 682.)
Senator Bone. In this letter, "Exhibit No. 262", from Mr.
Miranda in which he is discussing the standing of the American
Armament Corporation, he says :
In addition to referring you to tlie War and Navy Departments of tlie
United States for information regarding oiir company, if you so desire we
beg to refer you to the following :
American Ordnance Association, Washington, D.C.
Guarantee Trust Co., Fifth Avenue and Forty-fourth Street, New York City.
Title Guarantee & Trust Co., 6 East Forty-fiftli Street, New York City.
Does the War Department authorize you to refer possible pur-
chasers to them, and likewise the Navy Department of this country ?
Mr. Brayton. I imagine what was meant there, if anyone wanted
to refer to the War or Navy Departments regarding the standing
of the American Armament Corporation, and the Elevator Supplies
Co. tied up with them, they would learn that the Elevator Supplies
already had done a good deal of work for the Navy in nonmilitary
things and that they have had numerous contracts over the past
years with the Navy and had very excellent records as manufac-
turers. The American Armament Corporation has had no United
States Government orders. We have not solicited them.
Senator Bone. Manifestl}^ you would not make reference to the
Navy Department unless you had some authoritj'^ for it?
Mr. Brayton. We knew then, as now, that they had oeen friendly
to us; they believed we have the proper set-up and that we are an
asset to the problem of national defense in the United States, and
would therefore give us a good recommendation.
Senator Bone. On the 18th of February 1934, the American
Armament Co. cabled Soley & Co., saying, among other things :
Please cable quotation c.i.f. New York Hotchkiss and Vicliers machine guns
infantry pattern calibre seven point six five lots fifty guns.
Did you have inquiry or possible sale for machine guns?
MUNITIONS INDUSTRY 637
Mr. Miranda. Yes; we had inquiry from the Bolivian Govern-
ment.
Senator Bone. The cable proceeded further :
If you have ready stocks seven point sis five ammunition in good condition
please quote five million rounds and rush us some samples.
Did you have inquiry or possible sale for five million rounds of
ammunition ?
Mr. Miranda. Yes.
Senator Bone. Who was that for?
Mr. Miranda. It was for the same country.
Senator Bone. For Bolivia?
Mr. Miranda. Yes.
Senator Bone. In this letter, " Exhibit No. 262 ", you further say :
We have been manufacturing artillery material and ammunition and aerial
bombs for this government in very large quantities.
You meant Bolivia ?
Mr. Miranda. Yes.
Senator Bone. Is that a part of the order you referred to this
morning ?
Mr. Miranda. Yes.
Senator Bone. And so Bolivia had been purchasing very liberally
from your firm ?
Mr.' Miranda. That is right.
Senator Bone. You further say in this letter, " our representative
in La Paz *' — that is a Bolivian city ; is that the capital ?
Mr. Miranda. That is the capital ; yes.
Senator Bone. This letter further reads :
Our representative in La Paz informs us that in the Chaco region where the
material is being used the temperature at night is 110 degrees.
What is it in the daytime? Something like Washington?
(No answer given.)
Senator Bone. Clearl}^ all of this material going in there is being
used in the Chaco region warfare being carried on there ?
Mr. Miranda. It is.
Senator Bone. Heading further, the letter says :
For instance, we have been asked on a pure barter basis.
What was it that involved ?
Mr. Miranda. I do not remember what they wanted to barter.
Mr. SwEETSER. I don't remember, either.
Senator Bone. Further the letter says :
With this plan we might be able to dispose to the Government 15,000 or 20,000
rifles, several hundred machine guns and a few million rounds of ammunition.
We will endeavor to get something concrete to place before you in this matter.
Peru offers us guano ; would that interest y^ou? Colombia might work out a
deal on the basis of emeralds because they do not wish to disturb their coffee
prices in foreign countries by releasing the Government stocks of that produce.
Did anything come of this barter suggestion ?
Mr. Miranda. No.
Senator Bone. Going further in the letter which you wrote to the
Soley people, directed to Mr. Ball's attention :
Your remarks anent greasing the wheels that make the deals go around are
very true and we fully appreciate that very often oil must be added to your
quotations.
638 MUNITIONS INDUSTRY
So there is no question about that ?
JNIr, Miranda. No question about it.
Senator Bone. And 3'ou say f urtiier :
In this connection will you make it a point to always quote us your prices net
to us c.i.f. New York unless we specifically make a different request.
That would be their prices without the oil and grease?
Mr. Miranda. Yes; and what we would do, we would add the
commission, and the commission would take care of the expenses.
Senator Bone. You were down in Brazil in June of 1933, at the
time you were with the Driggs concern?
Mr. Miranda. That is correct.
Senator Bone. You were representing the Driggs Co. in Brazil
at that time?
Mr. Miranda. That is correct.
Senator Bone. From Rio or whatever point you were, on June 10,
you wrote your brother who goes under the nickname of Iggy, or
is that an abbreviation?
Mr. Miranda. His name is Ignatius.
Senator Bone. So I imagine as boys you learned to call him Iggy ?
Mr. Miranda. That is right.
Senator Bone. This letter starts off in this way :
My Always Dear Iggy. This letter will not be very long. I liave written a
lot today, including the letter for Frank that I am sending witliin this one
for you.
Frank referred to is Mr. Sweetser?
Mr. Miranda. Yes.
Senator Bone. Then the letter continues :
Nothing much more I can say re Driggs business except that any time one
goes out to get a $5,000,000 order with the lack of financial background that
Driggs has one is looking for trouble and embarrassment — plus.
Then again it says [reading] :
The rage for planes and aircraft material is such that the ministries are
besieged with proposals from would be agents, which is the reason they now
require a certificate to be filed proving genuine representation authorization.
I take it at that time there was a great furore over airplanes in
Brazil.
Mr. Miranda. Yes; I believe they purchased about 200.
Senator Bone. And there was a great amount of competition then
in the attempt to sell these airplanes ?
Mr. Miranda. Yes, sir.
Senator Bone. Reading again, the letter says :
Now as to our participation in this business
That was the airplane business; is that right, you are referring
to mostly in this letter?
Mr. Miranda. No, sir; that was the Driggs business.
Senator Bone. Now, I read again :
Now as to our participation in this business if it comes thru I don't think
we should worry. Frankly, my work here has been so patent that no company
could overlook my remuneration. The same thing applies to your work there,
so that I think when the time comes we will be able to make the master see
the light.
You were referring to Mr. Driggs there in connection wath work
you were doing for the firm ?
MUNITIONS INDUSTEY 639
Mr. Miranda. Yes ; you see, I had not had a definite understanding
of what I should get.
Senator Bone. In other words you were figuring that he would
understand you had done a good piece of work in getting orders
and recognize that fact?
Mr. Miranda. That is so.
Senator Bone (continuing reading) :
What our protit should be is hard to determine, because it all depends on
how large the order will be. Bear In mind that Figas
Who is that?
Mr. Miranda. Figueira, he is our representative.
Senator Bone. That is Kaoul Figueira?
Mr. Miranda. Yes. sir • Commander Figueira.
Senator Bone. Lieutenant commander in the Brazilian Navy?
Mr. Miranda. No, sir; he had been.
Senator Bone. He had been?
Mr. Miranda. Retired.
Senator Bone. "And Meyrinks "
Who is Meyrinks?
Mr. Miranda. The firm of Meyrinks Vega & Co. The represen-
tation was here jointly by Meyrinks Vega and Figueira, Figueira
being the technical end of the representation and Meyrinks Vega
being the commercial end of the representation.
Senator Bone (continuing reading) :
they are one in this deal) profit is not coming from the price quoted — that is
the prices quoted are net to them and had to add the territic profits from
everyone from Minquerra down
Who is Minquerra?
Mr. Miranda. That would be the Secretary of War.
Senator Bone. That would be the Secretary of War. Then in
brackets it states:
[The President, Secty. of Finance, etc.] You don't think that the Gov.
To whom does that refer ? The Government ?
Mr. Miranda. Yes, sir; the Government.
Senator Bone. Does that refer to the Government or the Gov-
ernor ?
Mr. Miranda. The Government.
Senator Bone (reading) :
You don't think that the Gov. is going to hand out a contract for five or
six millions of dollars and not dig in deep?
Let us have a little light on that. What does that mean, " dig
in deep " ?
Mr. Miranda. Our agents were getting a net price. They were
asking for a net price. They claimed that they would have to
have some expenses in connection with the obtaining of the order.
What those expenses would be, they were unable to tell us at the
time. They did like agents often do, say, " Oh, we may have to
take care of everyone from the President down." That was for
the sake of emphasis. I do not think that the President, or any-
thing like that, would be taken care of. That is merely for the
sake of emphasis.
640 MUNITIONS INDUSTRY
Senator Bone. It is all very plain in the record now, as you have
put it. They take care of everybody from the President down?
Mr. Miranda. I do not know Avhether they were going to take
care of everybod}'' from the President down, but that is just the
way they put it to us.
Senator Bone. Is it fair to say that the boys starting at the top
and working down would take care of everybody they had to take
care of?
Mr. Miranda. That is the expression they used.
Senator Bone. They had to do it, did they not? Everybody
understood, that is, in the vernacular in South American business
they had to take care of everybody from the top to the bottom, and
had to take care of everybody, as suggested in this letter, through
" grease ", " palm oil ", or what is called " commissions " in this
country ?
Can you add anything to that, Mr. Sweetser? Maybe you better
tell us, if you have any suggestions to offer, just what you think
about this matter.
]\Ir. Sweetser. My only thought on this is that it is roughly com-
parable to letters from Mr. Joyner, that he wrote up to his chiefs
in the Electric Boat Co. He made several statements that were
manifestly exaggerations, to say the least.
Senator Bone. It might perhaps be well for Mr. Miranda to give
his views of it now, because he wrote this letter and he of all people
would be best qualified to do so.
Mr. Miranda. Absolutely. Senator, some times the agents will
build up so-called " palm oil " requirements for their own use, we
will say, with a manufacturer. " We have to take care of so and
so and so and so and so and so and so, and it is going to cost a lot of
money. Ten percent is not going to be enough, and 15 percent is not
going to be enough." Maybe they have to do it and maybe they do
not. After all, we only have their word for it.
Senator Bone. In June 1930 you wrote that the Chefe — what is
that?
Mr. Miranda. Chief.
Senator Bone. You wrote " Chefe de Cabinit." Who was he ?
Mr. Miranda. He was the — I do not remember who he was — but
he is called the Chief of Cabinet.
Senator Bone. What is that position in Brazil? What would it
be equivalent to in this country? Chief of Staff of the Army?
Mr. Miranda.. No, no; it has nothing to do with the Army.
Senator Bone. Secretary of War?
Mr. Miranda. No.
Senator Bone. What would be the equivalent of that here? Sec-
retary of State ?
Mr. Miranda. No, he is in the President's office.
Senator Bone. Is he a sort of close advisor to the President?
Mr. Miranda. He might be that; yes, sir.
Senator Bone. In other words, he is a confidante of the President?
Mr. Miranda. He is a confidante of the President and the Sec-
retary of War and the Ministers.
Senator Bone. In other words, very closely tied into the whole
political set-up in the country?
Mr. Miranda. Yes.
MUNITIONS INDUSTRY 641
Senator Bone. Now you say in your letter as follows :
The Chefe de Cabinit will come in for fifty grand * * *
What do you mean by that?
Mr. Miranda. Fifty grand?
Senator Bone. That is a sort of Chicago expression.
Mr. Miranda. I understand " fifty grand " means 50 thousand
dollars.
Senator Bone. So that the Chefe de Cabinit would come in for
50 thousand dollars [reading] :
that I know of * * *
Did you know of it?
Mr. Miranda. I was told that; yes, sir.
Senator Bone (reading) :
so you can imagine.
Mr. Miranda. In other words, that was the only instance where
they set a definite amount. But, as I said before. Senator, you must
remember that we have nothing but the word of our agents for
these stories. That may be all right and that may be merely building
up an extra fund for themselves.
Senator Bone. But if the deal goes through, however, you send
along the money " to do the needful ", if it is necessary?
Mr. Miranda. If the deal goes through, we have sold our material
for a net price.
Senator Bone. That is right.
Mr. Miranda. And anything over the net price is turned over to
our agents, and it is their commission. What they do with it is
something over which we have no control.
Senator Bone. They indicate to you how much will be necessary
over the net price to put the deal through ?
Mr. Miranda. And you admit that it will be advantageous to
them to indicate as much as possible.
Senator Bone. That is right [continuing reading] :
So that the best is to say — we have to get so much, now, you talk it over
with your friends, determine what the contract will be written for and the
difference is yours.
Then later you state:
* * * and if we have sold Cox Sharpies the idea that the Co. can be made
to pay, they will help to carry on * * ♦
What does that mean ?
Mr. Miranda. That was written to my brother. Cox and Shar-
pies are two of the directors of the Driggs Co. — or one a director of
the Driggs Co., Mr. Sharpies, and Mr. Cox was a representative.
We sold them the idea.
Senator Bone. You sold them the idea that the company can be
made to pay to take care of the necessary things ?
Mr. Miranda. No, sir; that the company can be made to be
profitable — the Driggs Co. can be run profitably.
Senator Bone (continuing reading) :
* * * can be made to pay, they will help to carry on — with Luis in the
background. * * *
83876— 34— PT 3 7
642 MUNITIONS INDUSTRY
Mr. Miranda. Yes, sir.
Senator Bone. Luis was young Mr. Driggs?
Mr. MiRAKDA. Yes, sir.
Senator Bone (reading) :
* * * and really no reason why the company should not pay, and pay
well, if the sales and financing ends are properly organized.
I think it might be well merely to put in the record these extracts
which I have read. There are some personal, family allusions there
which are perfectly harmless and they have no business in the rec-
ord ; they do not reflect on anyone, they are purely family references.
Mr. Miranda. That refers to confidential letters exchanged be-
tween two brothers, and I think they should be respected to some
degree.
Senator Bone. I can understand you would be somewhat reluctant
in that regard.
Mr. Miranda. Yes, sir.
Senator Bone. Now, who is Jose Merla?
Mr. Miranda. Merla is our agent in Cuba.
Senator Bone. Your Cuban agent?
Mr. Miranda. Yes, sir.
Senator Bone. He writes you under date of June 28, 1934, a
letter describing Cuban business and prospective business. We will
have that marked " Exhibit No. 263."
(The letter referred to was marked " Exhibit No. 263 " and is in-
cluded in the appendix on p. 685.)
Senator Bone. Mr. Merla in that letter has this to say to you, in
part :
For your information, to your quotations we shall add 15 percent. * * *
That would be an arrangement similar to the one about which you
have just told us?
Mr. Miranda. Yes, sir.
Senator Bone. To make a net price, and the agent adds what is
necessary for taking care of anybody to get the business ?
Mr. Miranda. Including his commission; yes, sir.
Senator Bone (continuing reading) :
which will cover the " graft " that is supposed to be distributed down there
among the various interested parties —
The word " graft " is in quotation marks, and the letter proceeds
[reading] :
and I request that this infonnation you keep confidentially, and if you write
to S. 1).—
Who would that be ?
Mr. Miranda. Santo Domingo.
Senator Bone. Santo Domingo. [Continuing reading:]
do not mention in your letters as there is censorship in the mail, all letters
going there are opened and read and it will not do us any good if this infor-
mation will be known down there.
So that Mr. Merla recognizes, apparently, the necessity for some
graft in Cuba.
Mr. Miranda. This was referring — yes, sir ; Cuba.
Senator Bone. Now, there is one thing which has been interesting
to me, as we went through this record, Mr. Miranda, and there is
MUNITIONS INDUSTRY 643
possibly some information ^yhicll you can give to the committ-r-if
which may be helpful. Can you tell the committee Avhether the
Arg'entinians, either officially through governmental agencies or
through private agencies, were giving arms and munitions or mak-
ing them available to Paraguay?
Mr. Miranda. I do not know, Senator. Of course, one lieru's all
sorts of rumors, and it is a fact that Paraguay is practically a
Province of Argentina. It is also known that — or so I have been
informed — that there are Paraguayan recruiting agencies in Buenos
Aires, but all that I am saying is merely hearsay.
Senator Bone. But there is apparently, however, a rather friendly
feeling in the Argentine toward Paraguay?
Mr. Miranda. So I understand.
Senator Bone. Now, I have been reading in the newspapers of
late stories about soldiers in the Chaco dispute being found on the
field in American uniforms, or representations being made with
respect to that, with the question raised as to how American uni-
forms got down into that country and were being utilized. Can
you inform the committee how that might have happened?
Mr. Miranda. My idea is that these American uniforms are merely
part of the surplus war supplies sold by the Government to the
surplus war supply dealers, and they in turn never took the trouble
to take off the buttons. Bolivia has been buying a fair amount of
uniforms, blankets, shoes, and so forth, in this country. As a matter
of fact, they are an excellent customer of the United States. So
that is the way that those uniforms would have found their way
down to the Chaco.
Senator Bone. Is there anything further that you can add with
respect to this general South American business, Mr. Miranda ?
You may be able, and I feel sure that you can, enlighten the com-
mittee as to the general situation in South America, with respect
to this whole munitions business.
Mr. Miranda. My thought, Senator, is that
Senator Bone. You may be helpful to us in arriving at some
conclusions.
Mr. Miranda. The business exists down there and has for years,
and it will probably continue to exist for many, many years to
come, because they are, as a rule, not arms-producing nations. They
will have to buy their arms somewhere. Heretofore they have gone
to Europe to buy them. I have tried to bring some of that business
to this country. I feel that unless there should be an absolute
and foolproof agreement between the larger countries, such as
the United States, England, France, Germany, Italy, and so forth,
that will control — that will effectively control — the munitions trade
in South America, the best thing that this country oan do is to go
in and try to get its share, because maintaining itself away from
the rest is not going to improve the picture.
Senator Bone. How long have you had fairly close touch with
the munitions business?
Mr. Miranda. In South America?
Senator Bone. Yes; and in your own experience elsewhere?
Mr. Miranda. Perhaps 2 years; II/2 years.
Senator Bone. Prior to that time had you come rather closely in
touch with the munitions business?
644 MUNITIONS INDUSTRY
Mr. Miranda. No; I had been in touch with the Goyernment
business and machinery, and general foreign business in Latin
America, both from the export and import viewpoint.
Senator Bone. Have you observed anywhere in your South Amer-
ican or Central American experience where this man Zaharoff gets
in the picture down there?
Mr. Miranda. No ; I have never run across him.
Senator Bone. You know his connections, of course, with Vickers?
Mr. Miranda. Yes ; and Vickers are very strong in South America.
Senator Bone. And probably with other great armament con-
cerns in Europe?
Mr. Miranda. I think that Skoda and Vickers get most of the
business in South America,
Senator Bone. Those two combinations being almost one?
Mr. Miranda. Yes.
Senator Bone. Closely allied and tied together, with bond and
stock ownership. Is that true ?
Mr. Miranda. I understand that there is such an alliance.
Senator Bone. I do not care to prolong the examination unduly,
and perhaps one question might cover the matter on which I desire
you to enlighten us. From your testimony it appears that there is
a very, very vigorous competition in South America for the munitions
business and that representatives of all prominent armament firms
in the world are in there, and that a lot of high-pressure stuff is
being put over. That is correct, is it not?
Mr. Miranda. That is correct.
Senator Bone. Every possible effort is being made to sell those
South American countries all the munitions and armaments that
can be sold to them, is it not ?
Mr. Miranda. Yes.
Senator Bone. These foreign munitions combines are being given
thorough and whole-hearted cooperation from their governmental
representatives in South America?
Mr. Miranda. Unquestionably.
Senator Bone. Now, getting down to another practical thing,
where do you think this armament race is going to lead South
America ?
Mr. Miranda. I do not believe there is an armament race. I
believe that they are just beginning to arm themselves.
Senator Bone. Let us confine it for a moment to the financial
aspects of the situation. Peru had a very unhappy financial ex-
perience with Juan Lcguia and others down there in the flotation
of several large bond issues. Would you say that South American
countries are in a financial position today to go into excursions in
the realm of bigger and better armies and navies ?
Mr. Miranda. With the exception of Peru, I believe that the other
countries are not either overarmed or in a position to conduct a
national defense program similar to the one we have conducted over
a period of years.
Senator Bone. Why does Argentine want more battleships or
submarines, more machine guns, more rifles, more bombs? "N^^at is
the purpose of Argentine getting more of those things ?
MUNITIONS INDUSTRY 645
Mr. Miranda. They probably imagine that there is a certain de-
gree of national defense that they must have, and they want to
obtain it.
Senator Bone. Against what other countries?
Mr. Miranda. Against Brazil and Chile.
Senator Bone. Do the Brazilians hate the Argentinians in such a
way as that?
Mr. Miranda. No; but, Senator, why do we do it ourselves?
Senator Bone. This committee is trying to find out why civilized
governments do those things. Why certain portions nurture the
sort of attitude that they do among the peoples of the earth. Now,
when Argentina gets one thousand machine guns, the fact of course
is promptly communicated to the Brazilian Government. Would
you say, then, that the Brazilian Government feels the impulse mov-
ing strongly within its official breast to get more machine guns for
itself?
Mr. ]\Iiranda. I do not think it is quite like that, sir.
Senator Bone. Tell us the picture.
Mr. Miranda. I think the general staff of each country arms itself
to the degree of armament that that country must have in order to
take care of its defensive requirements. I do not think that they
ever attain those defensive requirements. It may be, as the years
go by, they grow larger.
Senator Bone. And they try to make financial arrangements for
that.
Mr, Miranda. That is what they are striving at.
Senator Bone. About the only hurdle they have to make is the
financial hurdle.
Senator Pope. These naval missions have a good deal to do with
determining that matter, that is, the missions from Europe and
from the other countries ?
Mr. Miranda. That would be my opinion.
Senator Pope. In other words, if the naval missions of these coun-
tries prepare defense plans, as they call them, and present them to the
heads responsible for the welfare of the people of that country, that
would constitute a means of determining what defense they would
actually need, would it not?
Mr. Miranda. Yes, sir ; to encourage it.
Senator Pope. And these naval missions, on the other hand, of
course, work in very close cooperation with the munitions manufac-
turing concerns of that country ?
Mr. Miranda. You can say of Europe. We have not really had
any missions.
Senator Pope. We had one to Brazil and one to Peru.
Mr. Miranda. Yes.
Senator Pope. Did not the naval missions from the United States
to Peru and Brazil follow the same sort of general activities that the
European naval missions did?
Mr. Miranda. I do not know. I do not imagine so. From what
I have seen of the representatives of our Government, they are more
or less restrained, probably by Government regulations.
Senator Pope. And it is your idea that we ought to have naval
missions from this country down there to give assistance to our own
646 MUNITIONS INDUSTRY
munitions manufacturers, the same as the European naval missions
are fjiviii<? assistance to armament firms in Europe?
j\Ir. jVIiranda. Yes, my idea is, tlio traffic cannot be controlled
otherwise, and if we are going to be the losers and let the traffic go
to Europe, we should try to get a share of it.
Senator Pope. Have you given any thought as to what should
be done to control that business?
Mr. Miranda. Major Brayton has prepared a series of ideas that
he would like very much to have you listen to, Senator, if you will
give him the opportunity.
Senator Bone. There can be no doubt in your mind, I take it, from
what you have told me at the beginning of the inquiry, that the
presence of these military and naval missions in South America, sent
there by European governments, has had a tendency to greatly
stimulate the interest of people in the preparation for war and the
expansion of their military and naval machinery?
Mr. Miranda. I believe so.
Senator Bone. You made it very plain in the beginning, and 7 j'lst
wanted to get it in the record so that no one can possibly mis-
understand it.
If these great major powers of the world continue deliberately to
stimulate militarism in the smaller countries so as to secure the busi-
ness, then of course we can expect the smaller countries to continue
their attitude toward increased armies, and this race for better
preparation for national defense continues right along. Is not that
a fair assumption?
Mr. Miranda. I feel that way about it.
Senator Bone. Then, unless there is a change in the attitude of
the national governments, the big governments and the people of
the world generally toward this armament race, it will continue in
its present form. That is right, is it not?
Mr. Miranda. I believe so.
Senator Bone. Just as a business man, divorcing, if you can, your-
self from your own business, and just limiting it to that and talking
to the men on this committee who are trying to find out all they
can about this matter, to recommend or suggest to the people of this
country what should be done — what in your opinion is going to
happen if this race continues throughout the world? You do not
have to confine your answer to the United States or any country,
but just tell us what you think will happen to the world if this
continues ?
Mr. Miranda. I think an armament race naturally leads into war.
After that, when they are thoroughl}^ armed, they want to try it out.
Senator Bone. In other words, when the boys and girls are all
ready, they want to go out and see what the thing they have got can
do. Is not that right?
Mr. Miranda. That is the way I would understand it.
Senator Bone. The world was pretty thoroughly prepared in
Europe in 1914, and they had to try it out. The world, of course,
as you are aw^are, is now spending more money than it ever did in
preparation for war. Just as a business man, Mr. Miranda, do you
think that that can continue and leave a fair margin of economic
and financial security for the nations of the world?
Mr. Miranda. I do not think so.
MUNITIONS INDUSTRY 647
Senator Bone. Would you think that there was a margin of danger
and a very great element of insecurity in that sort of thing for
the various governments of the world ?
Mr. Miranda. It is logical that there should be.
Senator Bone. Have you any suggestions or can you make any
suggestions to the committee as to what you think might be done
toward curbing this international traffic in munitions, not applying
it to your own business but just taking the problem in its general
aspects? What do you think, if anything, should be done toward
curbing this traffic, changing its character, or whether anything
should be done with it?
Mr. Miranda. I have had Major Brayton prepare some ideas on
the subject as to the effect of the armament business in this country
and in foreign countries. If you will allow him to read them to you,
I would appreciate it.
Senator Bone. May I ask if it is a very lengthy statement. Major?
Mr. Brayton. No.
Senator Bone. I will pass that for a moment. One of our staff
wants to ask you about your financial operations, and we will let
Major Brayton make his statement later.
Mr. Wemple. Mr. Miranda, in schedule no. 1 there is shown the
balance sheet which was prepared by Mr. Mitchell, and I believe
your Mr. Kaplan has looked it over too.
Mr. Miranda. Schedule no. 1 ; yes, sir.
Mr. Wemple. That will be offered as an Exhibit.
(The schedule referred to was marked " Exhibit No. 264 " and is
included in the appendix on p. 686.)
Mr. Miranda. You say that Mr. Kaplan has agreed?
Mr. Wemple. Mr. Kaplan has lookecl it over.
Mr. Miranda. That is all right.
Mr. Wemple. Schedule no. 2 is a statement of profit and loss,
December 29, 1933, to July 31, 1934, which sets forth the various
contracts and the amount of business that you have done in the
7 or 8 months; that is, that the American Armament Corporation
has done when it has been in business. It shows a gross profit of
$161,249.09. There Avere certain deductions entered in your books
at that time which should be applied to it, I believe, covering com-
missions due Bolivian agents, in the amount of $6,500.35; commis-
sions due Major Brayton, $17,948.28; cash discount on sales,
$6,540.25; and additional ocean freight due under Barr Shipping
Co. agreement, $34,250.81. Is that correct?
(The schedule referred to was marked " Exhibit No. 265 " and is
included in the appendix on p. 686.)
Mr. Miranda. That is correct.
Mr. Wemple. One more exhibit, schedule 9, which we find in the
last schedule is " Details of shipping charges b}' Barr Shipping Cor-
poration, 25 Beaver Street, New York City."
(The schedule referred to was marked '' Exhibit No. 266 " and is
included in the appendix on p. 688.)
Mr. Wemple. This sets forth various shipments that have been
made, which the Barr Co. have handled for you, the amount of
freight, insurance, notary fees, and other items which have been
paid.
648 MUNITIONS INDUSTRY
According to that statement, you have a differential or some sort
of working agreement with the i3arr Co. ?
Mr. Miranda. That is correct.
Mr. Wemple. Would you explain just what that working agree-
ment is?
Mr. Miranda. The quotations that the Government has requested
have been c.i.f. Arica, Mollendo, and Antofagasta, in as much as
the major part of this material has not been built in this country
before, and many of the items would be difficult of shipment, par-
ticularly the ammunition
Mr. Wemple. You might explain those abbreviations " c.i.f."
Mr. Miranda. C.i.f. means cost, insurance, and freight. In other
words, the Government wanted to know for how much we would
place a shell or a mortar or some other items at a point of destination
on the West Coast of South America. All of our selling prices are
figured at our plant in New Jersey. The shipping of this material
is from our plant either to the Atlantic or the Pacific Coast, wherever
it might be necessary for us to obtain the cargo boats to take this
material down.
Senator Bone, Most of the contracts were made f.a.s. in New York.
Mr. Miranda. In the case of these contracts, all of them have been
made c.i.f., but we do not care to ship c.i.f., because we then have
the danger of the rising costs of freight, particularly in the shipment
of explosives and the rising costs of insurance and other expendi-
tures. We feel that Avhile we want to take a commercial risk on the
cost of our material and the manufacture of it, we do not want to
take a risk on matters that are really beyond our control on which
we are not specialists.
For that reason we made an arrangement with Mr. Barr to the
effect that we would give him the approximate weights and meas-
urements of this material as it would be when packed for export
shipment, bearing in mind that it had not been manufactured before,
so that we were guessing at the weights and measurements and the
approximate date of shipment; and he would try to determine for
how much he would take this material from our plant to the port
in South America where the Government wanted this material
placed.
Senator Bone. In other words, that permitted you literally to
make delivery at your own plant?
Mr. Miranda. Exactly. As a matter of fact, our contracts with
the Bolivian Government, copies of which I believe are in your
possession, state that, although we quote c.i.f. the west coast of
South America, we deliver the material at our plant. Of course,
we realize that Barr would have to more or less take a gamble on
this thing. We did not want to take a gamble. We felt that we
had enough gamble as it was in designing this material and making
it and getting it down. Therefore, in each instance when we had
our selling price at our plant and I gave Barr the approximate
weights and measures of the material, I asked him to give me a dif-
ferential in exchange for which he agreed to assume the responsi-
bility of taking the material from our plant to the Government port
MUNITIONS INDUSTRY 649
of destination. And then that differential added to the selling
price and the price c.i.f. arrived at offered to the Government and
when the Government accepted our contracts, the Government was
accepting that differential that we had with Barr.
Senator Bone. Have you ever crossed the Schneider concern's
operations in South America?
Mr. Miranda. Schneider and Creuzot?
Senator Bone. Yes.
Mr. Miranda. Very little. My understanding is that the Schnei-
der company is especially engaged in manufacturing material for
the French Government and that they preferred to get such material
as they sell in South America from the firm of Skoda.
Senator Bone. Let us take this subsidiary or affiliate of Schnei-
der's called Skoda. Do they operate in South America?
Mr. Miranda. Yes.
Senator Bone. Fairly large field of operations?
Mr. Miranda. Yes. I say fairly large; they deal generally with
the larger countries like Brazil, Chile, Argentine.
Senator Bone. Have you had occasion to run up against any of
their operations down there?
Mr. Miranda. Not directly; no.
Senator Bone. Well, indirectly?
Mr. Miranda. Yes; indirectly.
Senator Bone. Are they putting high pressure on their sales, too ?
Mr. Miranda. They all do.
Senator Bone. Have you run across cases where they are using
women in their operations?
IVIr. Miranda. Yes.
Senator Bone. Women who are a bit careless in their methods?
Mr. Miranda. A bit.
Senator Bone. These European munitions concerns do not seem
to be very careful about business matters or very ethical in getting
business ?
Mr. Miranda. Well, as you said the other day, Senator, the aim
is to get the business.
Senator Bone. In other words, it all goes back to this Knight
of the Bath of England who says he is willing " to do the needful "
to get the business; is that right? Is that a fair assumption?
Mr. Miranda. Well, I would not charge it off against Sir Basil.
Senator Bone. No. We just take the gentleman at his own word,
" to do the needful."
Mr, Miranda. They go out after the business and if there is a
certain way in which those people expect to do business, they just
cater to it.
Mr. Wemple. Mr. Miranda, according to this statement, the total
amount of the differential is $68,686.13; and the disbursements that
were made by Mr. Barr, covering freight, insurance, and other
items, amount to $27,781.26. Because of this arrangement, he has
made a profit of $40,904.87.
Against that, I understand there were some certain it^ms of
unpaid inland freight which have not been set upon your books
yet which may run to 8 or 10 thousand dollars, or possibly less.
650 MUNITIONS INDUSTRY
Mr. Miranda. You see, Mr. Wemple, if he has made a profit of
$30,000 on shipments aggregating between $700,000 and $800,000,
he has made a profit of about 31/2 percent. We are perfectly willing
to pay 31/2 percent not to have that risk.
Mr. Wemple. The ordinary brokerage fees, the regular rate that
a shipping company works on, is usually l^/^ percent?
Mr. MiKANDA. The ordinary broker would not undertake the re-
sponsibility of a commitment of that nature. They will say, " Well,
when you get the stuff ready give it to us and we will ship it down
to 5'ou."
We were committing ourselves to deliver this material to the
Bolivian Government 7,000 miles away from our factory for so
much and we just did not want to take the responsibility of those
expenses between our plant and the port of destination.
Mr. Wemple. From your angle it is, of course, a very good
arrangement. But from Mr. Barr's angle it is an even better ar-
rangement than he would ordinarily run up u,gainst in the ordinary
course of business.
Mr. Miranda. Yes; it is.
Mr. Wemple. In other words, he would exhibit a great deal more
interest in handling shipments of this kind just as a salesman oper-
ating on a commission would probably do a much better job than
where he is just on an ordinary salary basis.
Mr. Miranda. That is correct.
M. Wemple. He has more than interest in the whole thing.
Mr. Miranda. That is correct.
Mr. Wemple. I wish now you would refer to schedule 4, which I
will offer as an exhibit also.
(The schedule referred to was marked " Exhibit No. 267 ", and is
included in the appendix on p. 689.)
Mr. Wemple. This is a statement of contracts and shipments De-
cember 1933 to July 31, 1934. I will not bother to read it in detail.
It shows the total amount of business which you have done to date
and it amounts to — or rather the total of the contracts — amounts to
$2,902,277. Against that, shipments have been made to the extent of
$707,125.50 in two large contracts. The remaining contracts which
were secured from Bolivia and which have been held up under the
arms embargo, I believe, numbered 1,321 and 1,322, are one for
$97,000 and the other is for $2,043,562.50; is that correct?
Mr. Miranda. Yes, sir.
Mr. Wemple. Was a portion of that latter contract shipped ?
Mr. Miranda. No ; none of that stuff has been shipped.
Mr. Wemple. None of it?
Mr. Miranda. No ; not at all.
Mr. Wemple. So, the embargo has held up business to that extent?
Mr. Miranda. To that extent and more.
Senator Pope. Do you recall the Pan American Conference last
December at Montevideo?
Mr. Miranda. Yes.
Senator Pope. You attended that conference?
Mr. Miranda. No, sir ; I was in New York at the time.
MUNITIONS INDUSTRY 651
Senator Pope. Did some representative of your company attend
the conference?
Mr. Miranda. No 5 not at all. As a matter of fact, my company
had not been organized at that time. What was the date of it —
December what?
Senator Pope. December of last year.
Mr. Miranda. We only organized the company on December 15.
I was here from August 1933 until March 1934, in this country.
Senator Pope. Do you know of any other representatives of arms
manufacturers who attended that conference?
Mr. MiRxVNDA. I do not know, sir.
Mr. Wemple. I notice, Mr. Miranda, with reference to Major
Brayton's commissions, it states that you owe him commissions in
the amount of $17,948.28. Would you give us briefly the details
of Major Brayton's arrangement with you?
Mr. Miranda. Yes; Major Brayton's arrangement with us is that
he draws a nominal salary, so much per week.
Mr. Wemple. How much per week?
Mr. Mirada. $60 per week. Then he gets a commission of a
sliding scale, so much of a percentage on the first $100,000 and
according to a sliding scale.
Senator Bone. That is on all your munitions business?
Mr. Miranda. Only the ammunition part of it, not the guns.
Mr. Wemple. According to the information I have before me,
he received a commission ranging from 4 percent on the first
$100,000 of sale each year to 1 percent on all sales over $750,000
each year, is that correxit?
Mr. Bratton. That is correct.
Mr. Wemple. Then the amount due you to July 31 is approxi-
mately $18,000, the figure mentioned before.
Mr. Kaplan. Let me correct that. That includes all of the com-
missions on all of the shipments that have been made.
Mr. Wemple. That includes the commission on all of the ship-
ments that have been made?
Mr. Kaplan. Yes.
Mr. Wemple. But not on any of the shipments which have not
been made as yet?
Mr. Kaplan. No.
Senator Bone. Those commissions are paid on consummated busi-
ness, when the transaction is completed?
Mr. Miranda. Oh, yes.
Senator Pope. And the money collected?
Mr. Miranda. And the money collected, yes.
The Chairman. Mr. Miranda, when you were approaching gov-
ernmental agencies respecting the embargo, do we understand that
Mr. Johnson came to Washington?
Mr. Miranda. Mr. Johnson came to Washington — let me recollect
for a minute — a few days after the Presidential proclamation and in
view of the fact that we had a shipment ready to go forward, I
came to Washington and I went to the State Department and I was
told at the State Department what I testified to before, that if we
652 MUNITIONS INDUSTRY
had something to ship to go ahead, to try to get it out and if the
Government stood in our way that we should take recourse to legal
action.
I went back to Washington. Before going back I advised the
Bolivian Minister here on the subject. He was endeavoring to get
an exception from the Government on all orders that had been
placed by his Government in this country prior to May 28. About
3 or 4 days later we received word from the Bolivian Minister
through the consulate that we should see Mr Martin Conboy, the
Federal attorney in New York, because it seems that the State De-
partment had referred the matter to the Department of Justice.
The Department of Justice had referred the matter to Mr. Conboy.
We saw Mr. Conboy and he examined our contracts, made photo-
static copies of them.
I called at his office a number of times accompanied by the Bo-
livian consul and he then took the matter under consideration.
Several days later he rendered a decision as to what constituted
a sale and on the basis of his decision it was possible for us to make
the shipments that we had ready. However, that would not cover
other shipments that were going to be ready.
So Mr. Conboy said to us that the thing for us to do was to get
an attorney and try to obtain from the State Department an excep-
tion on these contracts, as indicated in the President's proclamation,
that the Secretary of State would have the right to make exceptions.
Then Mr. Thomson and our attorney, Mr. Sims, came to Wash-
ington to see the State Department and told them why we were
asking for an exception, I understand that they saw Mr. Welles
and Mr, Welles requested written memoranda on these various con-
tracts, which Mr. Sims prepared and submitted and in due time we
received word from the State Department
Senator Bone. Who is Mr. Welles?
Mr. Miranda. Mr. Sumner Welles, the Assistant Secretary of
State.
The Chairman. Mr. Miranda, when was this that Mr, Johnson
and Mr, Sims came to Washington on that mission?
Mr. Miranda. I should say around the third week of June.
The Chairman. Around the third week of June?
Mr. Miranda, About that time, wouldn't you say so?
Mr. SwEKTSER. I should think so.
The Chairman. Did they seek any aid of any member of Con-
gress to impress upon the State Department the need for expedition
in action on this matter?
Mr, Miranda, I do not know if they were seeking aid, I know
Mr. Britten accompanied them to the otate Department.
The Chairman, Congressman Britten?
Mr, Miranda, Congressman Britten accompanied them to the
State Department; yes. But whether he was Mr, Sims' personal
friend — I was not present and all I can say is that Mr. Johnson
told me that Mr. Britten had accompanied them.
Senator Bone, Mr. Miranda, were any commissions paid anyone
in the Bolivian Legation at the time that you took the big order
amounting to $1,600,000?
MUNITIONS INDUSTRY 653
]VIr. Miranda. No; not at all. We paid a small commission to a
man that occasionally acted as — well, he used to be connected with
the Bolivan Legation and I paid him a small commission because
he originally tried to introduce our line in Bolivia, prior to the
appointment of our present agents. The commission was very
small and it had nothing to do with it, and I did it after consulting
with the consul and the legation, because I did not want to have
any misunderstanding on the subject.
The Chairman. Gentlemen, I think that is all, and you may under-
stand yourselves to be excused. I think in fairness to you, though,
you should be advised that the committee has been advised that Mr.
jDriggs, who has remained over, wants to be heard a little further.
Whether his testimony is in conflict with yours, I do not know.
If you want to remain and hear what he has to say, you are welcome
to do so.
Mr. Miranda. Thank 3'^ou very much.
The Chairman. We will hear Mr. Driggs.
TESTIMONY OF LOUIS L. DEIGGS— Kecalled
The Chairman. Mr. Driggs, the committee has been given to un-
derstand that there was some additional testimony that you felt
would be helpful to the committee. We hope, bearing in mind — you
undoubtedly do, that we have dropped somewhat behind in our
schedule today, you will be as brief as you can.
Mr. Driggs. I shall be very brief.
The Chairman. Thank you.
Mr. Driggs. There is only one thing I would like to clear up and
that is some of this correspondence that apparently is to us and from
our office, but not from our files.
For instance, there is a letter from Ecuador addressed to the
Driggs Ordnance & Engineering Co., March 25, 1933, that has been
introduced here. It is not in our files. Apparently it was in tlie
files of the other company.
Then also there was some correspondence around April 26, 1933,
with regard to certain accounts with Commander Strong, and that
apparently was to our office or from our office, but that I know
nothing about.
Also there were some accounts of methods of doing business down
in Brazil, and so forth, that were written in May 1933 with Ureta &
Samper in Colombia. Tliose we have not any connection with and
know nothing about them.
The Chairman. Does that finish the explanation you wanted to
offer, Mr. Driggs?
Mr. Driggs. Yes; I want to disclaim any connection with them.
They are being pinned on us.
The Chairman. Very well, thank you, Mr. Driggs.
I understand Mr. Brayton has something he wants to present. Mr.
Bray ton, you have presented to the committee a written statement
having to do with, among other things, what you have put up in the
form of recommendations that present-day developments might re-
veal to be worth following. Do you want to leave this statement Avith
the committee? ^
^ The statement offered by Mr. Brayton iis on file with the committee.
654 MUNITIONS INDUSTRY
Mr. Bratton. I was going to read it, but I did not get an
opportunity.
Tlie Chairman. After the committee has had a chance to read it,
it will probably make it part of the record in connection with your
testimony.
Mr. Brayton. This is the only copy I have.
The Chairman. Would you like to take it and have it typed and
return it to the committee?
Mr. Brayton. No, I shall leave it with you.
The Chairman. Very well.
Mr. Brayton. I just thought to read it into the record.
The Chairman. Very well, thank you, Mr. Brayton.
(This concludes the record of the American Armament Corpora-
tion. The committee at this point took up the case of the Curtiss-
Wright Export Corporation, which is printed in part IV.)
APPENDIX
EXHIBITS
Exhibit No. 236
[Excerpts]
Havana, April 10, 1934.
Mr. I. J. Miranda, New York.
Dear Mr. Miranda: ,
(Two paragraphs omitted.)
My patron here is the Paymaster General. He told me that as soon as you
will send the information in regard to the cartridges there is a great oppor
tunity to do business in this matter. They are paying $21 for the cartridges
while the price which your brother quoted them is $15 and they think this
offer very attractive but they must be sure that the ammunition will be useful
to them and that it fits their Springfield model 1906. This price is a bargain
all down the line.
(One paragraph omitted.)
As soon as you send the Information in regard to the rifles I will then pro-
ceed with my friend the Paymaster General, see the colonel who is charged
with the purchasing of this material and to arrange matters with him. As for
this information in regard to the Paymaster, which I give to you in strictest
confidence, he is the one who must provide the money for every purchase made
and his position as money man is very excellent.
(One paragraph omitted.)
I am, your very dear friend,
(Sgd.) JosB Mebia.
(Postcript omitted.)
Exhibit No. 237
[Excerpts]
(The following is the first four paragraphs of letter under the date of Dec. 4,
1933.)
Victor Menozzi,
Rame Aviacion,
Lima, December 4, 1933.
Mr. A. J. Miranda,
6 East Jfdth Street, New York, N.Y.
Dear Sib :
(Two paragraphs omitted.)
I must beg a thousand pardons for writing to you in Spanish since as you say
English is neither my language nor yours, and Spanish is not my language
either. For I am an Italian residing in Peru thes^e many years. I do not carry
any prejudices into my business because I know all of the people of South
America, and I have been on this continent pow a good many of years, and I
realize that in this country there is a good field for foreigners. I find myself
in a very advantageous position for a foreigner because from the very first I
move in the best Peruvian social circles. I have many personal friends, and so
has my wife, who is a Peruvian, niece of the ex-President of the Peruvian
655
656 MUNITIONS INDUSTRY
Republic, Don Nicholas De Pierola, who, no doubt, was the best President Peru
ever had since the period of independence.
As I told you previously, it was for this i-eason I have entree to all the
Ministers of the Government and it is always very easy for me to enter cer-
tain circles and to deal with a certain type of person. I say this for your own
knowledge in order that you may have all information in regard to the pos-
sibilities for business which I may be able to turn your way. * * *
Very truly yours,
(Sgd.) V. Mekozzi.
Exhibit No. 238
Ihjxcerpts]
Francisco Sefzic, Exporter,
Guayaquil (Ecuador), Box 368, March 25, 1933.
Cable address, " Sefzic Guayaquil "
Codigos en uso : (A. B.C. 5th Ed. (Lieber's Code, (A. I. Code.
Engl. Telephone y Nacional Representaciones.
Deiggs Ordnance and Engineering Co., Inc.,
19 West Uth Street, Neiv York.
Gentlemen : The Bethlehem Steel Company of Bethlehem, Pennsylvania, has
been so kind to give me your address and stating that your firm are engaged
in the manufacturing and selling of war material. In view of this I desire
to bring the following facts to your attention with the object of offering you
my personal services as exclusive indent agent.
Doubtless you know the international situation in South America is not
very peaceful and that Colombia and Peru are more or less even, tliough
officially no war has been declared, are fighting. Unfortunately Ecuador is
in between two fires and it feels the necessity of preparing itself for armed
neutrality.
During the last local revolution all available useful amunition has been
used and there is a total shortage of rifles and artillery projectiles. IMore-
over, all their defense material is obsolete and inadequate for proper prepared-
ness. To be short, I may tell you that a great amount of amunition, anti-
airguns, machine guns, light and heavy artillery, ordnance material, et cetera,
will be needed and bought within a short time by the Ecuadorian Government.
It may interest you that I have very good contacts with the Ecuadorian Gov-
ernment officials and the General Staff of the Army and may frankly state
will be secretly connected with the commission to be appointed in buying
the necessary requirements. I do not know if your company is already repre-
sented in this territory, but I feel convinced that your present agent, if any,
does not represent you for M'ar and army material in general and it would
not jeopardize his interests if you could commission me for this particular
purpose as a special agent for military armament supplies and equipment in
Ecuador. Inasmuch as the matter is urgent it is suggested that you cable
me your acceptance and my appointment upon receipt of this letter and your
decision.
I may add that you write or ask by cable the American consul general at
Guayaquil who knows me personallj' and also knows that I have supplied upon
former occasions armaments to the Ecuadorian Government. As soon as I
receive the appoint I will forward by air mail a confidential list of materials
and equipment needed, which was secretly submitted to me by the Ecuadorian
War Department.
(Two paragraphs omitted.)
Awaiting the courtesy of an early reply, I am.
Very truly yours,
(Sgd.) F. Sefzic.
MUNITIONS INDUSTEY 657
Exhibit No. 239
[Excerpts]
' No\^MBER 4th, 1932.
Messrs. Urueta & Sampeoi,
Bogota, Colonihla.
(Confidential.)
Dear Sirs : Our mutual friend, Mr. Owen Shannon, of the Curtiss-Wright
Export Corporation has been kind enough to give us your name and recom-
mend your firm to look after our negotiations in Bogota with the Government
of Colombia. Accordingly we took the liberty of cabling you on October 29th,
as per copy enclosed and are pleased to acknowledge your cable reply of Novem-
ber 2nd, reading: "Accept. Await full details. Ursan."
(Two paragraphs omitted.)
At present our guns are standard witli the United States Army, Navy, and
Marine Corps in all the sizes in which we manufacture them. They also
have been adopted and are being used by a number of foreign governments.
We feel that no better recommendation can be offered for the efficiency of our
material.
(Five paragraphs omitted.)
In view of the publicity attendant to the international situation between
Colombia and Peru, the Colombian consulate here has been deluged with pro-
posals for all kinds of war material, mostly second-hand, obsolete material,
offered by brokers. To safeguard the interests of the Colombian Government
and save the time of the consulate and of the War Ministry in Bogota, the
United States Government has " loaned " to the Colombian consulate one of its
naval officers, to act as advisor on the merit of the material offered.
The officer in question is Commander James Strong, U.S.N. Inasmuch as
our guns have been the standard used by the Army and Navy for more than
forty years, and their efficiency has been amply demonstrated in past wars
(particularly the World War), Commander Strong is thoroughly acquainted
with our equipment. Not only has he approved our proposals but strongly
recommended the acquisition of our material as being tlie finest obtainable.
Consul General Olano has conveyed that recommendation to the President,
(E) and (F)
The Colombian Government has purchased here a freight ship, the ex S/S
Bridgetown, now the S/S Boijaca, to use as a troop ship. While the
vessel was here we could have mounted on it two (2) 3-incli .semiautomatic
naval guns, which are the ideal guns for that boat, and ai'e of the type used
by the U.S. Navy for that purpose. We have the guns in stock so there would
have been no delay.
(One paragraph omittetl.)
Setting aside the fact that the efficiency of the guns we offered cannot be
matched by any similar guns built in Europe, it seems to us that in this par-
ticular case, with the boat anchored within 400 yards of our plant, and the
guns being ready (and the installation of the Boyaca not being of the
easiest), it would have been advisable to have favored us with an order for
two (2) guns, and taken advantage of our knowledge and experience allowing
us to install them so that the Boyaca be complete upon arrival at Colombia.
(Two paragraphs omitted.)
As you will see, the iimnunt of material required by the Government makes
a substantial business. We have no competition here. We are the only manu-
facturers of artillery and the only ordnance engineering company in the U.S.A.
The material we offer your country is the latest t.vpe, used by the U.S. Army
and Navy. Our only competition is from Europe ; however, that competition
is only in the matter of price,, not in design and efficiency of equipment. W§
produce the most advanced, the most efficient material in the world.
(Eight paragraphs omitted.)
83876 — 34— PT 3 8
658 MUNITIONS INDUSTRY
Up to the present time we already have heen favored by the consul with
several small orders for material for a bombing plane, purchased here by your
Government. This material we have had to design and produce exclusively for
the Government ; that is, it was not for sale anywhere else and we undertook
the designing, engineering, and production of same more as an accommodation
to the consul and the Government than as a commercially protitable transaction.
(One paragraph omitted.)
Very sincerely,
Driggs Ordnance and Enginee2{ino Co.
pp. A. J. Miranda, Jr.
Exhibit No. 240
[EJxcerpts]
File : Urueta & Samper H.
(Air Mail)
Decembeb 4, 1933.
Mr. JoAQuiM Sampeb H. Apartado Aereo, #3600, Bogota, Colombia.
My Dear Waco :
(Three paragraphs omitted.)
In the meantime, Commander Strong came to town and contacted me. As
you know, Strong and I are very, very good friends ; we understand each other
perfectly, and he will do everything possible to throw the business our way.
I want you to bear this in mind and remember that he is one of our strongest
allies, and, therefore, whenever possible boost his stock with the Government.
He told me that he has been in conference with the minister at Washington
(Lozano) for two weeks, and that the Government now realizes the negotiations
at Rio are getting nowhere and are being used by your enemies as a breathing
spell to adjust their finances and obtain additional military equipment. Ac-
cordingly, the Government has decided to renew buying and now is going
"American." They are trying to arrange for the U.S. Navy to release Com-
mander Strong so that he can go to Colombia as an advisor to your Government.
Let me say this — that he is a very competent man with a splendid record in
the American service, one of the youngest full-fledged commanders in the
Navy, and I am certain that if he goes to Bogota for a while and you people give
him decent support that he will be able to organize matters for you along
modern lines.
Now, Commander Strong is here for conferences with Goulding of Curtiss,
Bell of Consolidated, and with me. The business that he is pushing hard is
the purchase of either a cruiser or a gunboat and two torpedo boats besides
a good supply of airplane guns and aerial bombs. So, you keep on pushing
all you can with the new ministry along these lines. With you down there
pushing for the business ; with Strong here recommending our material and also
pushing for the acquisition of that material ; and, furthermore, we being the
only outfit in this country that can furnish that material, there is no reason
why we should not crash through with something substantial.
I am going to give you another piece of news in the understanding that it will
not go beyond you and Don. General Cortes Vai-gas is leaving by plane almost
any day now. The Government had an idea of making him the adviser here
and inspector of purchases but the minister prevailed with the President to
appoint Strong. Nevertheless, Cortes Vargas and I, personally, are on very
friendly terms. I believe that he is going to be given some sort of military
position in Colombia. After the last campaign he certainly deserves an A-I
rating and will be a good leader for your troops. Possibly you feel antagonistic
towards him but do not let that mar the business pos.sible. Cortes Vargas
and I have threshed our differences and we are on very friendly terms and
I know that he will recommend our equipment. You will see that I have tried
to cover myself by every possible means, that is to make certain that this time
substantial business available will come to this country and will come to us.
(Two paragraphs omitted.)
Keep on pushing, and keep me thoroughly posted and do not forget that
the " Sucre " needs a range finder and additional ammunition.
With kindest regards.
Very sincerely yours,
for American Armament Corporation,
A. J. Miranda, Jr.
MUNITIONS INDUSTRY 659
Exhibit No. 241
ESTAPBOOK & Co.,
40 Wall Street, New York.
Mr. I. J. Miranda,
(J Eaat Jf.'jth Street, New York City.
We coiiflnn having sold for you IW New York Shipbuilding @ 211/2, $2,150.00.
Taxes $4.05. Commission $12.50. Total $2,133.45. Payable Aug. 8, 1933. Re-
ceived Aug. 9, 1933. 31475.
Pencil memo— bought for Jim July 17 @ 191/2, $1,133.45 1,912.50
1, 962. 50 220. 95
Gain to Jim 170.95
(" Exhibit No. 242 " appears in text on p. 579)
Exhibit No. 243
Dbiggs Ordnance & Engineering Company, Inc.,
19 West Uth Street,
Neiv York, N.Y., April 26, 1933.
My Dear Alfred : I have just received your cable regarding parachutes and
Lockheed amphibian.
Time is too short for me to write me on the parachutes. I shall get a hold
of Switlok and cable you on the subject. They have an agent over there and
the present set-up is that they will only give us a 10% commission which of
course would make business very difficult.
Lockheed amphibian. — There is no such a thing. Try to trace where this
information came from and let me know. The factory is playing very close
with me and I do not believe that we need fear any direct quotations or double-
crossing.
I don't know whether I told you before that Strong got wind of the fact
that Colombia was asking for quotations on 20 Bellancas of a semimilitary
type similar to ones recently bought by the Brazilian Government. Jim got
Bellanca to let me handle the deal in Colombia, which I am doing. At the same
time I am also quoting on Lockheeds of the same type. Aside from that we
have in prospect an order for 2 Lockheeds from Switzerland and a Wing from
Japan so that all in all the factory would be very foolish to try any double-
crossing. As a matter of fact they have cooperated with me 100% and even
referred to me an inquiry which they received through Washington from
Ancomat Rio for the 6 Lockheeds which we are negotiating through Lamb.
It occurs to me because of the hooks-up between Lockheed and Groes (Viking)
somone got their signals mixed.
Incidentally, who are you working this business through?
Now, aside from business — I am very happy to tell you that we are all well
and hope that you are " ditto John."
There is a lot of commotion around here regarding the proposed inflation
and it will interest you to know that you are again dabbling in the stock
market — by proxy if you wish. Thus far we are a few hundred ahead of the
game and if inflation materializes which, in my humble opinion is practically
certain, we will not fare at all badly.
Jack Bergen finally landed the Continental Motors account. A very dear
little lady in his office made it possible for us to get in 500 shares at 1% ; its
now a-i/s. E. A. Pierce & Co. are working with Jack on this and it is very likely
that the stock will appreciate very materially. Let's hope.
Mostly alright, old pal ; I am constantly bombarded with questions emanating
from the fair sex as to when you are going to be back. My answer is invariably
" yes." When, if, and as you have any idea on this particualr point, please
let me know. Please don't think I am trying to rush you, for this is not at
all the intention.
Love.
(Sgd.) IJM.
IJM Nk.
P.S. — As suggested I have sent a pair of Sportaculars to Colonel Escallon
and a pair of Waco. We have gotten very clubby over the air mails. I'm iggy
and he's Waco, what do you think of that? That's all.
(Sgd.) IJM.
660 MUNITIONS INDUSTRY
Exhibit No. 244
April ,S, VX'>^.
Messrs. Ukueta & Sampek H.,
American Commercial Attache,
Bogota, Colombia.
(For the attention of Mr. Samper.)
Excerpt, Paragraph 7. — I have just comnuinicated to Mr. Wilcox the con-
fidential information that I'eru has ordered 7 Hawks from the Curtiss-Wrigbt
Co. Aside from this they have bought about half that many to be delivered
Irom the Curtiss plant in Chile.
Exhibit No. 245
Seversky amphibian 1933-34
March 28, 1934,
Seversky Aircraft Corporation,
570 Lexington Avenue,
New York City.
(Attention of Mr. P. L. North.)
My Dear Mr. North : The last couple of weeks have been rather hectic ;
our affairs in both Colombia and Brazil look extremely promising and I would
like, at this time, to review the situation in these two countries for you a.&
follows :
COLOMBIA
As you know, the armstice with Peru comes to an end in about 60 days;
both Peru and Colombia are making great preparations and a big time is
expected by all.
It being impossible to sell both to Peru and Colombia, because one would
not buy from you if the other one did, we have chosen Colombia, first and
foremost, because they have money (which Peru has very little oi) and, then,
because of the fact that our connections in official circles in Colombia are-
just made to order.
I cannot in a letter tell you just what our set-up is. However, you well
l^now that we have had the technical adviser to the Colombian Government
down to College Point to inspect your ship ; outside of a few extremely minor
details the Seversky has met with his most enthusiastic approval, which is
of the utmost importance for us inasmuch as he is the one who will determine
what is going to be purchased.
Aside from that, the writer's brother is down in Bogota where we are nego-
tiating sales of war material running into several millions of dollars. By the
vei*y nature of our business we find it necessary to contact the very highest
government officials. The President, the Financial Minister, the War Minister,
and Chief of Staff of the Colombian Army liave also approved the Sevei-sky
and are in full accord with our view to the oft"ect that this type of ship is
eminently suited for their local conditions.
Mr. Miranda, Jr., during his stay in Bogota, has lined up for us a contract
for IS Severskys. Numerous cablegrams have been exchanged with regard
to price, terms of payment, and delivery. Mr. Miranda, Jr., has told us what
the Government's thoughts were regarding these various iwints and with your
whole-hearted cooperation we have been able to meet all of their require-
ments. All of this is not ancient history hut something which has boen trans-
piring from day to day; at the present moment tlie status of the matter is
this :
The purchase of Seversky equipment has been approved ; the unofiicial
requests as to prices, terms, and delivery have been met and, according to the
latest advices just received from Bogota, contracts are now being written which,
we hope will result in our prompt receipt of an order for 18 ships. This we feel
would be a very good start.
BRAZIL
You will recall that some time ago we demonstrated the Seversky to the
members of the Brazilian Army Aviation Mission. The members of the Mission
flew in your ship, saw it land and take off both from land and water, and were
tremendously impressed ; their report to the War Ministi-y was more than
MUNITIONS INDUSTRY 661
'excellent. This we have followed up throush our represent:! tive in Brazil,
a high naval officer, retired, who is on the must intimate terms with the Chief
of the Air Service, the Chief of Staff, and the War Minister.
He has followed up our work beautifully ; he has had wholesale copies made
of the photOi;;raphs which we have sent him, printed the Seversky specifications
on the backs and distributed them to all Army and Navy aviators. He has
published featured articles in Brazilian newspapers with large photographs of
the Seversky and detailed transcriptions as to performance, specifications, and
background of experience of Major Seversky.
With the representatives of other manufacturers of amphibians throughout
the world, oflicial proposals on Seversky have been made to the Brazilian
Government ; these proposals have been studied by the General Staff which has
awarded a preferred position to our ship.
An appropriation of $3,000,000 was recently made by the Brazilian Govern-
ment for the purchase of aircraft, divided into four classes ; i.e., amphibians,
trainers, pursuits, and bombing aeroplanes. Confidential advices from the War
•Office are to the effect that the first item to be purchn.sed will be the amphibians,
the expectation being that this business will be forthcoming in the very near
future.
The Government of Brazil has also been extremely interested in the possi-
bility of acquiring the Seversky manufacturing rights. After conferring with
you on the subject we have told them that siibject to their initial order for 20
aeroplanes to be built by us, we will be glad to negotiate with them to the end
that additional Seversky aeroplanes may be built in Brazil on the basis of
■certain royalties being i>aid to us. We have outlined the proposition to them so
that a certain minimum royalty will be guaranteed us per year for 5 years.
Although all tlie definite figures have not been quoted to them as yet, the
proposition in principle has already been outlined to the War Minister who has
•expressed great interest in it and has requested for a more concrete proposal.
During your various visits to my office it has been my privilege to show you
in black and white the amount of business that we are doing with various
foreign governments, amongst them Colombia and Brazil and which business
amounts to many hundreds of thousands of dollars. Present indications are to
tl:e effect that in the very near future, possibly well within the next 30 days,
the Colombian order will have been secured whilst the Brazilian order will
follow not long thereafter.
I am trying to give you, in this letter just the bare facts as developed up to
date, based on these facts I feel that our hopes of very substantial orders in the
very near future are indeed well founded.
Before closing I would like to express to you and other members of your
organization our sincere thanks for the wonderful cooperation that you have
given us. If, as expected, we crash through with the orders above mentioned,
the credit will be just as much yours as ours.
With kindest personal regards, believe me
Very sincerely,
I. J. Miranda.
IJM/NK.
Exhibit No. 246
Tile : Okura Comp. 1933-4
June 13, 1934.
"Lockheed Airceaft Corp.,
Burhanh, California.
Gentlemen : We have had the great pleasure of having secured an order for
the Japanese Navy for one ( 1 ) complete set of your Electra Model 10-A and the
order has been placed through Mr. A. J. Miranda, Jr., who is your represent-
ative in this city for the Far East.
We trust that this matter is now having your kind attention and hope that this
order will be executed to entire satisfaction to our naval clients in Japan.
In the meanwhile we were advised by our head office in Tokio to the effect
that the following naval officers are coming to the States very shortly and
that they have recommended them to visit your plant on their way to the East.
These officers accompanied by our Mr. T. Imai, who is also arriving per S.S.
€hichibu Maru, which is due at Los Angeles on June 29th are : Capt. j\I. Hirose,
Engineer Mr. K. Saneyoshi, Conim. J. Okamura, and Lt. Comm. Y. Yamada.
662 MUNITIONS INDUSTRY
We shall, therefore, be very much obliged if you will be good enough to
receive these officers and do your utmost in demonstrating in eveiy way pos-
sible your products, inasmuch as these officers are very important to us for the
sake of future business.
It is the first trip for our Mr. T. Imai to visit the States, but as lie will stay
in our New York office for some years on this line, we hope you will give him.
necessary instructions in handling your products in the future.
Apart from the above, we are very much anxious to get a good opportunity
of introtlucing Mr. Stearman, your president and other executive officers to
our military and naval officers in New York and shall be very much pleased
if one of those gentlemen comes to this district, will you kindly let us know
beforehand so that we can make some arrangement to meet altogether.
Thanking you in anticipation for your kind attention, we remain
Yours very truly,
Okura & Company,
M : S J. MiYATA.
Exhibit No. 247
Lockheed Aircraft Corp. file— 1933.
March 17, 1933.
Mr. Carl B. Squibr,
Lockheed Aircraft Co.,
Burbank, Calif.
My Dear Carl: This is something more than important which merits your
pei'sonal attention.
A Chinese governmental mission has just arrived at the Pacific Coast and
is at present either in Los Angeles or in San Francisco. The mission consists
of a general and three or four other officers who are here on behalf of the
army air corps for the pui*pose of buying oue hundred (100) pursuit aeroplanes.
Right now the business lies between Boeing and Curtiss. As you know,
neither of these companies can offer tlie Chinese Government any of the new-
type pursuits because of the fact that it is against Army regulations. For this
reason it is my impression that the only ships that either of the two companies
can offer to the Chinese Government will be of rather inferior performance as
compared with the up-to-the-minute equipment.
As I understand it, you have either complete or practically complete data
covering a military ship on which you have no commitment with the U.S.
Government and I can see no reason why if said ship is of higher performance
than the old Curtiss and Boeing pursuits, we should not go after this business
hot-foot. If need be, I suppose that you can change the specifications of the
U.S. Anny ship sufficiently so that whilst not being identical, the ships that
you will offer to the Chinese mission will have the same performance. As a
matter of fact I understand that your standard "Altaire " can give as good if
not better performance than the special military ship.
I am sure that if you can contact the mission you can interest them on the
basis of delivering to them without a specified period of time an aeroplane
with such and such specifications to have a guaranteed performance of so
much and so much. You can secure from them a very substantial deposit on
the order (which will enable you to go ahead with your engineering and manu-
facturing work on these ships), and you can put up a bank guarantee, surety,
or performance bond to the effect that if you fail to fulfill your commitment
as to performance or time of delivery, their cash deposit is returnable in its
entirety.
One hundred aeroplanes with a substantial deposit would just about put
you on Easy Street at the present time. You certainly can offer a better aero-
plane than our competitors, so hop to it and let me know the result so that
I can carry on for you wlien the mission comes East.
Don't forget that whatever price you quote to the mission should include an
adequate commission for me.
Sincerely,
I. J. Miranda.
MUNITIONS INDUSTRY 663
Exhibit No. 248
The L. E. Gale Company File of 1933.
From L. E. Gale Company, Hankow, China.
Lockheed Airplmies,
March 20, 1933.
Mr. I. J. Miranda,
6 East Forty-fifth Street, New York, N.Y.
De.\r Iggy: On March 13th we wired asking for a net price c.i.f. Shanghai
on eight standard Wasp " Vega " Lockheeds. This is in response to an inquiry
from the Hunan Government It sounds almost too good to be true, I must
say. I doubt if they have the money to buy eight of these planes. However,
I understand on pretty good authority that they do have a little money and it
seems we sliould be able to sell at least two or three.
The airplane business in China is more competitive than the motor-car
business and every possible nationality is putting in quotations. In discussing
things informally with the military, it appears that in order to meet competition
in carrying capacity, power and speed, pay the necessary squeeze, we will have
to buy these Lockheeds at about $14,000 each net to us c.i.f.
I acknowledge your cable of the 15th in reply quoting $17,700 each c.i.f. and
advising shipment could be made in ninety days of the whole lot. We have
made quotation based on this price, but I must say that I fear it is too high.
At any rate you may be sure that we will follow it up because we sure need
the business. Will keep you advised. Please be sure and send plenty of
catalogues, especially the small red leaflets. One or two good photographs of
the Lockheed would be very useful and effective.
Sincerely yours,
(Signed) L. E. Gale,
President.
Exhibit No. 249
Great Lakes Aircraft Corp. file— 1932.
March 19, 1932.
Mr. Edward Rembert,
Great Lakes Aircraft Corporation, Cleveland, Ohio.
Dear Mr. Roberts : Many thanks for your letter of the 16th and for the blue-
prints; which were just what I needed. These, together with photographs
already received, place me in a position to carry on.
Together with my good friends, Okura & Co., I have approached the Japan-
ese Government with regards to the new TG-l's and the two GL's. Captain
Sunaga, in charge of aviation matters at the Japanese Government's inspector's
office here in New York is very much interested in the GL's. I am endeavoring
to get him up to Cleveland so that he may personally examine and if neces-
sary test the GL's. His recommendation to headquarters in Tokyo will carry
tremendous weight. Hope to let you know next week whether or not I can
take him to Cleveland. Pos.sibly he may wish to wait until show time (when
he has to go to Detroit anyway) so as to kill the two birds with one shot. I
will keep you advised.
I have also written to Lloyd Gale in great detail presenting the entire pic-
ture to him and offering him the two GL's. Have asked him for a cable reply.
A Chinese military mission has just arrived in America, and I shall also
contact them on the subject.
Likewise, Colonel Leon is due from Argentine early next month and no
effort will be spared to get him interested.
With regards to ships for the sale of which I have been responsible, I give
you the following list :
China, L. E. Gale & Co., 8 Ryans ; Japan, Okura »& Co., 1 Ryan; Japan, Okura
& Co., 1 Locklieed ; ]\Iexico, Col. J. Carranza, 1 Ryan ; Mexico, Col. R. Fierro,
1 Lockheed; Guatamala, Col. Garcia Granados, 2 Ryans; Argentina, Nyrba
Airlines, 2 Lockheeds ; Argentina, New York Steel Exp. Co., 1 Eastman amphib-
ian ; Argentina, New York Steel Exp. Co., 2 gliders ; England, Commander
Glen Kidston, 1 Lockheed ; Switzerland, Swissair Traffic Co., 2 Lockheeds.
664 ■ MUNITIONS INDUSTRY
Aside from the above, and in the capacity of eastern sales manager for
Detroit Aircraft Corp., I was also instrumental in the sale of the following
Lockheeds :
Air Express to Pete Brooks ; Speed Vega to Miss Elinor Smith ; Altaire to
Jimmy Hall ; AlUiire to Bernarr McFadden ; 2 used Lockheeds to Pan American
Airways.
I am intimately acquainted with such well-known fliers and/or executives
as Major Aldrin, vice president Standard Oil Co. in charge of aviation ; Clarence
Chamberlain ; Roger Williams ; the entire executive personnel of Curtiss-
Wright ; the entire personnel of Pan American Airways, including Presster, the
chief engineer, and Gledhill, the purchasing agent; Ruth Nicholls ; Elinor
Smith; Amelia Earhart ; Luther Bell; Charles Parker, of the chamber; Ber-
narr McFadden etc., etc. All of these people I know well and I find them
most useful in the pursuit of business.
I may say that outside my efforts on foreign fields I shall be happy to assist
you in or with any transactions which you may have in this neck of the woods.
If you need any added information, please feel free to ask for it. I am
sure I can do considerable good and by the same token feel that a connection
between us will be mutually satisfactory and profitable.
With kindest regards, I am,
Sincerely,
I. J. Miranda.
Exhibit No. 250
Rio, May 27, 1933.
My Dear Frank : I have received your cable of the 23rd reading as follows :
" Master approves return via Colbdesa TJrsam. Stop. Has sent you plan pre-
sumably enhancing possibility securing Figa business. Requests you delay
departure until plan received and submitted. Stop. Switlik et. etc." in answer
which I wired you : " Rotel willing remain longer. Stop. Writing Colbdesa
Ursam Insue visit merits expenditure. Stop. Imperative hurry me company
history references requested. Stop. Outlook still quite hopeful. Stop. Mail
me registered steamer twenty-seventh two hundred fifty in banknotes."
I will be glad to await Mr. Driggs' plan and follow the suggestions that he
may have to make. I want you to understand however, that the point at issue
right now is the standing, organization, experience, and responsibility of the
company. When I cabled you last week, things looked quite discouragipg. I
am glad to say that the patient has taken a turn for the better. It seems as If
•we needed just this attack to show us the number of friends that we have in the
War Dept. Again I cannot commend Figueira too highly for his tireless and
loyal work. He certainly is a peach and when (notice that I do not say if)
we get an order from this Government, you can become certain that Figa is
the best possible agent the Co. could have in Brazil. Immediately after the
attack — because you can bet your life that the rather premature and hasty
inquiry into our Co.'s affairs was prompted by the competition — Figa drew a
plan of campaign and we went to work. Jackson, the commercial attach^ and
Sackville the military attach^, who are the respective spokesmen for the embassy
here on commercial and military matters, have been one hundred percent
helpful. Nick Bates also has been very helpful ; he had the opportunity to make
an excursion with some of the high-ranking officers, led by the Secretary of
War. and many of the officers whom he knows well put it up to him and, need-
less to say. that he gave us a wonderful send-off. Bear in mind Bates has been
coming to Brazil for 8 years, also that many of his officer friends are officers
that have spent from 6 months to 2 years at the Dupont powder plants, train-
ing, so that they are duly impressed by the information given out by a Dupont
representative. The Chief of Staff, General Andrade Noves — who is Figa's spon-
sor, and the most highly-accredited general in Brazil — also has been helping
us and this afternoon he is talking — himself — to the Minister of Finance be-
cause, as you may know, the Brazilian Govt, is scared stiff that we are going to
tax the importation of coffee and inasmuch as we buy five-eighths of their
coffee the Govt, is very worried. Bear in mind that we buy four times (approx.)
more than Brazil buys from us. The balance of trade is all in their favor and,
finally, the U.S. has gotten wise and they have told this Govt, that unless Brazil
buys more from the U.S.A. we will have to tax coffee and we are the only
nation of importance that does not tax coffee. I learn very confidentially that
the Minister of Finance here has been able to keep off the American coffee tax
MUNITIONS INDUSTRY 665
l>y promising the Roosevelt Administration that the preference will be given
by the Govt, to purchases from the U.S.A. and General Neves wants to suggest
that it would be fine gesture of friendship to have the orders pending for
armament, planes, ships, etc. go to the U.S.A. I assure you that all that can be
done is being done, but it will help tremendously when I receive the report of
activities and references that I have requested. For this reason I mentioned in
my cable the importance of having it as soon as possible. I also informed you
that I was writing to Santa Anna and to Samper in re my visit to them. It
seems as if the Colombian-Peru embroglio is finished, thanks to the good sense
of Peru's new president. I have written Samper today and he will have my
letter in 10 days, then the situation as to the status of the war will be better
cleared up and he can cable me whether or not I can do some definite good by
calling again at Bogota. I have done the same with Santa Anna, and I should
hear from him. Santa Anna is easier to reach than Bogota. Also much cheaper
to get there. I can take one of the Prince liners to Port of Spain and fly to La
Guaira in one day, spend about a week with Santa Anna and then fly back to
Trinidad and take the boat to N.Y. Anyhow, when the time is ripe— about the
10th of June, supposing that by then we will have had the references and the
master's report — I will let you know what I am going to do. The one encourag-
ing featui'e here is that things are so well organized that even after I leave, our
interests will be very well attended to. My work has been to get all our col-
laborators pulling together towards one definite objective that is now very
clear in our minds and the Government's. I do wish that sometime later, when
we put over this deal, the company will allow me to go to Argentina, Chile,
Peru, Ecuador, etc. The time, money, and effort spent on this trip will cer-
tainly bear fruit later ou and if we can do likewise in the other countries, we
will "have a regular business every year, if not from one place from another.
I asked you to mail me registered on the boat that should sail from N.Y.
today or tomorrow $2.50 dollars in banknotes, the exchange is dropping terrifi-
cally and consequently the cost of living is jumping. You appreciate that in
negotiations of this nature there are many little extra expenses here and there,
this ofiicer for lunch, and the other for dinner, and Sackville for cocktails, etc.,
and I am trying to get the best exchange possible so that my money will go
the farthest possible. I can get almost one milreis more for banknotes than for
checks, so we might as well take advantage of that.
Well, my dear friend, that is all for today. Let us hope I will soon have
good news for you. Kindest regards to all at the oflice.
(Sgd.) Alfkeb.
(Received Friday, June 2nd, 1933.)
Exhibit No. 251
I3L-EVAT0R StTPPUES
Janitabt 22, 1934.
{Memorandum for Mr. A. M. Meeker)
With reference to Brazil : It is necessary in order to establish oui" position
with the Government and continue negotiating for the artillery business
pending from that country that we send them photostatic copies of the letters
received by you from the War & Navy Departments. We can do this irrespec-
tive of the fact that the War Department does not authorize the release of the
drawings for Latin American countries as yet.
When I invited Commander Figueira, our representative in Rio, to join us
and to act for us there we promised him these documents. They are the
only means he has of proving to his Government that the continuance of his
efforts is in behalf of a thoroughly reputable American concern. He already has
written and cabled for these documents and now that they are in your hands I
will appreciate your having two copies of each made. One I will send to
Figueira by air mail this week ; the second I will keep for our files.
With reference to the salary of the draftsman that is assisting Joyce: You
already have reimbursed me for $52.00 that I advanced him. I still have
coming to me the sum of $20.00 covering salary paid him for the week of
January 7th to January 13th. I did not pay him for last week, that is the
week ending on the 20th. Please take care of that and his weekly salary
henceforth.
666 MUNITIONS INDUSTRY
Onr verbal arrangement in this matter is that these salary payments are to
be charged against the Figuerola ammunition order. Before that order is
completed we will have orders on hand the cost prices of which include drafting
expenses against which this draftsman's salary can be charged after the
completion of the Figuerola order.
Again I would like to point out to you that we should have copies of the
letters that you sent to the War & Navy Departments, and replies to you.
Not having had any information on this matter I had asked Higgins to look
into it when he was in Washington the week before last. Captain Stott told
Captain Higgins that they already had written to you, and so did Captain
Crawford. Probably they were both surprised that we did not know about
it. You appreciate this does not give the idea to the War and Navy Depart-
ments that your work and ours is as closely coordinated as it should be. Cer-
tainly you can appreciate our viewpoint in this matter.
I enclose a copy of a memorandum, contents of which speak for themselves.
What do you think?
for American Armament Corporation,
A. J. Miranda, Jr.
Exhibit No. 252
[Air Mail]
File: Figueira.
April 28, 1934.
Commander Raul Andrade db Figueira,
Avenida Rio Branco No. 9,8, Rio de Janeiro, Brasil.
Dear Commander Figueira: This will acknowledge receipt of your cable of
the 27th instant reading as follows :
" Seversky order expected any moment. Demonstration New York with
landing gears very important — urgent. Quote best terms delivery ten ships
six pairs floats."
to which we immediately replied also on April 27th :
" Retel deliveries first three four months balance one weekly terms pref-
erably thirty-five percent deposit balance on shipment but if indispensable and
you willing await profit until final payment will accept last thirty percent
equally divided thirty sixty ninety days."
I am very much afraid that Brasil has lost the distinction of being the first
foreign government to buy Seversky amphibians ; confidentially, please be ad-
vised that we have secured an order from the Colombian Government for
a number of these ships which, I believe, are going to be used up around
Laetecia where the Brasilians will be able to have a good look at them. In
any event this sale, ahead of Bi-asil, will not materially affect things; on
the contrary it will enable to allow Seversky to get into production which is
always to be desired.
Lest you should wonder why Seversky has not gone into production as yet,
let me tell you that his efforts have been confined entirely to the United States
Army and Navy. Major SeverS'ky has spent the last month at the Army field
in Dayton, Ohio, Wright Field, where all the testing of aeroplanes is done.
The official report which the Air Corps has sent to the war ministry in
Washington regarijing the Seversky is one of the finest that I have ever been
privileged to look at. The report is extremely confidential and only with a
great deal of trouble I have been able to secure a copy of it, which I am
enclosing herewith for your own confidential information. For goodness sakes,
treat this report as confidential and do not let it out of your hands, although
you may, of course, show it to a few chosen people in high official circles. I
repeat that this is a thoroughly official report rend(>red by the Air Corps to
the war ministry in Washington.
If you know anything about Army tests you will realize that Army test
pilots always consider it their duty to " knock " the product that has been
submitted to them as much as possible and it is very remarkable that the
only deficiencies which they have found in the Seversky are of tlie most
minor nature, and according to the report itself, can be easily remedied. I
MUNITIONS INDUSTRY 667
liope and expect that copy of this report will be of tremendous assistance to
.you.
Regarding denionstrntions in New York of the Seversky with the wheel
landing gear : I am advised by Major de Seversky that the wheel landing
gear will be fitted on the demonstrator surely within the next ten (10) days.
When that is done I shall contact Captain Murici or Captain Wanderley and
shall make every effort to bring them out to the field to see a demonstration.
Both the captains have been spending much of their time away from New
York and I only hope that I succeed in catching them here in order to make
the demonstration.
Now, as regards best terms and delivery on the ten (10) ships (which I
liave taken to mean ten ships with wheel landing gear) and six pairs of
floats. Prices were already quoted to you on February 27th as follows :
c.i.f.
Price of each land plane, in lots of ten (10) $32,350.00
Price of each set of floats (amphibian floats) in lots of six (6)__ 6,450.00
Also the above prices are c.i.f. and include a commission of 10 percent for
yourself.
In my cable of yesterday I have told you that the best delivery we can
make at the factory is of the first three (3) ships in four (4) months, the
balance of the order at the rate of one (1) aeroplane per month; the same
-delivery applies to the floats.
Terms of payment : As I have explained to you in previous correspondence,
it is to our mutual advantage that if at all possible the sales be made on a
cash basis, i.e., with a 35 percent cash deposit together with the order, balance
to be paid in full when each aeroplane is ready for shipment.
In the event that it is absolutely impossible to secure these terms, the best we
■can offer you is as follows : 35 percent cash deposit with the order ; 35 percent
cash payment when the aeroplane is ready for shipment; and the balance of
30 percent payable in three equal installments, 30, 60, and 90 days after date
of shipment. This balance to be guar;inteed fully, both by the Government
and the Banco do Brasil, and should bear interest at the rate of 4 percent per
annum.
Please understand that on the basis of the last 30 percent being payable at 30,
€0, and 90 days, all of us will have to wait for our profit until the last pay-
ment is received, this being due to the fact that the 70 percent which is paid
when the aeroplane leaves the country (35 percent with the order and 35
■percent upon shipment) does not quite cover the anticipated cost of production
and we cannot very well expect the factory to lay out their own money to pay
our profit.
A few words about the three weeks which Major Seversky has spent at
Wright Field. His aeroplane was flown by about ten (10) different Army
pilots, each and everyone of whom was most enthusiastic about the ship.
Ji.s you will read in the report, the Seversky amiDhibian, with floats, is said
by the Army to " handle like a land plane " which is about the highest com-
pliment that could possibly be paid lo an amphibian. Every one of the pilots
who has flown the ship, as well as the high officers in the Army have all
personally complimented Major Seversky on the aeroplane and told him
that they will use their best efforts in order to see that the Army adopts this
aeroplane quickly. The adoption of the Seversky is a foregone conclusion
but as usual, when selling to the United States Government, a great deal of
red taiie has to be gone through, hence the delay in securing a sample order
from the Army. The situation with the Navy is practically the s?ame.
As a matter of fact it is lucky for us that neither the Army nor the Navy
•have as yet placed a sample order for, as before explained, this might lead
to their clamping down and prohibiting the exportation of the Seversky.
An interesting side light of the recent demonstration is the parlk-ular
attention that the Army engineers have given to the Seversky Monocoque
wing of " multibox " construction. After thoroughly testing the extreme
rigidity of this wing and convincing themselves that for military use it is
the finest thing they have seen because of the fact that it may be riddled
with bullets without appreciably losing its structural strength, they wondered
what the condition of the wing on the inside would be.
668 MUNITIONS INDUSTRY
In order to answer this question in a practical, visual manner, the cover
of the wing was taken off and found to be in absolutely perfect condition.
When it is considered that this cover was put on just about one year ago-
when the demonstrator was finished, and when it is considered that the
aeroplane has been flown in all kinds of climate, landed and taken-ofif re-
peatedly both from fresh water and salt water, it is no wonder that the
Army engineers were so astounded at the perfect condition in which the
inside of the wing proved to be.
Manufacturing rights: As I told you previously, we are only interested in
selling either to your group or else directly to the Brazilian Government the
manufacturing rights of tl>e Seversky after they placed an initial order with
us for no less than ten (10) aeroplanes. Tentatively we offer you the fol-
lowing terms and conditions:
The Seversky Company will grant the exclusive right for the manufacture
of the SEV-3 both as an amphibian and as a straight land plane, together
with four (4) full sets of blue prints and drawings for a cash payment of
$55,000.00.
In addition, the following royalties will be paid to the Seversky Company :
On the manufacture of the first ten (10) planes per year, $1,200.00 for each
aeroplane.
On the manufacture of the second ten (10) planes per year, $1,000.00 for
each aeroplane.
On the manufacture of all planes above twenty (20) per year, $700.00 each.
The Seversky Company will be guaranteed a minimum production of ten
(10) of these aeroplanes, per year, for a period of five years, i.e., a minimum
royalty of $12,000.00 per year.
It is understood that any improvem'ents (which are not of a U.S. Army or
U.S. Navy confidential nature) which the company may make in the aeroplane
during the 5-year contract will be passed on to the licensee in Brazil.
The Seversky Company will supply a chief engineer to get the manufacture
started in Brazil at the rate of $1,()00.00 per month.
They will also furnish an assistant chief engineer who will be employed
permanently by the licensee all during the term of production, and paid at
the rate of $500.00 per month.
The company will also be glad to furnish other proper personnel at salaries
to be agreed upon. The transportation for all personnel to Brazil and back
home to America will be for account of the licensee.
The figures above quoted both as the price for the license and drawings, and
for royalties, are net to the Seversky Company and you will have to add to
them your own profit ; thus the difference between the prices herein quoted
and the prices which you may secure will represent your profit in the trans-
action.
In view of the fact that the Seversky Company has spent about $250,000.00
in the development of the Seversky amphibian we feel that the terms above
outlined are fair and equitable and we suggest that you carry your negotiations
using the figures above given as the basis letting us have your reaction to them
us soon as possible.
It is of course understood that the license will only authorize the Brazilian'
licensee to manufacture Seversky aeroplanes for use in the Republic of Brazil
and not for sale outside of said Republic to any South American country.
The information give in your cable to the effect that you are momentarily
expecting an order for ten (10) Seversky land planes and six (6) sets of floats
is, of course, most encouraging and we certainly hope that this order comes
through as you expect. After the tests at Wright Field, which as before stated
were only completed on the 21st of April, we are more confident than ever
of the fact that the Sevei'sky is not only all that we have claimed for it,
but considerably better than we have ever claimed it to be and will prove
most satisfactory to your Government, a credit to you, to us and to the Brazilian
Flying Corps itself.
With kindest regards and best wishes believe me, as ever,
Very sincerely,
Miranda Brothers Incorporated,
I. J. Miranda,
IJM :IM . 1
P.S. Alfred is still in South America that being the reason why he has not
written to you recently, kindest regards.
MUNITIONS INDUSTRY 669
Exhibit No. 253
May 13, 1933.
Messrs. Urueta & Samper H.
Care of American Commercial Attach^,
Bogota, Colombia.
Attention of Mr. Joaquin Samper H.
My Dear Mr. Samper: Tliis refers to that portion of your letter of May 5
which treats on the matter of bombs.
Promptly upon receipt of your letter we went to the trouble and expense
(to which your Government is always welcome) to design a 12-lb. fragmenta-
tion bomb particularly suited to your purposes as outlined iu your letter
under review. We then quoted your consul general a price of $15.95 per
bomb on a lot of 500 of these bombs for delivery in 4 or 6 weeks.
The quotation was taken to the consul personally by the writer but the
consul being out of the office it was left there for his attention. Not having
heard from him I called on him personally yesterday to ascertain the status
of this particular order. Very much to my surprise I was advised by Mr.
"Wilcox to the effect that the order was placed almost 2 weeks ago.
I expressed distinct surprise at the fact that we had never even received
an inquiry for these 500 bombs from the consul, our quotations having been
made at your request and not at the consul's request.
The consul was rather embarrassed and explained that he had given the
order to Federal Laboratories because of the fact that Federal had lost so
much money on the order for large bombs which they took away from us some
two month's ago.
I didn't hesitate to tell the consul that such an action on his part was a
decided surprise to us. I told him that we knew perfectly well that Federal
w^ould lose money on that order and that we had so advised him at the time
of placing the order. I further told him that in view of the fact that about
50% of Federal's bombs, as originally supplied by Federal, had proved to be
" duds " I c<mndn't see the wisdom of continuing to use the same purveyor.
I pointed out that that type of bomb woudn't be cheap even if it was given to
jour Government entirely free of charge. Your airmen risk their lives and
risk tens of thousands of dollars to reach their objective and drop their bombs.
It is seldom enough that aerial bombs actually hit the mark for which they are
intended and then if the bomb proves 'to be a " dud " I emphatically claim that
it is expensive to use even if they give it to you for nothing or even if they
pay you for using it.
Wilcox was very much surprised that I should have this information about
Federal bombs and asked immediately where I had gotten it. I merely toM
him that in the same manner as I often secured confidential information for
him I was often in a position to know a great many things that he had no
idea about.
Furthermore, I threw a bombshell into Mr. Wilcox's camp by telling him
that the large bomb (300 and 600 lb.) which Federal built are no longer in
accordance with the latest U.S. Army practice. Very recently it was dis-
covered that the shaft on which the small propeller operating the rear fuze
is mounted is so short that the air stream after passing the bomb body itself
does not hit the rear propeller and therefore when the bomb falls the rear fuze
still having the propeller attached to it is absolutely useless.
The above fact only came to light some 3 months ago and a new and longer
shaft for the rear fuze propeller was immediately designed by the U.S. Army
Engineers or to be more specific, by said engineers under the direction of our
technical adviser, Major Brayton. It will be months before this development
is actually put down on the official U.S. Army drawings which are released to
companies such as Federal and ourselves. However, inasmuch as our bombs
are built under the supervision of Major Brayton, had he built this new lot
of bombs we would have now fitted them with the longer shaft which would
allow the rear fuze to operate.
I pointed out to Mr. Wilcox that the fitting of these large bombs with the
rear fuze taken by and large increased the cost of each bomb by possibly $75
to $100. Federal has supplied the rear fuze but it is absolutely no good
because of the facts already mentioned, and thus if the nose fuze fails to
function the rear fuze, which is carried as a safety measure against such an
emergency, will also fail to function and your bomb will be a " dud."
670 MUNITIONS INDUSTRY
Mr. Wilcox was very anxious to learn whether the bomb which we supplied
in these large sizes were fitted with the larger shafts. As a matter of fact
they wore not, because of the fact that the deficiency had not as yet been
di.sc-dvercd at that time. Ilowcvor. I tdld him that they were and he was
tremendously concerned. My thoui;"ht was that very possibly the ridiculously
small number of bombs initially purchased from us may by this time be all
used up.
The argument of the longer shaft may very possibly be used by you to ex-
cellent advantage in order 1o point out to your War Ministry that when they
liuy (rem us they are actually getting the latest developments in the art of
biimb making. Naturally such technical advice as we have on the subject
is costly ; likewise the materials that we use in the making of the bomb are
of the finest that money can procure, and consequently our prices are higher
than those of the competition. Common sense will tell you that it is decidedly
preferalilc to pay more for these bombs but be sure that they are going to work,
than to pay less and risk men and equipment to no good purpose.
As a point of interest I would like to tell you that in the bombs manu-
factured by Federal over 30% of the bomb b;)dies were rejected, over 60% of
the fuze parts were rejected, and 100% of the tail fins were rejected. Here
again we have become indirectly of tremendous assistance to your Government
inasmuch as you know or can imagine the reason for those objections. It is
very evident that on bombs previously furnished, and likewise on bombs which
may be furnished in the future by other purveyors, this very strict inspection
may be carried through. Frankly, we cann(»t constitute ourselves the watch-
dogs for your Government to see that the other fellow supplies what we would
have supplied and all of this results in such a large percentage of competitive
bombs failing to do the work for which they were intended.
We feel particularly badly about not even having been requested to quote
on the five hundred 12-pound bombs. On this business we were deliberately
ignored and weren't even given a chance to put in a price. These are facts
that should be known by you and passed along as you may judge convenient..
Awaiting further news and with kindest regards, we remain
Very sincerely,
Driggs Ordnance & Engineering Co., Inc.
I. J. Miranda.
IJM NK
Re : Price 12 fragmentation bombs :
P.iS'. no. 1. — Since writing the main body of this letter we find that the order
for 500 of these bombs was actually placed on Wednesday May 10th. We also
find that the order was placed at a price of over $16 per bomb. Inasmuch
as our quotation was of $15.95 you will see that we were entitled to this order
even on a purely price basis. We feel that a grave injus'tice has been done
us in this particular matter and we hope that you will pass this informa-
tion along to whom it may concern. We, admittedly, furnish better mate-
rial but now it seems that even when in addition we quote lower prices we are
discriminated against. Do your stuff.
Re : Tail fuses on large bombs :
P. 8. no. 2. — Since writing the body of this letter we find that our competitors
discovered that tlie tail fuses as originally planned, i.e., with the short shafts,
were useless. Accordingly they placed sheet metal wings crosswise between
the fin surfaces with the idea of directing the air stream to the fuse propeller.
This change, in accordance with our technical advisor, is something which
has never been tried and it is very doubtful if it will accomplish the purpose.
Furthermore, the addition of these wings between the vanes will prevent the
air flow from surface. It is I)elieved that the stability of the bombs in flight
will be seriously affected and if so it will not follow a true trajectory and.
it will be impossible to hit a target with them.
Sincerely,
MUNITIONS INDUSTRY 671
Exhibit No. 254
Ujrueta & Sampler H. (sucesores)
Joaquin Samper H. Negocios Y Repuesentaciones
Begota, Colombia, S.A.,
Received Dec. 21, 1933.
December 16, 1933.
Mr. A. J. Miranda,
American Armament Corp.,
6 East 45fh Street, New York, N.Y.
My Dear Alfred: Two damned interesting letters from you. I cannot give
you the date riglit now, because they are both, together with the rest of my
files, in the safe vaults of my bank, in order to keep 'em away from the Peru-
vian secret service. You can imagine by that how things are going here with
us. To give you a little more information and a better idea as to it, my home
was assaulted, gone over by expert hands, everything was emptied on the
floor, and since no important papers or documents were found, the valuables
were left untouched ! !
Well, things are going on fairly well. I had a very nice but short con-
ference with the '• chief " and I am looking forward for news from you, since
from this end it is practically impossible to disclose anything. Even the cable
is not safe. Besides, there is a new decree in force, prohibiting the private
codes and also one has to practically decode the cables sent in code to the
'• exterior." That's that.
If you remember correctly, your mail comes care of . Well, you bet-
ter begin using two envelopes, but none of them can bear any indication
of your firm, specially the one on the outside which must come addressed di-
rectly to the party in care of whom my mail was coming. Don't forget that ;
it is important.
Now, as to cables, you better rake out a new cable address and a new ad-
dress to have the cable company take the cables to. There are no chances
to be taken with that. Should there be in due time, any information which
I can send, it will go through the same party I am getting my mail. You
understand, of course.
(Tell Iggy that I have to wash my hands off with reference to his last
letter to me, because I am covered and by that I mean it. It is to damned
dangerous for me to undertake that activity.) However, there is a gentleman
going tomorrow to New York who is taking a letter to Iggy. That man will
handle the proposition for him, but tell him to please count me out. I am,
of course, doing all I can for him, regardless of business. The name of the
gentleman in question is C. Kendrick Mac Fadden. He is already working
for him here.
If the man in question mentions anything about me to Iggy, tell him to
forget it for the t.me being which I have a chance to explain things to
Iggy. However, the man is already working, and working forcefully and
well. Results are expected. He will act as his distributor for Colombia.
See?
Well, old boy, in spite of the fact that you will get little news from tliis
friend of yours, we are working here to beat the band ! We are very hopeful
and specially regarding the W.V. on which we have had a lot to do. They
will take a few off your hands. In as far as the other material is concerned,
don't worry that there will also be something to do. In spite of all that,
keep us posted, specially if you feel that in your opinion we are to push in
some definite way or do something which you think v>e have not done.
This letter will reach you just before Xmas and all we hope and wish is
that you may have a real merry one, and lots of prosperity in the New Year,
which will bring quitet a few surprises for this sincere and true friend of yours
and his country.
Yours affectionately,
Waco.
P.S. — Kindest regards to Iggy and best wishes for him too. I hope you
will succeed in getting the whale for your boy this Xmas, though St. Nicholas
will have a whale of a time carrying it to liim.
672 MUNITIONS INDUSTRY
(" Exhibit No. 255 " appears in text on p. 613)
Exhibit No. 256
Director: John Ball
The Solely Armament Co., Ltd.,
February 3, 1934.
The American Armament Corporation,
6 East JfSth Street, New York, U.S.A.
Dear Sirs: We thank you for your letter of Jan. 27th to hand.
Your requests regarding the 51 carbines, 7.65 mm will be carried out, and
we hope to ship from Antwerp in about 10 days or maybe less.
llegarding payment, will you please open a credit for the full amount of
the payment, in the Bank of China, Palmerston House, Old Broad St., London,
in our favour, the sum to be paid to us against the presentation of shipping
documents and our invoices. The shipping documents and receipted invoices
will then be forwarded to you by the Bank of China.
We note your remarks about competition in the U.S.A. from other firms
ottering our stocks, and on consideration, we beg to place the following sug-
gestions, which you might think over and let us have your views upon :
As we are really the sole selling channel for small arms, etc., which belong
to the British War Office, and as we are to a very great extent controlled by
the varying policy of the Government, it is rather difficult for us to enter into
firm and fast agreements with other armament firms.
The stocks we control are of such magnitude that the sale of a big block
of them could alter the political balance of power of the smaller states, involv-
ing corresponding complications from the point of view of finance and industry.
You will, we are sure, fully appreciate that under these conditions we have
to submit to a fairly strict control by the authorities concerned, and we cannot
always supply the demands by certain would-be buyers, for political reasons.
However, we think that it might be in our interest to have one single firm
in the U.S.A. who would act as our appointed representatives, and who would
deal with all the inquiries we get from the U.S.A.
Yourselves, as the people on the spot, would know the strength of many
inquiries and would be promptly able to sift the serious ones from those of
the " hot air " variety, and if you are reasonable regarding profits, we think
that the obvious advantages to us would be worth the slight sacrifice of price
entailed in covering your firm.
The question now arises as to how we could arrange such a combination,
and in a manner which would meet the needs of both sides without interfering
with the Government control here, which must absolutely be observed.
We suggest the following arrangement:
We would prepare to appoint you our sole selling agents for the U.S.A. and
you would have the handling of all the sales to the states of Latin America
only, which would be left entirely to yourselves.
Arms for other destinations, such as China, or European states could not be
offered by you without our previous consent, and yuu would be expected to
observe this rule in the very strictest m.'inner.
Now, such an arrangement as is suggested above would have to be what we
call here a " gentleman's agreement " — that is, one of mutual trust and con-
fidence without any hard and fast legal ties or committments which would
exist in the usual case.
Our undertaking would be to the effect that we would refer all enquiries
coming from the states of Latin America and the U.S.A. to your corporation,
and you would be fully responsible to us to observe all the regulations con-
trolling the sale of military armament, etc., and to prevent the arms being sold
to undesirable destinations.
For instance, we believe that the U.S.A. does not wish arms to be sold to
Nicaragua and, therefore, we must observe this veto, for, if our rifles were
sold to this slate and some U.S.A. official saw them there we sh'uld be in
serious trouble at once with our own Government, who insist that we must not
violate the wishes of other world powers by arming revolutionaries, etc.
If you think that you would like to come to some such arrangement with
us, we think your desires could be met, but we must be first informed of the
ultimate desinations of all quantities of arms which exceed sample quantities,
MUNITIONS INDUSTRY 673
in order that we can submit tlie name of tlie purcliasing government to the
British authorities, and obtain their permission for tlie arms to be sold to that
state, and v.e suppose that also, before you sell arms from the U.S.A. to a Latin
American state, ynu will obtain the permission of your government to do so, in
order that the policy of the U.S.A. cannot be upset.
We should like you to inform us upon this point, as we are not familiar
with the U.S.A. regulations.
We should under the above suggested arrangements supply you with a com-
plete set of samples of all the arms we have for disposal (small arms, etc.,
only, not ordnance) for which you would have to pay, but your payment
would be refunded on your returning the samples to us. We are not allowed
to supply samples except against payment, as the government here does not
give credit to anyone.
We should .supply you witli illustrated leaflets, catalogs, blueprints, free.
For your information, in confidence, the value of the stocks here under o;ir
control is approximately £6 millions, so there is no great risk that they will
all be disposed of in a short time, but you must remember that in the event
of a serious war breaking out anywhere affecting British interests the stocks-
might be withdrawn from sale.
The principal stocks are as follows :
Rifles, pattern 1914, calibre .303, which we can convert to most of the
Mauser calibres : Quantity 800,000, with enough spares to build up another
200,000.
Machine guns, Hotchkiss, 34,000, with spares. These can also be converted
to Mauser calibres.
Machine guns, Lewis, 20,000, with spares. These cannot be converted to
Mauser calibres except at serious expense and ditliculty. These are infantry
pattern.
Machine guns, Lewis, aeroplane pattern, 8,000, with spares. These ai'e
mobile or " free " guns, for use by the observei's. Machine guns, Yiekers,
infantry pattern, 5,000, with spares. These can be converted to Mauser
calibres.
Machine guns, Vickers, aeroplane pattern, 6,000, with spares. These are
" fixed " guns for firing through the propellor of the plane. These can be
converted to Mauser calibres.
Revolvers, Webley, calibre .455 (takes the American .45 shells), quantity
4,000, length of barrels 4".
Revolvers, Smith & Wesson, 5,000. calibre .455, takes .45 shells, length of
barrels 61/2".
Revolvers, Colt, calibre .455 (takes .45 shells), quantity 10,000 (9.016 with-
51/2" barrels).
Quautities of spare parts exist for the Colts and the Smith & Wessons, but
no stock of spares for Webleys.
Ammunition, none for revolvers, but for rifles and machine guns in calibre
.303 there is about 120,000,000 rounds in good condition.
There are, of course, considerable other stocks, but above are the principal
ones.
The general condition of the arms are " serviceable ", which means either
quite unused, or having had very little use, but the greater portion is " new."
Possibly there may be a slight marking or rubbing of the arms while being
regreased in tlie stores depots, and if given a little time to deliver we usually
remove all scratches before shipping, and in the case of rifles or M.G.'s con-
verted to Mauser calibre, the entire arm is rebrowned.
To return to the question of cooperation with you :
If you think that your interests would be served by such an agreement as
suggested, you can begin right away and deal with any future enquiries from
South America, and we will try out the arrangement with you, and see how
it works.
As every sort of agreement must have a time attached to it, we enclose a
formal letter agreeing to refer all South American enquiries to you for a
period of six months from date, which agreement will be extended if the
results are found to be mutually satisfactory, and we hope this will meet
with your wishes.
Yours faithfully, for and on behalf of
The Soley Armament Co., Ltd.;,
(Sgd.) John Baix, Director.
83876—34 — pt 3 9
674 MUNITIONS INDUSTRY
Exhibit No. 2r)7
The Soley Armament Co., Ltd., director, John IJall, Contractors to War
Office and Air Ministry.
Address your reply to The Secretary, S Park Village East, London, N.W.I.
Febi-uary 3, 1934.
Our Ref. JB/.IG.
Messrs. The Amekican Armament Corporation,
6 East 45th Street, Neio York, V.8.A.
Dear Sirs: Further to our letter of even date:
We agree to the appointment of the American Armament Corporation as
our sole sales representative for the disposal of the stocks of military arms
held by us, in all the countries of Latin America, and we undertake to refer
all encpiiries coming from Latin America to the American Armament Cor-
poration. This arrangement is for a minimum period of six months from
date, and the agreement, if desired by both parties shall be extended at the
expiration of the period mentioned. It is distinctly understood between us
that the American Armament Corporation shall observe all the regulations
governmg the sales of arms from Great Britain and the U.S.A. and that they
shall under no circumstances attempt to sell British aimament to illigitimate
destinations, or to parties who may be working against the state interests
of the U.S.A. or Great Britain.
No offers of our stocks shall be made by the American Armament Corpora-
tion to any other countries outside Latin America except by our express
permission in writing.
Yours faithfully, for and on behalf of
The Soley Armament Co., Ltd.
(Sgd.) John Ball, Director.
Exhibit No. 258
The Soley Armament Co., Ltd., director, John Ball. Contractors to War
Office & Air Ministry.
February 6, 1934.
Our Rf JB/JG.
Messrs. The American Armament Corporation,
6 East 45th Street, New York, U.S.A.
Dear Sirs : We have today received an enquiry for Springfield rifles, cal. 30,
from the Export Consolidated Co., whose letter we attach.
We have informed them that we have no Springfields, but that if the
buyer would accept a tolerance in the calibre of three thousand of an inch,
and take ritles with a barrel calibre of .303, we could modify the chamber
and the magazine of the 1914 ritles we have, in order to use the standard
American cartridge in them, and alter sights accordingly. This operation is
not very simple, and entails much expense, but if a fair quantity were taken
we think we could keep the price of such rifles down to about £3-7-6 each.
We shall therefore be obliged if you will get in touch with the Export Con-
solidated Co. and see what can be done for them.
Regarding samples of the small arms for your office :
We suggest that you have the following :
One Lewis M. G. infantry pattern, cal. .303.
One Lewis M. G. Aeroplane pattern, cal. .303.
One Hotchkiss M. G. infantry pattern, cal. .303.
One Hotchkiss M. G. infantry pattern, cal. 7.65 M/M (or 7 M/M).
One Vickers M. G. infantry pattern (in either .303 or Mauser cal.).
One Vickers M. G. Areoplane pattern (in either .303 or Mauser cal.).
Two revolvers, cal. .455 Colt, 5l^" barrels.
Two revolvers, S. & W. Cal. .455 61/2" barrels.
Two revolvers, Webley cal. .455 4" barrels.
Two rifles. Pattern 1914, cal. .303.
Two rifles. Pattern 1914, cal. 7.65 M/M.
Two rifles, Patteiii 1914, cal. 7. M/M,
Two signal pistols, cal. I".
MUNITIONS INDUSTRY 675
In view of the expense in your getting the above, we will see if it is
possible for us to persuade the authorities to agree to some nominal amount,
instead of the full price (which is, of course, returnable if you return the
samples), but we have not great hopes of doing this.
Alternatively, you could if you so desire select from the above list the items
which you consider essential to you, and leave the samples of the i-est until
some definite need arises for them, when they could be sent to you.
Please let us have your views on this question.
Another point we should like you to bear in mind :
Owing to the financial constipation all over the world, it often happens
that the United States require arms badly, but have no cash to pay for
them. As it is far too risky to sell arms on credit in these times, some alter-
native has to be found, and sometimes goods or produce can be accepted in
lieu of cash and the barter converted into cash over a period of time.
For instance, provided that the deal was a fairly big one, we could accept
coffee, rubber, timber, etc., in payment.
There have also been cases where certain concessions were given, and the
concessions sold to interested financiers or companies, but — and this is the
snag — we have either got to arrange a definite sale of the product beforehand,
or to peddle off the concession to some interested group, beforehand.
However, provided that the proposal put up to us is serious, and there are
reasonable prospects of doing a deal, we are good listeners to anything, but
we absolutely refuse to go into any " hot air " schemes, or any which are
against an established government in the same state.
We are always having doubtful or tricky propositions put up to us, but no
matter how tempting the profit may be, we always turn them down on the
principle, for under no circumstances could we be mixed up in intrigues.
We fully understand that arms deals are not usually done without some
oflBcials getting " greased " but if any palm oil is required, it has to be added
to the price, and as our prices are at least 50% less than factory prices for
the same arms, they will stand a lot of " grease " and still be cheaper than
the manufactui'ei's prices.
Also provided that the arms do not have to be converted, we can give prac-
tically immediate delivery, which is a very important point in our favor.
Another point for you :
We like to deal with each individual demand on its merits, and we are
always prepared to give you the maximum assistance in our power, but we
cannot work miracles, and we require reasonable time to move, and you will
appreciate that no Government Dept. can be pushed beyond its normal speed
of work.
Regarding conversions to other calibers:
Our factory in Liege, Belgium, is limited to an output of about 3,000 rifles
per week, and if an order should come in while another is going through the
factory, we usually try to put through a percentage of the second one, in
order to meet part of the second buyer's requirements, but we cannot do more
than this.
We trust that these details may be of use to you.
Yours faithfully, for and on behalf of
The SotET Armament Co., Ltd.
(Sgd.)' John Baix, director.
Exhibit No. 259
[Air mail letter no. 7]
June 9, 19,34
Messrs. Wejbstbk & Ashton,
La Pas, Bolivia.
Dear Sirs : On June 2nd we received your cable of that date reading as
follows :
" Minister Defense has been informed your bombs shipment today embargoed.
Please advice rush."
We do not know how the Minister of Defense obtained the information above
mentioned, as we have inquired both from the consul and from the Legation,
676 MUNITIONS INDUSTRY
and they had not notified their government inasmuch as they were in doubt
as to what was going to happen. We mention this because we are anxious
that such information as reaches the Government about the movements of our
material be accurate.
We cabled you the same day as follows :
'* Minister Finot informed us yesterday has been advisetl that sellers and not
Bolivian Legation must apply for permit State Department shipment of mate-
rial contractetl for ijrevious to declaration of embargo. Issue of permit
reyuires formalities will delay, therefore we cannot clear today although
ready for shipment. Shall be Washington Monday make application permits
all unfilled orders and hope large shipment next steamer. Imperative that you
telegraph immediately if any contract signed there previous to declaration of
embargo May 28 stating in dollars and cents so that we may apply for permit
immediately. Very urgent for the Government to instruct Finot assume firm
stand cooperating with all sellers."
The subject of the so-called " embargo " is a most ticklish one and had to be
approached in a careful manner. We asked the consul over a week ago to
lodge with the Legation copies of all the contracts that we have pending (4),
and to request the Minister to make inquiries from the State Department on
the subject. On Friday, June 1st, Mr. Decker received a letter from Minister
Finot advising him that he had conferred with the State Department and had
been informed that it was up to the shippers to take the matter up with the
State Department. He was informed that the President's proclamation ad-
mitted of certain exceptions and that it was up to the exporters to prove that
their cases came within those exceptions.
In view of this the writer arranged to go to Washington on Monday to
confer with Minister Finot and also to call at the State Department. We tried
to convey to you this information in our cable above-mentioned and hope tliat
we succeeded in making the matter fairly clear to you.
On Monday the writer spent some time with the Minister going over our
contracts and pointed out to him in the same manner that he had already
pointed out to Mr. Decker that it has always been the policy of this company
to refuse to enter upon any contracts with foreign govei^nments which throw
the responsibility of getting the material out of this country on the company.
This policy is the result of many years of experience that the writer has had
dealing with a large number of foreign governments.
The manufacturer should be fully responsible for the quality of the material,
the specifications, the performance of same and its delivery within the agreed
time ; but, a manufacturer should not be asked to incurr the risks entailed in
export embargoes, breaking up of diplomatic relations, blocading of foreign
ports, etc. For this reason you will notice that all of our contracts call for
the payment of the material to us when we deliver the material in New York
to the government or to the government's shipping agents, we agree to defray
shipping expenses to the ports mentioned in the contracts. We sell c.i.f. in the
sense that the prices that we quote cover the cost, the insurance and freight
of the merchandise to the foreign port indicated by the foreign government
purchasing the material, but our contracts specifically state that we make
delivery of the material (and get paid for it) to the government or its shipping
agents in New York and that is in New York, not f.a.s. New York. For this
reason all we have to do is to submit our material for delivery to the consul
in New York and collect the value of same, and it is the consul's job to ship it
to his government.
The fairness and soundness of this policy is now (something X'd out) in the
present instance. As previously stated, after going over our contracts very
carefully with Consul Decker and Minister Finot, they have been able to estab-
lish definitely what is the company's position and responsibility and what is
the government's position and responsibility in these cases.
I informed Mr. Finot that inasmuch as the Government is the exporter
of the material I felt that it was up to the Government to seek shipping
papers, permits, clearance, or whatever Government documents might be
necessary, but I told him that without prejudicing our rights, with a desire
of cooperating 100 percent with the Government I would go to the State De-
partment, which I did. Unfortunately, the State Department seemed entirel.v
unwilling to assume any responsibilty and it was a case of passing the buck,
I was definitely told that —
Tile State Department would issue no permits, recognized no exceptions,
would not attempt to interpret what was war material and what is not war
MUNITIONS INDUSTKY 677
material, nor would it give an opinion as to the time of action covered by
the President's proclamation, that is, whether the proclamation embodied or
not sales made previous to May 2Sth, the day of the Presidential decree.
The Stnte Department's attitude was:
Try to ship your stuff, and if the Government's agencies (presumably the
customs) block your way, Iiire the best lawyer available and get an injunc-
tion against the Government. This, of course, was rather unsatisfactory. So
I afrain held additional conferences with the Minister, pointed out to him
that the attitude of the Government towards American corporations is going
to be in my opinion, rather dictatorial and that the best protection of his
Government's interests would be to strictly carry out the terms of the con-
tracts ; that is, we would deliver the material here, as agreed, and the con-
sul general, acting as the commercial representative of Bolivia, would seek
to clear the material in question.
The following considerations were carefully weighed :
In the first place, the Presidential proclamation forbids the sale of any
war material, but has nothing to do with the exportation of the material.
There is no question that all the four contracts above mentioned the sales
were made and deposits made for said material before the President's procla-
mation was made. All that material has been sold to the Bolivian Govei'n-
meut and it is the Bolivian Government's property and there is no law in
this country that can prevent the Bolivian Government from taking their
own property to Bolivia.
We really do not see how that action can be blocked by the Government.
The only action that the Government can take on the subject is to proceed
against our company for selling war material for Bolivia, in which case our
defense will be that the sales were made at a time when it was not for-
bidden to make them.
We have two shipments being made ready. One shipment covering the
balance of the 105 M/M ammunition (about 5,900 shells) plus about 2,000
rounds of 47 M/M ammunition and about 2,000 aerial bombs is expected to
leave on the freight steamer of the 15th. Another shipment comprising the
36 47 M/M mortars is expected to leave on the passenger boat of the 16th.
I returned from Washington the 5th instant after having come to an
agreement with Minister Finot that the proper action was to follow the
terms of the contracts, and on Wednesday, the 6th instant, Mr. Decker made
application to the Customs in New York for clearance of the mortars which
will go out of the port of New York, and made application to the Customs
in Newport News, Va., for clearance on the bombs and ammunition which
will go out on that freight boat from' that port. Both of these applications
were made as follows — Consignor — Consular General of Bolivia — and a clause
was inserted in the application whereby the consul certified the fact that
all this material had been purchased by the Government of Bolivia previous
to May 28th. The Customs in New York have referred the matter to the
Chief Commissioner of Customs at Washington, asking for a ruling. He, in
turn, has referred the matter to the State Department, and it seems that the
Secretary of State referred the matter to the Attorney General of the United
States. This transpired between Wednesday and Thursday, and yesterday,
Friday, the Attorney General in Washington telephoned to the U.S. district
attorney in this district to go into the case with the Customshouse, after
which he summoned Mr. Decker to his office, after which the writer was
summoned with copies of the contracts in question, and the writer went
over these contracts with the U.S. District Attorney Conboy.
This can-ied on until late last night. The U.S. district attorney will re-
port his findings to the Attorney General of the United States, who, in turn,
Avill give liis opinion to the State Department, which will pass on to the
Treasury Department, which will pass on to the U.S. Customs. The reason
that this matter is going through the heads of the Government in this country
is that the decision will definitely establish a precedent on which all other
contracts and shipments between American manufacturers and the Bolivian
Government and American manufacturers and the Paraguayan Government
Avill be judged. Someone had to bring this matter to a head inasmuch as our
position is clean-cut and clearly defined it was proper both for the Govern-
ment and for our interests to have the matter brought to a head.
We cannot see on what ground our Government can refuse the Bcilivian
Government to ship its propetry to Bolivia. If, notwithstanding that an
effort is made by the Government to do so, we understand that Minister
678 MUNITIONS INDUSTRY
Finot in Washington will lodge a diplomatic protest with the Government. That
is the status of the matters as of today. As soon as something definite is given
out by the Government we will advise you accordingly.
* >l< 4c 4: 41 * 41
We received, on June 5th, your cable of June 4tli reading as follows :
" Refer to your telegram of second instant. Hope to reply tomorrow."
and on June 6th your cable of June 5th reading as follows:
' Refer to your telegram second instant. Are hopt*ful obtain addition
contract along line telegraphed you as per our telegram of fir.st instant. Mean-
time telegraph us immediately when you expect get permit to sh.p material
which will be ready this month. AVith next lot of ammunition ship fifty com-
plete fuzes."
In accordance with your wishes, with the lot of ammunition now being
made ready we will send along 50 complete fuzes, (103 M/M), against tliis
contract.
On June 7th we received your cable of tlie 6th reading as follows:
" Referring our letter twenty fourth, please confirm deposit made."
We replied immediately to your cable, dated June 6th as follows:
" Last letter received from you April twenty-first."
As soon as we receive your letter of the 24th we will be very happy to attend
to its requests. In the meantime we remain.
Faithfully yours,
For American Armament Corporation,
A. J. Miranda, Jr.
AJM,Jr/NK
Exhibit No. 260
(Address your reply to The Secretary, 8 Park Village East, London, N. W. I.)
The Soley Armament Company, Ltd.,
March 2.',th, 193',.
The AMEaiicAN Arms Corporation,
6 East 45th St., New York, U.S.A.
Dear Sirs : This letter has been delayed in order that you sliould have
complete details and information regarding your various requests, and they
follow herewith.
Reverting to your long letter of Feb. 22nd, page 1, your assurance, etc.,
given here quite satisfies us.
Page 2 :
We note the references you offer, but do not consider it necessary to check
them up, and therefore accept you on your face.
Page 2, carbines :
These were shipped from Antwerp on S.S. Black Gull, but in the haste to
get them despatched the following errors were made :
(1) Only fifty carbines were sent, instead of fifty-one.
(2) Only thirty slings were included instead of fifty-one.
(3) Two samples of reconditioned Springfield rifles were included with the
fifty carbines, wiiich should have been packed according to our instructions.
We have therefore instructed the factory to send to you by the first avail-
able steamer the missing carbines, 7.65, and the twenty-one slings and hope
that the slight delay will not cause you much inconvenience, liut if it should,
please charge any expenses up to us, as we usually pay for mistakes when
they are on our side. There will be no world shortage of timber so long as
the heads of some of our employees exist, but we have to take what we can get
not what we want.
In case they may be wanted, we have included bayonets and scabbards
with the carbines, although we of course know that cavalry do not carry
bayonets, but as we do not make any reduction in the price of carbines
minus bayonets, we thought they might just as well l)e included. Please
let us know if they are of service or not for any future orders, as there is
no oliject in paying freight on material which is useless.
Page 3, ammunition, 7.05 :
We obviously cannot help you regarding newly-made cartridges, for you say
tliat you can buy cheaper in the U.S.A. Regarding the stock ammunition, 7.65,
MUNITIONS INDUSTRY 679
held in Europe : This is \var-time manufacture, and quite good considering
its age, but naturally it cannot come up to the results of newly made stuff and
buyers must not expect it to do so. If, however, the low price attracts them,
we suggest that a few hundred thousand rounds should be sent over for trial,
and if it was found to be satisfactory to the users, they could then take about
10 to 12 millions of it.
Page 3, machine guns :
We note your remarks re the Vickers and Hotchkiss machine guns, for
Bolivian requirements, and the question re extra barrels, belts, feed boxes, load-
ing machines, bolts, and condensers. The inclusion of so many extras will
much increase the price of the guns, and you will hnd full details in the separate
lists attached to following letter.
Page 4, parabellum pistols :
As we informed you by cable, we have only a few of these pistols in stock,
and they are mainly short-barreled type, and are also minus shoulder pieces.
Automatic pistols are rather outside our lines, as the British Army uses only
revolvers, caliber .455 (which take the U.S.A. cartridge .45 perfectly satis-
factory). We consider the auto pistol useless for all emergencies; it might be
all right in the stratosphere, where there is no dust, mud, or damp to affect
the slide, but you can drop the old revolver in the sludge or dust, pick it up
and shake it, and it still functions. Do the same with an automatic, and it is
necessary to strip it and wash out the grit before it can be used. Ask any
of the Americans who were in Flanders — they know.
We are sending you a sample parabellum, however, as we should like to
clear the few we have.
Pages 4 and 5, barter proposals :
Any suggestions coming from you, and in which you would stand in with
us on a 50/50 basis, will have a good liearing and our best consideration, no
matter what the produce offered may be, so long as it is a commodity which is
salable and which can be converted into cash within a reasonable time. We
could only consider barter for fairly large quantities of arms, as for small
deals the extra trouble incurred is' not worth while.
Page 5, Flguerola & Ms conipcmy:
Mr. Flguerola called on us, and we explained to him that we had made an
arrangements with yourselves for the U.S.A. and Latin America, and that
any quotations given to him by us in future would have to be referred to
yourselves also, and we advised him to make the best terms he could with
yourselves. Please note that he cabled us on March 13th asking for a quota-
tion for 200,000 khaki uniforms, no destination mentioned.
We have no such quantity over here, but they could be quickly manu-
factured, and we are endeavoring to get price, delivery, etc., and this will
take some time to get.
Now for your private information, the biggest stock of complete iiniforms
available is held by the U.S.A. War Dept., and consists, we believe, of about
400,000 jackets and breeches, only no trousers.
We did hear a short time ago that a London firm of army clothing dealers
either actually had, or were trying to get, an option on the stock, and we are
at present investigating the position, but in any case — well, use your own
judgment as to what you can or ought to do. If we hear anything concrete
about the stock, we shall, if an option is held here, offer it to Flguerola and
cover you for something reasonable. If the option story is bunkum, and you
find that you can get on to the track of the stock direct, you will know what
to do.
Page 6, antiaircraft guns:
We have been approached here by certain people interested in 3" A.A. guns
for Bolivia. The principal person appears to be Senor F. Prado Uchoa, and we
think he is connected with the Bolivian diplomatic service. He began by
saying that he wanted 121/2% on anything the Bolivian Govt, bought
from us, and that he was the only person who c<;uld put through such deals,
etc. We informed hhn that we should require official confirmation of his
authority to negotiate etc., and that although certain 3" A.A. guns were in
stock (about 10 with a possible 15 more) we did not think we could help
him as regards Bolivia, for the A.A. guns were really property of British War
Office, and a sale of material emanating from a British official dept.
to a Latin-American country then at war, might lead to some diplomatic
680 MUNITIONS INDUSTRY
shindy, for it might be said that Britain was supporting Bolivia against
Paraguay. This cold water seemed to be effective, and he has not so far
returned to us.
We liave, of course, heard from several sources that Bolivia wants A.A.
guns Quickly, but we do not think for a moment that a shipment or sale to
Bolivia could be made direct, while that country is at war. If, however, an
American armament firm of some standing bought the guns, for eventual re-
sale, things might be easier — or if the Colomltian (lovt., who are not at
war, bought the guns, they could no doubt have them. We are investigating the
question with the war ollice here regarding a direct supply to Bolivia through
yourselves, and will inform you of the results as soon as we can, but in
principle we are not so hopelul of permission being given. In any case, we
do not think there are many other A.A. guns apart from ours to be got from
•stock and quickly, so your chance of selling new guns with a few months
-delay may be increased if we cannot supply, or if we refuse to supply should
we be allowed to do so? We shall promptly advise you of any new develop-
jnents on this subject.
This concludes the answer to your letter.
your catalog is clear and interesting. We note that you are producing
among other guns the McClean automatic gun, 37 m/m. We know this gun well,
as we had a quantity of them some time ago, and sold them, but we have
somewhere in our depot about six or seven new barrels for these guns, and
we believe some new flas eliminators for them. We have no bolts or other parts
for the barrels, and if you like to pay the cost of packing and freight of the
barrels, you can have them at any price you like to mention, for we are not
likely to want them ourselves, and they may be useful to you either to build
into guns or as spares.
We should think that the cost of packing would be about 3 each barrel, or
maybe each 2 barrels, for it would be advisable not to put more than two in
each box on account of weight.
Before we close, there is another matter which may one day be of interest
to you. It is rather a lengthy one, but we will condense it as follows:
As you are no doubt aware, China consumes a vast quantity of small arms
per year, and they have bought large quantities of rifles from us, mainly
Mausers (over 100,000 in 1931/32) but have slacked off lately owing to the loss
of Manchuria, and the shortage of ready money in the south — i.e., Canton
and Nanking. In spite of all the dreams of the idealists, who imagine that
homo sapiens is filled with honor, justice, love, and self-sacrifice, Japan is
going to take a still larger slice of China, and comparatively shortly, while the
getting is good. To place herself in a favorable position, Japan must either
buy over the Soviet or fight them — and Japan will do one of the other, before
attending to some more of China.
Such a move on Japan's part would seriously affect the U.S. interests in
China, and we think that the U.S. would under the above circumstances
support the Chinese, supply them with arms, etc.
In such an eventuality, something might be done with the big stocks of
rifles here, also M.G.s, and we think it mi^t be very advisable for you to
approach the U.S. Dept. for Foreign Affairs and the War Dept., and hand
them a list of what stocks there are over here, informing the Depts. at the
same time that you are the sole representative for the U.S.A.
This is only our suggestion to you, and you may possibly have other ideas
of your own as to how such a matter should be handled — for instance, it
might be better to bring the stocks to the notice only of some of the " big
business " gentlemen, and leave any possible wangles to them, for they even
might see quicker possibilities in such a stock? Nothing would surprise us,
but bear in mind that the world's stocks of small arms have shrunk very
much during the last three years, and we certainly think that our stock is the
only one left of any importance.
It is doubtful if your authorities are aware of the stocks here, for the
U.S. does not ferret around with spies or " intelligence " people to the extent
that Europe does, and if some sudden emergency did arise in the Far East,
there would be a big rush for serviceable material for immediate delivery,
and not many firms could produce about 700,000 rifles, about 50,000 niacliine
guns, all of tlie same calibre, with spare parts and ammunition for immediate
delivery, delayed by only the time to pack and put on the steamers.
MUNITIONS INDUSTRY 681
The idea may bo a trifle problematical, but it might arise one day, and
if you had already "sowed the seed" * * *?
The Japanese Naval Dept. have lately bought large quantities of Lewis
guns, in our calibre .303, for their Hotchkiss and similar types are not equal
to the Lewis for aero use by the observer, neither has the 6.5 bullet as much
effect as the .303 armour-piercing type, or the incendiary or " tracer " type.
As you know, " Incendiary " bullets are prohibited, so they have become
"tracers." What is in a name?
We shall await your reply to this letter with interest.
Attached please find list of material as requested.
Yours faithfully,
(Signed) John Ball
(For the Soley Armament Co., Ltd.)
Exhibit No. 261
The Solby Armament Co., Ltd..
London, N.W. 1, March 25, 193/f.
(Confidential)
The AME3RICAN Armament Corporation,
6 East JtSth St., New York, U.S.A.
Dear Sirs : We have now inspected the fuzes held by our W.O., and we have
decided that they are not in any way serviceable, as they are mostly comprised
of " rejects " and so could not be relied upon for your purpose. Should, how-
ever, there be any serviceable ones available in the future, wo will notify you
and send samples.
We regret that you have had to wait so long for a reply on this matter, but
we must remind you that we cannot push our government departments, and
you must consider a certain amount of delay in getting information from
us as inevitable.
We must apologize for the mess-up our Liege branch made re the sample
carbines, and we will do our best to see that you have no further trouble.
They were instructed to pack the single 7.65 carbine separately, also the two
sample Springfields sent, but for some stupid reason they were mixed up, the
single 7.65 not sent, and the two Springfields packed in case No. S.A.C. 88.
The shortage of slings was not reported in time to get them made, and they
were included later in the case of samples from London, which should have
arrived by now.
Please note that any expense incurred by you on account of our mistakes
should always be debited to us.
We have just heard that some of the stock of 7.65 Mauser ammunition was
tested last November by a Bolivian oflScer, Col. Brito, who was not very
pleased with the results, and who ordered new ammunition from Imperial
Chemical Industries, Ltd., who control Kynochs factory here.
AVe also hear that Vickers-Armstrong are much annoyed by the persistent
competition of Mr. Miranda, Jr., in Bogota, and that he has delayed certain
orders for A^ickers material. AA'e suppose this will he the question of the
Vickers aircraft pilots guns, and you may be sure that Vickers-Armstrong will
do all possible to .spoil Mr. Miranda's efforts in that direction.
We have also heard from Figuerola, of the International Ordnance and
Instrument Co., that he might be able to sell about 100,000 rifles, herewith
extract from his letter :
" In reference to the rifles, I have a certain plan with one of my government
connections which might materialise into real business, and if this does happen,
it is probable that a large amount of your rifles might be used, something
between 100,000 and 150,000. Of course the price you have quoted me I have
taken into consideration, but I would like to ask you in a confidential way,
not to be passed on to anyone else, how far can I go in a transaction of this
magnitude as to price? "
Now, the price per rifle we quoted him (in .303) was £3-1-0 with bayonet,
scabbard, and sling, f.o.b. London, and we have since informed him that for
the quantity mentioned, say 125,000, we should make a cut of 20 percent for
cash.
682 MUNITIONS INDUSTRY
This information is given to you because in the event of such a deal coming
off, yon would as our U.S.A. agents be covered for a certain amount, although
judging from Figuerola's conversation with us, he would be averse to collaborate
with yourselves on such a deal, and would desire it to be done from our end in
London.
We should, however, fully inform you of developments, and expect you to do
your best to lielp Figuerola, unless you got on to the same business yourselves,
for we suppose that Figuerola would not have the monopoly of such a deal, but
under no circumstances must you ever disclose any information from others
which we pass on to you, for a slight indiscretion can lead to difficulties.
F. was rather anxious to fix up a direct connection with us. and was much
disappointed wlieii we informed him that we had already decided to work with
yourselves. All the same, he said that he considered you a very able house and
that under the circumstances he would accept the position as it was.
For your further information we hear that Brazil has just placed an order for
100,000 ]\Iausor rifles from the factory in Checko-Slovakia at the price of 307
French francs each. We do not yet know who will make the ammunition, but
I.C.I, here are tendering for £4-5-0 per 1,000 rounds.
SAMPLES
We have sent you the following :
2 revolvers, Colt, cnl. 455.
2 revolvers. Smith & Wesson, cal. 455,
2 revolvers, Webley, cal. 455.
2 signal pistols, for aircraft, cal. 1%".
2 signal pistols, for ground use, cal. 1" (one inch).
2 steel helmets, reconditioned.
1 parabellum pistol, cal. 9 M/M.
The above can be considered as on loan to you.
We have also included handbooks which may give you useful information;
these are gratis.
We attach list of material available in quantities.
Yours faithfully,
The Soley Armament Co., Ltd.,
John Ball.
Exhibit No. 262
FE2iEUARY 22, 1934.
The Soley Armament Co., Ltd.,
8 Park Village East, London, N.W.I.
(Attention of Mr. John Ball.)
Dear Mr. Ball : We acknowledge receipt of your letters of February 3rd and
February 6th and have taken most careful note of their contents. Needless to
say, we deeply appreciate the confidence that you are reposing upon us, and we
hope that our relations with you will be very profitable and satisfactory to all
concerned.
Inasmuch as our company is actually the only company in this country
engaged in the manufacture of a general line of armament, that is, ordnance
material from 37 mm up, ammunition, aerial bombs, etc., etc., we are receiving
very decided assistance from both our War and Navy Departments. They have
carefully surveyed our plant to acquaint themselves with our manufacturing
facilities, etc.. and we are working in very close cooperation with their military
and naval authorities. For this reason you can feel absolutely certain that any
and all transactions we have will be of such nature as will not be frowned upon
by our Government. We have never sold any material to revolutionary parties
inasmuch as our business has been built up by dealing with constitutional
governments. In Latin America the writer personally and our company are
well known, and the governments know that we work in strict accordance with
the policies at Washington and that revolutionary parties do not find any
assistance or support from us. We count with a splendid organization of field
representatives throughout Latin America, firms or individuals of the highest
standing and in very close connection with their Governments.
In addition to referring you to the War and Navy Departments of the United
States for information regarding our company, if you so desire, we beg to refer
you to the following:
MUNITIONS INDUSTRY 683
American Ordniince Association, Washington, D.C. ;
Guarantee Trust Company, Fifth Avenue & 44th Street, New York City;
Title Guarantee & Trust Company, 6 East 45th Street, New York City ;
Our manufacturing affiliates, Elevator Supplies Company, Inc., Hoboken,
N.J.;
Mr. Frank Johnson, secretary National Pneumatic Company, Graybar
Building, New York City;
and many other firms who know us very well and whose names we will be
pleased to furnish you upon request. We volunteer this information because
we want to give you a feeling of absolute confidence that you have placed the
handling of your affairs in this hemisphere in substantial and reliable hands.
With reference to the small sample order for carbines : In accordance with
your wishes, upon receipt of your letter we had one of our banks establish a
credit in your favor for £164 sterling. Should there be any differential for or
against us, please let us know ; in other words, if, for some reason or other,
the credit that we have established is insufficient we trust that you will for-
ward the shipment without delay and advise us so that we may remit you the
check on London.
The information that you give us regarding your stocks is valuable and we
are awaiting with great interest the receipt of the leaflets, prints, etc., that
you have posted us as per your letter of February 6th.
In the meantime we have cabled you on the ISth, as follows :
" Your letters February third, sixth, extremely interesting. Deeply appreciate
appointment as your representative. Assure you we will strictly adhere your
policies. Please cable quotation c.i.f. New York, Hotchkiss and Vickers machine
guns, infantry pattern, calibre seven point six, five lots fifty guns. If you have
ready stocks seven point six five ammunition in good condition, please quote
five million rounds and rush us some samples."
The sample carbine order is for the Government of Bolivia. We have been
manufacturing artillery material and ammunition and aerial bombs for this
Government in very large quantities. They know that we do not manufacture
machine guns or rifles, but their relations with us have been so satisfactory
that they entrusted us with the work of finding if there was some good material
in this category that we could obtain for them.
They are very much interested in the carbines in a lot of 10,000 to 15,000
and, also, in about 5,000,000 to 10,000,000 cartridges of their ammunition which
is 7.65 mm. They have been buying newly made ammunition from the Rem-
ington Company in this country for approximately $20.00 c.i.f. Chilean or
Peruvian ports. They have just placed an order for 5,000,000 rounds but are
holding back orders for 5,000,000 to 10,000,000 more rounds. Your quotation
for freshly made ammunition as given in your cable of February 21st just
received and which amounts to £4-10 per thousand is too high to compete
against Remington, but, possibly, we can get some of the business on the basis
of the 8,000,000 rounds that you have in stock and on which you quote us £2-5
per thousand. We will go to work on this.
With reference to machine guns : They give us to understand that they must
have water-cooled machine guns. Our representatives in Las Paz inform us
that in the Chaco region where the material is being used the temperature
at night is 110°. The Hotchkiss gun, of course, is air-cooled, but nevertheless,
we are quoting on both the Hotchkiss and the Vickers guns.
They have recently placed orders for several hundred guns with the Colt
Company in this country and have specified the following extras (at an extra
charge) with each gun; therefore, will you please, upon receipt of this letter,
write us telling us how much is the price of each of these extra items, always
figuring your price c.i.f. New York :
EXTRAS FOR EACH GUN
3 extra barrels.
8 extra belts, feed.
4 extra boxes, feed. »•
1 belt loading mechanism per 2 guns.
2 extra belts complete.
2 extra condensers.
On February 19tli we cabled you as follows:
" Have urgent inquiry one thousand nine millimeter parabellum or similar
pistols. What can you quote c.i.f. New York? Please cable."
684 MUNITIONS INDUSTRY
The Bolivian Govcrimient is in a tiurry for 1,000 0 mm parabellum or similar
type pistols.
We regret to learn that you only have 200 available and that they are
reconditioned short barrels and no shoulder pieces. We surmise that you
have nothing else of that type and, therefore, could not quote on anything else.
We shall endeavor to try to move the 200 on hand.
Again referring to your letters, it is possible that some very substantial
orders might lie obtained from such Governments as Bolivia, Peru, Ecuador,
and Colombia on the basis of accepting payment for, say, 50% of the value of
the contract in national produce or possibly in Government obligations if they
fulfill your credit requirements. For instance, we have been negotiating a
substantial contract with the Government of Ecuador for artillery and am-
munition and they have been very anxious to work out a deal with us on a
part-barter basis. With this plan we might be able to dispose to the Govern-
ment 15,000 or 20,000 rifles, several hundred machine guns, and a few million
rounds of ammunition. We Nvill endeavor to get something concrete to place
before you in this matter. Peru offers us guano. Would that interest you?
Colombia might work out a deal on the basis of emeralds, because they do not
wish to disturb their coffee prices in foreign countries by releasing the Gov-
ernment stocks of that produce. Following your suggestion, we will sound
out the matter very carefully. In other words, we have never believed in
offering terms to any of those governments, for our terms are alike to yours —
a deposit with the order and the balance against shipment of the merchandise.
In a few cases we grant credit, but those occasions are rare ; therefore, do
not be concerned that we will plunge like a bull in a china closet and try to
dig up some business on a credit or barter basis. Only in the case where
we see that business can be definitely closed on a thoroughly safe basis, but
one that will assist the purchasing government by releasing only part cash
at time of purchase, will we trouble you with a request for consideration of
such transactions. We fully appreciate your remarks as to " hot-air " deals,
etc. We find, however, that they usually come from revolutionary parties,
political parties, etc., trying to start trouble or by superwise brokers trying
to put over a deal with someone else holding the bag.
Your remarks anent greasing the wheels that make the deals go around are
very true and we fully appreciate that very often oil must be added to your
quotations. In this connection will you make it a point to always quote us
your prices net to us c.i.f. New York unless we specifically make a different
request?
With reference to the International Ordnance & Instrument Company about
which you write us in your letter of February 9th : We know this company
very well and we know their managing director, Mr. Figuerola, who, at this
time is abroad. They have close connections in Cuba and at times are en-
trusted with orders from the Cuban Government. We have recently finished
a contract with them for artillery ammunition and are very well acquainted
with them ; therefore we shall pursue your negotiations with them on the
subject of revolvers, without undue delay.
With reference to the Export Consolidated Companies mentioned in your
letter of February 6th and your original letter from them which you send
to us, we also know this firm very well. They, however, do not, in our opinion,
have the close contacts that the International Ordnance & Instrument Company
have and they are inclined to deal not with recognized governments. We will
take up with them the subject of the rifies mentioned and in which they are
interested and you can feel certain that we will not participate in any negotia-
tions with them unless we are sure that the material is going to legal and
constitutional entities. We shall report to you in the near future the progress
of our negotiations with these two companies.
We are now working on a good inquiry from Latin America covering anti-
aircraft guns. Of course, the gun that we can manufacture and covered by
our negotiations with our customers in Latin America is the standard U.S.
three-inch 50-caliber antiaircraft gun. There is just one difiiculty, that our
plant capacity is insufficient to handle very large artillery orders on short
notice. With the work we have on hand we cannot offer deliveiy of 12 to 20
three-inch antiaircraft guns before 10 months, and we are fearful that very
MUNITIONS INDUSTRY 685
protiipt delivery is s:oiiig to be one of tlie requisite sine qua non. How many
tliree-infli antiaircraft guns could you deliver to us from stock and at what
price c.i.f. New York? We can turn out tlie animunition quickly and our
thought is that if it comes to the point where it is impossible for us to manu-
facture and deliver the American gun in time, we might save the deal by
switching them to the British gun and manufacturing the ammunition. This
is very important, and we wish, upon receipt of this letter, you would send us
a cable letter, being as specific as possible on the subject.
On the subject of samples, we are going into this matter and you shall hear
from us shortly.
We hope you will not be annoyed by our frequent requests for quotations
and information, and please be assured that we will not approach you and
put you to work on these quotations unless the inquiries really merit it.
With assurance of our esteem, please believe me,
Faithfully yours,
For American Armament Corporation :
AJM,Jr/NK.
A. J. Miranda, Jr.
Exhibit No. 263
(Rec. June 29, 1934.)
Jose Merla,
Apartado No. S55,
Havana, June 2S, 1931}.
Sr. Don Alfredo J. Miranda, Jr.,
New York.
My Dear Me. Mir^vnda : Yesterday I saw the Commander Tabernilla of the
Cabana Fortress, and he had already seen Colonel Batista, and have referred
now the matter to another official and very soon we expect some definite results.
The real object of this letter is to ask you about your situation in Santo
Domingo.
Mayor Brayton informed me that you had already done some business there
and that he had a friend there, but it happens that I have a friend that is very
powerful down there, to such an extent that he has already sold them many
articles, including steamships, that will give you the idea of his connections.
This connection come through my good friend Mr. Santos Barraque, whom
Mayor Brayton knows already. Mr. Barraque is a brother to the president of
the Compania Naviero, of Cuba, the only S.S. line in Cuba for local business as
well as for traflac between Cuba and Santo Domingo, and this comi^iny was the
one that sold to Santo Domingo one of his ships in $62,000 cash.
The man that accomplished this sale is an oflicer of this company and goes
regularly to Santo Domingo every three wee"ks, and is very close to the Presi-
dent of the Republic and the head of the Army of Santo Domingo, who is a
brother-in-law of the President. This friend of ours is more or less a go-be-
tween between the S.D. official purchasers and sellers, so we approached him
about armament, not knowing exactly where we were in relation to S.D. He
liked the idea and asked us that if you are free to do business notify us
immediately and we will communicate with him and tell him so, and see what
he can sell in material.
For your information to your quotations we shall add 15%, which will cover
the " graft " that is supposed to be distribnted down there among the various
interested parties, and I request that this information you keep confidentially
and if you write to S.D. do not mention in your letters, as there is censorship
in the mail, all letters going there are opened and read and it will not do us
any good if this information will be known down there.
Please notify me by return mail if we can solicit business from S.D. and
then we will do the rest.
With kind personal regards, we beg to remain
Jose Merla.
Pencil Notation : Our answer 7/2/34.
686 MUNITIONS INDUSTRY
Exhibit No. 264
schkdule 1. amemcan armament corporation balance sheet, july 31, 1934
Assets
Cash $182, 608 .80
Accounts receivable, Government of Bolivia 99, 176. 40
Advances to Elevator Supplies Co 20, 298. 78
Furniture and fixtures 443.86
Designs and patents 1,50. 00
Total assets $302, 677. &4
Liabilities and capital
Customers' deposits on uncompleted orders $141, 428. 75
Capital stock :
Autliorized, 500 shares, no par value
Issued, 485 shares, paid in
Surplus 161, 249. 09
Total liabilities and capital $302, 677. 84
(Subject to liabilities, not recorded on books, in re.speet of earned commis-
sions, discount on sales, and unpaid freight.)
Exhibit No. 265
SCHETOUU: 2. AMERICAN ARMAMEINT CORPORATION STATEMENT OF PROFIT AND LOSS,
DECEMBER 29, 1933, TO JULY 31, 1934
Oross Profit
Contracts #1313-1314-1317 (Elevator Supplies Company #29376)
for the Dominican Republic:
Sales $24. 425. 00
Manufacturing co.st 15, 806. 06
Profit 8, 618. 94
Contract #1315 (Elevator Supplies Company #29386) for Interna-
tional Ordnance & Instrument Co. (Cuba) :
Sales 14, 000. 00
Manufacturing cost 11, 105. 04
Profit 2. 894. 96
Contract #1316 for the Bolivian Government:
Sales 975.00
Purchases (from Soley Armament Co.) 835.17
Sales 139.83
Contract #1318 (Elevator Supplies Co. #29399) for the Bolivian
Government :
Sales 14, 412. 00
Manufacturing cost 8. 413. 67
Profit 5, 998. 33
MUNITIONS INDUSTRY 687
Gross Profit — Cnntinued
Contract #1319 (Elevator Supplies Company #29400) for the Bo-
livian Government :
Sales 212, 625. 00
Manufacturing cost 147, 591. 26
Profit 65, 033. 74
Contracts #1320 and 1321 (Elevator Supplies Company #29415)
for the Bolivian Government :
Sales 440, 688. 50
Manufacturing cost of completed articles (schedule) 270,144.63
Profit 170, 543. 87
Total gross profit (forward) 253,229.67
Deductions from gross profit
Ocean freight $34, 435. 32
Cartage 34 17
Engineering salaries 4, 517. 10
Prints and drawings 237. 07
Royalties 250. 00
39,473.06
213, 756. 01
SelHnr/ expenses
Commissions, Webster and Ashton, Bolivian agents 26, 727. 71
Traveling and entertainment 955. 66
Samples 181. 78
Catalogs 53. 75
Advertising 199. 00
Miscellaneous 1, 659. 00
29, 776. 90
183, 979. 11
General and administrative expenses
Officers' salaries 9, 959. CO
Office salaries 5, 206. 50
Legal fees 2,950. 00
Telephone and telegraph 1,473. 10
Rent and light 786. 63
Office expense 21. 19
Stationery 406. 43
Postage 536. 55
Taxes 20. 62
Association dues 2.00
Commission based on volume of business, to Major
Brayton 498. 34
Sundry 869. 66
22,730.02
Net profit for period 161,249.09
688
MUNITIONS INDUSTRY
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MUNITIONS INDUSTRY
689
Exhibit No. 267
SCHEDULE 4 — AMEKIC-\N ABMAMEajJT CORPORAnON — CONTRACTS AND SHIPMENTS
APPLia\BLE THERiETO DECEMBEK 1933 TO JULY 31, 1934
Contracts
Shipments
Date
Amount
Date
.\ mount
(ilSlS-E.S. mS76)
12- 2-33. Dominican Republic:
3—1 pd. guns at... $1
1,500 rds. ammunition, at
, 550. 00
3.80
$10, 350. 00
12- 7-33
12-20-33.
3-16-34
2-19-34..
1-10-34.
3-30-34
$2, 310. 00
8, 040. 00
, 500. 00
3.80
::o. (for
. 15.50
. 4.00
. 14.00
250. 00
25.00
13, 800. 00
14,000.00
275. 00
10. 350. 00
mSli-E.S. fm76)
12- 8-33. Dominican Republic:
4— 37 mm guns, at 2
1,000 rds. ammunition, at
13.800.00
mSlB-E.S. mS86)
1- 3-34. International Ordnance & Instrument C
Cuba):
400 rds. ammunition, 3 inch, at
200 rds. ammunition, 37 mm, at
500 shells 75 mm, at. -
14, 000. 00
mS17—E.S. mS76)
1- 7-34. Dominican Republic:
1 no — 37 mm salutine blanks
1 00 extra Drimers
275. 00
{mm
1-26-34. Bolivian Government:
^n T^pp-Fnfield carbine^ 7.65 mm
975. 00
975.00
(mi8-E.S. i29S99)
1-30-34. Bolivian Government:
50 rds. h. ex. amm. for each of—
Viokers Field 75 mm -
Vickprs Mount 75 mm
Vickers howitzer B..
105. 00
106. 00
14, 412. 00
212, 625. 00
4-1C-34
f4-16-34
4-27-34.
5-5-34
Vickers howitzer, at
14, 412. 00
375. 00
11.00
14.00
190.00
5.66
25.75
54.00
60.75
154. 25
299. 00
1.40
{§IS19—E. S. §mOO)
2-12-34. Bolivian Government:
15— 105mm Stokes Brandt mortars, at.
15,000 h. ex. shells, at
3,000 h. ex. shells, at.
19. 701. 00
3, 7.'50. 00
43,311.00
5-18-34
5-24-34
5-25-34...
6-14-34
7-31-34
(6-14-34
^6-15-34
17-31-34 1
750. 00
CO, 984. 00
1,125.00
69, 774. 00
13,230.00
168,265.00
212, 625. 00
(#mo—E. s. imio)
4-12-34. Bolivian Government:
. 36 — 47 mm mortars, at
10,000 —47 mm shells, at
1,000— 30# frag, bombs, at..
400— 100* frag, bombs, at
400— 120dem. bombs, at..
100— 300dem. bombs, at
50—600 dem. bombs, at..
2,000 hand grenades, at
74, 691. 00
6 840 00
S3, 934. 00
165, 465. 00
83876— 34— PT 3-
-10
690
MUIiTITIONS INDUSTRY
SCHEDULE ! — AMERICAN ARAIAMENT CORPORATION — CONTOACTS ANI> SHIPMENTS
APPi.iCABLK tiierf:to DECEMBER 10:53 TO JULY .'; 1 , 1934 — Continued
Contracts
Shi
jiments
Date
Amount
Dale
.A.mount
4-23-34.
f
{§mi—E. s. #miB)
Bolivian Government:
20,000—47 mm shells, at
1,000— 30# frag, bombs, at
.500— 100# frag, bombs, at
500— 120dem. bombs, at
350— SOOdem. bombs, at
150—600 dem. bombs, at.
650—50 tear-gas bombs, at
(.mxis-E. s. mm)
Bolivian Government:
.5,000—105 mm N. C. shells, at..
3,000—105 mm H. C. shells, at._
(Fifth Bolivian contract)
Bolivian Government (see schedule .
Total to 7-31-34
$5.66
25.75
- 54.00
-. 60.75
154.25
299.00
49.00
11.00
14.00
$327, 012. 50
97, 000. 00
2, 043. .562. 50
f6-14-;',4..-.
17-31-34 ...
$4, 279. 00
270, 944. 50
275, 223. 50
5-25-34.
5-25-34.
5 for details)...
2, 902, 277. 00
707, 125. .'0
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