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Full text of "Scope of Soviet activity in the United States. Hearing before the Subcommittee to Investigate the Administration of the Internal Security Act and Other Internal Security Laws of the Committee on the Judiciary, United States Senate, Eighty-fourth Congress, second session[-Eighty-fifth Congress, first session] .."

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DEPOSITORY f»* s ■S'?' v 5 

SCOPE OF SOVIET ACTIVITY 1 IN THE UNITED STATES 




HEARINGS 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIARY 
UNITED STATES SENATE 

EIGHTY-FIFTH CONGRESS 

FIRST SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



MARCH 29, APRIL 2 AND 3, AND AUGUST 15, 1957 



PART 58 



Printed for the use of the Committee on the Judiciary 





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UNITED STATES «-. "i ' 

GOVERNMENT PRINTING OFFICE 

93215 WASHINGTON : 1957 



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Boston Public Library 
6-Penntendeat of Documents 



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COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

JOSEPH C. O'MAHONEY, Wyoming EVERETT McKINLEY DIRKSEN, Illinois 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 

SAM J. ERVIN, Jr., North Carolina ROMAN L. HRUSKA, Nebraska 



Subcommittee To Investigate the Administration op the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 
OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

SAM J. ERVIN, Jr., North Carolina JOHN MARSHALL BUTLER, Maryland 

MATTHEW M. NEELY, West Virginia ROMAN L. HRUSKA, Nebraska 

Robert Morris, Chief Counsel 

J. G. Sodrwine, Associate Counsel 

William A. Rusher, Associate Counsel 

Benjamin Mandel, Director of Research 



CONTENTS 



Witness : Page 

Batori, George 3774 

Gold, Harry, statement of 3814 

Poremsky, Dr. Vladimir 3787 



in 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



FEIDAY, MARCH 29, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 
and Other Internal Security Laws 
or the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursuant to call at 10 :30 a. m., in room 124, 
Senate Office Building, Senator Johnston presiding. 

Also present : William A. Rusher, associate counsel. 

Senator Johnston. The subcommittee will come to order. The at- 
torney has some papers I think he wishes to put in the record at this 
time. 

Mr. Rusher. Thank you Senator. In connection with our hearing 
a few weeks ago with Alexander Orlov who testified concerning 
Spanish gold which had been stolen by the Soviet Government and 
retained by it, I would like to offer for the public record this article 
from U. S. News & World Report dated March 29, 1957, pages 110 and 
111 entitled, "Weapon of Gold." 

Senator Johnston. This article from U. S. News & World Report 
will become a part of the record. 

Mr. Rusher. That is all, Senator. 

(The article referred to may be found in pt. 51 of the subcom- 
mittee's publications on Scope of Soviet Activity in the United States, 
at p. 3472.) 

Senator Johnston. As we open this hearing this morning, I want 
to make this brief statement. 

In the course of its continuing study of the technique by which the 
Soviet Government imposes its will upon the peoples of the world, the 
Internal Security Subcommittee is naturally interested in the story of 
the political prisoners of communism and the vast concentration camps 
in which they are kept. Similarly, the subcommittee is interested in 
the way in which non-Russian populations have been compelled by 
force to associate themselves with the Soviet Russian system. 

Our witness today may be able to shed light on both of these sub- 
jects, since he is a Hungarian who has spent over 10 years of life in the 
concentration camps of the Soviet Union. So you may proceed with 
the witness. I assume we have an interpreter. 

Mr. Rusher. We do, Senator, since the witness speaks only Hun- 
garian. 

3773 






3774 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

TESTIMONY OF GEORGE BATORI; INTERPRETER, ARTHUR DOBOZY 

Will you give your name and be sworn ? 

The Interpreter. Arthur Dobozy. 

Senator Johnston. Will you please raise your right hand and be 
sworn. Do you solemnly swear that you will truly interpret to the 
witness the questions directed to him and will truly interpret the an- 
swers given by the witness to the best of your ability, so help you God ? 

The Interpreter. I do. 

Senator Johnston. For the record, you do thoroughly understand 
the language that he will be speaking today, do you not ? 

The Interpreter. I do. 

Mr. Kusher. All right now, will the witness be sworn and you in- 
terpret the oath to him, please. 

(The witness stood and raised his right hand to be sworn.) 

Senator Johnston. Do you solemnly swear that the evidence that 
you give to this subcommittee of the Committee on the Judiciary of 
the United States Senate to be the truth, the whole truth, and nothing 
but the truth, so help you God ? 

(The witness nodded affirmatively.) 

Mr. Kusher. And now, Senator, the witness has asked to use the 
name George Batori in this hearing although the subcommittee has 
his real name. That is spelled George B-a-t-o-r-i, that is correct? 

The Interpreter. Right. 

Senator Johnston. I imagine that fictitious name is being used for 
the purpose of keeping him concealed ? 

Mr. Rusher. That is correct, Senator. He has relatives behind 
the Iron Curtain and wishes to use an assumed name. 

Mr. Batori, when and where were you born ? 

The Interpreter. September 6, 1915. In Hasszufalu. 

Mr. Rusher. Is that in Hungary ? 

The Interpreter. No, in Transylvania, formerly in Hungary. 

Mr. Rusher. Are you a Hungarian citizen ? 

The Interpreter. Yes. 

Mr. Rusher. Did you serve in the Hungarian Army during the Sec- 
ond World War? 

The Interpreter. Yes. 

Mr. Rusher. What was your rank ? 

The Interpreter. His last rank was captain. 

Mr. Rusher. Captain in the Hungarian Army during the Second 
World War? 

The Interpreter. Yes. 

Mr. Rusher. What happened to you after the war ended ? 

The Interpreter. He went home and there he was awaited by some 
person from the Soviet police. 

Mr. Rusher. What did they do ? 

The Interpreter. They did not permit him to speak to his family. 
He was arrested and was accompanied to NKVD station. 

Mr. Rusher. Briefly can you tell us what he was charged with and 
then what was then done about the charge ? 

The Interpreter. He was accused of being a member of the Fascist 
army ; that he killed Russians ; and that he has prevented the spread 
of communism in Hungary. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3775 



Mr. Rusher. The charge was that he was a Fascist because 

The Interpreter. That he served in the Fascist army. 

Mr. Eusher. That he served in the Fascist army — that is the Hun- 
garian Army in the Second World War ? 

The Interpreter. That he killed Russians, too. 

Mr. Rusher. And then that he prevented the spread of communism 
in Hungary? 

The Interpreter. Yes. 

Senator Johnston. Did they arrest all the soldiers that had been 
in the army? 

The Interpreter. No. 

Senator Johnston. Did you notice in picking them out, why they 
were picking some and leaving others ? 

The Interpreter. Yes, he does. Those in whom the regime did 
not have any confidence. Those were the ones that were arrested. 

Mr. Rusher. That would be to say the anti-Communists, generally 
speaking ? 

The Interpreter. Yes, anti-Communist elements. 

Mr. Rusher. Mr. Dobozy, if you can remember please use the first 
person and then it will be as coming from the witness. 

The Interpreter. All right. 

Mr. Rusher. Mr. Batori, were you then tried and sentenced for 
these alleged crimes ? 

The Interpreter. Yes, I was. 

Mr. Rusher. And what was your sentence and when was it begun? 

The Interpreter. End of May 1945 he was sentenced to death. His 
sentence was later commuted to 20 years in prison and enforced labor. 

Senator Johnston. What kind of trial did they give you ? 

The Interpreter. I was accused of the same thing which we have 
discussed before. I have denied these. Now the following happened : 

The judge asked me who was the commander in chief of the army. 
I answered Nicholas Horthy. Then they asked me did Horthy fight 
against the Communists? I answered yes he did in 1919. The an- 
swer was if the commander in chief of the army was a Fascist then 
the members of the army must have been Fascists too. You see, we 
are Communists because our chief Stalin and Lenin were Commu- 
nists, so we are all Communists. 

To the question whether I killed Russians, the following happened : 

They asked me whether I was on the front and what did I do there. 
I said I fought. And they asked what did you fight with — with 
flowers? I answered no, I had weapon. If you had weapons you 
must have fired them. Yes, I did. I had to defend my country. 
Well, if you did then fire you must have killed Russians and as far 
as I know you must have been a good soldier because you have been 
wounded and you are very nicely decorated — medals. 
m Mr. Rusher. So this was the type of trial he had — it was estab- 
lished that he had fired at Russian soldiers ? 

Senator Johnston. Did they have any jury ? 

The Interpreter. There was a judge' and two members of the jury- 
that is, a prosecutor, not a judge. So the prosecutor was a man who 
was familiar with law, but the other two were just members from the 
army, but the main thing was that they were Communists. 



3776 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Senator Johnston. Were they Hungarians ? 

The Interpreter. They were Eussians. One was a Russian and the 
other was a Tadjik and the third one he couldn't establish. 

Senator Johnston. How long was this after the war ? 

The Interpreter. Middle of May 1945 about 2 weeks after the war 
ended. 

Mr. Rusher. Now, Mr. Batori, your sentence was served in the So- 
viet Union primarily, is that correct ? 

The Interpreter. Yes. 

Mr. Rusher. Was it all in one prison camp or are there several ? 

The Interpreter. Many camps. 

Mr. Rusher. Now, would you go to this map, which I realize is not 
perhaps as it might be for the purpose, and show us as best you can 
the places in the Soviet Union in which you were imprisoned, in the 
order in which you were imprisoned in them ? 

The Interpreter [witness indicating on the map]. I was sentenced 
in Rumania end of May 1945. Then I was transported into the prison 
at Odessa. There I was for 9 days in the death chamber. 

Mr. Rusher. The death chamber ? 

The Interpreter. Yes, death chamber. 

Senator Johnston. Was there any reason for transferring you from 
one camp to another ? 

The Interpreter. The prisons were too full in Odessa. The prisons 
were full of prisoners from Germany, Hungary, and Rumania. From 
Odessa — sentence was changed into 20 years imprisonment — then I 
was transferred to Kazan. From Kazan I was transported to Sver- 
dlousk where a railroad line was built. 

Senator Johnston. How were you transported from one place to 
another ? 

The Interpreter. They have special trains for transporting prison- 
ers. They have cages in them. In one cage there are about from 12 
to 15 men pressed in so that they cannot lie down or sit down. It is 
almost impossible to relate what they had to suffer. 

Mr. Rusher. Was — what is the name of these cars that they are 
carried in ? 

The Interpreter. Salipinsky. 

Mr. Rusher. Are these in effect boxcars then ? 

The Interpreter. They are originally boxcars which are trans- 
formed into these transport cars for prisoners. 

Mr. Rusher. They have bars ? 

The Intepreter. Inside are iron plates. And so that the guard can 
always observe what happens in the car, each car has several guards and 
one of the guards is in the middle of the car in a separate cage watch- 
ing the prisoners. 

Mr. Rusher. From the last place that you indicated on the map, 
where did you go ? 

The Interpreter. Then I was transported to Vorkuta. 

Mr. Rusher. I think, Senator, that Vorkuta is one of the most 
famous of the prison camps. Go ahead, Mr. Batori. 

The Interpreter. Then we went back to Sverdlousk. From Sver- 
dlousk we went to Omsk. From Omsk we were transported to Irkutsk. 
That was in 1950 when a special camp was established for political 
prisoners. In 1953 I was transported back to Omsk. From Omsk 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3777 

again I was transported to Dzoeskazgam — it is not marked on there 
but it is in the vicinity of Karaganda. 

Then from Karaganda we were transported back to Mordovia. 

Mr. Rusher. Spell that, please. 

The Interpreter. M-o-r-d-o-v-i-a. That is the autonomous Re- 
public of the Mordvinians. That was in October 1950 and then we 
were told that we would be turned over to the Hungarian authorities. 

Mr. Rusher. And were you ? 

The Interpreter. We were. On November 18 we were turned over 
to the Hungarian authorities. 

Mr. Rusher. 1950? 

The Interpreter. 1950. 

Mr. Rusher. And thereafter did you stay in Hungary until the 
revolution ? 

The Interpreter. Yes. Seven months I was in prison. 

Mr. Rusher. In Hungary ? 

The Interpreter. In Hungary after my return. On June 1, 1956, 
I was released from prison. 

Mr. Rusher. And then he escaped from Hungary in the revolution- 
ary disorders after October 23, is that right ? 

The Interpreter. Yes. 

Mr. Rusher. When did you arrive in the United States ? 

The Interpreter. On December 3 I escaped. 

Mr. Rusher. From Hungary ? 

The Interpreter. From Hungary. 

Mr. Rusher. When did you arrive in the United States ? 

The Intetpreter. On March 10, 1957. 

Mr. Rusher. March 10? All right now, I think we are through 
with the map for the time being. You may resume your seat. 

What was the reason — if there was a single reason for your mov- 
ing, since this was over a period of 10 years I understand, but never- 
theless you were moved. What was the reason for being moved from 
these various places ? 

The Interpreter. Partly because the Russians feared that some of 
the people who were antagonistic to their regime would escape or 
would make propaganda among the other prisoners. So they changed 
them frequently. 

Mr. Rusher. By keeping them moving they prevented them from 
organizing among themselves ? 

The Interpreter. Yes. Secondly, the prisoners were used for 
forced labor within the 5-year plan for building railroads and other 
public works. 

Mr. Rusher. Did you have a question. Senator ? 

Senator Johnston. I was going to ask him what type of work ? 

Mr. Rusher. If I may develop that in this way, Senator. 

I would like to discuss now, Mr. Batori, some typical one of these 
prison camps that you were in. Is there any one that occurs to you 
as being reasonably typical of the whole series and we can talk about 
specifically ? Will you suggest one now, if you can ? 

The Interpreter. I will talk about the camp near Tayshet. 

Mr. Rusher. And was that the name of the camp itself or was that 
the town near which the camp was located ? 

93215 — 57 — pt. 58 2 



3778 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

The Interpreter. No ; there is a town like that, but the camp was 
also called by the same name. 

Mr. Rusher. How many people would you say were imprisoned 
in this camp at Tayshet at the time you were there ? 

The Interpreter. I estimate the number of prisoners to be 300,000 
to 350,000. 

Mr. Rusher. Between 300,000 and 350,000 in this particular camp ? 

The Interpreter. Yes, in this particular camp. They have about 
400 various little camps, each containing a number of prisoners. 

Mr. Rusher. In other words, the overall camp was broken down 
into subcamps ; would that be correct ? 

The Interpreter. Yes. 

Mr. Rusher. And there were about 400 subcamps ? 

The Interpreter. Four hundred subcamps. 

Mr. Rusher. Would that be somewhat less than 1,000 people in a 
given subcamp ? Is that correct ? 

The Interpreter. No; in these subdivisions they have kept about 
from 500 to 4,000 prisoners. 

Mr. Rusher. It would fluctuate ? 

The Interpreter. Yes. 

Mr. Rusher. How many of these prisoners would you estimate 
were purely political as distinguished from criminals ? 

The Interpreter. About 300,000 political prisoners. The rest were 
being kept for some other reason. 

Mr. Rusher. Now these, can you give us a description of their 
nationality and ethnic breakdown ? How many were Great Russians 
and how many Ukrainians, and so forth? 

The Interpreter. About 15 percent Russians. 

Mr. Rusher. Fifteen — Yes. 

The Interpreter. Fifteen Ukrainians. 

Mr. Rusher. Same about Ukainians ? 

The Interpreter. Yes ; 10 percent Caucasians, Georgians. 20 per- 
cent from the Baltics. 

Mr. Rusher. Baltic States? 

The Interpreter. Baltics — Estonians, Latvians, Lithuanians and 
the rest Poles, Germans, Hungarians, and Japanese, and Koreans. 

Senator Johnston. How do you go about making this estimate? 
Y ou were a prisoner, how did you know that ? 

The Interpreter. In these subdivisions there were divided about 
the same way in almost all the subdivisions, the nationalities. We 
knew exactly the percentage of Russians and non-Russians. They 
had a purpose in keeping these divisions of nationalities so that not 
too many would be of one nationality in the group so they couldn't 
organize. 

Mr. Rusher. So they kept a cross section in each subcamp, so to 
speak ? 

The Interpreter. Yes. 

Mr. Rusher. Did you associate, in the course of the labor that they 
caused you to do, did you have a chance to see these other prisoners 
and know what their nationality was ? 

The Interpreter. Not only during the work, but also while he was 
in prison and afterwards. 

Senator Johnston. Were they all male or part female ? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3779 

The Interpreter. Up to 1950 men and women were together in 
camps. After 1950 only men were in the camps. 

Senator Johnston. About what percent were men and about what 
percent were women ? 

The Interpreter. About 30 percent were women and TO percent 
were men. 

Mr. Rusher. If I understand your testimony, Mr. Batori, you do 
not mean to say that after 1950 there were no women as prisoners. 
You mean up to 1950 they were together and after that they were 
separated ? 

The Interpreter. After 1950 they were in separate camps. 

Mr. Rusher. Let me see if I understand. Until 1950 they were 
actually thrown together in the very same camps and barracks ? 

The Interpreter. Yes ; after 1950 there were separate camps estab- 
lished for men and women. 

Mr. Rusher. Go ahead. 

The Interpreter. I wish to mention that after 1950, 1 was in a camp 
of political prisoners. 

Mr. Rusher. Strictly political ? 

The Interpreter. Strictly political prisoners where no women were 
kept, but I know of camps where even after 1950 men and women 
were kept in the same camp. 

Mr. Rusher. Can you describe a little bit of the conditions that 
developed as a result of this situation where they were all thrown to- 
gether ? 

The Interpreter. Men and women were put together in camps in 
the hope that the losses which were suffered during the war would be 
in this repaired. 

Mr. Rusher. In other words that children would be born ? 

The Interpreter. Yes. 

Mr. Rusher. What happened to the children that were born? 

The Interpreter. After 2 or 3 months after birth the children and 
babies were taken away from the mothers and turned into institutions 
and the mothers never knew anymore what happened to them. 

Mr. Rusher. And they were raised as Communist Soviet children. 
Is that right ? 

The Interpreter. Yes. 

Senator Johnston. Did most of the women have babies ? 

The Interpreter. The women in the camp were at the mercy of the 
guards and other personnel so that any of them that was good look- 
ing, they could not escape. Nor did they have any opportunity to get 
rid of the babies. 

Mr. Rusher. Now I want to go back for just a moment for one of 
the figures you mentioned there. As I understand it only 15 percent, 
roughly speaking, of the people in these camps there were ethnic Rus- 
sians ; 85 percent were from what might be called the border popula- 
tions around the Russian land center. Is that correct and, if so, does 
that indicate that there is a disproportionately low number of ethnic 
Russians in these camps ? 

The Interpreter. Yes. 

Mr. Rusher. Go right ahead, please. Did you answer ? 

The Interpreter. Yes. 

Mr. Rusher. That is the case ? 



3780 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

The Interpreter. Yes. 

Mr. Rusher. Does that indicate that, politically, these other nation- 
alities were less reliable from the Soviet standpoint than the Russians ? 
Is that your experience, can you tell ? Can you tell us something about 
that from your own knowledge ? 

The Interpreter. They are not reliable. I was locked up with 
many representatives of the various nationalities of Russia — Ukrain- 
ians, Lithuanians, Georgians, Finns, Chuvas, Bashkirs, Mordvinians, 
Chechens. 

Mr. Rusher. Now, Mr. Batori, I would like to ask you a little bit 
more about conditions in these camps. Was there enough food? 

The Interpreter. No. Up to 1953 we were always suffering hunger. 
It is hard to picture what it means to live for years in hunger and 
during this time one almost becomes an animal. 

Mr. Rusher. One almost becomes an animal ? 

The Interpreter. Yes ; one almost becomes an animal. 

Mr. Rusher. Were pests in these camps ? 

The Interpreter. Many. Up to 1950 they were full of lice in the 
camps. In 1950 they cleaned that out, but even after that they were 
full of bad bugs. 

Mr. Rusher. Were there animals running around the camps, as 
well? 

The Interpreter. Yes. 

Mr. Rusher. Can you give us any particular illustrations of the 
effects of this policy of more or less starvation, or any particular in- 
stances that you know of ? 

The Interpreter. Yes. I was a witness at one of the trials, where 
it developed that some men had eaten another man in their hunger. 

Mr. Rusher. That prisoners in the camp had eaten one of the other 
prisoners ? 

The Interpreter. A prisoner ate another prisoner. 

Mr. Rusher. Will you tell us in some detail about that ? 

The Interpreter. Four of us were working in a part of the camp 
where they were drying clothes. 

Mr. Rusher. Drying clothes ? 

The Interpreter. Drying clothes; yes. Two Russians, one Tadjik, 
and myself. My job was to cut wood and bring it to the fireplace. 
And it was also my job to get their food for these four men. I forgot 
to say that in the evenings we had been visited by a man, Avram Avra- 
movitch, of Jewish origin, who was from Leningrad and who came 
there to warm himself in the evening. At that time I didn't speak 
Russian yet, but I spoke German, and I got very friendly with him. 

Mr. Rusher. What time was this ? 

The Interpreter. 1946. 

Mr. Rusher. One morning when they were counting the prisoners 
they established that one was missing. It was the regular routine in 
the morning to make a count of the prisoners. The guards were look- 
ing for the man ; they were looking all over the camp — irons and guns, 
but they could not find him, so they thought that he must have escaped. 
At that time it was not unusual that a prisoner escaped, but we were 
wondering why, since this elderly man who was not of the type we 
would think that he would escape, that he disappeared. 

Mr. Rusher. Was it this man whom you described earlier ? 

The Interpreter. Yes. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3781 

Mr. Rusher. Avramovitch? 

The Interpreter. Yes. I was surprised that these three others with 
whom I was working in that place, while before they were always 
very hungry and they cleaned out even the pots, now they were very 
generous and they even donated the soups and everything to me. And 
I was also surprised that they spoke very often about Avramovitch — 
I only heard the name; I didn't understand the language, and they 
quite often laughed when they mentioned his name. After 1 month, 
one of these men was set free. I got away from the camp, too, and 
about a year later I was called to a trial. 

Mr. Rusher. In other words, you were shipped away from that par- 
ticular camp ; is that right ? 

The Interpreter. Yes ; I was puzzled why they would take me be- 
fore a judge, but I was taken back to the camp where I was together 
with these four men. At the place where we worked at this drying 
place, they began to dig up the place, looking for something. 

Mr. Rusher. Dig up the ground ? 

The Interpreter. The ground. 

Mr. Rusher. Yes. 

The Interpreter. Then they found the pieces of bone, and I was 
asked whether I also ate from the flesh of this man. Then I found out 
the following: These three men killed this Jewish man with an ax. 
They cooked him and ate him. And what they couldn't eat they hid 
under the ground. These three men kept quiet, and they made an 
agreement they would not talk. When this one man was free, it was 
part of the agreement that the free man would send them food pack- 
ages from the outside. When these packages did not come, they de- 
nounced him because he killed the man. This is how this whole matter 
came to light. 

Mr. Rusher. How the story happened to come to light ? 

The Interpreter. Yes. My only luck was that — I was very lucky 
that they themselves acknowledged that I had nothing to do with it. 

Mr. Rusher. Now, Mr. Batori, I want to cover another subject 
matter for just a moment, please. What was the type of work which 
you and the other prisoners did in this enormous camp of 300,000 to 
350,000 at Tayshet? 

The Interpreter. Much work was done in the forest in building 
roads. We worked in mines and in factories. 

Mr. Rusher. Was this same type of work, forestry, roadbuilding, 
mining, factory work, also done at the other camps, as well as the one 
at Tayshet? 

The Interpreter. Yes. The same, even including agriculture, and 
up to 1950 the production in Siberia was mainly based on this forced 
labor. In 1950, when the Soviet production gained so much, it was 
through the work of these prisoners. And when they were running 
out of prisoners from central Europe then they made such laws that 
if someone stole the value of, let's say, 2 kilograms of sugar he would 
be put in camps of forced labor. 

Mr. Rusher. So, actually, this system of slave labor was a major 
factor in sustaining the Soviet economy ; is that correct ? 

The Interpreter. Yes. 

Senator Johnston. Now, let's go into that a minute. The camp, you 
said, was 350,000 in one ; is that right? 

The Interpreter. Yes. 



3782 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Johnston. How big was that camp ? 

The Interpreter. About 250 kilometers long. It went from Tay- 
shet to Bratsk, a length of 250 kilometers and the width of about 20 
kilometers. 

Mr. Rusher. Could you indicate on the map there the area of that 
particular camp ? 

The Interpreter. Yes. [Witness indicated on the map.] 

Senator Johnston. In other words, about 100 miles, speaking in 
American ? 

The Interpreter. They were building a railroad from where I just 
showed, to lighten the burden of the Trans-Siberian Railroad. They 
were building a railroad from Tayshet to Bratsk — over the river, a 
bridge was built. 

Senator Johnston. What is the distance across there? 

The Interpreter. The railroad that they built was more than 2,000 
kilometers long. 

Senator Johnston. It is longer than that, isn't it ? It must be some- 
where in the neighborhood of 1,800 to 2,000 miles. 

The Interpreter. Two thousand miles? 

Senator Johnston. I was going by the scale on the map here ; that 
is what I was using, just roughly speaking. 

Mr. Rusher. Mr. Batori, then the prison camp that you described, 
in which 300,000 to 350,000 people were kept, really stretched over 
several hundred square miles, a great number of buildings and bar- 
racks, a great colony, in effect ? 

The Interpreter. Yes. 

Mr. Rusher. Do we have the answer? 

The Interpreter. It spread over several hundred kilometers. 

Mr. Rusher. Square kilometers? 

The Interpreter. Square kilometers. 

Mr. Rusher. Can you — I don't suppose you had an opportunity to 
estimate the exact or approximate proportionate effect of this on the 
Soviet economy. That would be out of your scope? 

The Interpreter. Yes; I can't. 

Senator Johnston. What did they produce at this particular place? 

The Interpreter. Coal, copper, lead, manganese, cobalt, gold, which 
is still done by hand. Much gold was mined at Bodajpo. The building 
of roads, railroads, and buildings was all done by prisoners. The 
Russian population do not like to go to Siberia because of the extreme 
difference in the climate. They have cold between 45 and 50 degrees 
below zero. The winter lasts about 8 months. In the north, for in- 
stance, around Vorkuta, the summer lasts only about 2 months. 

Mr. Rusher. All right; now, let me ask you this, Mr. Batori : In the 
moving around that you did and the life that you led for 10 years in 
these prison colonies and camps, were you able to form any estimate of 
the general economic conditions around you in that part of the Soviet 
world ? 

The Interpreter. Yes. 

Mr. Rusher. Will you tell us briefly what conclusions you were able 
to draw? 

The Interpreter. The Russian people — I mean the population — 
live mostly on bread, some vegetables, and some fish they have. 

Mr. Rusher. In other words, a low level of nutrition in the Russian 
part as well as in the prison ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3783 

The Interpreter. Yes ; in order to get this food, they work from the 
age of 12 up to 70, about 10 or 12 hours a day. 

Mr. Rusher. Now again we are talking about the Russian popula- 
tion, not the prisoners ; is that right ? 

The Interpreter. Yes. In general the man works either as a soldier 
or he works as a guard. The other kind of work is done by the wives 
or women and the children and the prisoners. From the age of 17 up 
to 25 or 26, the man serves in the army. From the age of 25 up to 30 or 
31, he has to serve in workers' battalions. Russia, and particularly 
Siberia, is particularly rich in mineral sources. But coal and iron are 
so far away from each other that the transportation and other difficul- 
ties make it very hard for the industry to get raw materials. 

Senator Johnson. Is that one reason they are building these rail- 
roads ? 

The Interpreter. That is why they are building. To help on these 
difficulties, they are building these railroads. 

Mr. Rusher. What about the conditions of the rolling stock on these 
railroads, aside from the salipinsky ? 

The Interpreter. Up to 1950 they only had steam — diesel. 

Senator Johnson. The railroad is owned and run by the Govern- 
ment? 

The Interpreter. Yes, they are all owned by the state. Nothing 
is in the hands of private people. The population have very little 
furniture, for instance. They have no bathrooms. 

A man who has a radio or bicycle is counted as a rich man. 

Mr. Rusher. Now can you tell us something about the collective 
farms we hear so much about ? How are they doing ? 

The Interpreter. Yes. As I mentioned before, on the farms the 
women, children, and elderly people work. An agricultural expert 
is in charge and the commander of the militia. No man can be absent 
from work without reason. Only if he get permission from a phy- 
sician. 

Mr. Rusher. Does this result in an efficient operation of these col- 
lective farms ? 

The Interpreter. Yes, so they can produce as much as possible. 
The men receive a percentage from the.proceeds of the farm. 

Mr. Rusher. Wait a minute. Which man ? 

The Interpreter. In the collective farms. The workers. 

Mr. Rusher. This would apply to the women and children and old 
people as well ? 

The Interpreter. Yes, they all get it. They all receive a part of 
the proceeds but only if the 'farm has passed the quota, which very 
seldom happens. The have difficulties— if they have a good crop they 
may not have the machines or if they have the machines they may not 
have the oil to run them. Or they have difficulties with the climate. 
And whatever the farm produces is taken away by the state. 

Mr. Rusher. Now, Mr. Batori, as a general conclusion from your 
10 years in Siberia and the other prison colonies of the Soviet Union 
would you say that the Soviet Government and economy are strong ? 
What would be your conclusions ? 

The Interpreter. The Soviet Government stands before economic 
collapse. So that they are compelled to get whatever they can from 
the non-Soviet lands like Hungary and the other Eastern European 
lands. 



3784 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Rusher. And also to gather the slave labor ? 

The Interpreter. From Rumania, Bulgaria, and Czechoslovakia. 

Senator Johnston. Do you find any of the workers that are not 
willing workers ? 

The Interpreter. They only work because they are forced. They 
have no ambition whatsoever. They have no ambition because no 
matter how much they work they get nothing for it. A private man 
cannot own an automobile, only a member of the party. 

Senator Johnston. When you say "a member of the party," I think 
you should explain that. What do you mean by a member of the 
party ? 

The Interpreter. I mean the Communist Party, which we call the 
Bolshevik Party, which has 3 to 4 million members. Then there are 
about 8 to 10 million people who are closely connected with the party. 
The rest of them, about 190 million, are simply slaves. 

This is a clear picture of the Soviet Union and I did not exaggerate. 
You could not even believe it if I could tell everything what I have 
seen. The clothing of the population in Siberia is — they all have the 
same clothing, cotton, two layers of cotton and in between [witness 
indicating]. European clothing can be seen only in Moscow, Lenin- 
grad. They have some show factories in Moscow and Leningrad which 
is then shown to the tourists who come from Europe or other parts. 
A tourist cannot go anywhere except with a guide. 

Senator Johnston. Speaking of guides, there is generally one in 
front and one behind is there not? 

The Interpreter. Along the railroad lines trees have been plant- 
ed 

Mr. Rusher. Just a minute, what is the point of that — go ahead. 

The Interpreter. It was not because they wanted to save the rail- 
road from snow or anything else, but to prevent people to see. 

Mr. Rusher. See what? 

The Interpreter. See the country. 

Mr. Rusher. What the country looked like ? 

The Interpreter. Yes, the surroundings. 

Mr. Rusher. Senator, I understand that Mr. Batori who as you 
heard just arrived in the United States near the middle of March, 
is preparing now a written statement which will duly be translated 
and which will go into more detail and different subject matter than 
we have been able to cover here this morning. I would suggest respect- 
fully than when the day comes when that is prepared if he will offer 
it to this subcommittee, provided it isn't too long for the record and 
for the expense involved, that we would perhaps like to include it in 
our record. 

Senator Johnston. I think we would be glad to have it. 

Mr. Rusher. I have no further questions at this time, Senator. 

Senator Johnston. How many people would you estimate live in 
Siberia? 

The Interpreter. About 60 to 65 million in the Urals and in Siberia 

Senator Johnston. Sixty-five million ? 

How many are Russians? 

The Interpreter. About 15 million Russians. About 12 million 
Ukrainians. About 4 million Lithuanians, Finns. Then some of the 
smaller nationalities have been transported entirely to Siberia like the 
Tartars from Crimea. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3785 

Mr. Rusher. There has been one question suggested, Senator, which 
I will put, with your permission. 

What was your education and training before the war in Hungary? 

The Interpreter. I was preparing to be a professor of Latin and 
Hungarian and Latin languages. But in those times in Hungary con- 
ditions were such that I could not achieve my ambition. And at that 
time they enlarged the Hugarian Army where I served and I was 
accepted later on as an officer. And then I remained in the Army. 

Senator Johnston. What is your age now ? 

The Interpreter. 42. 

Senator Johnston. 42. We certainly thank you for coming today 
and giving us this information that we are not able to find out for 
ourselves by going over there. They won't turn us loose. I did go 
over just beyond the line, but as I suggested a few moments ago there 
was a party in front of me and a party behind me all the time that I was 
traveling. I didn't go very far. 

The Interpreter. I thank you very much, Senator. 

Senator Johnston. The committee will be adjourned until the call 
of the Chair. 

(Whereupon, at 12 : 05 p. m., the subcommittee adjourned, subject 
to the call of the Chair.) 



93215— 57— pt. 58 8 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 






TUESDAY, APRIL 2, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration or the Internal Security Act 

and Other Internal Security Laws 
of the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursuant to call, at 10 : 30 a. m., in room 
424, Senate Office Building, Senator William E. Jenner presiding. 

Also present : Robert Morris, chief counsel. 

Senator Jenner. The committee will come to order. 

Mr. Morris. Senator, this is Dr. Poremsky. 

Senator Jenner. How do you do, doctor. 

Mr. Morris. Senator Jenner, Dr. Vladimir Poremsky, the witness 
today, is going to testify on the general nature of Soviet tactics. The 
subcommittee has, you know, taken the position that, in order ito 
really know the nature of the Communist organization in the United 
States, since the Communist organization in the United States is an 
extension of Soviet power, we have to know the nature of the Soviet 
international organization, and Dr. Poremsky, here today, is qualified 
to testify on that particular subject. 

Senator Jenner. Proceed with the questions. 

Mr. Morris. Will you stand and be sworn, Dr. Poremsky ? 

Senator Jenner. Hold up your right hand, please. 

Do you solemnly swear that the testimony given in this hearing will 
be the truth, the whole truth and nothing but the truth, so help you 
God. 

Dr. Poremsky. I do. 

TESTIMONY OP DK. VLADIMIR POREMSKY 

Mr. Morris. Will you give your name to the reporter ? 

Dr. Poremsky. My name is Poremsky, Vladimir. 

Mr. Morris. Is that spelled P-o-r-e-m-s-k-y ? 

Dr. Poremsky. That's right. 

Mr. Morris. Where do you reside, Dr. Poremsky? 

Dr. Poremsky. In Frankfurt am Main, in Germany. 

Mr. Morris. When did you come to the United States ? 

Dr. Poremsky. On Sunday. 

Mr. Morris. That is this past Sunday, March 31 ? 

Dr. Poremsky. Sunday, March 31. 

Mr. Morris. You are the president of the NTS, are you not ? 

Dr. Poremsky. Yes. 

3787 



3788 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Will you tell the subcommittee what the NTS is? 

Dr. Poremskt. It is a Russian anti-Communist organization exist- 
ing since 1930, and striving to overthrow the Communist regime by- 
means of propaganda and by persuading the people behind the Iron 
Curtain to arise. 

Mr. Morris. Now, Dr. Poremsky, will you tell us briefly how your 
organization operates ? 

Dr. Poremsky. We operate openly in all free countries where we 
have our branches. But we operate underground in the Soviet Union. 
We operate underground only because of a terroristic system of sup- 
pression of all kinds of liberty in the Soviet Union. That is the only 
reason for our operations this way. 

We have established a system of small groups nonconnected with 
each other and we give them our instruction with leaflets and broad- 
casting. That is our system of operation. 

Mr. Morris. Do you have an organization now functioning in the 
Soviet Union ? 

Dr. Poremsky. Yes. 

Mr. Morris. Do you also have an organization functioning in the 
satellite countries ? 

Dr. Poremsky. We have our contacts with some local peoples, there, 
and we have some Russians, too. 

Mr. Morris. For instance, is there any liaison between your organi- 
zation and the cladestine underground organizations that exist in 
Hungary and the other Iron Curtain countries? 

Dr. Poremsky. No. We have the contacts with some individuals 
but not with organizations, because an organization, in the sense we 
mean it in the free world, cannot exist right now under terrorist Com- 
munist rule. 

Mr. Morris. But are you in a position to know what is going on in 
these various satellite countries as well as the Soviet Union ? 

Dr. Poremsky. Yes. We have our contacts mostly with the people 
coming from behind the Iron Curtain and visiting the free countries, 
such as the staff of embassies or trade delegations or seamen going over 
here with their ships. 

Senator Jenner. Let me get this straight. I understood you to say 
you have an underground organization in Russia, proper. 

Dr. Poremsky. Yes. That is right. 

Senator Jenner. And you have an open operation in free countries 
like Germany. 

Dr. Poremsky. Yes, sir. 

Senator Jenner. But in the satellite countries you don't have even 
an underground organization, your contact there is just with people, 
either natives or some Russians, but no underground organization? 

Dr. Poremsky. No, because 

Senator Jenner. Now, what I want to find out is — why is this pos- 
sible, how is it possible to have an underground organization in Rus- 
sia and yet you are not able to have an underground organization in 
the satellites ? 

Dr. Poremsky. We are not willing to have because we are Russian 
and our prime objective is to do something in the Soviet Union. 

Senator Jenner. I think that clears it up. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3789 

Mr. Morris. Now, by way of qualifying, though, Senator, I would 
like to press the point that you do have liaison and you do keep in 
touch with the underground individuals in the various satellites? 

Dr. Poremsky. That's right, 

Mr. Mokris. You make the distinction you are not in liaison with 
an organization but you are in liaison with individuals in the various 
satellite countries. 

Dr. Poremsky. Yes. 

Mr. Morris. Could you tell us whether that liaison is extensive, 
whether you are able to learn what is going on in the satellite coun- 
tries, and the reason I ask you that, Dr. Poremsky, is by way of qualify- 
ing you to talk on the various things that we are going to talk about 
toady. 

Dr. Poremsky. We have particular contacts in Eastern Germany. 

Mr. Morris. Eastern Germany ? 

Dr. Poremsky. Eastern Germany, because there is one of the main 
targets for our operation, the Soviet occupation army, so we contact 
these peoples by our people which we infiltrate in Eastern Germany, 
or through the channels of some German helping our work, contact- 
ing the Soviet occupational army. So, through the same channel of 
this German helping our work, propaganda work among the occupa- 
tion army, we have all kinds of information about what happens in 
Eastern Germany. 

Mr. Morris. So therefore you are able to learn, through these con- 
tacts that you have described, what is going on in Eastern Germany. 

Dr. Poremsky. Yes. 

Mr. Morris. Do you have such contacts in Hungary and Poland ? 

Dr. Poremsky. Yes; we have such contacts in Hungary, too, be- 
cause our field of operations is in this contact, too. There are some 
occupational forces in Hungary and we try to maintain contact with 
them by our people coming through or by the Hungarian people com- 
ing through, going to and fro from Hungary to the west, and vice 
versa. 

Mr. Morris. Now, how do you operate, Dr. Poremsky? In other 
words, do you use the free world as your base of operations ? 

Dr. Poremsky. Yes. That is so; because it is impossible to have 
an organization, center of organization, inside Soviet Union, and our 
people are spread everywhere and we in the free world assume the link 
with them. 

Mr. Morris. Now, do you organize people on a base that is within 
the free world and then do you send them in behind the Iron Curtain ? 

Dr. Poremsky. That depends. Mostly we operate with the Soviet 
citizens which we contact somewhere, let's say, in Eastern Germany, 
some officer or soldiers. We enroll them in our organization and then 
after delivering them from the army, they are automatically our peo- 
ple working in the Soviet Union. We are trying to interest the Soviet 
marines or seamen visiting the ports. We contact them, giving them 
our literature and explaining to them our goals and our strategy and 
so they are working for our organization after they return home. 

Mr. Morris. Now, Senator, I would like to ask the witness, if it 
meets with your approval, about the conditions that exist in some of the 
satellite countries at the present time. We have gone over this area 



3790 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

with Dr. Poremsky, and I think he can give us some valuable testi- 
mony. 

Senator Jenner. That will be all right. 

Is the Doctor in a position to tell us, or give us some estimate of the 
strength of his organization ? 



Dr. Poremsky. The strength of 

Mr. Morris. Your organization. 

Senator Jenner. Of your organization. 

Dr. Poremsky. Because of the character of our organization, we 
try to have people to act and not to report. We are not interested to 
know exactly the number of our people, because if we have some tech- 
nical means to know this number, it would be the same for the oppos- 
ing side. We believe so, so we try to avoid all technical means, nor- 
mal technical means of communication, let's say meetings and open 
contacts or so, but we can estimate the number of our people by the 
violent reaction of the Soviet Government. 

Senator Jenner. What is your estimation ? 

Dr. Poremsky. Thousands and thousands. 

Senator Jenner. Thousands 

Dr. Poremsky. Which we know there certainly are, as our members 
are enrolled through the direct contacts of our people outside of Soviet 
Kussia or in the occupational arm or in the marines. 

But, according to our literature, we urge all the people reading our 
literature to enroll themselves in our organization without reporting 
it. We don't know, and we cannot estimate the number of such people 
enrolled by this act of 

Mr. Morris. You say that judging by the Soviet reaction to your 
work that you think you have great strength. Now, what do you 
mean by that, Dr. Poremsky ? 

Dr. Poremsky. It runs to some hundred thousand probably. 

Mr. Morris. Hundreds of thousands? 

Dr. Poremsky. Hundreds of thousands according to the reaction of 
the Soviet press and Soviet authorities. 

Mr. Morris. Well, could you tell us about that reaction ? 

Dr. Poremsky. This reaction was particularly violent after the 
Hungarian event. They have published many editorials in the Cen- 
tral Press, they attacked our organization in radio broadcasts 

Senator Jenner. By name ? 

Dr. Poremsky. By name. 

Senator Jenner. NTS? 

Dr. Poremsky. They have sent protests, official diplomatic protests 
in Great Britain 

Senator Jenner. Sent what ? 

Dr. Poremsky. Diplomatic 

Mr. Morris. Protests. 

Dr. Pomersky. Protests to the British Government asking the 
British Government to prohibit our activities among the marines 
visiting the English ports, that's one example. 

Then there is a situation about our criminal activity in Soviet Union 
on the floor of the United Nations recently, there was a speech men- 
tioning our organization by name. 

Then quite recently there were some more articles about activities 
and in one particular instance they accused our group of proposing 
that Moscow help the visitors to see what is to be seen and not what is 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3791 

shown. The accuse us of having done it and they say that it is — it was 
done only in the interest of American Intelligence. The comment ap- 
peared in Komsomolskaya Pravda on the 27th of March of this year 
and before leaving Frankfurt I heard by telephone from our people 
in Berlin there are some new articles about our organization in a 
special magazine for the Soviet fleet in the issue of March. And then, 
in the other magazine for the foreign people, for the outside of Soviet 
Russia, New Times, an article by Zaslavsky giving a title about our 
activity. 

Mr. Morris. Dr. Poremsky, could you tell us what role you had, for 
instance, in the Hungarian uprising, for instance? Were there any 
Soviet soldiers defecting to your knowledge ? 

Dr. Poremsky. Our role was to facilitate the cooperation and pos- 
sible mutual understanding between the Hungarian rebels and the 
Soviet soldiers in the Soviet camp to avoid bloodshed. 

Mr. Morris. You wanted to facilitate the merging of forces between 
the resistance in the Soviet Army and resistance among the Hun- 



gar tis ? 



Dr. Poremsky. That is so. 

Mr. Morris. Tell us about that. 

Dr. Poremsky. We believe, and it is supported by testimony of our 
people contacting Soviet occupational troops, that in the army there 
are so many anti-Communists and the rest, the bulk of the population, 
and we estimate some 90 percent, 90 percent of the people are violently 
anti-Communist in the army. 

Mr. Morris. Of the Hungarians ? 

Dr. Poremsky. Of the Russians. 

Mr. Morris. Russians in Hungary ? 

Dr. Poremsky. Everywhere, including Soviet occupational army. 

So, the only possibility for the Soviet Government to let them act 
against the rebels is to indoctrinate them and don't tell them the fact 
the Hungarian uprising was a real popular one, not instigated or 
propagated from abroad, but really done by Hungarian workers 
against the dictatorial regime. So our role was to oppose this Soviet 
indoctrination. We have been told that some of the Soviet soldiers 
had it explained to them that the objective of Soviet soldiers in Hun- 
gary was to oppose the Anglo-French mission on the Suez Canal and 
some people coming to the border were told by the political experts 
that it was not Egypt but Suez canal, and our objective was to push 
out the Anglo — the British and French. So bad was the need of this 
indoctrination that they went to such means of lies. 

And, our objective was even to disclose the truth about the popular 
uprising and on the other side to explain for the Hungarians there that 
certainly there are so many anti-Communists in the Soviet tanks and 
they are striving for liberty, for the overthrow of the Communist re- 
gime ; that it is the same and if they achieve something in Hungary it 
will be the first step for the liberation of Russia too. 

We hope that we have done something in this way and so — helping 
to avoid unnecessary bloodshed and unnecessary clash between the 
Hungarian rebels and eventually Soviet soldiers. 

Senator Jenner. And you mean the Russian Army, the military 
men did defect in the Hungarian situation to quite an extent, did they 
not? 



3792 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Dr. Poremsky. Yes, thousands of them. How many, we have no 
exact figure. 

Mr. Morris. But you knew there were thousands ? 

Dr. Poremsky. Thousands of them. 

Senator Jenner. And in the last struggle there, the last desperate 
struggle, my information is that the Russian leader brought in the 
Mongol soldiers. 

Dr. Poremsky. Mongols? No, it was not quite Mongols, we can 
call them Mongols because they look — — 

Mr. Morris. They look Mongolian ? 

Dr. Poremsky. They look like them, they appear — they are people 
from central Asia, Cossaks, and Uzbeks, people which look Mongolian 
but are of a slight different origin. 

Senator Jenner. What was the reason for that? Were they 
stronger Communists than the others ? 

Dr. Poremsky. There were some of them speak badly, even Rus- 
sian. The Soviet people, Soviet occupational troops previous to the 
event in Hungary established some kind of social contact with the local 
population and in Hungarian schools there was teaching of Russian. 
There was the possibility for Hungarians to speak bad Russian, but 
still Russian, with the Soviet soldiers ; but these fresh newcomers speak- 
ing badly, even Russian, there was more handicap for Hungarians to 
contact them and explain the situation. That was the main reason. 

Mr. Morris. How about the Russian occupation forces that were in 
Hungary at the time of the uprising, were there numerous defections 
among those forces ? 

Dr. Poremsky. There were — how many divisions ? Three divisions 
in the first stage of the revolution, but the occupational force in Hun- 
gary, during the first stage of the event were practically inactive, even 
because of previous social contacts and they understood the fact that 
since there was no provocation, no capitalist or Americans coming in 
and provoking the revolution, but that it was a genuine and popular 
uprising, so they practically withdrew the troops and the assign- 
ment to repress was given to the fresh troops coming in on the first of 
November. 

Mr. Morris. Were those other troops indoctrinated in a different 
way from the first occupational troops ? 

Dr. Poremsky. Oh, yes, certainly. They were lacking the knowl- 
edge about what was going on in Hungary and even lacked the techni- 
cal possibility to know it because these fresh groups were mostly Com- 
munist troops and the Soviet soldiers were ordered to remain in the 
tanks and they were told: "If you go out of the tank you will be 
immediately shot by the Hungarians." The Hungarians revolting 
were not all anti-Communists, but anti-Russians too; but some said 
they remained in the tanks with no contact with the people and then 
there was a lapse of time between the beginning of the revolution and 
the coming of these fresh troops and it took the Soviet Government 
13 days to reach the decision. In the Stalin time, it would have taken 
only a few hours, but in this time we have now in Soviet Russia the 
collective leadership and like every collective leadership, I'm not 
blaming democracy, but it is not going too rapidly as by a single man 
rule, but there was some other technical reason for delay: The need 
for thorough indoctrination of these troops before sending them in. 

Mr. Morris. You say the need of thorough indoctrination. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3793 

Dr. Poremskt. Yes. 

Mr. Morris. What was the reason for the delay in the Soviets mov- 
ing in, that ? 

Dr. Poremskt. Yes. 

Mr. Morris. Can you tell us to what extent the Russian troops may 
have aided the Hungarian freedom fighters? 

Dr. Poremskt. It was the different possibilities not to execute the 
Soviet orders, so many soldiers and even officers have done it. 

Mr. Morris. You say soldiers and officers didn't execute the orders 
to shoot ? 

Dr. Poremskt. To shoot, yes. There was one example we know ex- 
actly, there was a transport of Hungarian students, young people, to- 
ward Soviet Russia. It was after the first of November, and I person- 
ally spoke with the Hungarian escaping from this transport, and he 
said that this transport was conducted by some MVD people, but the 
soldiers of the common army have arrested this MVD people and let 
out all the Hungarians from this particular transport. And one of 
these Hungarians come over to the West and I spoke with him and he 
was very grateful for the Russian soldiers letting him escape from 
this transport, So that the more active ones was for, of the Soviet 
soldiers, not to execute the orders to shoot and to help the Hungarian 
people that way as I have just told, or eventually and perhaps it hap- 
pens, too, to join directly with their arms the Hungarian rebels. 

Mr. Morris. Do you know of any instances of Soviet soldiers join- 
ing the Hungarian uprising ? 

Dr. Poremskt. Yes. There were even actual fighting between some 
Soviet tanks, these tanks shooting against the AVO, that is the 
Hungarian secret police. 

Mr. Morris. How do you know that, Dr. Poremsky ? 

Dr. Poremskt. From the testimony of the people which fled to 
the West afterward, Hungarians. 

Mr. Morris. Have you talked to them, is that it, Dr. Poremsky ? 

Dr. Poremskt. Well, with this particular people I haven't talked, 
but the people in my organization have contacted them in Austria and 
Germany and that was their testimony about these facts. 

Mr. Morris. I am not asking you where this took place, but have 
you, yourself, personally spoken to Russian officers who have come 
out of the Hungarian — Russian soldiers and officers who have come out 
of Germany and Hungary ? 

Dr. Poremskt. Just before leaving Frankfurt I spoke with a young 
Soviet soldier who have not assisted the event because he came along 
later, but as an operator for the cinema for the troops, he had many 
trips among the Soviet troops in Hungary, and he described the re- 
action, the sentiment and the description of facts as seen by Soviet 
soldiers. 

Mr. Morris. What did he say ? 

Dr. Poremskt. He confirmed all we knew about this, that the 
Soviet army was reluctant to combat, reluctant to execute the orders 
because they were aware there is no — no real provocation, there is no 
capitalist or Americans or some other people fighting with the 
Hungarians but the real workers, some of them showing the Soviet 
officers even their Communist Party cards, and just to show that they 
are Communists but they oppose this dictatorial system. 

93215— 57— pt. 58 4 



3794 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Would you say on the basis of what you know that the 
Russian forces and Soviet forces did aid the Hungarian freedom 
fighters ? 

Dr. Poremsky. Yes, certainly; so much that one of the close ob- 
servers of this event, Salvador de Madriago, a famous Spanish writer 
now residing, I believe, in England, wrote in the Manchester Guardian 
an article saying that the only non-Hungarians fighting on the side of 
the Hungarian rebels was the Russian soldiers. 

Mr. Morris. You might say that the Hungarians got most of their 
assistance from the Russian soldiers, more than they did from the 
West? 

Dr. Poremsky. That is so, and the liberation of so many Hungarians 
I have met after the event, they are very friendly toward Russia and 
cur organization because our organization helped them in so many 
ways and they know our organization is a Russian one. 

Mr. Morris. Now, in your leaflets — did you use leaflets at the time of 
the Hungarian uprising? 

Dr. Poremsky. Yes, sir. 

Mr. Morris. To whom were your leaflets addressed ? 

Dr. Poremsky. To the Soviet soldiers, and we, in the last days of 
the first stage of the revolution, some days before the 1st of November, 
some of our literature were distributed by the Hungarian airplanes 
over Budapest. 

Mr. Morris. In other words, Hungarian airplanes carried your 
leaflets? 

Dr. Poremsky. Yes. 

Mr. Morris. In other words, freedom fighters were able to get some 
planes and those planes were used to distribute your leaflets over Buda- 
pest. 

Dr. Poremsky. Yes. 

Senator Jenner. Your leaflets were addressed to the Communist sol- 
dier, not to the Hungarian people ? 

Dr. Poremsky. There was on the back, a note in their language ex- 
plaining why we needed this leaflet placed in the hands of the Soviet 
soldiers, explaining to the Hungarians; but practically it was the 
Hungarians that dropped the leaflets and putting them, too. 

Mr. Morris. Dr. Poremsky, you have some samples of these leaflets 
(exhibiting same to Senator Jenner). 

Senator Jenner. I see. 

Mr. Morris. Now, Dr. Poremsky, could you estimate how many, on 
the basis of what you have been able to learn, how many Russian offi- 
cers and soldiers defected ? 

Dr. Poremsky. Probably a few thousand. 

Mr. Morris. A few thousand? 

Dr. Poremsky. A few thousand, three or five thousand, probably, 
but we have been told that 3,000 were delivered back to Soviets on the 
eve of the 1st of November, to the general assembling these soldiers 
and giving them up to the Soviet, but the rest, remainder, certainly are 
in Hungary with the Hungarian people, guerrillas. How many, we 
don't know. 

Mr. Morris. Dr. Poremsky, the subcommittee is endeavoring to 
learn the identity of any Russian soldiers who may have crossed the 
border into Austria. We have found it difficult to get such people. 
Should we conclude from that that there have been no Russian troops 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3795 

crossing the border, or should we take that into consideration in calcu- 
lating the number of defections? 

Dr. Poremsky. Probably there were a few individuals coming over. 
We must realize the psychology of the Soviet soldiers going over. If 
he is going over, that is to fight, really, and concretely with the arms 
and the hands, fight the Communists and not to enjoy the secure life 
somewhere in the West. So, among the people which really joined 
the Hungarian rebels to fight, there was — even it was to fight and not 
to go over, but certainly there are some, but I believe that it was par- 
ticularly of interest to the Austrian Government to conceal these 
people. 

Mr. Morris. If there were any, the Austrian Government would 
have to send them back to the Soviet Union. 

Dr. Poremsky. It would be politically unwise, morally, morally im- 
possible to do it and to let them remain in Austria. It was very dan- 
gerous because it would give the pretext for the Soviet to intervene 
in Austria, so it's very improper. 

Yes, we have some of these escapees, Soviet escapees, in Frankfurt. 

Mr. Morris. You have some of them ? 

Dr. Poremsky. Yes. 

Mr. Morris. And your organization is working with them, keeping 
in touch with them ? 

Dr. Poremsky. We are in touch with them, they are not now just 
our members, but sympathizers. 

Mr. Morris. Do you feel, on the basis of the information that you 
learned from your organization, and its organizational contacts, that 
there will be another uprising ? 

Dr. Poremsky. I strongly believe it would come in the near future 
because what is generating, the events like that in Hungary, that is 
not because of help we give from the free world, our organization on 
the whole of the free world. That is generated by the weakness of 
the Soviet regime. The first uprising also of Poland, in Soviet Rus- 
sia and in all the satellite empire in 1953, June, in the spring in war 
concentration camps in Soviet Russia, and the uprising of Berlin, and 
I believe that the motivation of it was the sense of the weakness of 
the regime which followed the Stalin death. 

Mr. Morris. This is the German uprising you say, motivated or im- 
pelled by the realization of the weakness of the regime ? 

Dr. Poremsky. Yes ; after Stalin. 

Senator Jenner. After Stalin's death. 

Dr. Poremsky. They realize now that the Soviet Government and 
Communist regime is not so strong as they were previously, so they 
attempted this uprising. 

Then the second manifestation of an open weakness was the organi- 
zation during the 20th Congress, so we can say it was the second 
death of Stalin, and the answer to this weakening, the next step in 
the weakening of the Soviet regime was the events of Poland and in 
Hungary, and I believe that the weakening of Soviet regime is an ir- 
reversible process and it must cause something in the near future 
which will show for all the people that the next step to the decomposi- 
tion of the Communist power is coming and that will motivate some 
other events like Hungary, the Hungarian events. 



3796 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. Do you think the attitude of the West is wise, as it 
manifested itself at the time of the Hungarian crisis, to do nothing at 
all about this uprising ? 

Dr. Poremsky. It was pretty disastrous because the people behind 
the Iron Curtain grew more and more disillusioned about our attitude 
toward them. We, here in the West, not willing or not having the 
sympathy or views to do it, so I believe that it was a very unhappy 
thing. 

Mr. Morris. A very what ? 

Senator Jenner. Unhappy. 

Dr. Poremsky. Unhappy thing to do nothing about it. 

Mr. Morris. Do you think that anything could have been done at the 
time ? 

Dr. Poremsk r. Certainly I believe it, but we lacked the courage to 
do it. We shift the responsibility for such action to the United Na- 
tions, knowing in advance that the United Nations can do nothing in 
such occurrences. 

Mr. Morris. Do you think that the West was foolish in committing 
its policy to the United Nations at the time of the Hungarian crisis? 

Dr. Poremsky. No, I don't blame this policy — it was the only thing 
possible — but we are unprepared for any other method of intervention. 
I personally believe, and we are trying now to forge the instrument 
of such an intervention which will be based, not on the Government 
and their policy, but on public opinion and the use in the youth in 
the free countries, because the reaction of the youths, particularly, 
I have said personally, in the European countries, was a very violent 
one. They were willing to do something for Hungary and asking 
their superiors in their Government to do something, but even the 
Government and the older politicians were reluctant to do so. I be- 
lieve this may be because all the old people are a bit involved in this, 
either joined communism or have not opposed it violently or have 
bee7i sympathizers with Communists, so their conscience is not quite 
clear. The youth is free of this what— this cooperation in the guilt. 
They can oppose violently the communism, because even today people 
help the Communist to establish 

Mr. Morris. You say that a factor we have to consider is the fact 
that the older people and the older political personalities, because of 
their indulgences in permitting communism to grow to the extent it 
has grown 

Dr. Poremsky. Yes ; it is that. 

Mr. Morris. That they cannot act decisively because by their own 
past actions they themselves may be involved? 

Dr. Poremsky. Yes ; I believe so. 

Mr. Morris. Whereas the youth are able to act directly and with- 
out any consciousness of having participated themselves. 

Dr. Poremsky. And they are the same in the free world and be- 
hind the Iron Curtain, the young people in Hungary and Poland 
where the state stagnated now, and the same now in Soviet Russia, 
the young students, writers are the promoters of the new spirit, of 
the new and violent opposition to communism. 

Mr. Morris. And you think that the United Nations cannot pro- 
vide the machinery for aiding people who are in chains ? 

Dr. Poremsky. No. The Communists being in the same building 
with the others. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3797 

Mr. Morris. Well now, do you feel that, if there had been any in- 
tervention or any assistance given to the Hungarians at the time of 
the Hungarian uprising in October and November, the Soviet Union 
could have gone on to aggression in the Middle East ? 

Dr. Poremsky. No. I believe that even because of the free world's 
inactivity, reluctance to do something during the Hungarian events, 
was somewhat encouraging for the Soviets to intervene in the Middle 
East. 

Mr. Morris. You mean the inactivity of the free world at the time 
of the Hungarian crisis even sparked the Soviet aggression in the 
Middle East? 

Dr. Poremskt. Yes, I would like to say they provoked this aggres- 
sion, this attitude in the Middle East. 

Mr. Morris. And do you say that if there had been some interven- 
tion of some kind in Hungary, then you say this other would not have 
taken place? 

Dr. Poremsky. Yes. Even very strong and firm position in the 
Hungarian question would probably check the next Soviet step in the 
Middle East, 

Mr. Morris. Now, I wonder if you, Senator, would like to know any 
more about the Hungarian situation at this time ? 

Senator Jenner. No. 

Mr. Morris. What do you think the attitude of the free world should 
be now with respect to Poland ? 

Dr. Poremsky. Poland has quite a particular situation right now. 
It is not to be compared with Titoism. Gomulka is not a Titoist. 
Tito is just another Communist dictator having against him the bulk 
of the Yugoslav population. It is not quite so important. Gomulka 
enjoyed some kind of conditional support from the population. He 
is compromising between the demand of the population asking him to 
do one kind of thing, and the Soviet leaders in Moscow striving that he 
would do some other things, so he is compromising with these two 
trends and so much as he is on the side of the Polish population, so 
much he is supported by the population; but this kind of support has 
been given on condition that he will follow the route, possibly the 
same as Imre Nagy had done in Hungary. 

Mr. Morris. You mean he has certain popular support which will 
be pledged to him as long as he pursues an independent course or tries 
to pursue an independent course ? 

Dr. Poremsky. Yes, that is so. 

Mr. Morris. At the same time, are the Soviets imposing any con- 
ditions on him? 

Dr. Poremsky. Oh, yes, certainly. 

Mr. Morris. Could you tell us about that ? 

Dr. Poremsky. The Soviet policy in this particular situation is to 
blackmail the Polish people with the vision of revival of German 
militarism, the Soviets giving the guaranty for the other line between 
Poland and Germany, and they try to reintroduce in the government, 
in the central committee of Communist parties, the people which are 
opposing Gomulka. That is the kind of maneuver they try, by which 
they try to restore the situation in Poland. 

Mr. Morris. Do you have any advice for the United States, particu- 
larly the United States Senators who are concerned about Polish aid, 
as to the form aid to Poland should take ? 



3798 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Dr. Poremsky. I would like to put it this way : Help Polish people 
but not help Gomulka. 

Mr. Morris. How could you accomplish that, can you make that 
specific ? 

Dr. Poremsky. So, if this aid would consist of some consumer goods 
given to the Polish population and specifically labelled "made in 
the United States," it would be probably the best way to realize this 
help. 

Senator Jenner. How could you do that without Gomulka's or the 
Government's cooperation ? 

Dr. Poremsky. If he is not cooperating, then just give this aid on 
the same conditions the Polish people are imposing on Gomulka. This 
kind of conditions would get it back to the Polish people. 

Mr. Morris. You say because the Polish people themselves are 
imposing 

Dr. Poremsky. Some conditions on Gomulka. 

Mr. Morris. And that we, by the same token, have the same con- 
ditions ? 

Dr. Poremsky. Yes. There is a general principle in such a thing, 
that is to help the people and not the ruler. Gomulka is still a Com- 
munist ruler. 

Senator Jenner. How are you going to mark grain, for example, 
wheat, as made or coming from the United States, how can you identify 
it ? How are the people ever going to know that this country helped 
them instead of helping Gomulka \ 

Dr. Poremsky. I believe there is something, there are technical pos- 
sibilities with our propaganda machinery and now the public life in 
Poland is more free than it was before, so many people are coming 
outside and speaking practically freely with the other people outside 
Poland, and so many visitors going there, so probably right now just 
such a fact couldn't be concealed from the population, it would be 
everywhere known. 

Mr. Morris. Do you think that the West should have a plan to 
anticipate this new uprising that you say will take place? 

Before I ask you that, where do you think this next uprising will 
take place, Dr. Poremsky ? 

Dr. Poremsky. It is very hard to fix an exact date about that, but 
I hope in the very near future, perhaps in 1 or 2 years it may happen. 

Mr. Morris. And do you think it is important that a plan on the 
part of the "West be formulated before this event takes place? 

Dr. Poremsky. Yes, I believe it is absolutely necessary because there 
are only two possibilities open : Overthrow of the Communist regime 
by the means of popular uprising, or this atomic war. There is no 
other way out of the situation, and the chances of the big war, shoot- 
ing war, are threatening more and more every day, so in the future it's 
unavoidable, if Ave don't do something in the other field, in the field 
of overthrowing the Communist regime by insiders, inside forces, and 
so excluding even the chances of that war automatically. 

Mr. Morris. You say if we do give some attention to overthrowing 
the Communist regime that we are insuring ourselves against a third 
world war? 

Dr. Poremsky. Yes, I possibly believe there is the only chance for it. 

Mr. Morris. Senator, in connection with that we had a witness here 
recently who testified, that from his knowledge and from his con- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3799 

tacts inside Hungary, lie expected there would be another uprising in 
Hungary. I think Senator Hruska was presiding at that hearing, and 
made the recommendation to the American Ambassador to the United 
Nations, Henry Cabot Lodge, that the United Nations and the West 
should develop some kind of plan before such uprising takes place. I 
can recall that Ambassador Lodge did say that he was recommending 
to the State Department that it institute some kind of a plan to antici- 
pate the next uprising, if it takes place. 

Can you make any recommendations about such a plan to anticipate 
another uprising ? 

Dr. Poremsky. We are trying to do this on private level because we 
believe that public opinion is the most important factor. It is very 
difficult in our democratic countries for the government to do some- 
thing in this situation without the approval of the public opinion. 

I would like to begin this way : With public opinion, the private 
organization anticipating taking the risk for this preparation, it is 
probably now too early to take these responsibilities for the govern- 
ments, but the private group and private citizens can do it and can 
do it very effectively. Just to mention an example, our organizatizon 
had an international meeting last year and there it was stated that some 
kind of an international liaison bureau or organization on an inter- 
national level must be created. Now this enterprise is beginning to 
be realized and I have said it in a small press conference in Frankfurt 
2 months ago, and immediately this idea even was violently attacked 
in the Soviet press in all the satellite countries and in the Soviet central 
press, too. All these anti-Communist organizations are not building 
the unit, one single international center, and they are very sensible 
about this idea of having an international force opposing them [the 
Communist government] so they cannot accuse just American im- 
perialism or German militarism or some other, but the Communist is 
opposing them on international level with the private organization 
which cannot be accused that they are the tools of this, that, or the 
other 

Mr. Morris. The free forces of the world. 

Dr. Poremsky. Yes, like United Nations but not on government 
level, but on the level of anti- Communist groups of people. 

Mr. Morris. Dr. Poremsky, this Internal Security Subcommit- 
tee is primarily concerned with Communist infiltration within our 
borders. Are you able to know about, say, the Soviet officials who 
come to the United States, or the nature of the Soviet organization 
in the United States ? Can you tell us anvthing about that, Dr. Porem- 
sky? 

Dr. Poremsky. All the testimony and the facts we know support 
this conclusion, that all the Soviet people, practically all. going abroad, 
are agents for the Soviet Government, not only for the Soviet Govern- 
ment but the most of them for the secret police. They are especially 
trained, have special instructions, and if they are diplomats, they are 
diplomats only secondly ; first, they are agents. 

Mr. Morris. You say they are agents first and diplomats second? 

Dr. Poremsky. Yes, that's so. 

Senator Jenner. Doctor, in your estimation, would that apply to 
commissions and so forth that are sent over here by the Communist 
government to study our technical know-how in industry and agri- 
culture and so forth ; would that same statement apply ? 



3800 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Dr. Poremsky. Not wholly, those they need for the camouflage; 
there will be some in this delegation, some specialists too, and in tech- 
nical delegations, technical places they have professional men, but still 
they are accompanied by the special people as advisers, or inter- 
preters and so on who assume the role to watch them and to do the 
spying work. 

Mr. Morris. You were telling us last night, Dr. Poremsky, the im- 
portance of the American Daily Worker in the Communist scheme of 

things. . . 

Dr. Poremsky. Yes. There was a particular instance — I visited 
recently in the Philippines and I have been told by the local people, 
the defense minister, that the Communist infiltration in the Philip- 
pines is going via United States. 

Mr. Morris. You mean the Communist infiltration over in the Phil- 
ippines is now taking place via the United States ? 

Dr. Poremsky. Yes, via United States. 

Mr. Morris. What do you mean by that, Dr. Poremsky ? 

Dr. Poremsky. That the brains for the Communist Party in the 
Philippines are in the United States, or eventually some American 
citizens of Communist extraction are organizing or helping to organ- 
ize the Philippine Communist movement. 

Mr. Morris. Is it a fact that there is a reservoir of good will in the 
Philippines, in the Philippine Islands, toward the United States that 
is being capitalized by American Communists to carry on their work 
of conquering the Philippines ? 

Dr. Poremsky. Yes. That is why they play the role, but there was 
the technical common language, and so many times between the Phil- 
ippines and the United States, helping the Communists utilize these 
chances for carrying on this work. 

Mr. Morris. Could you say this, I'd like to get back to this reference 
that you told us about the Daily Worker last night, you remember that 
the Daily Worker is quoted in the Soviet propaganda organs. 

Dr. Poremsky. That is very interesting, because it is considered in 
the United States as a paper of no importance, but they cite references 
to the same publication in the Daily Worker and for a reader in the 
Soviet Union or a satellite state, they don't know the importance or 
unimportance of the Daily Worker, and if this is a reference from the 
Daily Worker, it is just the same as a reference to the New York 
Times. Eeferring to the Daily Worker means, to the public, referring 
to the public opinion in the United States. 

Mr. Morris. In other words, how is it referred to in the Soviet 
propaganda organs ? 

Dr. Poremsky. The central press — that in the Daily Worker was 
said this and this. 

Senator Jenner. The Daily Worker of what, the United States? 

Dr. Poremsky. Yes, yes. 

Senator Jenner. I see. 

Dr. Poremsky. In the Soviet central press, saying that the public 
opinion in the United States is against the President's doctrine in 
the Middle East, taking that question. 

Mr. Morris. People who hear that over there don't realize that the 
Daily Worker is a Communist publication operated out of New York 
City? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3801 

Dr. Poremsky. No. So many know nothing about the United 
States, some people know all about it; but not the common reader 
in the Soviet Union. 

Mr. Morris. I wonder if you could tell us generally about the num- 
bers of the Soviet representatives that attend the various diplomatic 
and United Nations missions throughout the world ? You were tell- 
ing us something about that. 

Dr. Poremsky. The number of these people is very much exagger- 
ated. I felt that in Indonesia, for the embassies, the staff of the em- 
bassies, 300 people in the Soviet Embassy in Indonesia, all this is need- 
less for the normal diplomatic routine. It only can be explained by 
the particular interest the Soviet corresponding agency hasin sub- 
versive work in Indonesia, and in all the countries trying to increase 
the number of so-called diplomatic representatives. Some of them 
are routine professional workers, but the most of them are not. 

Mr. Morris. Now, you say that there is a large delegation in Indo- 
nesia, a large Soviet delegation ? 

Dr. Poremsky. Yes. 

Mr. Morris. How do you know? 

Dr. Poremsky. I have been told by the Chinese coming from Indo- 
nesia that there are 500 people in the embassy staff at Jakarta. 

Mr. Morris. Mr. Chairman, I would like to make reference in the 
record to a statement made by a Philippine official here on Sunday. 
This was to the effect that even if the United States should — and he 
put it supposititiously — even if the United States should recognize 
Communist China, the Philippine Government would not recognize 
Red China. He said they have a realization, over and above the moral- 
ity of the thing, that the real problem in the Philippines is that there 
is a large Chinese population and, with a Red Chinese ambassador and 
Red Chinese representation there, there would be an organization 
fraught with Red agents who would be doing work, all kinds of mis- 
chief among the Chinese population. He went on to point out that 
this Chinese population in the Philippines, in the Philippine Islands, 
is a very important part of the economic life and poses a particular 
problem to the Philippines. This problem is emphasized by your 
statement just now that Indonesia, in Indonesia the Soviets have 500 
people in their diplomatic mission 

Dr. Poremsky. Yes. 

Mr. Morris. Especially since you say that, from your experience 
they are mostly agents, and diplomats second. 

Dr. Poremsky. Yes, most of them, but few realize there is no need 
for 500 professional diplomats in Indonesia, there is nothing for them 
there. 

Mr. Morris. Now, is it important to the United States to keep up its 
guard in connection with infiltration from abroad ? How important 
is that ? Give us some idea on that, Dr. Poremsky. 

Dr. Poremsky. The Communists have a global doctrine and they 
are_ systematically pursuing their goals. So, probably right now the 
United States is not the weakest spot, when the infiltration gives some 
very important results, but it is so right now, but the situation can 
change. They are using their reserves of infiltrating people for the 



3802 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

occurrence. This spot may grow up as a weak one. It can happen 
anywhere in the world, so the damages of infiltration are twofold: 
Practically they know through the infiltrating agencies all our steps 
against them, they sabotage our strength, military, industrial, psy- 
chological strength which is most important, or these people are here 
for the eventuality of something happening, enemies, crisis, or some- 
thing. So these people build a spot for this opportunity and to in- 
crease their importance, and their damage which they can organize. 

Mr. Morris. Now, have you read this short release that is prepared 
on the letterhead of the International Research on Communist Tech- 
niques, about yourself ? 

Dr. Poremsky. Yes. 

Mr. Morris. Are the facts in there, in the 2-page summary, of your 
own tactics and the organization, true ? 

Dr. Poremsky. Yes. 

Mr. Morris. Senator, I know, in your time limitation this morn- 
ing, I did not take the witness through this 2-page summary of his 
own particular experiences. Now that he has testified here under 
oath, this is an accurate statement, may this go into the record by way 
of qualifying the witness and what he has said ? 

Senator Jenner. This may go in the record and become a part of 
the official record of this committee. 

(News release from International Research on Communist Tech- 
niques, Inc., is as follows:) 

[News Release From International Research on Communist Techniques, 
Inc., 55 West 42nd Street, New York, N. Y., April 2, 1957] 

BACKGROUND NOTES ON DR. VLADIMIR POREMSKY 

Dr. Vladimir D. Poremsky, 48, is the president of NTS (Natsional'no-Trudovoi 
Soyuz), the National Alliance of Russian Solidarists, whose international head- 
quarters in Frankfurt/Main, W. Germany, coordinate the anti-Communist activi- 
ties of this organization on both sides of the iron curtain. 

NTS is the nucleus and directing force of the Russian revolutionary move- 
ment, whose goal is the establishment of a free representative government in 
Russia. The NTS political offensive is aimed at developing such a strong op- 
position to the Communist regime that the change in government can be accom- 
plished with a minimum of physical conflict. Because of the nature of the Soviet 
police state, NTS is forced to operate underground within the U. S. S. R. and 
among Soviet occupation troops in satellite countries. Its chief methods are 
the distribution of literature (leaflets, pamphlets, newspapers, books), short- 
wave broadcasts, and personal contact. 

Within the free world, where NTS is represented in some 24 countries, the 
activities of its members are carried on openly. These are proving of real 
value in helping to expose Soviet propaganda and methods of operation, and 
serving as a liaison between the free and the enslaved peoples. 

Vladimir Poremsky fled from strife-torn Russia with his parents in 1921. 
He studied in Yugoslavia and in France, where he completed his Ph. D. in chem- 
istry at the Sorbonne. He is fluent in a number of languages, including Eng- 
lish, Russian, French. German, Ukranian, etc. He is married, has a son (now a 
student at a leading German university), lives in Frankfurt/Main. 

Dr. Poremsky was one of the founders of NTS, which was organized in Belgrade 
in 1930 by young Russian emigre students in Europe, for the purpose of developing 
a positive program for a Free Russia and a revolutionary technique that could 
operate successfully within the Soviet police state. The NTS "molecular system 
of revolution," worked out by Dr. Poremsky, has made possible the organization 
of a completely decentralized underground that operates according to a basic plan 
of strategy. This technique, combined with the positive democratic program of 
NTS, has proved so successful that by 1953 NTS was classified by Soviet Intel- 
ligence as "the most dangerous enemy of the Soviet regime." An intensive cam- 



SCOPE OF SOVIET ACTIVITY IN THE "UNITED STATES 3803 

paign against NTS has been conducted by the Soviets for a number of years on 
three levels — diplomatic, propaganda, and underground — on both sides of the Iron 
Curtain. 

Dr. Poremsky was founder of the French Branch of NTS. Deported to Ger- 
many in 1941, after the fall of France, he worked semiunderground, especially 
among Russian POW's. During the entire period of World War II, NTS operated 
a« "The Third Force" against both the Nazis and the Soviets ( "Neither Stalin or 
Hitler — but a Free Russia.") Their plans for a postwar democratic revolution 
in Russia were thwarted, however, by lack of understanding in the AVest. 

Dr. Poremsky was arrested by the Gestapo in June 1944, and was held in Nazi 
concentration camp until his liberation at the end of World War II. With other 
surviving NTS leaders and members, he was active in the postwar reorganization 
of NTS and the rescue of numbers of other anti-Communist Russians from forced 
repatriation. He became head of the diplomatic section of NTS. 

In January 1955, Dr. Poremsky was elected president of NTS. In May of that 
year he was invited, as a representative of the Russian people, to attend a con- 
ference of the Asian Peoples' Anti-Communist League in Taiwan (Formosa). 
Plans were laid for coordinated strategy of the democratic anti-Communist forces 
of Asia and Europe, and active coordination established between NTS and Free 
China. During the past two years, Dr. Poremsky has made two round-the-world 
trips in this connection. He was the keynote speaker at the International Libera- 
tion Conference held in Frankfurt/Main in September 1956, which was attended 
by some 300 delegates and observers from all over the world, representing active 
democratic anti-Communist forces among both the free and the enslaved peoples. 

From plans discussed at this conference, there has now been organized an Inter- 
national Liaison Bureau, headquartered in Frankfurt/Main, which has already 
started to function as a clearinghouse and coordinating center for the strategy 
for international democratic forces against international communism. It has al- 
ready been violently attacked in the Soviet press and radio — a clear indication of 
its significance in the global conflict between democracy and communism. 

Mr. Morris. I know your time commitment is 1 hour here, Senator, 
and I think that what we would like to do is to at least finish this par- 
ticular session and have a further executive session with Dr. Porem- 
sky and decide whether or not he will make another appearance. 

There is more to tell than he has told us here, but he covered it with 
us in personal session. However, knowing your time commitments, we 
will not do that now. 

Senator Jenner. Doctor, I want to say that the Internal Security 
Subcommittee appreciates your testimony here. Speaking for myself, 
T know how necessary and important your work is. I only hope that 
the United Nations and our own Government is heeding all of this 
evidence, and the committee will go into further executive session. 

We will have a further public hearing with you later. 

Dr. Poremsky. Thank you for your time. 

Senator Jenner. Thank you very much. 

(Thereupon, at 11 : 30 a. m., the subcommittee stood adjourned.) 






SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



WEDNESDAY, APRIL 3, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 

and Other Internal Security Laws 
of the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met pursuant to call at 11 a. m., in room 424, 
Senate Office Building, Senator Roman L. Hruska presiding. 

Also present : Robert Morris, chief counsel ; and William A. Rusher, 
associate counsel. 

Senator Hruska. The committee will come to order. 

This is a continuation of the hearing in which Dr. Poremsky has 
been a witness as of yesterday. 

Mr. Morris, will you proceed with your questioning? 

Mr. Morris. I might say, Senator, we had developed yesterday 
testimony from Dr. Poremsky to the effect that his group organized 
as they are and as he described very carefully, expects that there will 
be 1 or 2 uprisings in the very near future. He did not specify whether 
that will take place in the satellite countries or in the Soviet Union, 
but all the evidence they have tends to support that particular con- 
clusion. 

Now, we asked him in detail, Senator, for his knowledge learned 
from his sources, of what happened inside Hungary, and he described 
that very fully. 

In the course of that, he mentioned that one of the great mistakes 
the United States was making and the free world was making, gen- 
erally, was complete reliance at the time of these emergencies on the 
United Nations. I thought it would be appropriate at the beginning 
of today's hearing if he would develop-that idea for us. 

He said, and, as you know, Senator, since you heard Mr. Fonagy 
testify before the committee, that an uprising in Hungary can be ex- 
pected in the near future, you transmitted that testimony to Ambassa- 
dor Lodge, who expressed agreement with you that, in the event there 
should be another uprising, the State Department should have plans 
and the United Nations should have plans to meet such a situation. 

Senator Hruska. And he indicated some effort would be expended 
in that direction. 

Mr. Morris. That is right, sir. I haven't heard whether or not the 
Department is formulating plans, but I thought it would be good 
for us if Dr. Poremsky, qualified as he is, would explain to us what 
plans should be undertaken. As he said yesterday, we just shouldn't 
sit back and allow the United Nations to take over because, he said, 

3805 



3806 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

there were certain inadequacies. I wonder if you would develop 
that? 

Senator Hruska. Very well. 

Dr. Poremsky. 

Dr. Poremsky. I said yesterday morning that it was a very natural 
move to appeal to the United Nations for intervention in the Hun- 
garian affair. But, being natural, that move had led to nothing, be- 
cause the United Nations is unable to reach agreement, Communists 
being inside that organization and taking part in the decisions. 

So, it was illusory to think that the United Nations would act, and, 
secondly, would act rapidly. 

Mr. Morris. Would act what? 

Dr. Poremsky. Would act rapidly. What was needed during the 
short time of the Hungarian events, was that some quick steps, some 
quick measures be taken to help these people to achieve the final vic- 
tory over the Communists. 

As I have said, it is impossible to expect that the United Nations 
can do it. So, if — and 1 believe so — in some future there will be an- 
other uprising behind the Iron Curtain, the free world, and particu- 
larly the United States, must take some measures to help the people 
behind the Iron Curtain. 

Some plans must be prepared beforehand. I woidd just look at 
what we as NTS are trying to do. During our conference in Sep- 
tember last year in Frankfurt, there was brought to light the idea of 
organizing an international cooperative center of different anti-Com- 
munist organizations throughout the world, only on an international 
basis. 

Mr. Morris. On an international basis ? 

Dr. Poremsky. Yes; the private anti-Communist organizations in 
possibly all the countries of the world. There might be a signed 
agreement between such organizations from different parts of the 
world. Some of these outside ones are the Burma Anti-Communist 
League, from Burma ; Anti-Communist Latin-American Crusade, that 
is the organization including all the anti-Communist groups in 90 
countries of South America; the Asian Peoples' Anti-Communist 
League, including the groups from different countries in southeast 
Asia and the Far East; the Free Asia Nations, from Japan; a Greek 
organization, Friade, another organization NTS; and a German or- 
ganization, Volksbund fur Frieden und Freiheit. There are many 
other such organizations. 

After my visit to the Far East in January 1957, I visited some of 
these people, and spoke with some of the outstanding anti-Communist 
people there. They agreed upon some practical steps in this direc- 
tion ; that is, in the establishment of this worldwide organization with 
headquarters in Frankfurt for all the organizations. After return- 
ing to Frankfurt I had given a press statement saying the first step 
of establishment of the organization was already done. It was vio- 
lently commented in the Soviet 

Mr. Morris. There was violent comment on the part of the Soviet 
press ? 

Dr. Poremsky. Yes, in the Soviet press and in the satellite coun- 
tries, East Germany, Poland, and so on, accusing the warmongers 
and anti-Communists of unifying their efforts toward the popular 
regime. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3807 

So, according to this reaction from the Soviets, I believe that this 
idea is a very sound one — that is, to combine the anti-Communist forces 
all over the world on this international basis — and I believe that public 
opinion in the United States and free organizations and private organ- 
izations of the anti-Communist groups in the United States can and 
must join in this initiative. 

Mr. Morris. You think that there must be an international organ- 
ization, anti-Communist in orientation? You think such an organ- 
ization is necessary to have any effective counteroffensive against the 
Communist forces? 

Dr. Poremsky. Yes; it is not enough, because your Government 
must be involved, too. But such a private international organization 
can do many things which the Government cannot do in the present 
situation. 

Mr. Morris. For instance ? 

Dr. Poremsky. Let us say in Hungary, the Hungarians were badly 
in need of different kinds fo help, including volunteers. But there 
was no platform and no organization in charge of mobilizing these 
volunteers and providing them with the possibility to join the rebels 
in Hungary. 

Senator Hruska. What do you mean, volunteers; from within or 
outside Hungary ? 

Dr. Poremsky. From outside. The volunteers were like the volun- 
teers during the Spanish civil war. 

Mr. Morris. It is not under the banner of any particular flag of any 
particular country. 

Dr. Poremsky. That is right. Because, if the volunteers are go- 
ing under the flag of this or another state, then they may be accused, 
this people, and the corresponding government may be accused, we 
say, of military intervention in the affairs of this or another coun- 
try. But if it is done on an international basis, then this aspect of the 
problem does not exist, because these people wouldn't do it on the 
orders of this or another government of the free world, but only as the 
public at large. 

Mr. Morris. The Soviet Union actually organizes volunteers, 
doesn't it ? 

Dr. Poremsky. Yes ; they do it artificially, because I don't believe 
people are so eager to go into the Middle East. It was all staged by 
the Soviet Government. But I believe that in the free world we don't 
need such staging. There was a genuine will among the youth in dif- 
ferent countries who were willing to fight for the Hungarians. 

In our weekly in Frankfurt we received hundreds and hundreds of 
letters from the students from different European and some other 
countries. So we received from South Korea, from India, from 
Burma, from other countries, from young people willing to join in 
efforts being volunteers to combat Communists in Hungary. 

Senator Hruska. Now, what other ways, besides being active in the 
field of enlisting and perhaps directing volunteers, could this inter- 
national organization be of assistance in ways which could not be done 
by governments themselves ? 

Dr. Poremsky. I would take, for example, our own organization, 
the NTS. We need the assistance and the help of the free wrold. But, 
if this assistance is given by government, we are immediately accused 
of being the instrument, the tool, of the foreign policy of the corre- 



3808 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

sponding government. If this help or assistance is given by private 
groups or by an international organization, we are free of that charge. 

Senator Hruska. And working with volunteers is one of the ways 
they can do it. What other ways are there, besides that ? 

Dr. Poremsky. To prepare the necessary climate for such uprisings. 
One of the very important jobs to do, by the way of propaganda be- 
hind the Iron Curtain, is to stress that the chauvinism, the local na- 
tionalism, is exploited by Communists. It is not our weapon to fight 
communism. All the nationalities behind the Iron Curtain must unify 
and combine their efforts. It was clearly shown in Hungary, where the 
understanding, the possibility of understanding between the Russian 
Communists and the Soviet occupational forces and the Hungarian 
people was so important for the victory. 

If something arises somewhere else, the Communists will try to com- 
bat this or other uprisings in this or other countries by the armed 
forces taken from the other countries. 

So if they are opposed on the national basis and if these people don't 
understand that there must be mutual understanding and combining 
of effort, then it is damaging to the cause. 

Senator Hruska. Now, you speak of preparing a climate for a fur- 
ther uprising. How is such a climate prepared, what do you do to 
prepare the climate? 

Dr. Poremsky. Our organization is running a small radio station 
and we try to drop our leaflets from balloons or introduce them by 
some other channels to people coming from this country to the free 
world, and we contact them, sailors or tourists, or even diplomats, and 
we give them our literature and they carry it back to the Soviet Union. 

That is one of the ways to influence people with the corresponding 
propaganda literature which can, by different technical means, be 
introduced behind the Iron Curtain. 

We do it for Soviet Russia. There is probably some other organi- 
zations, I know there are, who are willing to do the same. 

Mr. Morris. Mr. Malyshev is trying to get your attention. 

Dr. Poremsky. Mr. Malyshev suggests I mention that this kind of 
cooperation can be trained by the organization existing in NTS and 
the Chinese Anti-Communist League. 

Mr. Morris. What is the Chinese Anti-Communist League ? 

Dr. Poremsky. That is a broad organization on Formosa, including 
some 500 different organizations, and all of these called this Anti-Com- 
munist League, Chinese chapter of the Asian Peoples Anti-Commu- 
nist League, a very powerful organization having the possibility of 
using the Government planes for dropping the leaflets in the mainland 
China or using official Government broadcasting system. 

Mr. Morris. You mean there is a sort of Asian counterpart of your 
organization representing in the Far East? 

Dr. Poremsky. Yes, in China, but in the other countries, too, Viet- 
nam, Korea, the Philippines, and other countries. 

Mr. Morris. Who are members of that Chinese Anti-Communist 
League, who are the people who make up that league? 

Dr. Poremsky. All kinds of people, Siamese and so on. 

Mr. Morris. Is it restricted to Formosa ? 

Dr. Poremsky. To Formosa and some other countries where the 
overseas Chinese are. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3809 

Mr. Morris. They did have a recent convention in Manila ; did they 
not? 

Dr. Poremsky. In November of last year, but the bigger one is held 
right now in Saigon. We have sent our observers there, too. It was 
from 27th of March until 2d of April, the third conference of this 
Asiatic anti-Communist group. 

Mr. Morris. Would you call that a counterpart of your organiza- 
tion, what they are trying to do in the Far East? Is that similar to 
what you are trying to do in Europe and Eastern Asia ? 

Dr. Poremsky. It is similar. It is similar with the Korean, Chi- 
nese and Vietnam organizations, because they have the same goal as 
ours. That is, to help their brothers in the Communist-dominated 
areas. 

So far we are very similar organizations and we cooperate very 
closely with them. 

Senator Hruska. Were they represented in the September meeting 
in Frankfurt? 

Dr. Poremsky. Yes ; they were represented in the September meet- 
ing in Frankfurt, and they signed the agreements about the creation 
of this international liaison bureau which was already created on the 
7th of March in Frankfurt. 

Mr. Morris. Senator, Dr. Poremsky yesterday developed the idea 
that unless we have some kind of political organization behind the Iron 
Curtain, unless the free world has such an organization behind the 
Iron Curtain, that we have, that we can expect no alternative but a 
third world war. 

I wonder if you could talk about the time element in that ? What 
is your estimate of the time available to the free world ? 

Dr. Poremsky. I believe that the time is very short. I have been 
told from the military side that there is some argument in favor of 
the high possibility that time is short. 

So there is the race between the efforts of the free world to change 
the regime behind the Iron Curtain and the probability or eventuality 
of the third world war. 

Because coexistence is only a frame for this two alternatives, for a 
final showdown, military showdown with the Communists or the 
overthrow by the people themselves of the Communist rule behind 
the Iron Curtain. 

So I believe that we must hurry, with all that is needed to develop 
the activities behind the Iron Curtain^ 

What are the Communists doing in the free world ? They have a 
Communist Party everywhere and they interfere with the efforts of 
the free world openly because they have the intruments and the tools 
of such interference with the affairs of the free world. And the free 
world has so few tools to interfere with theirs. There must be some- 
thing equal, and I believe the work of organizations which are operat- 
ing behind the Iron Curtain is the equivalent of such a tool in working 
against the Communists and balancing the chances in sight. 

Mr. Morris. Dr. Poremsky, do you have any— are you in a position 
that you can tell us about Soviet ae-gressions in Central and Latin 
America ? 

Dr - Poremsky. Yes. On this September conference in Frankfurt 
we met different representatives from these countries. And they said 



3810 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

that infiltration, Communist infiltration in South American countries 
is very great. 

Mr. Morris. This is the agreement at your Frankfurt conference? 
The agreement of all members of your organization? 

Dr. Poremsky. This league. 

Mr. Morris. The Anti-Communist League in Asia and South 
America ? 

Dr. Poremsky. In South America, too. The name of this league 
is Anti-Communist Latin American Crusade. 

Mr. Morris. So they had delegates there ? 

Dr. Poremsky. Yes ; they had delegates there. 

Mr. Morris. As well as the anti-Communist Chinese ? 

Dr. Poremsky. Yes ; that is right. Now, on the 10th of April there 
is a third confeience of this Latin America group in Lima. So they 
said that the infiltration in South America is a very profound one, 
and they have had some successes, and the Bolivian regime can be 
considered a very pro- Communist one. 

Mr. Morris. In other words, it was the conclusion of these dele- 
gates that the Bolivian Government itself is pro-Communist? 

Dr. Poremsky. Pro-Communist, pro-Communist government. And 
the Soviet operates mostly from the Mexican base. 

Mr. Morris. The Soviet in Latin America operates out of a Mexican 
base? 

Dr. Poremsky. Yes, sir ; they are the headquarters of the operation 
for the whole of South America. It can be concluded because while 
Mexico there is not a very big country, the Embassy staff is 900 people, 
the Soviet Embassy in Mexico is 900 people. These people can't all 
be diplomats. 

Mr. Morris. There are 900 Soviet representatives in the Mexican 
Embassy ? 

Dr. Poremsky. 900 Soviet representatives in the Mexican Embassy, 
in Mexico. 

Senator Hrttska. Is there any such disproportion in other em- 
bassies of South America or Central America ? 

Dr. Poremsky. I have mentioned yesterday a very clear dispropor- 
tion. I mentioned this 500 in the embassy staff in Indonesia. 

Senator Hrttska. You mentioned Mexico City now. Is that true 
in other countries ? 

Dr. Poremsky. Many do not have diplomatic relations with the 
Soviet Union. 

Senator Hrusk a. Bolivia? 

Dr. Poremsky. Yes. 

Senator Hrttska. How many are there ? 

Dr. Poremsky. I don't know. 

Mr. Morris. I think it might be advisable at this time to put in the 
record what the numerical makeup of our own Embassy is. 

Senator Hrttska. That would be an interesting contrast, not a com- 
parison, but a contrast. 

Dr. Poremsky. A contrast ; yes. 

Senator Hrttska. It would be. 

Mr. Morris. Dr. Poremsky said yesterday there were 500 individuals 
in the Soviet Embassy in Indonesia. 

Now, when you say 900 in Mexico, what does this include ; not only 
the consular officials, but probably trade officials? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3811 

Dr. Poremskt. Trade officials, every kind of secretary, heads of 
different committees, missions, I don't know exactly what their official 
titles are. 

Senator Hruska. Are most of them headquartered in Mexico City ? 

Dr. Poremsky. Yes, yes, in Mexico City. 

Mr. Morris. Are they restricted in any way in movement, do you 
know ? 

Dr. Poremskt. No, I will say they go free all over the country. 

Mr. Morris. And is it the attitude or the expression of these people 
in the Anti-Communist League of Latin America that Soviet penetra- 
tion of South America proceeds out of Mexico ? 

Dr. Poremsky. Yes, that is what they have said. Technically they 
say the headquarters of the spy network, and agents carrying orders 
and money probably are situated in Mexico. 

Mr. Morris. Now, is there anything more about the Latin American 
organization that you can tell us ? 

Dr. Poremskt. The anti-Communist groups began their activities 
a few years ago. Now they are not very strong, but they are growing 
stronger because the people realize the danger of this infiltration. 

Mr. Malyshev mentioned that probably that is only a supposition, 
that the Mexican headquarters can be used or are used as bases for 
some kind of operation in the United States, too. 

Mr. Morris. Yesterday, Senator, Dr. Poremsky said that his in- 
formation from his own organization and from the organizations 
allied with him is to the effect that the Communist penetration of the 
Philippines is coming in via the American Communist Party, that 
taking advantage of their reservoir of good will toward the United 
States, it is the American Communists bringing communism into the 
Philippines. That was his testimony yesterday. 

Senator Hruska. What thoughts would you have in that regard so 
far as Hawaii is concerned ? 

Dr. Poremskt. I don't know this region. I have spent only a day at 
Waikiki Beach and that is all I know of Hawaii. 

Mr. Morris. Well, is there anything more, Dr. Poremsky, that you 
feel the subcommittee should know in connection with your own ex- 
perience and activities that might be helpful in our understanding the 
nature of the international Communist organization ? 

Dr. Poremskt. Yes, I believe I can say something which may be of 
importance. 

That is, in the fight of the free world against the Communists, the 
efforts are mostly made in such fields as diplomacy or economy or 
military strength. It is all right in all these fields, but what is lacking 
in the fight between the free world and the Soviet, is people doing 
something intelligent in the political field. I don't say there are no 
politicians in the free world, but they are mostly engaged in some local 
political issues and have no time to do something on a bigger inter- 
national political scene opposing political communism and opposing 
communism systematically. 

And that is the feeble point of the free world. 

Mr. Morris. In other words, the free world has no will or disposi- 
tion to systematically organize on an anti-Communist basis? 

Dr. Poremskt. That is so. There are no specific groups or organ- 
isms or people who are specifically doing the anticommunism job. 



3812 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. On the other hand, you know, as a matter of fact, do 
you not, that the Communists are organizing their Communist social- 
ization in a systematic manner all over the world ? 

Dr. Poremsky. They stress it on the economics; the diplomatic or 
military issues are of secondary importance. They are all supervised 
by politically trained people and they spend millions if not billions 
of dollars politically training people to fight the free world. So as 
to subvert the free world. And the free world is spending practically 
nothing for the training of political personnel necessary to fight Com- 
munists. 

That is the main difference, and I believe that this fact explains 
the success of Communists. They have a strategical goal and they 
have been systematically doing their jobs for years and years with 
specially trained personnel, and the free world is opposing commu- 
nism from time to time here and there without global plans and with- 
out trained personnel and without specific organisms or institutions to 
do it. 

Mr. Morris. On an overall basis, do you think the Soviet or the 
free world is winning this global encounter ? 

Dr. Poremsky. Being Christian, I believe in the final victory of the 
free world, but being Christian, I say we must do something very 
effectively and very rapidly. 

Mr. Morris. Is time on our side or on the Soviet side in Europe? 

Dr. Poremsky. There is a race between this, too. 

Mr. Morris. Is time on our side or is it on the side of the Soviets, 
as it is going now ? 

Dr. Poremsky. If nothing happened in the free world to change the 
ineffectiveness over the free world, then the time will be for the Com- 
munists. 

Senator Hruska. But there is some resistance, isn't there ; I think 
all of us can appreciate that we are not as intense and insistent about 
our opposition to the Communists as they are in advancing their cause, 
but we can't say that the free world is entirely without effort and en- 
tirely without will, can we ? 

Dr. Poremsky. No. But the anti-Communist efforts are of a local 
nature, and from time to time there are some local successes for the 
free world. 

But on the global scale for this 40 years, they began as Lenin with 
a very small group of immigrants, like our organization right now, 
but after 40 years they dominate the earth, this encircles the world 
and 900 million peoples. That is the achievement of a small group 
during the 40 last years. 

Senator Hruska. Dr. Poremsky, you have told us about the Saigon 
meeting which is now in progress or it finished yesterday if the schedule 
was followed. 

Will you eventually and later have access to some reports of what 
happened there? 

Dr. Poremsky. We have a delegation there. Our two people assist 
in this conference in Saigon. 

Senator Hruska. Would you prepare for the committee's use a 
summary and some comments on that meeting and make it available 
to the committee so that we may have the benefit of your comments 
on it? 

Dr. Poremsky. Yes, it can be done if that is 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3813 

Mr. Morris. You will be in touch through Mr. Malyshev ? 

Dr. Poremsky. We may do the same for the Lima meeting. 

Mr. Morris. I think we have referred several times to Mr. Maly- 
shev during this testimony of Dr. Poremsky. I think it would be only 
proper if he should at this time identify himself. 

Mr. Malyshev. I am Alexei Malyshev. I am the foreign relations 
section's representative of NTS in the United States. 

Mr. Morris. You are here in the United States permanently? 

Mr. Malyshev. Yes. 

Mr. Morris. Whereas Dr. Poremsky seems to be traveling all over 
the world, Senator. 

Senator Hruska. One other thing, Dr. Poremsky. You have men- 
tioned the embassy, the Russian embassies in 

Dr. Poremsky. In Indonesia. 

Senator Hruska. Indonesia and one in Mexico City. 

It wouldn't be necessary for you to do it here and now, but could you 
supply for the record a listing of the other Russian embassies in other 
nations in Asia and in South America, particularly, and the number 
of their staff? 

Dr. Poremsky. Yes, it can be done. 

Mr. Morris. In that connection, yesterday Dr. Poremsky pointed 
out that from his observation and experience of the nature of the 
Soviet organization, the Soviet Government, these diplomatic repre- 
sentatives and trade representatives are espionage agents first and 
diplomats second. 

That has been his experience and, as you know, Senator, that has 
been the experience of this Internal Security Subcommittee. 

Dr. Poremsky. It is known by the testimony of Petrov, Rastvorov, 
and Khokhlov about the specific character of the Soviet diplomats. 
But there is the other side of this story. I personally believe that 
many Communists, even members of the Communist Party, are in their 
hearts opposing the dictatorial rule and willing in their hearts to 
change, to take some other side. 

So it was testified by Khokhlov. He was an MVD officer but never- 
theless he changed his mind and has gone over. 

It is possible that some people think this way, but not the whole 
population. What NTS is trying to do is to draw a line between the 
Government and the people and get the people inside Soviet Russia 
to take sides for or against government — for a revolutionary opposi- 
tional force, or with government. Because, before our organization 
and other organizations had started the operation behind the Iron 
Curtain, there was no possibility of such a choice for the citizens be- 
hind the Iron Curtain, and one of the main objectives of our propa- 
ganda behind the Iron Curtain is to give to all other citizens the 
possibility of cooperating with the Government or with some organized 
force against the Government. 

Mr. Morris. I have no more questions, Senator. But I would like 
to thank Dr. Poremsky on behalf of the staff of the committee for the 
time he has made available to the subcommittee. 

Senator Hruska. I would like also, on behalf of the subcommittee 
itself, to thank Dr. Poremsky. It is very fine of you that you are 
cooperating in this way. 

Mr. Morris. Before adjourning, Senator, I would like to offer for 
the record two letters we have gotten from the Department of Labor 



3814 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

in connection with our inquiry in communism in the Harry Bridges 
unions. We have been doing some followup staff work and we re- 
ceived from the Department of Labor a letter dated April 22, 1938, 
which purports to be a ribbon copy document on file at the National 
Archives and Records Service from Secretary Perkins, who was at 
that time Secretary of Labor. 

And we have a photostatic copy of a letter from James Hou — Mr. 
Rusher, could you spell that? 

Mr. Rusher. H-o-u-g-h-t-e-l-i-n-g. James Houghteling. 

Mr. Morris. And this is dated April 15, 1938, addressed to Hon. 
Edward Cahill, District Commissioner. 

These letters, while adding some light to our inquiry about the 
Harry Bridges case, Senator, tend to confirm some of Whittaker 
Chambers' testimony before the House Un-American Activities Com- 
mittee with respect to Donald Hiss, the brother of Alger Hiss, which 
tends to refute statements Donald Hiss has made in connection with 
some of his assignments. 

Senator Hruska. They will be accepted into the record. 

(The documents referred to above will be found in a later volume 
of the subcommittee's hearings on scope of Soviet activity. ) 

Mr. Morris. I have no further questions, Senator. 

Senator Hruska. Very well, the committee will adjourn at this time. 

(Whereupon, at 11 : 45 a. m., the committee adjourned.) 



(A supplemental statement by Harry Gold, convicted atomic spy 
now in Federal penitentiary at Lewisburg, Pa., was ordered into the 
record of the subcommittee by Senator Roman L. Hruska at an open 
hearing August 15, 1957. Text of the statement follows :) 

July 27, 1957. 
Statement of Harry Gold 

In regard to Soviet techniques for influencing sincere people, I note only my 
direct experience. It is proposed to — 

(A) First, detail certain incidents which occurred during my personal 
association with Soviet agents and in the course of carrying out espionage 
for the Russians. 

(B) Then, to show how these incidents fit into an overall pattern. Actu- 
ally, this chronological sequence was also the manner in which my own 
awareness came into being, i. e., first the discrete, apparently unrelated, and 
(on the surface) not too significant events; then the much delayed under- 
standing of their true import. 

To begin : 

1. Included in the first information on chemical processes which I obtained for 
the Soviet Union back in 1934-35 were methods for the manufacture of various 
"industrial solvents" ; these chemicals are used in the formulation of a whole 
host of lacquers, varnishes, and synthetic finishes. I was told, "our people [the 
Russians] eat off rough, bare boards. You can help them to live a little better, 
a little more as humans should, by getting us this material." And along with 
that idea went something else : To get this data I had to steal it from my em- 
ployer, Dr. Gustav T. Reich, the research director of the Pennsylvania Sugar 
Co. Dr. Reich was really more than an employer, he was always a kindly mentor, 
and a friend, to a boy just making a stumbling start in chemistry. So this added 
up to violating a trust — plus theft. (But none of that meant anything, it is all 
for a good end. The Pennsylvania Sugar Co. is not being hurt. No one is really 
hurt, only good is being accomplished.) 

2. In February-March of 1937 a violent strike took place at the Pennsylvania 
Sugar Co. Some 600 men and women stayed in the plant under a state of actual 
siege for about 5 weeks ; at least an equal number were outside. It was worth 
one's life to try to cross the picket lines ; food was brought in by way of the 
Delaware River using motor launches (the plant is right on the waterfront). 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3815 

At this time there were some 30 people working in the laboratories, and though 
we chemists and engineers were not directly involved, it was known from the 
beginning that we would be used to help operate the refinery, only one of Dr. 
Reich's staff refused to work — Harry Gold. Now, let it not be supposed that my 
motives were all pure. On the afternoon that the strike broke in its full fury, 
I wouldn't remain because I had a "hot date" that very evening; which prospect 
I was much loath to forego and then I was considerably confused and upset by 
the circumstance that Dr. Reich, when I made it plain (after some initial 
wiggling and weaseling) that I would not stay in the refinery, grew terribly 
angry (he actually banged a water glass so hard on top of the cooler that it 
cracked in his hand) and said, "You're through! Get out! But you'll never 
work as a chemist again — I'll see to that." I got (and ironically enough, as I 
was crossing the railroad yard in front of the plant, was narrowly missed by a 
brick hurled by a striker.) Now I was torn two ways: as one who had been 
reared to believe that being a "scab" in a strike was abhorrent, I was on the 
other hand faced with being denied further employment in the chemical field — 
where the Soviet Union wanted information. It was done, all right, but had I 
chosen the correct course? However, when I told my Soviet boss, a giant of a 
man known to me only as "Steve," what had occurred, he did not chide me at 
all. My Russian superior said he appreciated the turmoil through which I had 
just passed, yet I had to retain my self-respect — which would be forfeit if I 
worked during the strike. Steve reassuringly said that he doubted Dr. Reich's 
ability to carry out the blackballing threat and estimated that the research 
director was not vindictive, just angry. Steve added that even were the worse 
to come to pass and I could no longer work in the chemical industry, my efforts 
would still be utilized (in some unnamed fashion). (Here the Soivet Union was 
being forgiving and understanding, bearing up nobly under a loss — though actu- 
ally Pennsylvania Sugar had been pretty well looted by this time. If all this 
sounds fantastically foolish and naive, all I can say is it was another day and 
age and I am relating it just as the event happened.) 

As a matter of record, the union won the strike and one of the provisions of the 
settlement was that no one be fired for having stayed out; this included the 
laboratory, even though we never became union members. In fact, Dr. Reich 
treated me most agreeably when I returned and I rose fairly rapidly in the 
research setup. 

3. In March-April of 1942 I was due to be drafted into the Army. I told my 
Russian mentor ("Sam," since identified as Semen Markovich Semonov) about 
this so we could make arrangements for my successor. • Frankly, I had expected 
a "chewing-out," or a plea to use any means to stay out of the service and avoid 
disrupting our efforts at obtaining technical information. Instead I received a 
"Go, and God bless you" type of sendoff. The gist of Semonov's remarks was 
that the Soviet Union (not he, mind you but the Soviet Union) understood my 
desire to fight fascism (to me fascism was directly equal to anti-Semitism) 
as a frontline soldier and it was well realized that were I to avoid such duty, 
I could never again regard myself as an entire man. I ate it up. 

Well, when I was rejected because of hypertension (April 20 (?), 1942) I 
rushed in to the commanding officer (Major Keough?) at the Lancaster Avenue 
Armory and pleaded to be taken into the Army. He said I was wasting his time. 
I made two subsequent efforts, first the Navy and then the Marines, but neither 
would look at a 4-F. 

And I was welcomed back by Semenov — a Harry Gold all the more anxious to 
aid the Soviet Union in its struggle with the Nazis. I was ready to do any bid- 
ding, to obey any command. 

4. This is a bit difficult to place in time. It did occur somewhere about 1943. 
but it also took place on many other occasions, both before and after this date ; 
and in more or less the same form. I'm sure this technique was used beginning 
with my very first contact with a Soviet agent in 1935 (I started industrial spy- 
ing for the Soviet Union back in 1934, but did not actually meet a Soviet agent 
till well over a year later. ) Thus, in 1943 I was experiencing difficulty in getting 
information from Abe Brothman, an American chemical engineer. It was not 
that Brothman was unwilling to furnish data, but that he insisted on giving 
what we didn't want (i.e., his own work) and would not supply what we wanted 
(that is, chemical processes in successful operation in the United States — "suc- 
cessful operation" was defined as "making money" and that, curiously enough, 
was the Russian criterion : if a plant operated at a profit in the United States, 
then the exact process used was what the Soviets desired — they refused to hear 
about any theoretically better, but as yet untried method). 



3816 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

* * * I had made some 3 or 4 trips in 1 week between Philadelphia and New 
York (after working a full day at the Pennsylvania Sugar Co.) and, on the 
last of these journeys. I was horribly tired again : Abe had nothing for me. A 
little later in the evening I met Semenov to report another failure and on this 
occasion he too appeared weary. We spoke of the inherent troubles in attempt- 
ing to get individuals to supply technical information and of the many disap- 
pointments ; of the necessary cajoling and flattering; of the importuning and 
of the deceit ; of the promises never meant to be kept ; of the outright threats — 
when required; of the dreary, but apprehensive, waiting on street corners for 
apointments never kept; of the whole discouraging business. It was deaden- 
ingly — dun, dirty, sullying work Semenov said, and here we were, I a chemist, 
happiest when working in a laboratory, and he a mathematician and a mechanical 
engineer, both pursuing a shabby course we only despised, both longing just to be 
allowed to do the work we liked and for which we were trained. A dismal 
job, this espionage, but a vital job, one which had to be done, and by implication 
we were to be commended for sticking with it. Then, one glorious day in the 
future, Hitler would be destroyed, there would be peace on earth, and no such 
depressing endeavor would be required. Neat. 

5 About this same time, 1943-44, and carrying through to 1945, Semenov and 
his successor "John" (since identified as Anatoli Antonovich Yakovlev) occa- 
sionally would introduce another theme. This related to Semenov leaving 
America to return to the Soviet Union. But it was not "Goodbye," I was told. 
Surely when it was all over, this dreadful war, that is, all nations would be 
friends again and people could travel freely ; then I could openly go to the Soviet 
Union and in Moscow (yes, this city was special) would renew acquaintance 
with all my old Soviet "friends" (by which was meant the men who had directed 
my espionage activities). Oh, we would have a fine old reunion. 

And I remember Yakovlev's enthusiasm— early in the spring of 1945— over the 
impending organization of the United Nations in San Francisco. Actually, the 
subiect came up before I was due to meet Klaus Fuchs in Santa Fe in June of 
that same spring and Yakovlev was reminding me of the need for early travel 
reservations what with all the people heading for the west coast about that very 
time Please I am not faulting the U. N. here. It is the only hope for world 
peace. All I wish to point out is the attempt to foist upon me the idea of : "We re 
all going to be friends forever right soon now. So what's it matter if mean- 
while I engaged in a little illegal activity. Just a dab of espionage, huh?) * * 

6 There were a great many other manifestations of the Russian devices for 
influencing me, some in constant use during the 11 active years of my spying, 
from 1935^ to 1946. I mention just : _ . 

(a) If the Nazis triumph, the Jews are done. Extermination. The boviet 
Union is the one unyielding opponent of Hitler's fascism. Therefore, anything 
that strengthens the Soviet Union helps save the Jews. O. B. W. This was in 
realitv the big drive that kept me so resolutely working in espionage. Yes, 1 m 
fully aware of the loopholes in such a stand and I was conscious even then 
of the illegality of many of my actions, but I continued to put all doubts aside 
'til 1946 (when for about 3 years the contract with me was abandoned and I saw 

no Russians). , T 

(70 Contempt for paid agents: at times I acted as paymaster and I was con- 
stantly reminded that, while people who gave information for money were 
to be valued, Harry Gold, motivated solely by idealism, was a much more lauda- 
tory character (and the idea here was not to save a few dollars). 

(c) Contempt for the Communist Party of the United States : I was told, Hah ! 
you call this a revolutionary party? These fools! What do they think they ac- 
complish by standing on street corners and selling the Daily Worker? (This 
was a really slick shot, one with plenty of reverse English on it— you see, I was 
never a Communist Party member, in fact, I always felt a revulsion at the 
thought of joining it.) The one quote given here, as I recall it, dates from late 
1942, when we were having more vexation with Abe Brothman and he kept talking 
of wanting to give up espionage and go back to the Communist Party. 

(d) Open and direct flattery: 

Incident 1. Three people are involved. About December 1942 or January 1.M6, 
a meeting between Abe Brothman, Semenov, and myself was arranged. It took 
place in a suite of rooms at the Hotel Lincoln in New York City (45th Street and 
8th Avenue?). I introduced Abe to "George" (Semenov) and the latter, as an 
"important visiting Soviet official," praised Abe's most recent technical data as 
being equivalent to a "lull brigade of men" (or was it "several brigades''? my 
memory is dimming, and a side note on the care used, viz, the alias "Sam" with 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3817 

me, and "George" with Abe). The real purpose of this rendezvous was to get 
Abe to abandon his own firm (the recently formed Chemurgy Design Corp., in 
which he was a partner with two other men, Henry Golwynne and Artie Weber) 
and renew working for any large American chemical process company, pref- 
erably a petroleum refinery — so the Soviets would have the latest American tech- 
niques again fed to them (as they had when Abe was employed by the Hen- 
drick Co.). What an awesome respect they had for the technical ability of the 
United States, and how the Russians worshiped largeness in United States 
corporations. 

Incident 2. This has been given much publicity. It was the award to me of 
the "order of the Red Star" in about October-November of 1943. Just one point 
here. In December of that same year I was asked ("asked," mind you) would 
I accept the most important assignment any agent had ever had, one where I 
would have to tbink 3 or 4 times before I uttered any word or made any move, 
and in January of 1944 I met Klaus Fuchs. 

(e) The human touch: In the middle of 1942 I was trying desperately to get 
Abe to assemble some badly wanted information on the design of chemical process 
mixing equipment. After several fruitless trips to New York on successive days, 
I met Semenov and told him, "Saturday is it. Abe promised faithfully." 

"The hell with him," Semenov stormed. "He [Abe] won't have it ready this 
Saturday or the next one or for months to come." (An accurate estimate. The 
material was finally sent to the Soviet Union in November 1942.) Semenov 
continued, "Look at you ! You not only look like a ghost, you are one. What 
must your mother think? Come." And we went to a quiet restaurant where I had 
a sandwich and a couple of drinks ; then Semenov put me in a cab, took me to 
Penn Station, and insisted that I buy a parlor-car ticket to Philadelphia, and 
left me with firm instructions to stay home over the weekend. Nothing really. 
Just a decent concern (it seemed), and it worked so beautifully with me. 

Also, on my part, I was enjoined to be certain that, when I visited any of my 
sources of information, to regularly bring along a small gift. I was told to give 
much thought to this matter and to make each gift (be it book, wallet, flowers, 
candy) reflect a genuine liking and not appear just a routine courtesy gesture. 

(/) In the very beginning, on the occasion of my first meeting with a Russian 
contact (about October 1935), this man, "Paul," wanted a "history" of me and my 
family : all I knew, from my earliest recollections — and going back before my 
birth to the origins of my father and mother (and their beliefs). Then later, I 
in turn submitted careful "personality evaluations" on each of my primary 
(American) sources of espionage data, care, and I always was given to under- 
stand that no decision was made by my immediate superior above (except for 
the most humdrum items). There was ever the reply, "I'll talk it over with our 
people." Yes, there must have been a committee. 

This ends phase 1 of this writeup, the detailing of certain incidents. There is 
more that could be related, but to get to, as Somerset Maugham has put it, "The 
summing up" : 

The overall pattern is the deceptively simple one of, "Tell 'em what they 
want to hear" — but because of its obviousness, it disarms and thereby becomes 
tremendously effective. The simplest and most used idea is to espouse an in- 
controvertibly decent cause, one really of solid worth and undeniably correct. 
In my case, the ready-made one of anti-Semitism. Did I have a horror of anti- 
Semitism? So did the Soviet Union — actively so (as far as the face was pre- 
sented to me). And, as with a symphony, there are minor themes, all building 
up to the crescendo of the coda. Such are : 

(1) Let's start them [the gulls] in a small way, any way at all, but let's 
start. Have them get the habit of working for the Soviet Union. 

(2) Bolster up the [phantom] of the courageous individual who dares disagree, 
the man of true moral fiber * * * and from there one can easily go on to a lack 
of respect for the properly established procedures and authority * * * and 
then, inevitably, to take matters into one's own hands. 

(3) Feeding the individual's self-esteem: This appears so plainly a sucker 
play, that it doesn't ever seem likely to succeed. But see how nicely it was 
accomplished. Me and my lofty idealism and let's not forget the neat backspin 
on the item of contempt for the Communist Party of the United States. 

(4) Reaction to kindness: This doesn't have to be anything big or of great 
moment and, preferably, little, if any, monetary value should be involved. We 
humans seem to most appreciate the small, considerate, selfless gestures and 
such an event binds one even closer to the donor. 



3818 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

(5) Where the Russians positively wanted to make certain, they just crashed 
ahead with blunt, out-and-out flattery. This works too, because a person won't 
believe that anyone would try such a brash approach. It's as if a man's closest 
friend were to say (for no apparent reason), "I'm going to kill you," and forth- 
with does so — the victim would probably laugh and turn his back at just the 
moment before the tragic event. 

The last element in the Soviet structure requires a place by itself, right along 
with the overall pattern given earlier (it's too important, especially right now, 
to be relegated to a minor theme status). I refer to the Russians dwelling 
on the prospect that all nations would live in peace. It's sort of, "Look, Mom, 
no brass knuckles," gambit. Plus, "See, I smile and make jokes — Ergo, I'm 
no monster ; I'm human." This is the deadliest of all. 

But, remember : "Tell 'em what they want to hear." 

With this goes also the decision that I was always to regard myself as an 
American citizen, working under cover for the Soviet Union solely because of 
the obstructive tactics of industrialists and politicians. Even that much- 
belabored trip to Moscow carried with it the explicit understanding that I was 
to return to the United States. The Russians nurtured this idea most carefully : 
Harry Gold — loyal American. To me the true horror underneath "buying" the 
Soviet way of life resides in the inevitable, completely inexorable demand for a 
payment — but the currency in use is the human soul and there is the awful 
corollary, the fact that a man becomes willing, even eager, to do any bidding, 
no matter how loathsome. 

I am aware that the portrait given here of my reactions to the Soviets' 
maneuvering of my personality is delineated in harsh strokes. Looking back, 
as I said before, it does seem as if it were another day, another age, almost 
another world. Yet I know what occurred and what I did. 

Harry Gold, No. 19312. 

Lewisbtjrg, Pa., July 21, 1957. 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance 
to the mere fact of the appearance of the name of an individual or an organiza- 
tion in this index. 

A 

Page 

American Communists 3800 

American Communist Party 3811 

American intelligence 3791 

Anti-Communist Latin American Crusade 3806, 3810 

Anti-Communist League of Latin America 3811 

Asia 3813 

Asian Peoples' Anti-Communist League 3806 

Austria 3793-3795 

Austrian Government 3795 

AVO (Hungarian secret police) 3793 

Avramovitch, Avram 3780-3781 

B 

Baltics 3778 

Bashkirs 3780 

Batori, George 3774-3785 

Testimony of 3774-3785 

Interpreter — Arthur Dobozy 3774 

Born in Hasszufalu, Transylvania, September 6, 1915 3774 

Captain, Hungarian Army 3774 

Berlin 3791, 3795 

Bodajpo _, 3782 

Bolivian Government 3810 

Bolshevik Party 3784 

Bratsk 3782 

Bridges, Harry 3814 

British 3791 

British Government 3790 

Brothman, Abe 3815, 3816 

Budapest 3794 

Bulgaria 3784 

Burma 3806, 3807 

Burma Anti-Communist League 3806 

C 

Cahill, Edward 3814 

Caucasians 3778 

Central America 3809-3811 

Central Asia 3792 

Central Europe 3781 

Central press 3790 

Chambers, Whittaker 3S14 

Chechens 3780 

China 3S08 

China, Communist 3801 

Chinese 3S01, 3808, 3809 

Chinese Anti-Communist League 3808 

Chinese Chapter of the Asian Peoples' Anti-Communist League 3808 

Chinese Communists 3810 

Chuvas 3780 

1 



II INDEX 

Fage 

Conimunist/s 3775, 3779, 3787, 37S8, 3791-3S01, 3806-3813 

Communist Party 3784, 3793, 3809, 3813 

Cossaks 3792 

Crimea 3784 

Czechoslovakia 3784 

D 

Daily Worker 3800 

de Madriago, Salvador (Spanish writer) 3794 

Dobozy, Arthur (interpreter for George Batori) 3774 

Dzoeskazgam 3777 

E 

East Germany 3789, 3806 

Eastern Asia 3S09 

Eastern European 37S3 

England 3794 

Estonians 3778 

Europe 3784, 3809, 3S12 

F 

Far East 3806, 3808, 3809 

Fascist 3774, 3775 

Finns 37S0, 3784 

Fonagy, Mr 3805 

Formosa 3808 

Frankfurt am Main, Germany. 3787, 3791, 3793, 3795, 3797, 3806, 3S07, 3809, 3810 

Free Asia Nations 3806 

French 3791 

Friade (Greek organization) 3806 

Fuchs, Klaus 3816 

G 

Georgians 3778, 3780 

German/s 3778, 3780, 3789, 3795, 3797, 3799, 3806 

Germany 3776, 3787, 3788, 3793, 3797 

Gold, Harry, statement of, July 27, 1957 3814-3817 

Gol wynne, Henry 3816 

Gomulka 3797, 3798 

Great Britain 3790 

Great Russians 3778 

Greek 3806 

H 

Hasszufalu, Transylvania . 3774 

Hawaii 3811 

Hiss, Alger 3814 

Hiss, Donald 3814 

Horthy, Nicholas 3775 

Houghteling, James 3814 

House Un-American Activities Committee 3S14 

Hruska, Senator Roman L 3799,3805 

Hungary 3774-3777, 3783, 3785, 3788, 3789, 3791-3797, 3799, 3805, 3807, 3808 

Hungarian/s 3773, 3774, 3776-3778, 3785, 3789-3797, 3S06-3808 

Hungarian Army 3774, 3775, 3785 

Hungarian freedom fighters 3792, 3794 

I 

India 3807 

Indonesia 3801, 3810, 3813 

International Research on Communist Techniques, new release 3802 

Irkutsk 3776 

Iron Curtain 3774, 3788, 3789, 3796, 3806, 3808, 3809, 3813 



index m 

J Page 

Jakarta _ 3801 

Japan 38 °6 

Japanese 1 3778 

Jenner, Senator William E 3787 

Johnston, Senator Olin D 3773 

K 

Karaganda 3777 

Kazan 37 ?6 

Khokhlov, Mr 3813 

Komsomolskaya Pravda 3791 

Korea 3808 

Korean/s 3778,3809 

L 

Labor, Department of 3813, 3814 

Latin America 3809-3811 

Latvians 3778 

Lenin 3775, 3812 

Leningrad 3780, 3784 

Letters received into record of Internal Security Subcommittee 3813, 3814 

Lima, S. A 3810, 3813 

Lithuanians 3778, 3780, 3784 

Lodge, Henry Cabot 3799, 3805 

M 

Malyshev, Alexei (foreign relations section's representatives of NTS in 

the United States) 3808, 3811, 3813 

Manchester Guardian 3794 

Manila 3809 

Mexico 3810 

Mexico City 3811 

Middle East 3797, 3800, 3807 

Mongol 3792 

Mordovia : 3777 

Mordvians 3780 

Morris, Robert 3787, 3805 

Moscow 3784, 3790, 3797 

MVD 3793, 3813 

N 

Nagy, Imre 3797 

National Archives and Records Service 3814 

New Times 3791 

New York City 3800 

New York Times 3800 

News release from International Research on Communist Techniques, 
Inc., 55 West 42d Street, New York, N. Y., April 2, 1957; background 

notes on Dr. Vladimir Poremsky 3802-3803 

NKVD 3774 

NTS (Russian anti-Communist organization) 3787, 

3788, 3790, 3806, 3807, 3808, 3813 
O 

Odessa 3776 

Omsk 3776 

Orlov, Alexander 3773 

P 
"Paul" 3816 

Pennsylvania Sugar Co 3814, 3815 

Perkins, Secretary of Labor 3814 

Petrov, Mr 3813 

Philippine Government 3801 



IV INDEX 

Page 

Philippine Islands 3800, 3801, 3808, 3811 

Philippine Islands, Communist Party of 3800 

Poland 3789, 3795-3798, 3806 

Polish 3778, 3797, 3798 

Poremsky, Dr. Vladimir 3787-3814,3802,3803 

Testimony of 3787-3814 

Resides Frankfurt am Main, Germany 3787 

President of the NTS 3787 

Background notes on 3802-3803 

Pravda 3791 

President, the (United States) 3800 

Rastvorov, Yuri 3813 

Reich, Dr. Gustav T 3814,3815 

Republic of the Mordvinians 3777 

Rumania 3776, 3784 

Rusher, William A 3773,3805 

Russia 3783, 3788, 3794 

Russian/s 3774-3780, 3782-3784, 3788, 3791-3794, 3808, 3814, 3817 

Russian Army (see also Soviet Army) 3791 

S 

Saigon 3809, 3812 

Salipinsky (rail prison car) 3776 

"Sam" (Semen Markovich Semenov) 3815,3816 

Semenov, Semen Markovich 3815 

Siamese 3808 

Siberia 3781-3784 

South America 3806, 3810, 3811, 3813 

South Korea 3807 

Soviet___ 3774, 3780-37S2, 3787, 3789-3795, 3797, 3799, 3801, 3806-3812, 3814, 3816 

Soviet Army 3791 

Soviet Embassy : 

Indonesia 3801,3813 

Mexico 3810, 3813 

Soviet Government 3773, 3783, 3790-3792, 3795, 3799, 3807, 3813 

Soviet Russia/n 3773, 3790-3793, 3795, 3813 

Soviet Union 3773, 

3776, 3783, 3784, 3788-3790, 3795, 3797, 3800, 3801, 3805, 3807, 3808, 

3810, 3814, 3816. 

Spanish 3794( 

Spanish civil war 3807 

Spanish gold (stolen) 3773 

Stalin 3775, 3792, 3795 

State Department 3799, 3805 

Statement of Harry Gold, Lewisburg, Pa., July 27, 1957 3814-3817 

"Steve" 3S15 

Suez Canal 3791 

Sverdlousk 3776 

T 

Tadjik 3776, 3780 

Tartars 3784 

Tayshet 3777, 3778, 3781, 3782 

Tito 3797 

Trans-Siberian Railroad 3782 

Transylvania 3774 

20th Congress of the Communist Party of the Soviet Union 3795 

U 

Ukranians 3778, 3780, 3784 

United Nations 3790, 3796, 3801, 3803, 3805, 3806 

Urals 3784 

U. S. News & World Report for March 29, 1957 3773 

Uzbeks 379D 



INDEX V 

V Page 

Vietnam 3808,3809 

Volksbund fiir Frieden unci Freiheit 380G 

Vorkuta 3776, 3782 

W 

Waikiki Beach 3811 

"Weapon of Gold" (U. S. News & World Report) 3773 

Weber, Artie 3816 

World War II 3774, 3775 

Y 
Yugoslav 3797 

Z 
Zaslavsky, Mr 3791 



o 



DEPOSITORY J. /T*'~ r < r 

SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OP THE 

COMMITTEE ON THE JUDICIARY 
UNITED STATES SENATE 

EIGHTY-FIFTH CONGRESS 

FIRST SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



APRIL 9 AND 10, 1957 



PART 59 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
93215 WASHINGTON : 1957 



*0 



Boston Public Library- 
Superintendent of Documents 

NOV 1 8 1957 



%\-.».-4 



COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

JOSEPH C. O'MAHONEY, Wyoming EVERETT McKINLEY DIRKSEN, Illinois 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 

SAM J. ERVIN, Jr., North Carolina ROMAN L. HRUSKA, Nebraska 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 
OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 

SAM J. ERVIN, Jr., North Carolina ROMAN L. HRUSKA, Nebraska 

Robert Morris, Chief Counsel 

J. G. Sourwine, Associate Counsel 

William A. Rusher, Associate Counsel 

Benjamin Mandel, Director of Research 

II 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



TUESDAY, APRIL 9, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 

and Other Internal Security Laws 
of the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursuant to notice, at 10 : 30 a. m., in room 
421, Senate Office Building, Senator James O. Eastland (chairman 
of the subcommittee) presiding. 

Present : Senators Eastland, Jenner, and Hruska. 

Also present : Robert Morris, chief counsel, William A. Rusher, asso- 
ciate counsel, and Roy C. Garcia, investigator. 

Chairman Eastland. The committee will come to order. 

Mr. Morris. Before the meeting gets underway, I would like to 
mention for the record that this hearing is being held this morning in 
connection with the subcommittee's inquiry into the flow of foreign 
funds into the United States, which has been amplified recently by 
the committee's efforts to identify the anonymous sources, and that, at 
the same time, has been taking money from the United States. 

On February 12, 1957, you, sir, as chairman of the Internal Secu- 
rity Subcommittee, sent a letter to Mr. Armstrong, the witness here 
this morning, and Chairman of the Securities and Exchange Commis- 
sion, to ask for considerable information on the Swiss trusts. 

Mr. Armstrong answered that with a letter dated April 2, 1957. I 
would like to offer for the record as a prelude to today's hearing, 
Senator, your letter of February 12, 1957, together with Chairman 
Armstrong's reply of April 2, 1957. 

Chairman Eastland. They will be admitted. 

(The letter of the chairman, and the reply thereto were marked 
"Exhibit Nos. 453 and 453-A" and read as follows :) 

United States Senate, 
Committee on the Judiciary, 
Subcommittee To Investigate the Administration of 
the Internal Security Act and Other Internal Security Laws, 

February 12, J957. 
Hon. J. Sinclair Armstrong, 

Chairman Securities and Exchange Commission, 

Washington, D. C. 
Dear Mr. Armstrong : The Senate Internal Security Subcommittee of the Sen- 
ate Judiciary Committee has been, for the last 6 months, making a study of pos- 
sible subversive forces buying anonymously into American industry to the 
detriment of the internal security of this country. The subcommittee has pre- 
pared an interim report on this which will be released in the near future. 

One device that is of particular concern to the subcommittee has been that of 
Swiss trust with which I know that you are acquainted. We are carefully look- 

3819 



3820 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

ing into the immediate problems posed by this banking device which makes it 
possible for an anonymous position to flourish in American industry. I wonder 
ir you would advise us at an early date whether or not the Swiss trust is now 
posing problems to the Securities and Exchange Commission. It would be appre- 
ciated if you would inform this committee of Congress of the general extent of 
anonymous ownership in American corporations. Have particular instances of 
this come to the attention of the Exchange? Also we would like to know whether 
there are any examples found of what are known as numbered ownership and 
fingerprint ownership of holdings in American corporations. 

The subcommittee is greatly concerned lest persons allied with or friendly to 
tne Soviet Union or other alien forces hostile to the United States are, by the 
device of financial holdings, infiltrating our defense corporations. 

I write this letter to ask you for an early reply to all of the above. 
Sincerely yours, 

James O. Eastland, 
Chairman, Internal Security Subcommittee. 



Exhibit No. 453-A 

Securities and Exchange Commission, 

Washington, D. C, April 2, 1957. 
Hon. James O. Eastland, 

Chairman, Internal Security Subcommittee, Committee on the Judiciary, 
United States Senate, Washington, D. C. 

Dear Senator Eastland : This is with further reference to your letter of 
February 12, 1957, with respect to anonymous ownership in American corpora- 
tions and the problems posed by so-called Swiss trusts. 

We would like to say at the outset that the primary responsibility of the 
Commission is the administration and enforcement of the Federal securities 
laws and information of the character to which you refer would ordinarily be 
developed by us only insofar as it is obtained in the administration of these 
acts, either from documents filed with us or in the course of investigations of 
actual or suspected violations of such acts. 

You ask three principal questions — first, whether or not Swiss trusts are 
posing problems to the Securities and Exchange Commission ; secondly, the 
general extent of "anonymous ownership" in American corporations, and 
whether particular instances of this have come to the attention of the Com- 
mission ; and thirdly, whether we have found examples of what are known as 
"numbered ownership and fingerprint ownership" of holdings in American 
corporations. 

Swiss trusts and similar financial institutions and devices have created a 
serious problem for the Commission in the enforcement of a number of the pro- 
visions of the Securities Act of 1933 and the Securities Exchange Act of 1934. 
The problem arises from the fact that, as you realize, under the laws and cus- 
toms of Switzerland, Swiss banks and similar institutions do not disclose the 
names of the persons for whom they are acting. Similar problems arise in con- 
nection with American securities held in the names of banks, brokers, or other 
institutions in other foreign countries, since such institutions are not subject to 
the jurisdiction of this Commission and there is no way in which we can require 
them to disclose the identities of their principals if they do not choose to, or are 
under instructions from their principals not to do so. 

It is often important for the Commission to ascertain the identity of the 
owners of securities of American corporations in order properly to administer 
and enforce the Federal securities laws. For example, section 16 (a) of the 
Securities Exchange Act of 1934 requires every person who is directly or in- 
directly the beneficial owner of more than 10 percent of any class of any equity 
security which is registered on a national securities exchange, and every direc- 
tor or officer of the issuer of such a security, to file certain reports of his 
holdings of any equity security of such issuer and of changes in such holdings. 
Inability to ascertain the identity of the beneficial owners of securities of Amer- 
ican corporations held by various foreign financial institutions makes it difficult, 
in some cases, to determine whether or not persons in fact subject to the re- 
quirements of section 16 (a) are complying with these requirements. 

The Commission's proxy rules, issued pursuant to section 14 (a) of the 
Securities Exchange Act of 1934, require, among other things, a disclosure to 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3821 

stockholders in proxy statements in connection with the election of directors, 
of securities of the issuer beneficially owned by directors and nominees for 
that office and, in certain cases, beneficially owned by associates of such per- 
sons, together with the interest of such persons and their associates in ma- 
terial transactions with the issuer. In the case of a proxy contest for the 
election of directors all participants in the contest are required to furnish rather 
detailed information about themselves and their interests in securities of the 
issuer. The term "participant" is broadly defined in the rule to cover persons 
and groups who solicit proxies, and persons who finance or otherwise enter 
into arrangements with such groups to induce the purchase or voting of securi- 
ties in support of, or in opposition to, a participant. In order to obtain for in- 
vestors the disclosures required by these provisions, it is often necessary to as- 
certain the amount of securities held beneficially, directly or indirectly, by 
specified persons, or to ascertain the identity of persons engaged in purchasing 
or acquiring securities which will be voted for one side or the other in a proxy 
contest. The holding of voting securities in the names of foreign financial institu- 
tions which do not reveal the identity of their clients in some instances com- 
plicates the task of obtaining the required disclosure. 

Section 5 of the Securities Act of 1933 requires that securities offered in the 
United States be registered with this Commission by the filing of a registration 
statement and that prospectuses meeting the requirements of the statute be 
delivered to investors purchasing such security, unless an exemption from regis- 
tration is available. Frequently the question of whether or not an exemption 
is available may depend upon the identity of the person for whose account the 
securities are being offered. Thus, section 4 (1) of the Securities Act of 1933 
exempts from the registration requirements, transactions by any person other 
than an issuer, underwriter, or dealer, and transactions by an issuer not involving 
any public offering. The term "underwriter," as defined in the statute, includes 
any person who has purchased securities from an issuer or controlling stock- 
holder with a view to distribution or who sells for such a person in connection 
with a distribution of any security or who participates in such an undertaking. 
Where securities are distributed in this country on behalf of a Swiss bank or 
other foreign financial institutions, a question immediately arises as to whether 
or not such institution is an underwriter within the meaning of the statute, or 
whether it is acting for a person who is such an underwriter, and this in turn 
may frequently depend upon the identity of the person for whom it is acting. 
If such person is an issuer, underwriter, or controlling person of an issuer, 
registration may be required, while if the person for whom the institution is 
acting is in none of these categories, the transaction may be exempt from regis- 
tration. In some instances an exemption has been claimed and the Commission 
has had great difficulty in determining whether or not such claim was justified 
and in assembling evidence which would enable it to show in court that the 
exemption was not available. 

The identity of beneficial owners of securities may also become material in 
connection with the antifraud and antimanipulative provisions of the statutes. 
For example, under the antifraud provisions of the statutes and the Commis- 
sion's rules, it may be unlawful for a person to purchase or sell securities without 
disclosing so-called inside information — that is, material facts of which such 
person has obtained knowledge because of his relationship to the issuer. In 
such instances the identity of a purchaser or seller for whom a foreign financial 
institution is acting may become material in determining whether or not such 
person is in possession of inside information and is under a duty to disclose it. 

Under the antimanipulative provisions of section 9 of the Securities Exchange 
Act of 1934, it is unlawful for any person, for the purpose of creating a false 
or misleading appearance with respect to the market for a security, to engage 
in so-called wash sales or matched orders — that is, transactions which involve 
no change in the beneficial ownership of the security or substantially simul- 
taneous purchases and sales of such security. It is also unlawful under this 
provision to effect a series of transactions for the purpose of creating actual or 
apparent active trading or raising or depressing the price of a security for the 
purpose of inducing the purchase or sale of such security by others. Where 
securities are purchased and sold by or on behalf of foreign financial institutions 
acting for undisclosed clients, it may be very difficult to determine whether or 
not the client may have violated the foregoing provisions of law. 

During the past year or so we have found increasing evidence of the use 
of foreign trusts and institutions in transactions which may violate these laws. 
For example, in 3 transactions which occurred in the middle of 1956, over $4 



3822 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

million worth of speculative securities were distributed to the American public 
on behalf of several Swiss trusts in probable violation of the registration and 
antifraud provisions of the Federal securities laws. The Commission is now 
actively investigating a number of such cases, including the ones referred to 
above. In some cases it is possible for the Commission, by lengthy and difficult 
investigation, and by folowing all leads available in this country, to obtain direct 
or circumstantial evidence with respect to transactions involving foreign trusts 
or other financial institutions where violation of the Federal securities laws 
may exist. In some of these situations, however, we have been so far unable to 
ascertain the full facts. 

The Commission has also encountered, within the last year or two, instances 
where Swiss financial institutions appear to have been utilized in major proxy 
contests for the purpose of accumulating shares which are subsequently acquired 
by one or more participants in such contests. It has been suggested that the 
fact that foreign financial institutions are not subject to the margin rules of the 
Federal Reserve Board may be a principal reason for their use in these situations. 
Another reason advanced for such use is that by employing foreign institutions 
a person may avoid disclosure of his activities or his interest. We feel, however, 
that the problem has been perhaps less serious in the proxy area than in the area 
of enforcement of the registration and antifraud provisions of the statutes. 

With respect to the extent of anonymous ownership in American corporations, 
American corporation law requires that shares be registered in the name of 
some identified person, firm or corpoi'ation. Bonds and other debt securities 
are very frequently made payable to the bearer and the corporation is entitled 
to treat any person in possession of the security as the owner. Bearer stock 
certificates are rather commonly used in Europe and in other foreign countries 
but are rarely encountered in American corporation law. Tims wholly anonymous 
ownership of stock in American corporations is not a factor, as it is in Europe. 

However, a person in whose name shares of American corporations are regis- 
tered frequently holds them as agent, nominee, or trustee, for some other person 
who is the beneficial owner. Banks, trust companies, and corporations custom- 
arily register corporate stock owned by them in the name of a nominee. In addi- 
tion, a large number of shares, particularly of those issues which are actively 
traded on securities exchanges, are registered in so-called street names — that is, 
in the names of securities brokers or dealers who hold the securities for the 
account of their customers. The usual reason for holding shares in the name of a 
nominee or a securities firm is to facilitate the transfer of the security if the 
owner desires to sell. 

According to studies made by the Brookings Institution in 1952 and by the New 
York Stock Exchange in 1956, approximately 10 percent of the shares of publicly 
held corporations in the United States were registered in the names of nominees, 
and about an additional 10 percent were registered in the names of brokers and 
dealers. About 15 percent more were held in the names of fiduciaries. 

Where the registered owner is located in the United States, identification of 
the beneficial owner where necessary is usually not a serious problem for the 
Commission. The names of persons who hold securities as nominees for par- 
ticular banks and trust companies are generally known and the Commission is 
advised of them. The regulations of the Commission require brokers and dealers 
subject to its jurisdiction to maintain records showing, among other things, the 
name and address of the beneficial owner of all securities held by such brokers 
and dealers for the account of customers, and these records are available for 
inspection by the Commission at any time. 

Where the registered owner of a security is located in a foreign country, these 
means for ascertaining the identity of the beneficial owner are not available. 
Accordingly, we have no information as to the extent to which securities regis- 
tered in the names of persons abroad are beneficially owned by such persons and 
the extent to which they are held for the account of others. According to the 
studies of the New York Stock Exchange referred to above, about 3% percent of 
the shares of publicly owned corporations in the United States were registered 
in the names of foreigners in 1956. This is an increase from about 1 percent 
reported in the 1952 study by the Brookings Institution. 

Data collected by the Treasury Department with respect to capital movements 
furnish some indication of the extent to which American corporate securities are 
purchased and sold by foreigners. According to these studies during the year 
1955 foreigners purchased an aggregate of $1,561 million of domestic corporate 
stocks and sold an aggregate of $1,434 million, making a net purchase of $127 
million. During this period, residents in some countries were net sellers and in 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3823 

others, particularly .Switzerland, were net purchasers. In 1955 residents of 
Switzerland purchased a total of $571 million of domestic corporate stocks, and 
sold an aggregate of $460 million, resulting in net purchases of $111 million. 
Net purchases of the rest of Europe were $34 million. 

Foreign purchases of corporate stocks increased in 1956, aggregating $1,618 
million and sales decreased to $1,366 million, resulting in net purchases of $252 
million. During 1956 residents of Switzerland increased their purchases to $590 
million and their sales to $472 milion, resulting in net purchases of $118 million. 
Other European countries appreciably increased net purchases which rose to 
$113 million. 

Finally you inquire as to whether there are any examples of what are known 
as numbered ownership and fingerprint ownership of holdings in American 
corporations. We have found no examples of these and believe that it would 
not be permitted by American corporation law. It is, of course, possible that 
foreign financial institutions which are registered owners of American securities 
identify the accounts of the beneficial owners for whom they hold securities by 
these means, but these institutions do not inform us as to the manner in which 
they identify accounts. A few instances have come to our attention where 
arrangements have been made for the issuance of so-called depository receipts 
evidencing a beneficial interest in the shares of American corporations. Under 
such arrangements shares are acquired by a foreign or domestic bank which 
issues depositary receipts evidencing ownership of such shares, which depositary 
receipts are bearer instruments not registered in the name of any person. We 
understand that such arrangements are usually entered into in order to permit 
trading in the shares of American corporations on foreign stock exchanges such 
as the Amsterdam Stock Exchange or the Brussels Stock Exchange, upon which 
exchanges securities are customarily traded in bearer form. We do not believe 
that the amount of American securities held under such arrangements is 
significant. 

We hope that the foregoing will be of some help to you, and, if we can be of 
any further assistance, please do not hesitate to call upon us. 
Sincerely yours, 

J. Sinclair Armstrong, Chairman. 

Mr. Morris. Senator, we have here this morning, five commis- 
sioners  

Mr. Armstrong. That's right. 

Mr. Morris. And five other officials of the Securities and Exchange 
Commission. 

Mr. Armstrong. I would like to introduce them, if I may. 

Mr. Morris. I think that would be very helpful. 

Mr. Armstrong. Mr. Chairman, and Senator Jenner, I am J. Sin- 
clair Armstrong, from Illinois, Chairman, and I am accompanied to- 
day by four fellow Commissioners : A. Downey Orrick, of California ; 
Harold C. Patterson, of Virginia; Earl F. Hastings, Arizona; and 
James C. Sargent, New York. 

I am also accompanied by Frank G. Uriel 1, Executive Assistant ; on 
my left: Philip A. Loomis, Jr., Director, Division of Trading and 
Exchanges, who will participate in this testimony; Paul Windels, Jr., 
Administrator for the New York regional offices, who will also par- 
ticipate ; Thomas G. Meeker, our General Counsel ; Irving Pollack, 
Assistant General Counsel ; William E. Becker, Director of Personnel ; 
William D. Moran, Assistant Director — excuse me, Assistant Ee- 
gional Administrator, New York regional office. 

Then, by the legal assistants of the four Commissioners : James T. 
Phelan, who is behind you, Senator Eastland, assistant to Commis- 
sioner Hastings. 

Charles Youngblood, assistant to Commissioner Patterson. 

Mr. Lecles, assistant to Commissioner Sargent, and — have I over- 
looked anyone? 



3824 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Oh, yes, Mr. F. Bourne Upham, Assistant Executive Director of the 
Commission. 

Chairman Eastland. We are glad to have all you gentlemen with 
us. 

Mr. Armstrong. We are pleased to be with you gentlemen and to 
participate with the Internal Security Subcommittee of the Com- 
mittee on the Judiciary. We regard this as a very great opportunity 
to be of service to the Senate, and as you are well aware, Senator 
Eastland, the Commission is an independent agency and we regard 
ourselves as an arm of the Congress, and we are very delighted to be 
with you and help in any way we can. 

(Discussion off the record.) 

Mr. Armstrong. We also have with us Mr. Harry Heller, Assistant 
Director of the Division of Corporation Finance. 

I have a prepared statement which would be not too long to read, 
if you desire. 

Chairman Eastland. You may proceed, Mr. Armstrong. 

STATEMENT OF J. SINCLAIR ARMSTRONG 

Mr. Armstrong. We, as I mentioned, are happy to have this oppor- 
tunity to appear before this subcommittee in connection with your 
inquiry concerning the use of foreign financial institutions and other 
foreign devices to acquire securities of American corporations, and 
the problems which result from these acquisitions. 

The Securities and Exchange Commission is charged with the ad- 
ministration and enforcement of the Federal securities laws and, in 
the performance of these functions, we have encountered certain prob- 
lems arising from the purchase or sale of securities in the United 
States by or on behalf of persons or institutions in foreign countries. 
We recognize that the subject matter of your committee's inquiry is 
substantially broader than the questions presented under the Federal 
securities laws, involving as it does problems of international finance 
and capital movement, as well as questions of national security. We 
would like, however, to tell you about some of the problems which we 
encounter in the fields which are within our jurisdiction. 

Speaking in broad terms, the purchase or sale of securities in the 
financial markets of the United States by or on behalf of foreign 
interests presents for the Commission two principal problems. In the 
first place, persons engaged in such transactions may violate the Fed- 
eral securities laws and we may be unable to obtain the necessary 
evidence or to punish the violators simply because they are beyond our 
territorial jurisdiction. In the second place, where transactions are 
initiated by or on behalf of institutions in foreign countries, we may 
be unable to ascertain the identity of the persons on whose behalf 
the transactions are consummated, who may be either Americans or 
foreigners, and we are thus handicapped, both in obtaining the dis- 
closures contemplated by the Federal securities laws, and in determin- 
ing whether or not the transactions in question involve violations of 
these laws. 

Chairman Eastland. Wait a minute, please, sir. 

Would you give Senator Hruska a seat there? 

Mr. Morris. Yes, sir. 

Mr. Armstrong. Good morning, Mr. Hruska. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3825 

Senator Hruska. Thank you, Mr. Chairman. 

Mr. Armstrong. As I will point out in a minute, it frequently hap- 
pens that a determination as to whether or not a particular transaction 
is a violation of the Federal securities laws depends upon the identity 
of the persons involved in the transaction. 

The first problem that I mentioned — the difficulty in obtaining 
jurisdiction over persons in foreign countries who sell securities into 
this country in violation of our laws — has been of concern to the Com- 
mission practically since the beginning of the Commission's existence, 
which was in 1934. This problem has attained its greatest magnitude 
in connection with the sale of securities from Canada because of ease 
with which securities transactions may be consummated across the 
Canadian border, the lack of exchange and currency restrictions and 
the interest of American investors in Canadian securities, and the in- 
vestment opportunities which they present. According to the latest 
available Government figures, the value of Canadian securities held 
by American investors at the end of 1955 amounted to over $3,600 
million, of which over $200 million was acquired in 1955. The present 
status of our enforcement problems with respect to Canadian securities 
is described on pages 202 to 205 of the 22d Annual Report of the 
Securities and Exchange Commission, submitted to the Congress on 
January 3, 1937, and if I may suggest, Mr. Chairman, I believe it 
would be helpful to the record if those brief pages from our annual 
report would be included in the record. 

Chairman Eastland. Yes, sir. They will be included in the record 
at this point. 

(The 22d Annual Report, Securities and Exchange Commission, 
1956, pp. 202-205, was marked "Exhibit No. 454" and is as follows :) 

Enforcement Problems With Respect to Canadian Securities 

In general the initiation and conduct of investigations with respect to viola- 
tions which have their origin in Canada parallel other enforcement procedures. 
The principal difference arises from the territorial limitations of the Commis- 
sion's authority and the fact that in a large majority of such cases the evidence 
is located, as are the violators, in a foreign country. The Commission staff 
cannot examine these persons under oath or inspect their books and records 
nor is it possible to obtain proof of the falsity of their representations concern- 
ing the issuers of the securities being offered for sale. Even where evidence 
is available, sanctions such as criminal or civil prosecution or administrative 
proceedings cannot be effective unless personal jurisdiction over the defendants 
is obtained. The difficulty in obtaining the requisite personal jurisdiction is 
highlighted by the narrow construction given by the Canadian courts to the 
Supplementary Extradition Convention between Canada and the United States. 
In the first case, U. S. v. Link and Green (3 D. L. R. 386 (1955) ), brought under 
the new extradition arrangements which had been designed to permit extradi- 
tion from Canada of persons engaged in the fraudulent sale of securities by mail 
and telephone to United States residents, the Canadian courts denied extradi- 
tion. At the conclusion of the 5 weeks hearing, the extradition judge announced 
that he was satisfied that a prima facie case of fraud had been made out against 
the defendants involved, but nevertheless denied the extradition request because 
he did not approve of the extent of the evidence which might be admissible in 
the prosecution of these defendants in the United States. Application was made 
to the Supreme Court of Canada for leave to appeal the decision, and that 
application was denied by the court for lack of jurisdiction, U. S. v. Link and 
Green (1955) (S. C. R. 183). Negotiations aimed at a solution of the problem 
have been continued through the Department of State. Meanwhile, enforcement 
efforts are necessarily dependent to a very large degree upon the cooperation of 
appropriate Canadian Federal and Provincial officials which, as mentioned in 
this Report under "Enforcement Program," has been excellent. 

93215—57 — pt. 59 2 



3826 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Despite these difficulties, the Commission and other Federal agencies have 
made aggressive efforts to cope with the overall situation. Hundreds of inves- 
tigations have been made, injunctions have been secured whenever jurisdiction 
over the violator could be obtained, a substantial number of criminal indict- 
ments have been entered, and over 80 postal fraud orders have been issued. A 
central clearing house for information concerning violators has been established 
within the Commission, whereby information in the possession of numerous 
law enforcement agencies is compiled and exchanged. 

Early in 1956, there was reason to be optimistic concerning the progress being 
made. Available information indicated that fraudulent offerings from Canada 
had decreased very substantially since the peak of 1949-52, both in number and 
in magnitude. This progress was the more encouraging because the past year 
or two have been a period of activity in the securities market and relatively 
high public interest in speculative securities when an increase rather than a 
decrease in the fraudulent offerings from Canada might reasonably have been 
anticipated. 

The favorable trend which was noted earlier in the year was reversed in 
the succeeding months of 1956 and is a cause for serious concern. The recent 
instances of fraudulent activity seem to be largely attributable to a small 
coterie operating in western Canada. There is reason to believe that this 
newly troublesome group includes notorious "stockateers" from Eastern Canada 
who were forced to discontinue activities there because of the vigilance of 
Quebec and Ontario authorities. 

The migration of persons engaged in illegal sales activities from one province 
to another in Canada creates a problem for the Canadian authorities who have 
been vigorously cooperating with the Commission ; and points up the inadequacy 
of provincial regulation to bring this illegal activity under control. The 
limitations of provincial law did not, however, prevent effective action by 
Canadian provincial authorities against 6 broker-dealers and 3 securities issuers 
whose registrations were either canceled or not renewed upon expiration fol- 
lowing complaints submitted by the Commission. In particular, the coopera- 
tion of the provincial authorities of Ontario and Quebec and their positive 
attitude toward the enforcement of their respective securities regulations have 
contributed greatly to the measure of success that has resulted from the 
cooperative enforcement program. In this connection, enactment of new legis- 
lation has enabled Quebec authorities to take forceful measures to halt fraudulent 
sales activities in that province. The Quebec Legislature which created the 
Securities Commission for that province was fully aware of the need for its 
Commission to be in a position to deal effectively with securities violators and 
therefore armed it with summary power to penalize and halt the activities of 
those persons who did not comply with the requirements of the law. It should 
also be mentioned that the Canadian provincial and Federal authorities have 
continued to cooperate with the Commission by making available evidence from 
their official files for use in proceedings initiated by the Commission, as well 
as by furnishing the assistance of members of their staffs in some instances. 
The Commission has cooperated with and assisted Canadian authorities by 
obtaining and making available evidence necessary for enforcement actions in 
that country. 

In April 1956 the Commission revised its Canadian restricted list, initially 
issued in September 1951, which contains a list of Canadian issuers whose secu- 
rities the Commission has reason to believe recently have been or currently are 
being distributed in the United States in violation of the registration require- 
ments of the Securities Act of 1933. The Commission's release published the 
list also, and for the first time specified the conditions under which a name would 
be deleted from the restricted list. Deletions are effected after a reasonable 
time if it appears that the issuer has ceased to exist and there appears to be no 
trading in the securities in the United States. Deletions may also be made upon 
compliance with the Federal securities laws by effective registration under the 
Securities Act of 1933, or qualification for an exemption under the Commission's 
regulations. Normally, a security will not be removed from the list until at least 
a year after the unlawful distribution is completed absent an appropriate filing 
under the Securities Act. In the originally revised restricted list the names of 
79 issuers no longer in existence were deleted and the names of 30 issuers were 
added, making a total of 135 issuers on the restricted list. In June 1956 the 
first supplement to the revised list was issued, adding the names of 14 Canadian 
issuers. It is the intention of the Commission to issue additional current supple- 
ments as the need appears, in keeping with the primary function of the list to 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3827 

put brokers and dealers, as well as the investing public, in the United States on 
notice of the fact that securities of Canadian issuers named thereon appear to 
be the subject of illegal distributions. 

The list, even as supplemented, does not purport to include all Canadian secu- 
rities being illegally distributed in the United States. It does serve as notice 
with respect to the securities of the issuers named which have come to the atten- 
tion of the Commission. Before executing transactions in such securities, brokers 
and dealers are expected to satisfy themselves that any such security purchased 
by them for resale or acquired in the execution as broker of a customer's order 
is not a part of the unlawful distribution, since otherwise the broker or dealer 
himself may be regarded as participating in an unlawful distribution. The list, 
among other things, discourages a particular technique of illegal distribution by 
which investors in the United States are solicited to place orders with their own 
brokers or dealers instead of directly with Canadian brokers, and the securities 
being distributed are used to fill the resulting orders from brokers and dealers 
in the United States. The current list is as follows : 



CANADIAN RESTRICTED LIST 

[In effect October 11, 1956] 

Canadian issuers whose securities the Commission has reason to believe 
recently have been distributed or currently are being distributed in the United 
States in violation of the registration requirements of the Securities Act of 1933. 



Alba Explorations Limited 

Algro Uranium Mines Limited 

Alminster Oils Limited 

Amshaw Porcupine Mines Limited 

Antimony Gold Mining and Smelting 

Corporation Limited 
Appollo Mineral Developers Inc. 
Ar-Can Limited (formerly Transvision- 

Television (Canada) Limited) 
Armour Uranium and Copper Mines 

Limited (formerly Naneek Mines 

Ltd.) 
August Porcupine Gold Mines Limited 
Augdome Exploration Limited 
Aunite Mining Corporation Limited 
Barbary Gold Mines Limited 
Bar-Fin Mining Corporation Limited 
Bargis Mines Limited 
Barvin Mines Limited 
Basic Minerals Limited 
B. C. Metal Mines Limited 
Beaucoeur Yellowknife Mines Limited 
Bibis Yukon Mines Limited 
Bli-Riv Uranium and Copper Corpora- 
tion Limited 
Britco Oils Limited 
Brunhurst Mines Limited (formerly 

Porcupine Peninsula Gold Mines 

Ltd.) 
Caldina Oils Limited 
Calumet Uranium Mines Limited 
Cameron Copper Mines Limited 
Camoose Mines Limited 
Camrose Gold and Metals Limited 
Canso Mining Corporation Limited 
Casa Loma Uranium Mines Limited 
Cavalcade Petroleums Limited 
Cavalier Mining Corporation Limited 
Central Sudbury Lead-Zinc Mines Ltd. 
Chief Mountain Oils Limited 
Clenor Mining Company Limited 
Clix Athabasca Uranium Mines Ltd. 
Cobalt Badger Silver Mines Limited 



Cob-Sil-Ore Mines Limited 

Colonial Asbestos Corporation Ltd. 

Consolidated Cordasun Oils Ltd. 

Consolidated Peak Oils Limited (for- 
merly Peak Oils Limited) 

Consolidated Quebec Yellowknife Mines 
Limited 

Consolidated Thor Mines Limited 

Continental Potash Corporation Ltd. 
(formerly Western Potash) 

Continental Uranium Corporation Ltd. 

Copper Island Mining Company Ltd. 

Copper Prince Mines Limited 

Cordan Cobalt Mines Limited 

Cove Uranium Mines Limited 

Crangold Mines Limited 

Dalo Oil and Gas Limited 

David Copperfield Explorations Limited 

Dencroft Mines Limited 

Derrick Oil and Gas Company Ltd. 

Desmont Mining Corporation Ltd. 

Detomac Mines Limited 

De Ville Copper Mines Limited 

Docana Oils and Mines Limited 

Dolmac Mines Limited 

Dougron Gold Mines Limited 

Dubar Exploration Limited 

Dupont Mining Company Limited 

Eastwebb Mines Limited 

Edson Oil Company Limited 

Export Nickle Corporation of Canada 
Limited 

Falgar Mining Corporation Limited 

Famous Gus Uranium Mines Limited 

Fission Mines Limited 

Fleetwood Yellowknife Mines Ltd. 

Forbes Lake Mining Corporation Ltd. 

Gay River Lead Mines Limited 

Genalta Petroleums Limited 

Gold Uranium Exploration Company 
Ltd. 

Gordona Mining Corporation Limited 

Gothic Mines and Oils Limited 



3828 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



CANADIAN RESTRICTED LIST — continued 
[In effect October 11, 1956] — Continued 



Greatlakes Copper Mines Limited 
Great Valley Exploration and Mining 

Limited 
Haitian Copper Corporation Limited 
Halden Red Lake Mines Limited 
Hamil Silver-Lead Mines Limited 
Harvard Mines Limited 
Head of the Lakes Iron Limited 
Hercules Uranium Mines Limited 
Holwood Mines Limited 
Huddersfield Uranium and Minerals 

Ltd. 
Huhill Yellowknife Mines Limited 
.Tudella Uranium Mines Limited 
Kabour Mines Limited 
Kaiser Development Corporation Liu. 
Kamis Uranium Mines Limited 
Kersley Oil and Gas Company Limneu 
Keylode Cobalt Silver Mines Limited 
Keymore Gold Mines Limited 
Key West Exploration Company Ltd. 
Kidihawk Mines Limited 
Kirk-Hudson Mines Limited 
Kirkland Larder Mines Limited 
Kop Beverages Limited 
Lake Superior Iron Limited 
Leberta-Redwater Oil Company Ltd. 
Lee Gordon Mines Limited 
Lithium Corporation of Canada Ltd. 
Lloydal Petroleums Limited 
Loranda Uranium Mines Limited 
Madison Mining Corporation Limited 
Mag-Iron Mining and Milling Limited 
Mallen Red Lake Gold Mines Limited 
Marvel Uranium Mines Limited (for- 
merly Marvel Rouyn Mines Ltd. ) 
Marwood Mining Corporation Limited 
Masters Oil and Gas Limited 
Mensilva Mines Limited 
Mercedes Exploration Company Ltd. 
Mid-West Mining Corporation Limited 
Mining Endeavor Company Limited 
Min-Ore Mines Limited (formerly Ryan 

Lake Mines Limited) 
Monogram Petroleums Limited 
Monpre Uranium Exploration Ltd. 
Montco Copper Corporation Limited 
Nationwide Minerals Limited 
New Bailey Mines Limited 
New Concord Development Corporation 
Limited (formerly Concord Develop- 
ment Corporation Ltd.) 
New Goldvue Mines Limited 
]\ew Jack Lake Uranium Mines Ltd. 
New Lafayette Asbestos Company Ltd. 
New Metalore Mining Company Ltd. 



New Telluride Gold Mines of Canada 

Limited 
New Vinray Mines Limited 
]Ni-Ag-Co Mines Limited 
Norlarctic Mines Limited 
Normingo Mines Limited 
Nu-Age Uranium Mines Limited 
Nu- World Uranium Mines Limited 
Oakridge Mining Corporation Limited 
Obabika Mines Limited 
Orbit Uranium Developments Limited 
Ordala Mines Limited 
Osage Oil and Exploration Limited 
Packeno Yukon Mines Limited 
Paramount Petroleum and Mineral Cor- 
poration limited 
Plateau Petroleums Limited 
Prescott Porcupine Gold Mines Ltd. 
Pyramid Oils Limited 
Trio Uranium Mines Limited 
Quebank Uranium Copper Corporation 
Quebec Developers and Smelters Ltd. 
Rebair Gold Mines Limited 
Resolute Oil and Gas Company Limited 
Ribstone Valley Petroleums Limited 
Richore Gold Mines Limited 
Ridgefield Uranium Mining Corporation 

Limited 
Rigby Kirkland Mines Limited 
Roland Gold and Copper Mines Ltd. 
Rouandah Oils and Mines Limited 
St.-Pierre & Miquelon Explorations Inc. 
Salmita Consolidated Mines Limited 
Saratoga Exploration Company Limited 
Sentry Petroleums Limited 
Sioux Petroleums Limited 
Skyline Uranium and Minerals Corpo- 
ration Limited 
Soo-Tomic Uranium Mines Limited 
Spike Redwater Oil Company Limited 
Strathmore Mines Limited 
Surety Oils and Minerals Limited 
Trans-Leduc Oils Limited 
United Copper and Mining Limited 
United Uranium Corporation Limited 

(formerly Indore Gold Mines Ltd.) 
Wainwright Producers and Refiners 

Limited 
Wakefield Uranium Mines Limited 
Westberta Oils Limited 
West Plains Oil Resources Limited 
Westville Mines Limited 
Winston Mining Corporation Limited 
Whitney Uranium Mines Limited 
Yukeno Mines Limited 
Yukore Mines Limited 



To assist in the enforcement work of the Commission, brokers, dealers, and 
members of the public are requested to report to the Commission evidence of 
violations of the Securities Acts which may come to their attention. 

Mr. Armstrong. This problem continues to be with us despite the 
excellent cooperation which we are receiving from many Canadian 
Federal and Provincial officials. We are continuing our active use of 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3829 

the various enforcement techniques which are described in the por- 
tions of the 22d annual report to which I just referred. 

The second problem which I mentioned — the difficulty of ascer- 
taining the identity of the beneficial owners of securities purchased 
or sold in the American capital markets by or on behalf of foreign 
interests — does not relate exclusively to any particular foreign coun- 
try. Whenever the registered owner of a security is a person outside 
the jurisdiction of the United States, we are generally unable to 
examine the books and records of such person or to question him under 
oath in order to ascertain the identity of the beneficial owner for 
whom he is acting and the other relevant details of the transactions. 
The practical importance of the problem varies from country to coun- 
try, both because of the varying number of securities transactions 
emanating from such countries and because of varying degrees of diffi- 
culty in obtaining information. In some countries we are able to 
obtain a certain amount of information through the cooperation of 
local officials, while, in other countries, local laws or customs inter- 
pose particular obstacles to the disclosure of such information. It is 
by reason of such a combination of circumstances that the problem 
of transactions from Switzerland has been a source of particular con- 
cern. Residents of Switzerland have been relatively large purchasers 
of American securities. For example, according to data collected by 
the Treasury Department, net purchases of American corporate stocks 
by residents of Switzerland in 1955, amounted to $111 million as 
compared with $34 million for the rest of Europe, and in 1956, net 
purchases by residents of Switzerland were $118 million, as compared 
with $113 million for the rest of Europe. In the second place, the 
laws of Switzerland prohibit the disclosure of so-called banking se- 
crets which include the identity of individuals for whom a Swiss bank 
or similar institution is acting and specifically prohibit the disclosure 
of such information to government agencies outside Switzerland. 

These Swiss laws are the outgrowth of a long established custom in 
that country which, in turn, arose out of the disturbed conditions 
which have existed in Europe for so long. We understand that the 
primary purpose of the present Swiss laws was to safeguard assets 
entrusted to Swiss financial institutions from confiscation by Nazi, 
Fascist, or Communist authorities which might come to power in the 
country where the owner of such assets resided. In other words, it 
is not our belief that these Swiss laws and customs were designed to 
facilitate securities frauds or the violation of American laws by Amer- 
icans or foreigners, although unfortunately we have reason to believe 
that they have, on occasion, been resorted to for that purpose by un- 
scrupulous persons. Such abuses present a difficult problem, not 
only for us but for the Swiss authorities themselves. We are hopeful 
that, with patience and understanding, some reasonably acceptable 
solution may be worked out, or at least the present unsatisfactory 
condition of affairs may be improved. 

There are a number of types of cases in which it is necessary or 
important for the Commission to ascertain the identity of the owners 
of securities offered in the United States in order properly to admin- 
ister and enforce the Federal securities laws. For example, section 
16 (a) of the Securities Exchange Act of 1934 requires every person 
who is directly or indirectly the beneficial owner of more than 10 
percent of any class of any equity security which is registered on a 



3830 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

national securities exchange, and every director or officer of the issuer 
of such a security, to file certain reports of his holdings of any equity 
security of such issuer and of changes in such holdings. Inability to 
ascertain the identity of the beneficial owners of securities of Ameri- 
can corporations held by various foreign financial institutions makes 
it difficult, in some cases, to determine whether or not persons in fact 
subject to the requirements of section 16 (a) are complying with these 
requirements. 

The Commission's proxy rules, issued pursuant to section 14 (a) 
of the Securities Exchange Act of 1934, require, among other things, 
a disclosure to stockholders in proxy statements in connection with 
the election of directors, of securities of the issuer beneficially owned 
by directors and nominees for that office and, in certain cases, bene- 
ficially owned by associates of such persons, together with the inter- 
est of such persons and their associates in material transactions with 
the issuer. In the case of a proxy contest for the election of directors, 
all participants in the contest are required to furnish rather detailed 
information about themselves and their interests in securities of the 
issuer. The term "participant" is broadly defined in the rule to cover 
persons and groups who solicit proxies, and persons who finance or 
otherwise enter into arrangements with such groups to induce the 
purchase or voting of securities in support of, or in opposition to, a 
participant. In order to obtain for investors the disclosures re- 
quired by these provisions, it is often necessary to ascertain the 
amount of securities held beneficially, directly or indirectly, by spec- 
ified persons, or to ascertain the identity of persons engaged in pur- 
chasing or acquiring securities which will be voted for one side or the 
other in a proxy contest. The holding of voting securities in the 
names of foreign financial institutions which do not reveal the 
identity of their clients in some instances complicates the task of ob- 
taining the required disclosure. 

Section 5 of the Securities Act of 1933 requires that securities of- 
fered in the United States be registered with the Securities and Ex- 
change Commission by the filing of a registration statement and that 
prospectuses meeting the requirements of the statute be delivered 
to investors purchasing such security, unless an exemption from 
registration is available. Frequently the question of whether or not 
an exemption is available may depend upon the identity of the per- 
son for whose account the securities are being offered. Thus, sec- 
tion 4 (1) of the Securities Act of 1933 exempts from the registration 
requirements, transactions by any person other than an issuer, under- 
writer, or dealer, and transactions by an issuer not involving any pub- 
lic offering. The term "underwriter," as defined in the statute, in- 
cludes any person who has purchased securities from an issuer or 
controlling stockholder with a view to distribution or who sells for 
such a person in connection with a distribution of any security or 
who participates in such an undertaking. When securities are dis- 
tributed in this country on behalf of a Swiss bank or other foreign 
financial instiution, a question immediately arises as to whether 
or not such institution is an underwriter within the meaning of the 
statute, or whether it is acting for a person who is such an under- 
writer, and this in turn may frequently depend upon the identity of 
the person for whom it is acting. If such person is an issuer, under- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3831 

writer, or controlling person of an issuer, registration may be required, 
while if the person for whom the institution is acting is in none of 
these categories, the transaction may be exempt from registration. 
In some instances an exemption has been claimed and the Commission 
has had great difficulty in determining whether or not such claim 
was justified and in assembling evidence which would enable it to show 
in court that the exemption was not available. 

The identity of beneficial owners of securities may also become ma- 
terial in connection with the antifraud and antimanipulative provi- 
sions of the statutes. For example, under the antifraud provisions of 
the statutes and the Commission's rules, it may be unlawful for a 
person to purchase or sell securities without disclosing so-called inside 
information — that is, material facts of which such person has obtained 
knowledge because of his relationship to the issuer. In such instances 
the identity of a purchaser or seller for whom a foreign financial in- 
stitution is acting may become material in determining whether or 
not such person is in possession of inside information and is under 
a duty to disclose it. 

Under the antimanipulative provisions of section 9 of the Securities 
Exchange Act of 1934, it is unlawful for any person, for the purpose 
of creating a false or misleading appearance with respect to the 
market for a security, to engage in so-called wash sales or matched 
orders — that is, transactions which involve no change in the bene- 
ficial ownership of the security or substantially simultaneous pur- 
chases and sales of such security. It is also unlawful under this pro- 
vision to effect a series of transactions for the purpose of creating 
actual or apparent active trading or raising or depressing the price 
of a security for the purpose of inducing the purchase or sale of such 
securities by others. Where securities are purchased and sold by or 
on behalf of foreign financial institutions acting for undisclosed 
clients, it may be very difficult to determine whether or not the client 
may have violated the foregoing provisions of law. 

During the past year or so we have found increasing evidence of the 
use of foreign trusts and institutions in transactions which may vio- 
late these laws. For example, in three transactions which occurred 
in the middle of 1956, over $4 million worth of speculative securities 
were distributed to the American public on behalf of several Swiss 
trusts in probable violation of the registration and antifraud provi- 
sions of the Federal securities laws. The Commission is now actively 
investigating a number of such cases, including the ones referred to. 
In some cases it is possible for the Commission, by lengthy and diffi- 
cult investigation, and by following all leads available in this coun- 
try, to obtain direct or circumstantial evidence with respect to trans- 
actions involving foreign trusts or other financial institutions where 
violations of the Federal securities laws may exist. In some of these 
situations, howevr, we have been so far unabl to ascertain the full 
facts. 

The Commission has also encountered, within the last year or two, 
instances where Swiss financial institutions appear to have been uti- 
lized in major proxy contests for the purpose of accumulating shares 
which are subsequently acquired by one or more participants in such 
contests. It has been suggested that the fact that foreign financial 
institutions are not subject to the margin rules of the Federal lieserve 
Board may be a principal reason for their use in these situations. 



3832 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Another reason advanced for such use is that, by employing foreign 
institutions, a person may avoid disclosure of his activities or his 
interest. We feel, however, that the problem has been perhaps less 
serious in the proxy area than in the area of enforcement of the regis- 
tration and antif raud provisions of the statutes. 

Under American corporation law, shares of stock in American 
corporations are generally required to be registered in the name of 
an identified individual who appears on the books of the corporation 
as the owner of such security. Bonds and other debt securities, on 
the other hand, are frequently made payable to the bearer and the 
corporation is entitled to treat any person in possession of a security 
as the owner. 

While, as indicated above, equity securities of American corpora- 
tions are generally registered in the name of an individual, that indi- 
vidual may be, and frequently is, acting as agent or nominee for 
someone else, and the name of the person for whom such an agent 
or nominee is acting is not generally available. 

Banks, trust companies, and coroprations customarily register 
corporate stock owned by them in the name of a nominee. In addi- 
tion, a large number of shares, particularly of those issues which are 
actively traded on securities exchanges, are registered in so-called 
street names — that is, in the names of securities brokers or dealers 
who hold the securities for the account of their customers. The usual 
reasons for holding shares in the name of a nominee or a securities 
firm is to facilitate the transfer of the security if the owner desires 
to sell. 

According to studies made by the Brookinsrs Institution in 1952 
and by the New York Stock Exchange in 1956, approximately 10 per- 
cent of the shares of publicly held corporations in the United States 
were registered in the names of nominees, and about an additional 
10 percent were registered in the names of brokers and dealers. 
About 15 percent more were held in the names of fiduciaries. 

It will thus be observed that the identity of the beneficial owner 
of a substantial amount of American securities is not disclosed by 
public records and, to that degree, Americans also enjoy a certain 
amount of privacy with respect to their holdings of corporate secu- 
rities. It is usually possible, however, for the Commission and other 
law-enforcement agencies in this country to ascertain the names of 
beneficial owners in the United States. The names of persons who 
hold securities as nominees for particular banks and trust companies 
are generally known and the Commission is advised of them, so that, 
where necessary, it is possible for us to go to the bank and obtain 
from it the name of the person for whose account the securities are 
held. Banks are cooperative with the Commission in this regard, 
though for their own protection they usually require the service upon 
them of a subpena requiring them to furnish the information. 

The regulations of the Commission require members of national se- 
curities exchanges and brokers and dealers who transact a business in 
securities through the medium of any such member, and brokers or 
dealers registered with the Commission pursuant to section 15 of the 
Securities Exchange Act, to maintain and preserve specified books 
and records, including a record containing the name and address of 
the beneficial owner of each account maintained by any such mem- 
ber, broker or dealer, and such records are available for inspection by 
the Commission at any time. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3833 

In order legally to transact a securities business in the United 
States otherwise than on a stock exchange, but by use of the mails or 
the facilities of interstate commerce, a foreign broker or dealer is re- 
quired to be registered with the Commission and a number of such 
brokers and dealers have been registered. At December 31, 1956, there 
were 48 foreign dealers registered with us, of whom 41 were Cana- 
dians. On July 16, 1956, we amended our regulations with respect to 
the maintenance of books and records, to require all nonresident 
broker-dealers registered with us either to maintain at a place within 
the United States, true, correct, and current copies of the books and 
records which they are required to maintain or, in the alternative, to 
enter into a binding undertaking with the Commission to furnish to it 
upon demand, at a place designated within the United States, true, 
correct and current copies of any or all, or any part of such books and 
records. These requirements are contained in rule 204.17a-7. I 
would like to introduce for the record at this point a copy of that 
rule. 

Senator Jennek (now presiding). It may go into the record. 

(The document referred to was marked "Exhibit No. 455" and reads 
as follows:) 

Exhibit No. 455 

Text of Rule X-17A-7 

RULE X-17A-7 RECORDS OF NONRESIDENT BROKERS AND DEALERS 

(a) (1) Except as provided in paragraph (b) hereof, each nonresident broker 
or dealer registered or applying for registration pursuant to section 15 of the 
Securities Exchange Act of 1934, as amended, shall keep, maintain, and pre- 
serve, at a place within the United States designated in a notice from him as 
provided in subparagraph (2) hereof, true, correct, complete and current copies 
of the books and records which he is required to make, keep current, maintain or 
preserve pursuant to any provision of any rule or regulation of the Commission 
adopted under the act. 

(2) Except as provided in paragraph (b) hereof, each nonresident broker or 
dealer subject to this rule shall furnish to the Commission a written r-otice 
specifying the address of the place within the United States where the copies 
of the books and records required to be kept and preserved by him pursuant to 
subparagraph (1) are located. Each nonresident broker or dealer registered or 
applying for registration when this rule becomes effective shall file such notice 
within 30 days after such rule becomes effective. Each nonresident broker or 
dealer who files an application for registration after this rule becomes effective 
shall file such notice with such application for registration. 

(b) Notwithstanding the provisions of paragraph (a) hereof, a nonresident 
broker or dealer subject to this rule need not keep or preserve within the United 
States copies of the books and records referred to in said paragraph (a), if: 

(1) Such broker or dealer files with the Commission, at the time or within the 
period provided by paragraph (a) (2) hereof, a written undertaking in form 
acceptable to the Commission and signed by a person thereunto duly authorized, 
to furnish to the Commission, upon demand, at its principal office in Washing- 
ton, D. C, or at any regional office of the Commission designated in such de- 
mand, true, correct, complete and current copies of any or all of the books and 
records which he is required to make, keep current, maintain or preserve pur- 
suant to any provision of any rule or regulation of the Commission adopted un- 
der the act, or any part of such books and records which may be specified in such 
demand. Such undertaking shall be in substantially the following form : 

"The undersigned hereby undertakes to furnish at his own expense to the 
Securities and Exchange Commission at its principal office in Washington, D. C, 
or at any regional office of said Commission specified in a demand for copies 
of books and records made by or on behalf of said Commission, true, correct, 
complete, and current copies of any or all, or any part, of the books and records 
which the undersigned is required to make, keep current or preserve pursuant 
to any provision of any rule or regulation of the Securities and Exchange 

93215— 57— pt. 59 3 



3834 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Commission under the Securities Exchange Act of 1934. This undertaking 
shall be suspended during any period when the undersigned is making, keeping 
current, and preserving copies of all of said books and records at a place within 
the United States in compliance with rule X-17A-7 under the Securities Ex- 
change Act of 1934. This undertaking shall be binding upon the undersigned 
and the heirs, successors, and assigns of the undersigned, and the written irrevo- 
cable consents and powers of attorney of the undersigned, its general partners, 
and managing agents filed with the Securities and Exchange Commission shall 
extend to and cover any action to enforce same" ; and 

(2) Such broker or dealer furnishes to the Commission at his own expense 
within 14 days after written demand therefor forwarded to him by registered 
mail at his last address of record filed with the Commission and signed by 
the Secretary of the Commission or such other person as the Commission may 
authorize to act in its behalf, true, correct, complete, and current copies of 
any or all books and records which such broker or dealer is required to make, 
keep current, or preserve pursuant to any provision of any rule or regulation 
of the Commission adopted under the act, or any part of such books and records 
which may be specified in said written demand. Such copies shall be furnished 
to the Commission at its principal office in Washington, D. C, or at any regional 
office of the Commission which may be specified in said written demand. 

(c) For purposes of this rule the following definitions shall apply : 

(1) The term "broker" shall have the meaning set out in section 3 (a) (4) 
of the Securities Exchange Act of 1934 ; 

(2) The term "dealer" shall have the meaning set out in section 3 (a) (5) 
of the Securities Exchange Act of 1934 ; 

(3) The term "nonresident broker or dealer" shall mean (A) in the case of 
an individual, one who resides in or has his principal place of business in any 
place not subject to the jurisdiction of the United States; (B) in the case of a 
corporation, one incorporated in or having its principal place of business in 
any place not subject to the jurisdiction of the United States; (C) in the case 
of a partnership or other unincorporated organization or association, one having 
its principal place of business in any place not subject to the jurisdiction of the 
United States. 

This action shall be effective August 20, 1956. 
By the Commission : 

Orval L. Dubois, Secretary. 

Mr. Armstrong. Where the registered owner of a security is located 
in a foreign country, these means for ascertaining the identity of 
the beneficial owner are not available. Accordingly, we have no 
information as to the extent to which securities registered in the 
names of persons abroad are beneficially owned by such persons 
and the extent to which they are held for the account of others. 
According to the studies of the New York Stock Exchange referred 
to a minute ago, about 3i/£ percent of the shares of publicly owned 
corporations in the United States were registered in the names of 
foreigners in 1956. This is an increase from about 1 percent reported 
in the 1952 study by the Brookings Institution. 

The principal sources of overall information concerning the hold- 
ings of American securities in foreign countries are the data collected 
by the Treasury Department with respect to current capital move- 
ments and the periodic studies made by the Department of Commerce 
with respect to the international trade position of the United States, 
including foreign investments in the United States, as well as Ameri- 
can investments in foreign countries. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3835 



The Treasury Department figures which are published monthly in 
the Treasury Bulletin show purchases and sales of American securi- 
ties in the aggregate and by residents of various individual foreign 
countries. According to these figures, the total purchases of domestic 
corporate stock by residents of foreign countries in 1956 are esti- 
mated at approximately $1,619 million, and sales at $1,363 million, 
resulting in net purchases of $255,900,000. This represents a material 
increase over net purchases in 1955. Of the net purchases by resi- 
dents of all foreign countries in 1956, residents of Switzerland ac- 
counted for approximately $118 million, or nearly half of the total. 

I would like to introduce at this point, Mr. Chairman, a table 
showing such purchases and sales, derived from the Treasury De- 
partment figures. That is table I which appears at the back of the 
statement. 

Senator Jenner. It may go in the record and become a part of the 
official records of this committee. 

(Table I referred to was marked "Exhibit No. 456" and is as 
follows:) 

Exhibit No. 456 

Summary of transactions in domestic corporate stocks by foreigners, 1955 and 

1956 





[Millions of dollars] 












1955 


1956 




Pur- 
chases 


Sales 


Net pur- 
chases 


Pur- 
chases 


Sales 


Net pur- 
chases 


Grand total 


1, 561. 2 


1, 433. 7 


127.5 


i 1, 618. 9 


i 1, 363. 


i 255. 9 


Europe, totaL . _. 


1, 023. 3 


877.8 


145.5 


1, 079. 


847.8 


231 2 






Switzerland _ . 


571.1 
452.2 


459.5 
418.3 


111. 6 
33.9 


590.6 
488.4 


472.6 
375.2 


118 


Other Europe..- 


113 2 






Canada 


235.1 

220.5 

82.3 


286.6 

202.8 

66.5 


-51.5 
17.7 
15.8 


234.3 

226.7 

78.9 


255.5 

197.8 

61.9 


—21 2 


Latin America . 


28 9 


Other 


17 







1 Adjusted preliminary figures include final figures through September. 
Source: IT. S. Treasury Department. 



The Commerce Department studies provide information with re- 
spect to the value of foreign investments in domestic corporate stocks. 
The latest such survey contained imthe Survey of Current Business 
for August 1956, shows the aggregate market value of United States 
corporate stocks held by residents of foreign countries, excluding esti- 
mated holdings of United States citizens resident abroad, at the end 
of 1955 to be $6,325 million. Figures for 1956 are not yet available. 
The largest holding by residents of any particular foreign nation 
was that of residents of Switzerland which was valued at $1,796 
million at the end of 1955. 

I would like, Mr. Chairman, to introduce at this point a table show- 
ing the value of such investments by foreign residents for the years 
1954 and 1955 in total, and for certain individual areas and nations. 

Senator Jenner. It may go into the record. 



3836 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

(Table II, above referred to, was marked "Exhibit No. 457" and 
is as follows:) 

Exhibit No. 457 

Value of foreign investments in domestic corporate stock, excluding holdings 
of United States citizens resident abroad, year ends 1954 and 1955 

[Millions of dollars] 





Value 1954 


Change in 1955 






Net pur- 
chases 


Price 
change 


Value 1955 


Total 


5,004 


129 


1,192 


6,325 






Western Europe- 


3,485 


146 


837 


4,468 






Switzerland 


1,353 

1,153 

979 


112 

32 

2 


331 

276 
230 


1,796 


United Kingdom . ... 


1,461 


Other 


1,211 






Western European dependencies 

Canada 


118 
910 
377 
114 


6 

-51 
17 
11 


29 

207 

91 

28 


154 

1 066 


Latin America 


484 


Other 


153 







In considering these figures, it should be borne in mind that they 
merely show purchases by individuals and institutions resident in 
the particular countries and do not necessarily reflect beneficial own- 
ership. Thus, the securities credited to Switzerland may well in- 
clude substantial amounts held by Swiss financial institutions for the 
account of persons who in fact reside in other countries. 

We hope that the foregoing general statement will be of some as- 
sistance to the committee, We have with us certain members of our 
staff who are prepared to furnish further information with respect 
to certain specific aspects of our problem. 

Senator Jenner. We thank you, Mr. Armstrong. Do you have 
any questions at this time, Senator ? 

Senator Hruska. No. 

Senator Jenner. Proceed Mr. Morris. 

Mr. Morris. Mr. Armstrong, other witnesses before this committee 
have testified that, because of the anonymous possibilities that may 
arise in connection with the purchase of stock in American corpora- 
tions and the subsequent proxy fights, it is of some concern to the 
various executive department agencies in that they do not know and 
cannot know, in some instances, exactly who are taking over some of 
our vital defense industries. 

I think you have testified regarding that somewhere, or made some 
comments in this regard on some occasion; have you not, Mr. Arm- 
strong, that the Securities and Exchange Commission has likewise 
been concerned with that possibility ? 

Mr. Armstrong. I think, Mr. Morris, that our concern has been 
directed particularly to the possibility of violations of the law which 
we administer. I do not believe that we have directed or focused our 
attention particularly on any defense industry aspect of the problem. 

I think I might mention, however, to you Senate Resolution 22, in 
this Congress, which was introduced by Senator Dirksen, referred 
to the Armed Services Committee, in which reference is made to de- 
fense industry problems, and to the securities and exchange problem 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3837 

in this area, so that the two are not unrelated. We have not really 
been focusing on anything other than our particular problem, as I 
stated in our opening statement. 
Mr. Morris. On that you say : 

We feel, however, that the problem has been, perhaps, less serious in the 
proxy area than in the area of enforcement of the registration and antifraud 
provisions of the statutes. 

Mr. Armstrong. Yes, sir, that is true. But I think my answer has 
to go further than that. 

Even in the proxy area we have not been directing attention to 
whether or not the company which was the subject of the proxy fight 
was a defense industry company. What we have been concerned 
with is getting the facts brought forward by the participants in the 
proxy contests, assuming the company is subject to our jurisdiction 
under the Securities Exchange Act, so that the disclosure require- 
ments of the act will be fulfilled. 

Now I suppose that some of those companies may have defense 
contracts and others don't, I don't know that we have studied that 
phase of it. 

I would like to ask Mr. Loomis, in whose Division of Trading and 
Exchanges the economic research goes on, and Mr. Heller, of the 
Division of Corporation Finance, whether either of them have been 
directing attention to the defense phase of the problem. 

Mr. Loomis. I think Mr. Heller is more familiar with the facts 
about the particular companies that have been involved in proxy 
fights as to their defense contracts. I think some of them do have 
some such business. 

Mr. Heller. I think Fairbanks-Morse has some important defense 
contracts, and I think that about 10 percent of its sales last year were 
defense-connected sales. On the other hand, however, the company 
seeking control of Fairbanks-Morse is an American company con- 
trolling the block of stock in Fairbanks-Morse, and is also engaged 
in defense production to some extent. 

Mr. Morris. In that connection, Mr. Chairman, the concern of the 
subcommittee, I think I speak for the subcommittee, and the interests 
of the subcommittee, is such that it might be helpful to the gentle- 
men here testifying to know that we have taken up with the Depart- 
ment of Defense witnesses, as well as the other witnesses before the 
committee today, and have pointed ..out that is is now possible for 
anonymous sources to purchase stock in a defense corporation, a cor- 
poration engaged in defense work and as the result of the subsequent 
proxy fight wherein anonymous sources can well, under existing regu- 
lations, take control of a company, which could again conceivably then 
be run by stockholders who would elect directors, which directors 
would be running the particular defense industry. 

Now, I think we have had 5 or 6 witnesses testifying that that had 
led to an impasse, that further legislation was necessary in order to 
really plug up this possible loophole in the laws. 

We wondered, Mr. Armstrong, if you could tell us what practical 
legislation could be recommended by Congress in order to plug up 
this particular loophole, namely, the possibility of a foreign source 
buying into American industry and then, after a subsequent proxy 
fight, wherein the foreign sources would prevail, you have a foreign 
anonymous source acting in one of our vital defense companies. 



3838 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Armstrong. Well, I don't think that our Commission, Judge 
Morris, is prepared at the present time to recommend additional 
legislation to the Congress, although we may desire, on the basis of 
studies that this committee is making, and our Commission is making, 
and a subcommittee, the Subcommittee on Security of the Committee 
on Banking and Currency of the Senate, is making, to come forward 
with some legislative proposal later on this year. 

It is a very complex problem which we have been studying. We 
have in mind, in addition to the possibility of legislation by act, the 
possibility of legislation by treaty. It very well may be that the infor- 
mation that our Commission desires to obtain, as the Commission au- 
thorized by the United States Government to administer, or directed 
by the United States Government to administer our Federal securi- 
ties laws, could be obtained through the direct cooperation of the 
foreign governments under the treaty with a particular foreign coun- 
try. 

I might elaborate a little bit on the Canadian phase of the problem, 
which I mentioned in my statement. 

On a voluntary basis, we have been obtaining excellent cooperation 
in our investigations from the officials of Canada, both at the Federal 
and provincial level. I am just afraid that anything I might say 
specifically on legislation at this point would be premature. 

Mr. Morris. Well, Commissioner Armstrong, the subcommittee is 
interested in some kind of legislation that would require additional 
identification, and yet, before proceeding with such legislation, would 
like to be sure that whatever the legislation is which is introduced, it 
would not be imposing difficulties on such administration by the Secur- 
ities and Exchange Commission that it might be impossible of 
maintaining. 

For instance, would it be feasible to pass a law, or at least to intro- 
duce a law, that would require the beneficial holders of all stock in 
American defense industry, or American industry generally, to 
identify themselves before they could vote in a proxy fight? 

Mr. Armstrong. From the practical standpoint, I am not sure that 
it would. 

Mr. Morris. In other words, certainly you would not want a holder 
of a hundred shares possibly, or 50 shares, or 10 shares, or some small 
amount, to identify himself. 

Mr. Armstrong. It is not that I would not want it. 

Mr. Morris. As far as the SEC is concerned. 

Mr. Armstrong. That is right. But it is the practical standpoint 
that I am concerned about, and it is a jurisdictional question. It is the 
question of the extent of the jurisdiction of the United States, how 
far can the United States go. 

Let us suppose, in a hypothetical case, that the Swiss bank in a 
particular situation identified its customer, and its customer was also 
a foreign institution or a foreign individual, but had not disclosed that 
fact to the Swiss bank. Could the Swiss bank's customer vote under 
legislation such as you are suggesting? 

It is conceivable that the Swiss bank's customer could vote on dis- 
closure by the Swiss bank that such customer were a beneficial owner, 
and such statement by the customer might be completely false and 
there would be no way in the world that we would know about that 
fact. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3839 

I would like to ask Mr. Heller if he would care to elaborate on that. 

Mr. Heller. Mr. Morris, our Securities and Exchange Act of 1934 
now requires the beneficial owner of 10 percent or more of the stock of 
any listed company 

Mr. Morris. That is 10 percent or more ? 

Mr. Heller (continuing). Wherever he is, to disclose it. Now, if 
he does not disclose it, it is a violation of law. 

Mr. Morris. It is easy to see where you would have 3 or 4 holders of 
9 percent or less of the stock who, together, would represent such a 
formidable combination that they could effectively control the 
corporation. 

Now, the thing that the subcommittee is considering — should legis- 
lation proceed from the subcommittee which would require further 
identification of the beneficial holders and if so, to what extent? You 
certainly would not want to go down to the identification of the owners 
of 2 or 3 shares of stock, for instance, but should there not be some 
point 

Mr. Heller. It is a question of degree, I think. Senator Capehart 
introduced a bill which would require the disclosure of ownership of 5 
percent or more of the stock of the company, and I think the Commis- 
sion has generally 

Mr. Armstrong. We supported that legislation. 

Senator Capehart, if I may interrupt for a moment, has also intro- 
duced another bill which would require the beneficial ownership of 
any shares voted in a proxy contest to be disclosed. That bill has been 
referred to the Commission for our views, which we have not yet given 
because we received it only recently. 

Mr. Morris. In other words, you feel that it would be conceivable, 
at least as far as proxy fights are concerned, or at least to gain some 
vote in a proxy fight in any struggle to take over the corporation, that 
it would be possible for legislation to exist that would require the iden- 
tity of all persons. 

Mr. Heller. All ? 

Mr. Morris. That would be the second legislative proposal referred 
to, that would be necessary. Would that be unnecessarily restrictive? 

Mr. Heller. The problem, Mr. Morris, is this : You do not neces- 
sarily restrict it. How do you know you get the beneficial owner, if 
there are Swiss owners, for example? As Mr. Armstrong says, the 
Swiss bank may even tell you that the man they regard as the owner 
is so-and-so. He may not be, in fact, the real beneficial owner. It is a 
real problem of enforcement. The fundamental thing is : You have to 
deal with the foreign countries. You may have a law calling for that 
and may or may not get it, depending on whether the foreign country 
wants to compel their nationals to do that, that is, to disclose those 
facts. 

Mr. Armstgong. If I may supplement that, Mr. Morris, we have 
visualized this problem up to now from our standpoint under the Fed- 
eral securities laws as being the problem of the enforcibility of existing 
laws. We have run into difficulties of enforcement because our juris- 
diction runs out where the territorial limits of the United States run 
out, and where, by voluntary means, we are not able to obtain the in- 
formation from the people abroad, we don't visualize at the moment 
a problem which could necessarily be helped, except perhaps in degree, 
by legislation. 



3840 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Capehart/s proposal, in his legislation affecting section 16 
(a), to reduce that to 5 percent, would be a good idea, but you could 
still get a combination of 10 groups holding 4.9 percent and that would 
not help. 

The problem is : If the holders are abroad and refuse to give out the 
information, or there were hidden successive beneficial owners, we 
would not be any further along than we are now. 

Air. Loomis. You see, our rules now require every person who is 
participating in a proxy fight, and who has much, if any, part in an 
effort to take over control of the corporation, whatever he may own, 
to identify himself; and the problem, as the chairman has pointed 
out, is to enforce that. I think, if we get in each case all the infor- 
mation that is called for by those rules about everybody who is partici- 
pating in a proxy contest, if we got it all it would identify anybody 
who has any significant part in any proxy contest or in any effort to 
take over control by proxy contest. 

Mr. Morris. Well, it is true generally that a law, any law, may be 
obviated by people not complying with it, and concealing the facts. 

Mr. Loomis. Yes. 

Mr. Morris. You have an enforcement problem, and that is true 
even in connection with the existence of the law now which requires 
us to hold it at 10 percent —  — 

Mr. Loomis. Yes. 

Mr. Morris (continuing). Who must declare their identity before 
they can participate in a proxy fight. But granted that you have a 
problem of enforcing which is a very severe one, as far as you people 
are concerned, would it add additional difficulties to your work in 
the SEC if a law should pass which would require further identifica- 
tion before people can participate in a proxy fight ? 

Mr. Armstrong. I think we would have to see the language of the 
act before we could give an opinion on that. 

Mr. Morris. In connection with that, Mr. Armstrong, would it be 
unnecessary to require additional identification for the mere holding 
of the foreign stock, on the part of foreign owners of American stock ? 

Mr. Armstrong. Would it be necessary ? 

Mr. Morris. In other words, if we have a law which requires the 
foreign owners of American stock to identify themselves simply to 
own the stock, there would not be much advantage gained by that; 
would there ? 

Mr. Armstrong. Well, I don't know whether the advantage would 
outweight the disadvantage because it would, I think, impose a rather 
drastic change on the customs in the securities market now. There 
might be an advantage, too, and there might be advantages in other 
areas of Federal jurisdiction such as the Internal Revenue Code and 
matters pertaining to the flow of funds. 

There would be many things that would have to be taken into con- 
sideration to determine whether, on balance, it would be desirable 
legislation or not. 

Mr. Morris. But the real problem comes in with the possibility 
of somebody owning stock to the extent that they are trying to take 
control over. That is where the problem lies. 

Mr. Armstrong. The problem is certainly one which can be in- 
volved — the control problem. 

Mr. Morris. Senator, anything more on that particular point? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3841 

Senator Jenner. No. 

Senator Hruska. Mr. Chairman, I have a question or two right in 
here. 
On page 13 of your statement you say : 

According to the studies of the New York Stock Exchange referred to above, 
about 3% percent of the shares of publicly owned corporations in the United 
States were registered in the names of foreigners in 1956. 

In that report or study of the New York Stock Exchange resulting 
in that conclusion, is there any breakdown as to the type of stock that 
is involved in that foreign ownership ? 

Mr. Loomis. Not that I recall. They just took off the publicly 
traded stock in the United States as a group ; they didn't break it down 
either by countries or by stocks. They didn't break them down spe- 
cifically by, say, defense industries or nondefense or in any way. 

Senator Hruska. Or banks or insurance companies ? 

Mr. Loomis. No ; it's just an overall figure. 

Mr. Armstrong. May I interpose a question: Did they just cover 
the listed stocks ? 

Mr. Loomis. No; they covered all publicly traded stocks in the 
United States, both listed and unlisted. 

Mr. Armstrong. So, to a considerable extent that must be based on 
a sampling study. 

Mr. Loomis. It was based on a sampling study made by various 
groups in the securities industry. 

Senator Hruska. One of the concerns of this committee, in its effort 
to study this situation, is the possible control by foreign sources, as 
you can understand. Would it be practical to have a limitation as 
to the voting powers of stocks which are owned by foreign sources, 
if there were sufficient satisfactory disclosure of the beneficial owners 
thereof that would satisfy the standards which are imposed upon do- 
mestic owners of such stock ? Is that practical as a working, admin- 
istrative thing, if such a law or such legislation were considered ? 

Mr. Armstrong. My own view of that, Senator Hruska, is that the 
problem is — it would involve, of course, some imposition of the Fed- 
eral jurisdiction on the States because, of course, the voting of stocks 
is a matter of State law. But, after all, the Federal Government has 
assumed such jurisdiction under section 14 of the Exchange Act, and 
what you are suggesting would be merely an extension, in a limited 
area, of that assumption of jurisdiction by the Federal Government. 

Senator Hruska. At some degree that bridge was crossed back in 
1933; was it not? 

Mr. Armstrong. Yes, sir. The basic intergovernment relationship 
between the Government and the States was crossed in 1933 and 1934 
when the 

Senator Hruska. When the considerations of national policy over- 
rode the State jurisdictions which have theretofore been held quite 
inviolate. 

Mr. Armstrong. That's right; and, of course, back in those days 
the draftsmen were always concerned as to just how far the con- 
stitutional power ran under the commerce clause, but 

Senator Hruska. Except here. 

Mr. Armstrong. I personally would entertain no doubt of that sub- 
ject today. 

93215— 57— pt. 59 4 



3842 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Hruska. Here you get into international considerations, 
as opposed to interstate considerations. 

Mr. Loomis. Yes. 

Senator Hruska. And presumably into a much more legitimate field 
for an overriding national policy. 

Mr. Armstrong. Yes. I can't see any constitutional problem in- 
volved in that at the present time. 

Senator Hruska. Would there be any bad effect as to the market 
itself if there were that limitation ? Can you foresee anything that 
would be worthy of observation at this point in that regard % 

Mr. Armstrong. Well, speaking for myself, and this is not a ques- 
tion which has been discussed by the Commissioners, so I can't speak 
for them, but I can see no bad effect from such legislation. 

In other words, my own thinking has been along these lines, that 
where the Securities and Exchange Commission is not satisfied with 
the information that we have been able to develop through our own 
investigative processes there ought to be some right on the part of 
the Commission which, after all, is the representative of the United 
States Government, to interpose in a situation of that kind. 

Now, we do not have that right, as I understand the law today, the 
only basis upon which we can go into a Federal court today to re- 
strain the voting of proxies, or restrain the holding of the meeting, is 
that we are able to demonstrate by evidence, admissible and material 
in a Federal court, that there has been a violation of our disclosure 
requirements. Up to now, we have not gone into any Federal court 
in any such situation. 

We, from time to time, would feel more comfortable if we had been 
able to obtain information which we haven't been able to obtain, but 
nevertheless we don't have any factual data that could be used in a 
court because all the data we do have is in the other direction. 

Senator Hruska. And, not available to you. 

Mr. Armstrong. No. The data we do have on the basis of our 
investigations made here, and we have a very vigorous investigation 
that goes on in all of these cases in which w T e get all the participants 
down and put them on the record, subpena them under oath, the data 
that they give us is that there is no violation and when that is the 
evidence we do have, and we have no other evidence, then we have to 
live by that. 

Senator Hruska. Your principal concern, and the principal con- 
cern of the statute as now written with reference to the disclosure of 
stock that has to do with safeguards against abuse of management 
principles, doesn't it? For example, in proxy fights and in other 
instances where you require disclosure, your objectives there are 
directed primarily to management, manipulation and abuse thereof. 

Mr. Armstrong. I don't believe, Senator Hruska, that it is right to 
characterize it as abuse of management. The abuse can be perpe- 
trated by management, by an opposition group or in the field of market 
manipulation by any person, whether management or opposition or 
rank outsider to the situation. The purpose of the act, sir, is to 
furnish certain basic protections to the investors, protections against 
abuses by any person who may be engaged in such abuses. 

Senator Hruska. Management or any other. 

Mr. Armstrong. Absolutely, and, in our administration of the proxy 
rules, we are strictly and absolutely impartial. We get both groups 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3843 

down, the management group and the opposition group, and interro- 
gate them under oath to give us the facts as to their interest in the 
contest, their stock holdings and contractual relations they may have 
or propose to have with the company, and so on. 

A great mass of detailed information we require to be given to us 
under oath by both sides, and it is on the basis of the taking of that 
testimony by us under our subpena powers that we are able to require 
the participants in that proxy contest to include in their proxy state- 
ment which is distributed to security holders, the facts that they do 
include, and if any of the things they have stated to us under oath, or 
included in that proxy statement lead later, or turn out to be false or 
misleading in any material respect, they will be subject to the penal 
provisions of the Exchange Act. 

Senator Hruska. Just so that you would have a background for 
the purpose of my question, as against any further expression of opin- 
ion which might be requested of you, it would be in my mind that it 
would not be objectionable for these foreign sources to be investing in 
these securities here except insofar as it might bear upon a control of the 
management, which would be harmful to this country and in its de- 
fense efforts, or any other, and if a deprivation of the voting power 
would clear up that situation and be a safeguard, unless standards 
which are set up for proper disclosure were abided by, then perhaps 
the problem would no longer exist. 

Mr. Armstrong. "Well, I firmly feel, Senator Hruska, from the 
standpoint of your committee, that that is undoubtedly the sound 
position, although I am not really qualified to speak from that full 
standpoint, but speaking from the standpoint of the Securities and 
Exchange Commission, as a Commissioner thereof, I don't have any 
difficulty with the proposal along those lines. 

Senator Hruska. It is only on that concept that I asked for your 
suggestions. Any statement that would be made to implement that 
concept would have to be examined carefully, but the concept itself is 
what I am interested in. 

Mr. Armstrong. Speaking for myself, as an SEC member not able 
to speak for others generally, I am favorable to the approach. 

Senator Hruska. And that is all you have at the present time? 

Mr. Armstrong. It may be that one of the other Commissioners 
might want to contradict what I have said. 

Senator Hruska. Would there be any others here who would have 
any observation along that line ? 

Mr. Heller. In my judgment, most foreign investments are made 
for investment, not control. They have an interest in the profits. If 
you restrict foreign investors from voting unless they disclose their 
beneficial ownership, it may result in all corporations, American cor- 
porations, not being able to obtain a sufficient vote to take many im- 
portant corporate actions. In other words, under State laws the elec- 
tion of a board of directors requires a specified number of votes, a 
merger or consolidation requires a certain specified number of votes, 
and if the proposed law would result in a refusal by a large number 
of foreign investors to vote, because of a desire to avoid full disclosure, 
you may well impede ordinary important corporate procedures. 

Senator Hruska. And to that extent give them a negative control. 

Mr. Heller. That could be. 



3844 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. That would seem to be a very important point from 
our point of view, Senator. A restriction, even against forcing the 
disclosure of the beneficial owners for voting purposes, might have 
the effect that you just described. 

Mr. Heller. It might have some effect. There is a large quantity 
of stock in American companies held abroad primarily for investment 
purposes. 

Mr. Morris. What other nations, other than Switzerland, have laws 
which insure the anonymity of the owners of stocks ? 

Mr. Heller. I will have to ask our General Counsel. 

Mr. Meeker. I am not prepared to answer that question today, Mr. 
Chairman. I haven't studied all of them, by any means. 

Mr. Morris. Are there other countries other than Switzerland 
where that is now the custom ? 

Mr. Meeker. Yes, sir. 

Senator Jenner. Would you provide that information for our rec- 
ords, please ? 

Mr. Meeker. Yes, sir. 

Mr. Armstrong. I might say, Senator Jenner, and Senator Hruska, 
that we are preparing, in our New York regional office, and under 
the supervision of our General Counsel the staff is working here on a 
memorandum for the committee on that subject. We have been work- 
ing on it for quite a while, but we did not feel we wanted to give it 
today because there is some more work that ought to be done on it. We 
will submit it to you for the record, and come up and testify about it 
if necessary. 

Senator Jenner. Thank you very much and we can make it a part 
of this record. 

Mr. Armstrong. I think we might mention the Ontario Records Act. 

Mr. Morris. What was that ? 

Mr. Pollack. Ontario has a Business Records Act, covering finan- 
cial records, which cannot be removed from Ontario, or even resumes 
or digests of such records, subject to certain exceptions. For example, 
if the company is licensed to sell securities in the United States, they 
can make such records or resumes of such data available but, if they 
are not, then they cannot, under that provision. Thus it can be used 
as a purported shield for somebody who is engaging in fraudulent 
activities in the United States. And when you inquire as to this 
information the answer is, "Well, under the Ontario provision, we are 
not permitted to disclose these things." 

There may be similar statutes in some other countries, but we have 
not done sufficient research to give you any authoritative statement 
on it. 

Mr. Loomis. In connection with that, in addition to the laws that 
restrict the disclosure of information, some countries' corporation 
laws appear to just provide a very minimum of information which you 
can go to. Their procedures are different from ours and all that you 
find available in public sources there is the name of a local lawyer 
who is acting for the company, and so on — some very minimal infor- 
mation. Even if there is no law in that country prohibiting disclosure 
of information, there isn't any information available to disclose unless 
you find people who may be in that country or in some other, so it is 
more than just a question of whether a country has a law prohibiting 
the disclosure of information. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3845 

It is also a question of whether that country requires any informa- 
tion to be collected in the first place. 

Mr. Windels. I think even more basic, our subpenas do not reach 
into any foreign country. Therefore, even though we know what the 
facts are, if the witnesses who alone can testify as to the facts are in a 
foreign country and are unwilling voluntarily to come to our juris- 
diction, there is no way in which we can use those facts in a proceed- 
ing, and if we can't develop the facts in a proceeding, then our hands 
are tied. 

Mr. Morris. That would indicate that the source of the problem is 
not only the countries that have these laws that prohibit disclosure, 
but almost every country because of the inaccessibility of the evidence. 

Senator Jenner. There was some reference early in your statement 
to a possible treaty or treaties. 

Mr. Armstrong. Yes. 

Mr. Morris. Senator, in that connection I might ask Mr. Arm- 
strong — do you know that a rather thorough inquiry was undertaken 
by the Treasury Department during the war to determine how foreign 
money could be used to aid the enemy during the course of the war ? 
Did you know there was such a report ? 

Mr. Armstrong. I can't say that I knew of it specifically, no ; but 
I knew there were general studies along that line. 

Mr. Morris. Senator, Chairman Eastland has written a letter to 
Hon. George M. Humphrey on March 27, 1957, which reads : 

It has come to the attention of the United States Senate and the Internal 
Security Subcommittee, which is currently investigating the origin of foreign 
moneys coming into the United States, that an investigation of and hearings on 
the practices of the Swiss banks and particularly their branches and agencies 
in the United States were conducted in 1942 and 1943 by the Treasury Depart- 
ment. 

I further understand that a report was written after these hearings and 
submitted to Secretary Morgenthau by the Office of General Counsel. 

It is requested that the aforesaid hearings and the resulting reports, together 
with the recommendations, be made available to the Internal Security Sub- 
committee. 

We have not had a reply yet. 

Mr. Armstrong. If I might add to my answer to Judge Morris, I 
specifically did not know about a study in 1942. What I was referring 
to was the general notion that I had that the whole subject of the 
transmission of funds among the Allied countries was the subject of 
very close, careful control during the wartime period. But I didn't 
know about the study that you are referring to. 

Mr. Morris. I wonder, Mr. Armstrong, if you could tell us how you 
check on the movement of securities which are sold within the United 
States generally; and by that we mean, perhaps a stock might be 
privately listed, or sold with an investment company, and possibly an 
exemption would be claimed under section 14 of the Securities Act. 

Mr. Armstrong. I would like, in answer to that question, to give 
Mr. Loomis and Mr. Heller and Mr. Windels a free rein to give you 
some detailed information about that. 

Mr. Morris. Senator, I might point out in connection with this 
question that the problem the subcommittee has encountered in this 
study relates not only to the flow of foreign money into the United 
States, but now that we have gotten into many specific cases, we find 
that these foreign trusts and, as I say, notably the trusts in Switzer- 



3846 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

land, do take out quite a bit of money from the United States, and 
we have not been able to identify the nature of persons, the identity 
of the persons, taking the money out of the United States, so that is 
an added factor to the ones we have been discussing so far, Senator. 

Mr. Loomis. Judge Morris, may I ask if your inquiry relates gen- 
erally to the foreign transactions or general approach we have? 

Mr. Morris. I think if you tell generally and very briefly and then 
concentrate on the foreign aspects of it, it would be most helpful. 

Mr. Loomis. Generally we do not get reports of the issuance of secu- 
rities and transactions except from registrations, so that we don't 
know all that specifically. However, there are various means by 
which we may find that certain securities have been distributed. A 
listed company may report that fact, or investors may advise us or 
it may appear in some financial source. In any number of ways we 
find out that securities have been issued, and our regional office then 
customarily makes some check to endeavor to see if that transaction 
is lawful. 

Also, we inspect brokers and dealers, and in that way we can find 
securities passing through their accounts and determine again whether 
those securities transactions appear to be proper. 

It is done primarly by the inspection of broker-dealers' records and 
by investigations. Once we find the transaction, we examine the books 
and records of the transfer agent, the issuer, the officers and directors 
of the issuer, the person who poses as a stockholder of record, as well 
as the books and records of broker-dealers in this country, and we en- 
deavor to trace these transactions. 

Where a foreign trust or bank is involved, we endeavor to find out 
who in this country is acting for it, and we question him; though 
very frequently we find he knows very little about the transaction. 

Now, for a more specific discussion of the matter, I might refer you 
to Mr. Windels who has actually done that in a number of cases. 

Mr. Morris. Mr. Windels is the regional administrator for the New 
York area. 

Mr. Armstrong. Covering the States of New York and New Jersey. 

Mr. Windels. The great States of New York and New Jersey. 

Ordinarily, Judge Morris, we enter into an investigation upon com- 
plaint by the purchaser or because of information which has come 
to our attention that certain broker-dealers are peddling certain secu- 
rities. We then go to the purchasers of the securities or the broker- 
dealer and identify the certificate number and, of course, the issuer, 
and we ascertain how it happens that the registration of these secu- 
rities is maintained. Virtually all American equity securities are 
registered with the issuing corporation, usually through an agency; 
it might be a trust company or an organization set up just to register 
securities. A difficulty to which I may allude is the fact that certain 
countries, particularly Liberia, favor corporations with bearer secu- 
rities, and you can see how that would make it difficult to trace a 
distribution of securities. 

We then try to follow the securities, tracing them back to their 
source to see just how it happened that they came on the market- 
through whose hands these securities passed — and in that way we can 
determine whether or not there has been a violation of our registration 
requirements, and whether or not there has been fraud, and if so, who 
has been responsible for the fraud. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3847 

Of course we face a number of difficulties in ordinary domestic 
transactions because, if the security is actively traded, if it has passed 
through a brokerage office, no control is maintained by exact certificate 
number. In short, if you should sell a hundred shares of X corpora- 
tion on the New York Stock Exchange today, and I should buy them, 
it may be that the price would be the same and the time identical, but 
I would not necessarily be the assignee of your particular documents. 

This is a knotty problem, but the techniques employed by us to over- 
come it have been fairly effective, particularly when there is a pattern 
of distribution. If we can show that there has been a major flow of 
securities, we don't have too much trouble checking the domestic trans- 
actions back to the source. But I think you can see now the part which 
foreign trusts might play. They act as circuit breakers in our line 
of proof. When securities come to a foreign trust, they may be dis- 
tributed to other foreign trusts, they may be thereafter distributed 
to a number of nominees in Canada and then filter back into this coun- 
try. "We know that there is a scheme about the whole thing but we 
can't produce the evidence. 

We have recently gone into court on such an occasion. We were 
successful simply because we showed a particularly convincing pat- 
tern. This happened to be a civil case, and we have yet to try this 
technique in a criminal case, but I am relatively confident about our 
ability in this instance. 

Now, it may be that if we are successful, then their tactics will just 
become that much more deceptive, instead of coming through Canada 
they might come through Mexico or other countries, and Venezuela 
seems to be gaining in popularity. 

Mr. Armstrong. Tell us about a hypothetical case. 

Mr. Morris. I was just going to suggest that in the interests of the 
subcommittee, on that last point you spoke of, I know you don't want 
to disclose the identity of the civil cases you have prosecuted, but it 
would be most helpful if you could give us some more details and more 
specifications of these things, because that is exactly what the sub- 
committee is looking for. 

Mr. Armstrong. Excuse me, I don't mean to be hypersensitive, but 
anything that we have prosecuted is in the public record, and we would 
be delighted to give you the information on it. However, the ones 
that are now pending, under investigation 

Mr. Morris. I am not asking you to identify a case. 

Mr. Armstrong. We appreciate that. 

Senator Hruska. Mr. Armstrong, in order that I can get that narra- 
tion which is about to come forth into my thinking, is that the type 
of case to which you refer on page 9 of your statement, the three in- 
stances there which probably are violations ? 

Mr. Armstrong. Yes. 

Mr. Loomis. Yes ; that type of case, it may not be that exact case, 
but some of them are. 

Mr. Armstrong. I don't like to be hypersensitive, but he used the 
word "know," and that should be "suspecting." We get an aggregate 
of that which causes us to know. 

Senator Jenner. All right, proceed. 

Mr. Morris. Mr. Windels. 

Mr. Windels. The first example I would like to give you involves 
an American corporation which is engaged in looking for and drilling 



3848 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

for oil. This corporation had need for additional financing. It 
wanted approximately a million dollars and had outstanding 250,000 
shares of stock held by various existing stockholders. It went to a 
Swiss trust and the Swiss trust, for $1,300,000, purchased 750,000 
shares of the stock. The Swiss trust, of course, then became a control 
person and if it sold these shares it should have registered them. In 
addition, having taken them without registration, they must have, 
under the law, taken them with an investment intent, otherwise public 
distribution without registration would be easy — a private taker could 
immediately turn around and sell the share publicly. The statute 
calls such a private buyer an underwriter. In this particular case, 
the shares were sold almost immediately, commencing within a matter 
of 2 or 3 days and having been purchased for $1 to $3 a share, they were 
sold to the American public at between $10 and $12 a share. The value 
of the stock has since fallen to below the price paid by the Swiss trust, 
so you can appreciate the extent of the loss, and also the extent of the 
profit to the insiders on that transaction. 

Mr. Morris. In this case there is no way to ascertain at that point, 
by either your agency or the United States Government, as to pre- 
cisely who it was that made the money ? 

Mr. Windels. That's right. And of course we particularly are not 
able to connect by evidence the management of the corporation with 
the public distribution. 

Mr. Morris. Now, what can you now do in order to enforce the pro- 
visions of law that now exist with respect to the situation you have 
just described? 

Mr. Windels. Well, our present techniques are generally these : In 
order to market a block of stocks, the principals must employ broker 
dealers, and in order to market securities under the circumstances that 
I described, the broker dealers would have to be of a certain type, we 
call them boiler rooms. By "boiler room" I mean a security retailing 
organization employing high pressure telephone salesmen. We have 
gone into a number of such boiler room organizations in New York and 
have found up to 40 men in a room. Last summer I happened to visit 
one. The salesmen were stripped to the waist, many of them tattooed, 
and I would say two-thirds of them had criminal records. They were 
former circus pitch men, confidence men of all sorts, usually the type 
of men who would be one hop ahead of the sheriff, and these men were 
on the telephones and selling securities. 

So, we start with our unraveling of this problem with the boiler 
room. Our attitude has been that they violate certain criminal stat- 
utes, and we prosecute them. Then we try to use what leverage we 
might gain in such a prosecution to move into the next echelon. This 
problem is not unlike other problems in criminal enforcement, similar 
to narcotics retailing for example. The principals are never people 
who handle the narcotics personally, it is only by prosecuting the 
people who do that you can move into the higher echelons. 

It is extremely difficult and frustrating. We always want to bring 
in the principals, the architects; and we hope in this particular case 
that we can. Most cases of this type must be developed, in the final 
analysis, before the grand juries. That seems to be the atmosphere 
most conducive to cooperation by operators of boiler rooms with the 
Government. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3849 

That, such as it is, is our present approach. 

Mr. Morris. You say, by holding to the pattern of these operations, 
you are able to make some headway. 

Mr. Windels. We have been able to make some, Judge Morris. We 
have obtained a number of injunctions. In a criminal case, a fraud 
case such as this, we regard an injunction as only a stopgap. If there 
has been a criminal violation there should be criminal prosecution, 
and we are of a mind to see that there will be, if possible. 

Mr. Armstrong. It is a little bit more than that because these places 
we ran into last year were closed down. 

Mr. Windels. For the most part they have been closed down. 

Mr. Armstrong. How many injunctions did we get? 

Mr. Windels. We have obtained about 25 injunctions since last 
October, which is 6 times the amount the New York regional office had 
obtained in the prior fiscal year. 

Mr. Armstrong. And certain of those had not been going as long as 
a year. 

Mr. Windels. We have had quite an enforcement drive under the 
direction of the chairman, but I think that the difficulty with stamp- 
ing out a boiler room is that the people just scatter and they open 
up little boiler rooms of their own, and we must constantly be on 
the alert to stamp them out. We go into them after they have just 
opened up and we ask to look at their books, and frequently we take 
them to court on a violation of bookkeeping rules and nondisclosure 
of principals, and things like that. 

Very often they are income-tax evaders and we don't have to ask 
them any more than where they file their income-tax return, and 
then we find we have one less broker dealer. 

Our problem is that they crop up, and the way to handle them is 
criminal prosecution. The thing that this type of individual under- 
stands is not any sort of administrative or civil proceeding, but crim- 
inal prosecution resulting in jail sentences and substantial jail sen- 
tences. 

Mr. Armstrong. I would like to supplement that if I may for a 
minute, on this question of our inspection of broker dealers — it seems 
to me that the whole broker-dealer inspection goes a good deal fur- 
ther. The fact that we do make regular inspections of broker deal- 
ers, particularly in recent years of all new broker dealers coming into 
the business, as a matter of routine, has a verv good deterrent effect 
on broker dealers going into this type of high-pressure selling that 
has been described. 

Now, we also have a nationwide jurisdiction. We have nine re- 
gional offices of which the New York office is one. We have run into 
similar problems beginning in other regional offices, but because we 
would get into those shops as fast as we have been able to, we have 
been able to either (a) dissuade them from going any further; (h) 
enjoin them or (c) institute revocation proceedings, all of which I 
think, with considerable success in the past several years. 

For instance, we had a situation out in Colorado, on the Colorado 
Plateau 

Mr. Morris. Speak up a bit, Mr. Armstrong. 

Mr. Armstrong. We had a similar situation out in the Colorado 
Plateau during the period of the boom for uranium securities in 1954 

93215— 57— pt. 59 5 



3850 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

and 1955. As an administrative matter, we shifted personnel from 
our eastern offices out to the Denver office, established an office in Salt 
Lake City and went to the houses, that had grown up and come in 
business just for the purpose of peddling these uranium securiites, 
to make sure that they were going to abide by the standards of the 
Securities and Exchange Act and the rules of the Commission there- 
under. 

As a result of that, a considerable number of brokers and dealers 
who went into business out there have either been enjoined or their 
authority revoked, or have voluntarily withdrawn and right today, 2 
or 2% years after that effort on our part commenced, there is exactly 
the same number of broker- dealers in Salt Lake City as before, and 
these other fellows are gone. 

It is a broad problem. For example, in our Chicago office — Mr. 
Windels mentioned the scattering after our New York people had 
been into some of these houses in August of 1956. We had gotten in- 
formation in Chicago that they were going to open up a shop out 
there. We indicated to them that if they did that, we were planning 
on coming down on them with the Chicago Regional Administrator, 
and they never opened up. 

Mr. Windels. A trainload of them arrived and the Chicago Re- 
gional Administrator was at the airport to meet them. 

Mr. Morris. I wonder if Mr. Windels could tell us how an anony- 
mous Swiss trust and these boilerroom operators get together, if there 
is a connection. 

Mr. Windels. Yes, sir. In the first place we can't trace the source 
of the beneficial ownership of the securities. We can't put our fin- 
gers on the individual who makes the money ; and, in a criminal case, 
the most compelling element of evidence of fraudulent schemes is 
always: Who makes how much money. 

The broker dealers, by and large, sell for a certain commission over 
the table, but most of the money is coming to them under the table. 
If the profit is made by a Swiss trust, we can't examine the books, we 
don't know how much profit was made, and how that was allocated 
to the various parties ; and, of course, we can't link the Swiss trust in 
with the issues of the securities. All that we know is there must be 
something — some sort of link if the Swiss trust buys the shares at be- 
tween 1 and 3 and sells them a few days later at 10 and 12. It seems 
to us that the issuer, or the principals behind the issuer, might well 
be the beneficial participants in the Swiss trust. 

Mr. Morris. Must the Commission wait until the stock has gone to 
market, or is the Commission's mechanism such that it can prevent 
distribution in violation of section 5, even before it is open? 

Mr. Loomis. Well, it depends on how fast we can learn of it, of the 
situation. As I mentioned a moment ago, people sell stock under a 
claim of exemption and they do not have to notify the Commission 
in advance. Therefore, we can stop the distribution while it is in 
progress only if we are able to find out about it and to assemble 
evidence about it quickly enough. 

Our regional offices are quite alert to what broker dealers are doing, 
as Mr. Windels mentioned, and when they find a broker dealer dis- 
tributing large blocks of stock, either from an inspection or investi- 
gation of an investor's complain, they immediately ask where the 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3851 

stock comes from, where did they get it, and we can stop it by injunc- 
tion in the Federal court, before it goes very far. 

Where a Swiss trust is interposed, that at least causes a delay be- 
cause of the problem of short-circuiting the investigation process 
which Mr. Windels described, and the distribution can go on con- 
siderably further before we are able to assemble sufficient informa- 
tion to stop it in the Federal court. 

Mr. Windels. The hit-and-run technique is used and we are not 
told beforehand that a block of these securities is coming on the mar- 
ket, so frequently it does happen, unfortunately, that we don't hear 
about them until members of the public lose money. 

Mr. Morris. Mr. Windels, do you find this in the administration of 
the New York office — do you find that this is now an expensive condi- 
tion, and do you find that it takes up a large portion of your time, 
this particular problem we have been discussing just now ? 

Mr. Windels. As far as I am concerned, it is expensive as long as 
it exists at all, and I can't say now that we have completely — I might 
say pasteurized, or we have completely eliminated this element. As 
far as taking up enforcement strength, I think that virtually all of 
our criminal cases—they are the ones with which I am most concerned 
right now — involve some sort of a foreign transaction; perhaps half 
of them are Swiss and half of them purely Canadian. But then there 
has been, I would say, a great overlapping, probably two-thirds in- 
volve Swiss and two-thirds Canadian, and one-third would involve a 
combination of both. I'm speaking of criminal cases now. 

We have a number of other problems which man-hourwise repre- 
sent a great deal of work, just ministerial problems, checking on one 
thing or another, inspecting broker dealers — and not all broker deal- 
ers we inspect are suspected of boilerroom activity. It's a regular 
program carried on by the Commission to see that the broker dealer 
maintains a certain required capital and certain books and records to 
reflect that he meets those capital requirements. 

We have market surveillance units, small issue units; but in crimi- 
nal work, this element of foreign participation is almost invariably 
there in our current cases. 

Mr. Armstrong. I would like to say one thing in regard to the crim- 
inal work. It should be very clearly indicated to the committee that 
under the statutes, of course, we are not responsible for the presenta- 
tion of cases to the grand jury or foi\their prosecution. The statutes 
which we have to administer give us investigative power and then 
directs that, where we believe there has been a wilful violation of the 
statute, the Commission shall refer the case to the Attorney General 
for such action as he shall deem necessary. 

Of course the Attorney General is free to take whatever action he 
wants to, so that mechanically what happens here is that our investi- 
gative offices, our nine regional offices, such as the one Mr. Windels 
heads up in New York, will develop what is in effect an investigative 
file and that includes his recommendations to the Commission as to 
whether or not the case should be referred to the Attorney General. 
It is then sent down to our headquarters office in Washington. It is 
then reviewed by our General Counsel, who has a small criminal sec- 
tion under Mr. Pollack's supervision, and the General Counsel then 
advises the Commission as to whether, in his opinion, the case is an 
appropriate one for reference to the Attorney General. 



3852 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

At that point, the case is presented to the Commission. The Com- 
missioners read the reports and the opinions. We discuss with the 
staff members if necessary, in many cases very closely question the staff 
members as to the facts of the case and as to the probability of success- 
ful prosecution, and so on. Then the Commission takes a vote as a 
regular Commission action as to whether the case should be referred 
to the Attorney General. 

At this point the case is, in the ordinary course, transmitted over 
by the General Counsel to the Criminal Division of the Department of 
Justice, and it is carefully examined by the staff there — or by the 
United States Attorney's office where there has been a direct refer- 
ence — and under the supervision of one of the Assistant Attorneys 
General of the United States; from there it is referred — assuming 
that the Attorney General at the Department of Justice approves the 
recommendation of the Commission — to the United States attorney in 
the district where the presentation to the grand jury is to be made. 
So it is a procedure in which our Commission, in effect, is the investi- 
gative agency and the Department of Justice, through the United 
States attorney, is the prosecutory agency. 

Now, in fact, our staff maintains the very closest and warmest 
working relationship that you can imagine with the United States at- 
torney throughout the country, and Mr. Windels has been working 
with the Eastern District of New York and so on all over the country. 

Also it may be necessary, when the case is brought to the grand 
jury, that Mr. Windels appear before the grand jury. There may be 
additional data that can be brought forward in an investigation by the 
grand jury, but at that point the Department is in charge of it and we 
are assisting to the extent that they ask us to. 

Senator Jenner. Anything further? 

Mr. Morris. I have one further question. 

Senator Jenner. All right. 

Mr. Morris. We have, with our limited resources in this particular 
field — I have just got Mr. Garcia working on it — we have encountered 
scores of such cases as Mr. Windels describes. It would be very 
helpful, Mr. Armstrong, or Mr. Windels, if you could estimate for us 
the scope of this thing. 

To us, as I say, with the limited force that we are able to put into 
it, it seems quite extensive because we have turned up literally scores 
of cases without great difficulty. We know each one seems to involve 
a million dollars or more, and I wonder if you could tell us generally 
how extensive is this operation. 

Mr. Armstrong. We know it is extensive. We are in accord with 
your opinion ; but I don't believe there is any way we can put a dol- 
lar figure on it, because when people are violating the law, they don't 
furnish statistics to the law enforcement agency as to how much money 
they have taken in by the fraudulent means. 

Senator Jenner. Could you give us an estimate ? 

Mr. Armstrong. I don't believe we could estimate it except to say 
that it involves many millions of dollars, or did last year. Any 
estimate, Senator Jenner, would be a guess, and I don't think we 
ought to make a guess. 

But to indicate the seriousness with which we view this problem, I 
think the committee should be aware of what Mr. Windels has referred 
to and what the Commission refers to as our enforcement program. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3853 

It is a subject which we discussed recently in our own recent annual 
report, particularly the one submitted January 3. It is a subject 
which we presented to the Appropriations Committee on both sides, 
for example, and in fiscal 1957, we were granted appropriations by 
the Congress for the first time in the Commission's history in the 
exact amount that we requested of the Bureau of the Budget and the 
exact amount recommended in the President's budget, and it was 
designed to make it possible for us to make 1,300 broker-dealer in- 
spections. 

The previous year we had budgeted for 900 and again Congress went 
along almost with our request. 

In 1956 our staff did 952 broker-dealer inspections. Now, for 1958, 
in the budget which we have recently presented, we have requested 
a sufficient amount of funds to enable us to mount 2,075 broker-dealer 
inspections, and that phase of our program was approved by the House 
Appropriations Committee in their report in connection with the 
Independent Offices Appropriation bill. Unfortunately, they didn't 
approve certain other phases of our program, but that phase was 
approved and they directed that our staff and regional offices should 
be maintained at the full strength we had recommended, having in 
mind that inspection program. 

This whole problem is one in which we have been putting very great 
emphasis from the enforcement standpoint in the past several years. 

Senator Jenner. Chairman Armstrong, on behalf of the committee, 
I want to thank you. 

Mr. Morris. Senator, as we are not through with all the questions 
yet, the Commission will hold over until tomorrow, if we desire. 

Senator Jenner. We will have to recess at this time. We are now 
in session. 

We want to thank you, and if you can come back, we will carry this 
over until tomorrow. 

Mr. Armstrong. We will be glad to be here. 

Mr. Morris. I take it that the Commissioners and everybody else 
will be here. 

Mr. Armstrong. We will be here, yes. 

Senator Jenner. The committee stands recessed until tomorrow at 
10:30. 

(Thereupon, at 12: 10 p. m., the committee recessed until the fol- 
lowing day, Wednesday, April 10, 1957, at 10: 30 a. m.) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



WEDNESDAY, APRIL 10, 1957 

United States Senate, 
Subcommittee to Investigate the 
Administration of the Internal Security Act 

and Other Internal Security Laws 
of the Committee on the Judiciary, 

Washington, D. G. 

The subcommittee met, pursuant to recess, at 10 : 40 a. m., in room 
457, Senate Office Building, Senator Roman Hruska presiding. 

Also present : William Rusher, associate counsel, Benjamin Mandel, 
research driector, and Roy C. Garcia, investigator. 

Senator Hruska. The committee will come to order, and we will 
resume hearings which were commenced yesterday. It is my under- 
standing that Mr. Armstrong has a further statement supplementing 
some of the remarks and comments he made yesterday. 

Mr. Rusher. Senator, we will hear Mr. Armstrong's statement 
first. 

STATEMENT OF J. SINCLAIR ARMSTRONG, CHAIRMAN, SECURITIES 

AND EXCHANGE COMMISSION 

Mr. Armstrong. Thank you very much, Senator Hruska. 

Before I begin, let me say that all the commissioners and staff 
members who were present yesterday are here today, plus an addi- 
tional member of our staff, Mr. Byron D. Woodside, who is sitting 
behind me here, and who is the Director of our Division of Corpora- 
tion Finance. We had a good many pieces of business of great im- 
portance in the division yesterday, and we left him over there while 
we brought Mr. Heller over here. But they are both here today from 
that division. 

Mr. Chairman and members of the committee, the subcommittee 
apparently is primarily concerned with the possibility that foreign 
interests may obtain control of American companies without dis- 
closure of their actual beneficial interest in such companies. In this 
context, we believe it will be helpful if the present legislative struc- 
ture of disclosure is brought clearly to the subcommittee's attention. 
Under the provisions of the Securities Exchange Act of 1934, all com- 
panies listed on national securities exchanges and all companies which 
have registered for public offering, under the Securities Act of 1933, 
securities aggregating $2 million or more must comply with the in- 
terim and annual reporting requirements set forth in sections 13 and 
15 (d) of the Exchange Act and the forms, rules and regulations 
thereunder. We believe that most of the significant defense-connected 

3855 



3856 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

companies are in these categories — that is they are either listed on 
national securities exchanges or have filed registration statements 
under the Securities Act of 1933 offering securities in amounts such 
as to bring the reporting requirements of the Securities Exchange Act 
of 1934 into play. 

By virtue of the provisions of the Securities Exchange Act of 1934, 
the Commission has promulgated form 8-K, a copy of which I would 
suggest be placed in the record of the hearing at this point, sir. 

Senator Hrtjska. It will be received for the record. 

(The document referred to was marked "Exhibit No. 458" and 
reads as follows:) 

Revised 1-28-54 

Securities and Exchange Commission 

Washington 25, D. C. 

Form 8-K 

Current Report 

Pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934 

For the month of , 19 

(Exact name of registrant as specified in charter) 

(Address of principal executive offices) 
GENERAL INSTRUCTIONS 

A. Rule as to use of Form 8-K 

Form 8-K shall be used for current reports under Section 13 or 15 (d) of the 
Securities Exchange Act of 1934, filed pursuant to Rule X-13A-11 or Rule 
X-15D-11. 

B. Events to be reported 

A report on this form is required to be filed upon the occurrence of any one 
or more of the events specified in the items of this form. Reports are to be filed 
within 10 days after the close of each month during which any of the specified 
events occurs. However, if substantially the same information as that required 
• by this form has been previously reported by the registrant, an additional 
report of the information on this form need not be made. The term "previously 
reported" is defined in Rule X-12B-2. 

0. Application of general rules and regulations 

(a) The General Rules and Regulations under the Act contain certain general 
requirements which are applicable to reports on any form. These general re- 
quirements should be carefully read and observed in the preparation and filing 
of reports on this form. 

(6) Particular attention is directed to Regulation X-12B which contains 
general requirements regarding matters such as the kind and size of paper to be 
used, the legibility of the report, the information to be given whenver the title 
of securities is required to be stated, and the filing of the report. The definitions 
contained in Rule X-12B-2 should be especially noted. See also Regulations 
X-13A and X-15D. 

(c) Three complete copies of each report on this form, including exhibits and 
all papers and documents filed as a part thereof, shall be filed with the Com- 
mission. At least one such complete copy shall be filed with each exchange 
on which any security of the registrant is listed and registered. At least one 
of the copies filed with the Commission and one filed with each such exchange 
shall be manually signed. Unsigned copies shall be conformed. 

D. Preparation of report 

This form is not to be used as a blank form to be filled in, but only as a guide 
in the preparation of the report on paper meeting the requirements of Rule 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3857 

X-12B-12. The report shall contain the numbers and captions of all applicable 
items, but the text of such items may be omitted, provided the answers thereto 
are prepared in the manner specified in Rule X-12B-13. All items which are 
not required to be answered in the particular report may be omitted and no 
reference thereto need be made in the report. All instructions should also be 
omitted. 

E. Incorporation by reference to proxy statement or annual report to stockholders 

Information contained in a proxy statement filed with the Commission pur- 
suant to Regulation X-14 or in an annual report submitted to stockholders pur- 
suant to Rule X-14A-3 of that Regulation may be incorporated by reference in 
answer or partial answer to any item or items of this form. In addition, any 
financial statements contained in any such proxy statement or annual report 
may be incorporated by reference provided such financial statements substan- 
tially meet the requirements of this form. 

INFORMATION TO BE INCLUDED IN REPOET 

Item 1. Changes in control of registrant 

(a) If any person has become a parent of the registrant, give the name of 
such person, the date, and a brief description of the transaction or transactions 
by which the person became such a parent and the percentage of voting securities 
of the registrant owned by the parent or other basis of control by the parent over 
the registrant. 

(6) If any person has ceased to be a parent of the registrant, give the name 
of such person and the date and a brief description of the transaction or trans- 
actions by which the person ceased to be such a parent. 

Item 2. Acquisition or disposition of assets 

If the registrant or any of its majority-owned subsidiaries has acquired or 
disposed of a significant amount of assets, otherwise than in the ordinary course 
of business, furnish the following information: 

(a) The date and manner of acquisition or disposition and a brief description 
of the assets involved, the nature and amount of consideration given or received 
therefor, the principle followed in determining the amount of such consider- 
ation, the identity of the persons from whom the assets were acquired or to 
whom they were sold and the nature of any material relationship between such 
persons and the registrant or any of its affiliates, any director or officer of the 
registrant, or any associate of any such director or officer. 

(&) If any assets so acquired by the registrant or its subsidiaries constituted 
plant, equipment or other physical property, state the nature of the business in 
which the assets were used by the persons from whom acquired and whether 
the registrant intends to continue such use or intends to devote the assets to 
other purposes, indicating such other purposes. 

Instructions. — 1. No information need be given as to (i) any transaction 
between any person and any wholly owned subsidiary of such person: i. e., a 
subsidiary substantially all of whose outstanding voting securities are owned 
by such person and/or its other wholly owned subsidiary; (ii) any transaction 
between two or more wholly owned subsidiaries of any person; or (iii) the 
redemption or other acquisition of securities from the public, or the sale or other 
disposition of securities to the public, by the issuer of such securities. 

2. The term "acquisition" includes every purchase, acquisition by lease, ex- 
change, merger, consolidation, succession, or other acquisition ; provided that 
such term does not include the construction or development of property by or 
for the registrant or its subsidiaries or the acquisition of materials for such 
purpose. The term "disposition" includes every sale, disposition by lease, ex- 
change, merger, consolidation, mortgage, or hypothecation of assets, assignment, 
whether for the benefit of creditors or otherwise, abandonment, destruction, or 
other disposition. 

3. The information called for by this item is to be given as to each transaction 
or series of related transactions of the size indicated. The acquisition or 
disposition of securities shall be deemed the indirect acquisition or disposition 
of the assets represented by such securities if it results in the acquisition or 
disposition of control of such assets. 

4. An acquisition or disposition shall be deemed to involve a significant amount 
of assets (i) if the net book value of such assets or the amount paid or received 
therefor upon such acquisition or disposition exceeded 15 percent of the total 

93215— 57— pt. 59 6 



3858 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

assets of the registrant and its consolidated subsidiaries, or (ii) if it involved 
the acquisition or disposition of a business whose gross revenues for its last 
fiscal year exceeded 15 percent of the aggregate gross revenues of the registrant 
and its consolidated subsidiaries for the registrant's last fiscal year. 

5. Where assets are acquired or disposed of through the acquisition or disposi- 
tion of control of a person, the person from whom such control was acquired or 
to whom it was disposed of shall be deemed the person from whom the assets 
were acquired or to whom they were disposed of, for the purposes of this item. 
Where such control was acquired from or disposed of to not more than five 
persons, their names shall be given, otherwise it will suffice to identify in an 
appropriate manner the class of such persons. 

6. Attention is directed to the requirements at the end of the form with respect 
to the filing of financial statements for businesses acquired. 

Item 8. Legal proceedings 

(a) Briefly describe any material legal proceedings, other than ordinary routine 
litigation incidental to the business, to which the registrant or any of its subsidi- 
aries has become a party or of which any of their property has become the subject. 
Include the name of the court in which the proceedings were instituted, the date 
instituted, and the principal parties thereto. 

(&) If any such proceeding previously reported has been terminated, identify 
the proceeding, give the date of termination and state the disposition thereof with 
respect to the registrant and its subsidiaries. 

Instructions. — 1. If the business ordinarily results in actions for negligence or 
other claims, no such action or claim need be described unless it departs from the 
normal kind of such actions. 

2. No information need be given with respect to any proceeding which involves 
primarily a claim for damages if the amount involved, exclusive of interest and 
costs, does not exceed 15 percent of the current assets of the registrant and its 
subsidiaries on a consolidated basis. However, if any proceeding presents in 
large degree the same issues as other proceedings pending or known to be con- 
templated, the amount involved in such other proceedings shall be included in 
computing such percentage. 

3. Notwithstanding the foregoing instructions, any bankruptcy, receivership, or 
similar proceeding with respect to the registrant or any of its significant subsidi- 
aries shall be described. Any proceeding to which any director, officer, or affiliate 
of the registrant, any principal holder of equity securities of the registrant or any 
associate of any such director, officer, or security holder, is a party adverse to the 
registrant or any of its subsidiaries shall also be described. 

Item 4- Changes in securities 

(a) If the constituent instruments defining the rights of the holders of any class 
of registered securities have been materially modified, give the title of the class 
of securities involved and state briefly the general effect of such modification 
upon the rights of holders of such securities. 

(o) If the rights evidenced by any class of registered securities have been 
materially limited or qualified by the issuance or modification of any other class of 
securities, state briefly the general effect of the issuance or modification of such 
other class of securities upon the rights of the holders of the registered securities. 

Instruction. — Working capital restrictions and other limitations upon the pay- 
ment of dividends are to be reported hereunder. 

Item 5. Changes in security for registered securities 

If there has been a material withdrawal or substitution of assets securing any 
class of registered securities of the registrant, furnish the following information : 

(a) Give the title of the securities. 

(6) Identify and describe briefly the assets involved in the withdrawal or 
substitutions. 

(o) Indicate the provision in the underlying indenture, if any, authorizing the 
withdrawal or substitution. 

Instruction. — This item need not be answered where the withdrawal or substi- 
tution is made pursuant to the terms of an indenture which has been qualified 
under the Trust Indenture Act of 1939. 

Item 6. Defaults upon senior securities 

(a) If there has been any material default in the payment of principal, interest, 
a sinking or purchase fund installment, or any other material default not cured 
within 30 days, with respect to any indebtedness of the registrant or any of its 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3859 

significant subsidiaries exceeding 5 percent of the total assets of the registrant 
and its consolidated subsidiaries, identify the indebtedness and state the nature 
of the default. In the case of such a default in the payment of principal, interest, 
or a sinking or purchase fund installment, state the amount of the default and 
the total arrearage on the date of filing this report. 

Instruction. — This paragraph refers only to events which have become defaults 
under the governing instrument, i. e., after the expiration of any period of grace 
and compliance with any notice requirements. 

(&) If any material arrearage in the payment of dividends has occurred or if 
there has been any other material delinquency not cured within 30 days, with 
respect to any class of preferred stock of the registrant which is registered or 
which ranks prior to any class of registered securities, or with respect to any 
class of preferred stock of any significant subsidiary of the registrant, give the 
title of the class and state the nature of the arrearage or delinquency. In the 
case of an arrearage in the payment of dividends, state the amount and the total 
arrearage on the date of filing this report. 

Instruction. — Item 6 need not be answered as to any default or arrearage with 
respect to any class of securities all of which is held by, or for the account of, the 
registrant or its totally held subsidiaries. 

Item 7. Increase in amount of securities outstanding 

If the amount of securities of the registrant outstanding has been increased 
through the issuance of any new class of securities or through the issuance or 
reissuance of any additional securities of a class outstanding and the aggregate 
amount of all such increases not previously reported exceeds 5 percent of the 
outstanding securities of the class, furnish the following information : 

(a) Title of class, the amount outstanding as last previously reported, and 
the amount presently outstanding (as of a specified date). 

(&) A brief description of the transaction or transactions resulting in the 
increase and a statement of the aggregate net cash proceeds or the nature and 
aggregate amount of any other consideration received or to be received by the 
registrant. 

(c) The names of the principal underwriters, if any, indicating any such 
underwriters which are affiliates of the registrant. 

(d) A reasonably itemized statement of the purposes, so far as determinable 
for which the net proceeds have been or are to be used and the approximate 
amount used or to be used for each such purpose. 

(e) A statement as to whether or not such securities were registered under 
the Securities Act of 1933 ; if not, an indication of the exemption claimed and 
the facts relied upon to make the exemption available. 

(f) If the securities were capital shares, a statement of the amount of the 
proceeds credited or to be credited to any account other than the appropriate 
capital share account. 

Instructions. — 1. This item does not apply to notes, drafts, bills of exchange or 
bankers' acceptances which mature not later than 1 year from the date of 
issuance. No report need be made where the amount not previously reported, 
although in excess of 5 percent of the amount outstanding, does not exceed 
$50,000 face amount of indebtedness or 1,000 shares or other units. 

2. This item includes the reissuance of treasury securities and securities held 
for the account of the issuer thereof. The extension of the maturity date of 
indebtedness shall be deemed to be the issuance of new indebtedness for the 
purpose of this item. In the case of such an extension, the percentage shall be 
computed upon the basis of the principal amount of the indebtedness extended. 

3. If an exemption from registration under the Securities Act of 1933 is 
claimed under the second clause of section 4 (1) of that act, state whether or 
not the securities were taken for investment by the purchasers. 

Item 8. Decrease in amount of securities outstanding 

If the amount of any class of securities of the registrant outstanding has been 
decreased through one or more transactions and the aggregate amount of all such 
decreases not previously reported exceeds 5 percent of the amount of securities 
of the class previously outstanding, furnish the following information : 

(a) Title of the class, the amount outstanding as last previously reported, and 
the amount presently outstanding (as of a specified date) . 

(&) A brief description of the transaction or transactions involving the de- 
crease and a statement of the aggregate amount of cash or the nature and aggre- 
gate amount of any other consideration paid or to be paid by the registrant in 
connection with such transaction or transactions. 



3860 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Instruction. — Instruction 1 to item 7 shall also apply to this item. This item 
need not be answered as to decreases resulting from ordinary sinking fund opera- 
tions, similar periodic decreases made pursuant to the terms of the constituent 
instruments, decreases resulting from the conversion of securities or decreases 
resulting from the payment of indebtedness at maturity. 

Item 9. Options to purchase securities 

If any options to purchase securities of the registrant or any of its subsidiaries 
from the registrant or any of its subsidiaries have been granted or extended and 
the amount of securities called for by all such options the granting or extension 
of which has not been previously reported, exceeds 5 percent of the outstanding 
securities of the class, furnish the following information : 

(a) The dates on which the options were granted or extended ; 

(6) The total amount of securities called for by such options; 

(c) The consideration for the granting or extension of the options; 

( d ) The exercise prices ; 

(e) The market value of the securities on the granting or extension dates; 
(/) The expiration dates of the options ; and 

(,g) Any other material conditions to which the options were subject. 

(h) A statement as to whether or not the securities called for by the options 
have been or are to be registered under the Securities Act of 1933 ; if not, an 
indication of the exemption claimed and the facts relied upon to make the 
exemption available. 

Instructions. — 1. The term "option" as used herein means any option, warrant 
or right to purchase securities. This item does not, however, refer to an issue 
of securities such as an issue of warrants or rights or an issue of convertible 
securities. 

2. This item need not be answered where the amount not previously reported, 
although in excess of 5 percent of the amount outstanding, does not exceed 
$50,000 face amount of indebtedness or 1,000 shares or other units of other 
securities. 

3. If an exemption from registration under the Securities Act of 1933 ia 
claimed under the second clause of Section 4 (1) of that Act, state whether or 
not the securities were or are to be taken for investment by the purchasers. 

Item 10. Revaluation of assets or restatement of capital share account 

(a) If there has been a material revaluation of the assets of the registrant or 
any of its significant subsidiaries involving a writeup, writedown, writeoff or 
abandonment, state the date of the revaluation, the amount involved and the 
accounts affected, including all related entries. If any adjustment was made in 
any related reserve account in connection with the revaluation, state the account 
and amounts involved and explain the adjustment. 

(6) If there has been a material restatement of the capital share account of 
the registrant resulting in a transfer from capital share liability to surplus or 
reserves, or vice versa, state the date, purpose, and amount of the restatement 
and give a brief explanation of all related entries in connection with the restate- 
ment. 

Item 11. Submission of matters to a vote of security holders 

If any matter has been submitted to a vote of security holders, furnish the 
following information : 

(a) The date of the meeting and whether it was an annual or special meeting. 

(6) If the meeting involved the election of directors, state the name of each 
director elected at the meeting and of each other director new in office. 

(c) Briefly describe each other matter voted upon at the meeting and state 
the number of affirmative votes and the number of negative votes cast with 
respect to each such matter. 

Instructions. — 1. If any matter has been submitted to a vote of security holders 
otherwise than at a meeting of such security holders, corresponding information 
with respect to such submission shall be furnished. The solicitation of any 
authorization or consent (other than a proxy to vote at a stockholders' meeting) 
with respect to any matter shall be deemed a submission of such matter to a 
vote of security holders within the meaning of this item. 

2. This item need not be answered as to (i) procedural matters, (ii) the selec- 
tion or approval of auditors, or (iii) the election of directors or officers in cases 
where there was no solicitation in opposition to the management's nominees, as 
listed in a proxy statement pursuant to regulation X-14 and all of such nominees 
were elected. This item may be omitted if action at the meeting was limited to 






SCOPE OF SOVIET ACTIVITY EN THE UNITED STATES 3861 

the foregoing. In cases where the registrant does not solicit proxies and the 
board of directors as previously reported to the Commission was reelected in 
its entirety, a statement to that effect will suffice. 

3. If the issuer has published a report containing all of the information called 
for by this item, the item may be answered by a reference to the information 
contained in such report, provided copies of such report are filed as an exhibit 
to the report on this form. 

Item 12. Other materially important events 

The registrant may, at its option, report under this item any events, with re- 
spect to which information is not otherwise called for by this form, which the 
registrant deems of material importance to security holders. 

litem 13. Financial statements and exhibits 

List below the financial statements and exhibits, if any, filed as a part of this 
report : 

(a) Financial statements. 
(&) Exhibits. 

SIGNATURES 

Pursuant to the requirements of the Securities Exchange Act of 1934, the 
registrant has duly caused this report to be signed on its behalf by the under- 
signed hereunto duly authorized. 

(Registrant) 
By 

(Signature)* 
Date 

♦Print name and title of the signing officer under his signature. 

FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED 

1. Businesses for which statements are required 

The financial statements specified below shall be filed for any business the 
acquisition of which by the registrant or any of its majority-owned subsidiaries 
is required to be described in answer to Item 2 above. 

2. Statements required 

(a) There shall be filed a balance sheet of the business as of a date reason- 
ably close to the date of acquisition. This balance sheet need not be certified, 
but if it is not certified, there shall also be filed a certified balance sheet as of the 
close of the preceding fiscal year. 

(&) Profit and loss statements of the business shall be filed for each of the 
last three full fiscal years and for the period, if any, between the close of the 
latest of such fiscal years and the date of the latest balance sheet filed. These 
profit and loss statements shall be certified up to the date of the certified 
balance sheet. 

(c) If the business was in insolvency proceedings immediately prior to its 
acquisition, the balance sheets required above need not be certified. In such 
case, the profit and loss statements required shall be certified to the close of 
the latest full fiscal year. 

(d) Except as otherwise provided in this instruction, the principles appli- 
cable to a registrant and its subsidiaries with respect to the filing of individual, 
consolidated, and group statements in an original application or annual report 
shall be applicable to the statements required by this instruction. 

S. Application of regulation 8-X 

Regulation S-X governs the certification, form, and content of the balance 
sheets and profit and loss statements required by the preceding instruction, 
specifies the basis of consolidation thereof, and prescribes the statements of 
surplus to be filed in support thereof. No supporting schedules need be filed. 

4. Filing of other statements in certain cases 

The Commission may, upon the informal written request of the registrant, 
and where consistent with the protection of investors, permit the omission of 
one or more of the statements herein required or the filing in substitution 
therefor of appropriate statements of comparable character. The Commission 
may also by informal written notice require the filing of other statements in 



3862 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

addition to, or in substitution for, the statements herein required in any case 
where such statements are necessary or appropriate for an adequate presenta- 
tion of the financial condition of any person for which financial statements are 
required, or whose statements are otherwise necessary for the protection of 
investors. 

EXHIBITS 

Subject to the rules as to incorporation by reference, the following documents 
shall be filed as exhibits to this report : 

1. Copies of any plan of acquisition or disposition described in answer to item 
2, including any plan of reorganization, readjustment, exchange, merger, con- 
solidation or succession in connection therewith. 

2. Copies of the amendments to all constituent instruments and other docu- 
ments described in answer to item 4. 

3. Copies of all constituent instruments defining the rights of the holders of 
any new class of securities referred to in answer to item 7. 

4. Copies of the plan pursuant to which the options referred to in answer 
to item 9 were granted, or if there is no such plan, specimen copies of the 
options. 

5. Copies of the text of any proposal described in answer to item 11. 

6. Copies of any material amendments to the registrant's charter or bylaws, 
not otherwise required to be filed. 

Mr. Armstrong. This form requires a report by all companies sub- 
ject to its requirements in respect of the occurrence of certain impor- 
tant events within 10 days after the close of the month in which such 
events occur. You will notice that item 1 of the form requires a report 
within 10 days after the close of the month in which it occurs of any 
change in control of the company. This is accomplished by requiring 
a disclosure of the names of persons who become "parents" of the com- 
pany, together with the date and a brief description of the transac- 
tion or transactions by which the person became such a parent and the 
percentage of voting securities owned by the parent or other basis of 
control by the parent of the company. "Parent" is defined as "a person 
or company controlling another person directly or indirectly through 
one or more intermediaries" and "controlling" is defined as "the 
power to direct or cause the direction of the management and policies 
of a company, whether through the ownership of voting securities, by 
contract, or otherwise." In other words, there is no stock percentage 
control necessary before the requirement for disclosure comes into 
play. Irrespective of the amount of shares owned, if any individual 
or group or company, whether domestic or foreign, actually acquires 
the ability to manage the affairs of the company in question a report 
must be made by the company. 

Item 7 of the form requires a report, within 10 days after the close 
of the month in which it occurs, of the issuance of securities by the 
company exceeding 5 percent of the amount of the outstanding class 
of such securities. Detailed information is required as to the name of 
the securities, description of the transaction in which the securities 
were issued, the nature of the consideration received for the securities, 
the names of the underwriters of the securities, if any, the purposes for 
which the proceeds of the sale of the securities are to be used and the 
reasons why the securities were not registered under the Securities Act 
of 1933, if they were not so registered. 

As I have stated, these provisions, assuming no deliberate violation 
of our law, result in obtaining prompt information in respect to trans- 
fers of control of established American companies to foreign elements 
and of issuances of securities without registration. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3863 

Our proxy rules also require disclosure of the identities and activi- 
ties of all persons participating in a proxy contest for the acquisition 
of control of listed companies. With respect to such contests, we do 
not believe that the history of the Commission's experience with such 
contests reveals any instance in which the actual prime movers seeking 
control of the company were foreign individuals or companies. In 
every such case of which the Commission has a record, the persons 
seeking control were Americans or American companies operated by 
American citizens and information concerning the stock ownership of 
such individuals was readily available by the Commission's usual 
investigatory processes. It is true, however, that in certain proxy con- 
tests, Americans seeking control of American companies have pur- 
chased stock from foreign banks and institutions or have been other- 
wise financed by such institutions and that the Commission has not 
always been able to obtain information as to the names of the sellers 
of such stock to American citizens. 

In the course of administering the disclosure provisions of the Fed- 
eral securities laws, we can recall no case in which the possible in- 
filtration of American industries by foreign interests adverse to the 
interests of the United States has raised a problem. Obviously, such 
a case would be reported by the Commission to the appropriate Gov- 
ernment agency having an interest in such a problem. Moreover, 
as I pointed out, it is the Commission's belief that the requirements of 
the Securities Exchange Act are adequate at present to obtain dis- 
closure of the fact of a change in control of American companies and 
the acquisition of control of such companies by foreign interests if 
it occurs, assuming no deliberate violation of our reporting require- 
ments. In view of the fact that existing managerial groups would 
doubtlessly be sensitive to changes in control which affected their in- 
terests, particularly if such changes resulted in control by foreign ele- 
ments, it is probable that they would bring to the attention of the 
Commission and other proper governmental authorities any changes 
which might affect our national security. 

Finally, enactment of the Fulbright bill (S. 1168) in the present 
Congress would extend the application of the reporting and proxy 
requirements of the Exchange Act to an additional 1,374 of the most 
important publicly owned unlisted companies. 

I might say at this point, Senator Hruska, that, subject to two tech- 
nical changes which we have recommended, the Commission has en- 
dorsed the Fulbright bill in reports filed with the Senate Banking 
and Currency Committee, of which Senator Fulbright is chairman. 

Yesterday Senator Hruska inquired as to the amount of securities 
which may be the subject of investigation by the Securities and Ex- 
change Commission in enforcement of the various provisions of the 
Federal securities laws which involve transactions by foreign persons, 
particularly purchases or sales by Canadian or Swiss persons or in- 
stitutions. An analysis of 40 cases presently under investigation for 
possible violation of such laws in the Commission's New York regional 
office discloses that the aggregate dollar amount of issues in which 
transactions by Swiss or Canadian persons or institutions appear 
somewhere in connection with the issue is $72 million, of which $43 
million involves the appearance of a Swiss institution. These 40 
cases represent approximately 20 percent of all of the cases presently 
under active investigation in our New York regional office. 



3864 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

The Commission and staff, of course, would be delighted, sir, to 
answer questions, and we have some additional material which we 
would submit for the record if it were deemed appropriate by the 
subcommittee. 

Mr. Rusher. Chairman Armstrong, I notice in your statement at 
one point you mention that the history of the Commission's experi- 
ence, as far as you know, does not reveal any instance in which the 
actual prime movers seeking control of the company were foreign 
individuals or companies. 

I take it there you are talking about so-called proxy contests for 
which there was a knock-down, drag-out battle for control ? 

Mr. Armstrong. The answer to that is "Yes." 

I would like to have Mr. Woodside, who has been a member of the 
staff since 1934, supplement the answer that I gave to Mr. Rusher. 

Mr. Woodside. Mr. Chairman, that statement was not intended 
to be limited to proxy contests, although perhaps the text might in- 
dicate that. I think I can safely say that, in our experience, the 
same observation or conclusion could be made with respect not only 
to contests for control waged under the Commission's proxy rules, 
but also to reported transactions of all types involving major ac- 
quisitions by reporting companies as well as financing by companies 
which involved registration under the Securities Act ; in other words, 
financing which involved the public disclosure required by our se- 
curities statute. 

Mr. Rusher. You are not contending, are you, sir, that there are 
not many American corporations in which the prime movers in con- 
trol are foreign ? 

Mr. Woodside. I cannot give you statistics, but if you want my im- 
pression from having worked with the cases, the answer is "yes." 

Mr. Rusher. Well, let me call your attention to an article I just 
happened to come across this morning in the New York Times. I 
know nothing about the particular situation here, nor have I any 
reason to suppose that is a proper subject for investigation by our 
committee. I merely use it illustratively. Just reading you the 
first paragraph or so : 

A foreign syndicate headed by a Dutch investment bank may shortly acquire 
control of an American utility company which sells ice, fuel oil, and bus service 
in the South, gas in Puerto Rico, the Canary Islands, and the Philippines, and 
electricity in Haiti. 

A spokesman for Burnham & Co., a New York brokerage house, yesterday 
confirmed it holds some 27 percent, or 270,000 shares, of the Central Public 
Utility Corp. of St. Louis on behalf of N. V. Bankierskantoor van Mendes Gans 
& Co., of Amsterdam. 

Mr. Armstrong. That, Mr. Rusher, is a case which was mentioned 
by our Division of Corporate Regulation, which assists the Commission 
in administering the Public Utility Holding Company Act of 1935, 
at the Commission meeting yesterday afternoon. That is the first case 
that we have ever had of that kind under the Holding Company Act, 
and it is presently under investigation. We would be glad to have 
Mr. Garrett, the Director of that Division, here to advise the com- 
mittee about it should it become necessary. However, I do not be- 
lieve that our present information on that subject is such that we 
could give a complete answer to it. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3865 

Mr. Rusher. I was not pressing for information, Mr. Armstrong, 
I was merely using that as an illustration, I think it is very — a 
typical 

Mr. Armstrong. Yes, sir; a very unusual case. It is an unusual 
company, as a matter of fact. A very substantial proportion of the 
operating properties of that company are not in the United States. 
That is, onshore properties so far as the continuental United States 
is concerned. 

And I think, so far as the advice to the public is concerned, Mr. 
Rusher, the facts are, in part, being furnished to us as well as in part 
being investigated by us. So that to a considerable extent the in- 
formation is in the public domain. 

Mr. Rusher. Yes. Let me make it clear that I did not mean to raise 
this particular purchase as being potentially dangerous or in any 
way insidious. 

I was attracted by the statement that you read : that you did not 
know of any instance in which the actual prime movers seeking con- 
trol of the company were foreign individuals or companies. It looked 
to me, superficially, as though this is precisely such a case when I 
happened to note it in the paper this morning. 

Mr. Armstrong. I think is is a very unusual and special type of 
case. The Central Public Utility Co. is a company with respect to 
which the Commission has been attempting to solve the section 11 
problems for a good many years. And there is a long history to it, 
in part brought about by the fact that a considerable portion of its 
operating properties are not within the United States. We have 
been struggling with it as long as I have been a member of the Com- 
mission, and so far as I can tell we are still struggling with it. 

Mr. Rusher. May I ask, sir, is my impression wrong that, particu- 
larly in the field of the liquor industry, there is a large amount of 
foreign control of American corporations? 

Mr. Woodside. I cannot answer that, sir. 

Mr. Loomis. I do not have any complete answer to that offhand. It 
is true that there are a substantial number of big foreign companies 
that are generally known to be headquartered in Canada, which do 
have important interests in the liquor industry in the United States. 

Mr. Armstrong. Through subsidiaries. 

Mr. Loomis. Through subsidiaries or affiliates. 

Mr. Rusher. Amounts that go to control, would you say ? 

Mr. Loomis. I would say in some of those cases the Canadian, or 
foreign company, has simply set up a subsidiary in this country. 

Mr. Rusher. They have, in some cases, actually bought American 
companies ; have they not ? 

Mr. Loomis. That may be as well. 

Mr. Armstrong. And I suppose the same is true in reverse : That 
a very considerable portion of the investment of American capital in 
other countries, including Canada, is by direct investments by Ameri- 
can corporations in their Canadian and other foreign subsidiaries. 

Mr. Rusher. With regard to your initial statement, again, sir, I 
notice two points on page 3 and in the middle again at the bottom of 
page 4, you make the statement : "Assuming no deliberate violation of 
our law," in the first instance, and "assuming no deliberate violation 
of our reporting requirements" in the second. 

Mr. Armstrong. Yes, that is right. 



3866 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Rusher. Isn't it really the problem, though, that we face with 
regard to foreign companies that they do not, in some cases, report, and 
it is difficult to get, with regard to them, the same degree of visibility, 
owning to the Swiss numbered accounts and other techniques, that is 
possible when a person violates the law in this country? In other 
words, isn't this, to a certain extent, precisely the problem that you 
gentlemen face in attempting to keep an eye on the 

Mr. Armstrong. It is the problem that we face and that any law 
enforcement agency faces. If the law is evaded or avoided, obviously 
the law is not being carried out. 

But the line of questions yesterday indicated a desire on the part of 
the subcommittee, I take it, for some legislative proposals. And 
what I was trying to emphasize by these two clauses was that it 
is not so much a matter of legislation, it is a question of ability to 
enforce existing legislation. And these disclosure provisions that 
exist in the Securities Act, in the Securities Exchange Act and in 
our rules and forms thereunder, are very comprehensive and we do 
not have in mind that our problems in this area are legislative, but 
rather that they are enforcement problems. 

Now that statement that I just made would have to be subject to 
what I said yesterday about the possibility of legislation in the proxy 
area and, more importantly, the possibility of working out treaty ar- 
rangements with other countries whereby the Government agency 
could obtain access to information, which we presently cannot obtain 
because it won't be given to us by persons subject to foreign laws 
which prohibit it being given. 

Mr. Rustier. You agree entirely, though, with the proposition that 
enforcement is the problem rather than new legislation? Isn't it 
possible that new legislation might aid you in the problem of en- 
forcement ? 

Mr. Armstrong. Except for the two areas that I have just indi- 
cated, we do not have in mind at the present time that any legisla- 
tion is needed. These are very strong disclosure provisions, very com- 
prehensive, and we think, and our staff, which has had long expe- 
rience in these matters, assures us that these disclosure provisions are 
working very well. And, certainly, in my own experience as a mem- 
ber of the Commission for almost 4 years, that is my opinion. 

Mr. Rusher. Do you feel they are working equally well with re- 
gard to foreign investment? 

Mr. Armstrong. To foreign investments? I have no indication 
that they are not, except in the limited area of proxies, which I 
mentioned, and also except in the investigative and, the enforcement 
area, in regard to the enforcement of the registration provisions and 
so on as to which we testified yesterday. 

Do you have anything you would like to add to that, Mr. Loomis ? 

Mr. Loomis. Well, just this, that there are presumably defects in 
the enforcement, difficulty in the enforcement of these reporting re- 
quirements with respect to particular transactions. But it has not 
been our experience that an actual transfer of control goes undetected. 

Mr. Armstrong. And I think it would be a mistake to have the im- 
pression that our enforcement difficulties are significantly in the 
foreign area. The vast bulk of our enforcement difficulties are not 
in the foreign area. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3867 

I will give you an example. We mentioned that a person who is 
an officer or director, and a 10 percent stockholder of a listed com- 
pany, has to file ownership reports stating his holdings of stock in 
the company and changes therein. And it has been our policy, when 
an officer or director did not file those reports in accordance with our 
requirements, that we insist that he do so. We have had two cases 
in the past 2 years, in which the officials, the secretary of the company, 
has advised us that he has a recalcitrant director who simply won't 
file a report, he does not believe in filing a report with the Commis- 
sion, and we have gone into the Federal district court and sued 
the individual, asked the court for a mandatory injunction to require 
him to comply with our rules, and at that point the individual com- 
plies. Now those are not foreign disclosure problems ; they are right 
here in this country. 

Mr. Eusher. However, if a person wanted to acquire more than 10 
percent of the stock of an American corporation, it would be a con- 
siderable help to him to do it through the technique of a numbered 
account, wouldn't it ? 

Mr. Armstrong. I do not know about the numbered account, but I 
could certainly conceive, and it is perfectly obvious to conceive, 
where it might be possible to do it through some of these foreign 
institutional purchases. There is no question about that in our minds. 
That is the reason that we would like to be able to get information 
from those countries. 

Senator Hruska. Mr. Armstrong, yesterday and again today you 
refer to some foreign laws which prohibited the disclosure of certain 
information. 

Mr. Armstrong. Yes, Senator. 

Senator Hruska. Would any of that information which they are 
prohibited from disclosing fall within the substance of the material 
that is required to fill out properly form 8-K ? 

Mr. Woodside. Mr. Chairman, I think that it is conceivable that 
such a question might arise. To my knowledge, except in the tan- 
gential aspects of certain proxy matters, I do not recall that the 
reporting requirements by American companies have been defeated 
by statutes such as appear on the Swiss books. 

It has occurred, as testified hereto yesterday, and as indicated in the 
chairman's statement, that, in certain investigatory and enforcement 
activities, where you are inquiring as to a particular individual who 
is beyond your jurisdiction, you may have some difficulty in securing 
all the information you want. But except in the proxy matter, and 
except in this matter of certain fraud cases that we have referred to, 
I do not know of any serious problem that has been posed to the 
Commission's administration of securities laws by the Swiss financial 
institutionsor other foreign financial institutions. 

This subject has received an awful lot of attention because of the 
notoriety of certain proxy contests. But when you analyze those 
proxy contests, the problem, as we see it, in the enforcement of our 
laws, is not one which I would characterize as a major one on the 
basis of the facts we have so far. 

Senator Hruska. With due deference to your desire to give the 
committee information here, Mr. Armstrong, I do not know that I 
can be very impressed with that paragraph appearing on page 3, 



3868 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

that says, assuming no deliberate violation of laws, these provisions 
for reporting are good, and they are fine. Now, assuming no deliber- 
ate violation of our law, they are good for domestic purposes and 
there isn't any trouble with them whatsoever, is there? In other 
words, if you make the assumption that the law is not being violated, 
these reporting statutes are very fine and they are ideal and they are 
working perfectly, and yet we know that is not true domestically 
nor, conceivably, it does not have to be true as to foreign owners. 

Mr. Woodside. Mr. Chairman, we are talking about companies 
which are registered and listed on American exchanges and which 
are subject to our jurisdiction by virtue of the Securities Act. Ex- 
cept where you are dealing with a foreign issuer, the company, itself, 
is within the jurisdiction and reachable. The duty of reporting in 
large measure rests on the company. 

Senator Hruska. The company is reachable, but not the owner or 
the purchaser of the security, is it ? 

Mr. Woodside. Our reporting requirements largely refer to the 
corporation, and the corporation reports. Now obviously, we could 
not appear before any congressional committee and say that every- 
body is complying with the law. There are people who, by mistake 
or deliberately, do not comply with reporting requirements, and that 
is part of our job to make sure that they do, and that the wrongdoer is 
caught. But that is the only reason for that qualification. 

Senator Hruska. Well, would that company be in possession of 
enough information to determine who are the parents, for example, 
as defined in the statute ? 

Mr. Woodside. I know of no case where the management of an 
American company is not very much aware as to whom it looks for 
control. That is one of the most sensitive areas in American business, 
and it is the first thing we hear about at the mere suggestion that 
someone is seeking to acquire a position in a company. And it is 
the fact that that occurs which we are trying to say to you comes 
to our attention promptly, early and usually we can deal with it. 
The fact of a change of a control in one of these companies almost 
immediately is a matter of public record. 

Now you may have some difficulty in identifying the ultimate 
person behind that, but the fact of control, the fact of a change in 
control, the fact of the acquisition of a major interest in a company, 
even though that does not relate to control, becomes a matter of 
notoriety promptly 

Senator Hruska. Of course, those are not necessarily beneficial 
owners, are they ? 

Mr. Woodside. They may not be beneficial owners, but from the 
point of view of the security of the United States, the fact is the 
important thing, and not who the particular person is. 

Senator Hruska. On the contrary, I think we would be interested, 
certainly, the subcommittee would be interested in the beneficial own- 
er. They are not interested in knowing that a Swiss trust, or a Swiss 
trust officer, or a Swiss bank, owns certain stock, they would want to 
know who is issuing instructions to that bank, how to hold that stock 
and what to do with it. It is that with which the committee is par- 
ticularly interested. 

Mr. Woodside. What I am saying, Senator, is that, when that situa- 
tion occurs, then if there is a security problem you know about it, 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3869 

and I presume that the people who are responsible for the security 
of this country do not lightly deal with people they do not know. 

Senator Hruska. Say that again ? 

Mr. Woodside. Do not lightly deal with the people they do not know 
in matters affecting the country's security, nnt the fact of a change 
in control is a matter of public record in any case that I know of, 
promptly. 

Senator Hruska. Well, they do know them, they know the acting 
purchaser, or the person with whom they are dealing — and they have 
no way of knowing, and I presume that that falls within the pro- 
vision of the statutes of Switzerland or Holland or England, where 
they would be not only not required to disclose the beneficial party, 
but would be prohibited from doing so. 

Mr. Woodside. I am sorry, sir, I am not sure whether you are talking 
about the American company or someone else. 

Senator Hruska. I am talking about the purchase by a Swiss bank, 
for example, of stock in an American company. 

Mr. Woodside. Let's assume that a foreign interest, whether it be 
Swiss or otherwise, acquires a major position in an American com- 
pany, that can be an investment position or it can be something 
more than that. For it to be effective as a measure of dictating 
management, they have to do something more than own it, they have 
to approach someone for representation on a board of directors. And 
when that approach is made, it is known, the fact is known, and it is 
a subject of wide comment. It is one of the first things we hear about 
because the people who are approached are down to see us about 
whether or not our statutes, in fact, impinge upon the problem. 

We have had companies which are not subject to our jurisdiction 
come in and subject themselves to our jurisdiction by the listing 
process in order to put the whole matter of a proxy contest under our 
rules. 

But the thing I am trying to say to you is that the acquisition a 
major position by a foreign interest in a domestic corporation that 
could conceivably affect the security of this country, as I understand 
it, is not something that can be long concealed. 

Senator Hruska. Well, it would not be concealed but its full and 
true nature would not be necessarily disclosed ? 

Mr. Woodside. What I am trying to say to you, though, is the fact 
that you might have a security problem is public knowledge and can 
be dealt with. 

Senator Hruska. Suppose a Swiss bank controlling an interest in 
a given corporation comes over and selects a board of directors and 
elects them at the meeting. How can that be dealt with? If that 
is accomplished, we know we have a security problem, but how can 
it be dealt with ? 

Mr. Woodside. Senator, all I am trying to say is that the fact 
would be known, the fact would be one which would be brought to 
the attention of the authorities that have the problem of security, 
which is not our problem. But so far as reporting is concerned, the 
disclosure to the public of the facts concerning the fact of the change 
of control, it would be there. 

Senator Hruska. Well, you see that is where this committee starts. 
Apparently, where you wind up, we start, and we are interested in 
knowing who it is that is asking, or directing that Swiss bank, who 



3870 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

is the actual legal owner and the registered owner of that stock — 
who are the people who are directing that bank to elect certain di- 
rectors or fix certain corporate policies. That is where we come in. 

That is why I said I was not too much impressed with this idea 
that, while the assumption is that the statute is not violated, it still 
does not help us in our problem very much. That is what I am trying 
to get at. 

Mr. Woodside. Well, I am not sure that your problem is a prob- 
lem of securities legislation at all as I understand it, but I think, 
based upon our experience with the reporting problem, that the ap- 
pearance of a controlling interest in an American corporation would 
be immediately reportable. The burden is on the company to pro- 
vide such information as it has about beneficial ownership. It might 
conceivably occur that we could not, because of jurisdictional limita- 
tions, pursue beneficial ownership to its ultimate conclusion. It 
might be that we could not, but certainly we would have the investi- 
gatory power, so far as the securities legislation is concerned, and 
we could stop any sale of securities if we believed there was not cor- 
rect disclosure, we could delist if we thought it was not properly re- 
ported, and the fact of the foreign control would become known. 
And from the point of view of the security of this country, that is 
assuming that the company is a defense company, I would presume 
that all the forces of our Government that have to do with the acqui- 
sition of intelligence that is material to the security of the United 
States would be brought to play upon that. And I have no doubt 
that it would not be long before they knew who they were dealing 
with. 

But I do not think it would come through us; I do not think it 
could come through us. We are not international policemen, we do 
not have the power to issue search warrants even in this country, and, 
obviously, we cannot cross international boundaries to secure process. 
But there are other agencies of the Government that have that power 
and use it very effectively. And I cannot conceive that the acquisi- 
tion of any major company by a foreign interest, the control of that 
company being acquired by a foreign interest, would present a prob- 
lem which could not be dealt with as a security problem. 

What I am trying to say is I think there is a limit to which you 
can push disclosure statutes in the business world, having to do with 
securities, in terms of a broader concept of Government control over 
national defense and national security. There are certain things a 
disclosure statute cannot be made to do. 

Senator Hruska. That is right. 

Mr. Woodside. But the fact that you would have a problem, se- 
curitywise, would be brought to your attention so quickly, that I do 
not think that 

Senator Hruska. Of course, what we are interested in is not so 
much the bringing of it to our attention, as to have implements with 
which to work to meet that situation. That is what this part of the 
legislative process that is going on right now is for. And, of course, 
your sphere is not quite that broad and it does not quite go that far. 
It is part of the general pattern. But we are interested in equipping 
the necessary authorities with such implements as are necessary to 
get the job done. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3871 

Mr. Woodside. Well, the difficulty in which I am placed as a mem- 
ber of the staff of the Commission, and I think in which the Com- 
mission is placed, is that we really are not authorized by the Con- 
gress to be concerned with the security problem, and I am not sure 
we are in a position to advise you what the present tools and remedies 
are which are available to people who are concerned with the security 
problem. 

Senator Hruska. Perhaps not, and I hope I did not create that 
impression in your mind, that you were being criticized because you 
haven't the tools or because you cannot give us the final answer. 
You are giving very fine answers to a lot of inquiries which this com- 
mittee has had in mind for a long time, and to that extent you are 
making a good contribution. 

And, please, Mr. Armstrong, do not construe my statement that 
I was not too impressed with this, as bearing at all on your sincerity 
or good faith or competency. 

Mr. Armstrong. Thank you, Senator. 

Senator Hruska. It was not that at all. It was directed to the 
ultimate problem to which this committee is faced. 

Mr. Armstrong. Thank you, Senator. 

Well, I think Mr. Woodside has brought out very nicely the limita- 
tions upon us under the laws which we administer and the very much 
broader problem to which you gentlemen are addressing yourselves. 

Senator Hruska. Anything further ? 

Mr. Rusher. I want, Mr. Woodside, to ask you which agency of 
Government you feel it is that presently has — and this is, I grant you, 
not within your immediate competence here, but you spoke of it — 
the power to find out, once the fact of foreign control is established, 
who the beneficial owners are? I am not aware that any agency of 
the Government is in a position to do that, and I wondered whether 
or not you know of one ? 

Mr. Armstrong. We would have in mind the Department of De- 
fense, the Federal Bureau of Investigation, CIA 

Mr. Rusher. Well, it eventually goes back to this, that someone 
has to get to the Swiss bankers and ask them who is running that 
account ? 

Mr. Armstrong. Did you get the Department of State ? There are 
four of them — Defense, FBI, CIA, and State. And I believe the 
Treasury may be involved in reference to movement of funds, too. 

Mr. Rusher. I do not suppose it is easily established just how much 
information can be obtained, but certainly, Senator, our experience 
in investigating the matter for the Internal Security Subcommittee 
indicates that it is not as simple to find out these matters, perhaps, 
even for the FBI, as might first appear. 

Mr. Armstrong, do you happen to know, with regard to the partic- 
ular case that appeared in this morning's Times, how rapidly this 
acquisition of 27 or more percent of the stock of an American utility 
company by a foreign syndicate was called to the attention of the 
Commission by the management ? 

Mr. Armstrong. Two or three weeks ago, I am advised. Very 
promptly 

Mr. Rusher. After the acquisition ? 

Mr. Armstrong. Yes, sir. 



3872 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Mr. Rusher. The American management called it to your atten- 
tion? 

Mr. Armstrong. Yes, sir. 

Mr. Rusher. And at that point, what steps did you take — any par- 
ticular ones from the standpoint of the Commission ? 

Mr. Armstrong. Well, I will have to ask Mr. Garrett to testify on 
this because his report to the Commission yesterday was verbal, 
merely 5 minutes or so, to advise the Commission that this situation 
had occurred, and the fact that the staff was obtaining information 
and that information was being furnished to it. And the actual 
steps that have been taken, I do not know. 

Why don't we get Ray Garrett to come over here on that ? 

Mr. Rusher. If he is not here today 

Mr. Armstrong. We can get him over here in 10 minutes. 

Mr. Rusher. Well, all right. 

Senator Hruska. I think it would be helpful. 

Mr. Armstrong. Oh, yes. 

The reason that Mr. Woodside is not able to testify on that is be- 
cause that happens to be in the other division because it is under the 
Holding Company Act. 

Mr. Rusher. While we are waiting on that, Mr. Armstrong, is 
there any way or reason why the Commission can assert, or could as- 
sert, confidently that there is not a large amount of avoidance of the 
section 16 inside trading provisions by people, individuals, with Swiss 
accounts? In other words, can you say definitely, that there is not 
a great deal of such avoidance going on, and, if so, could you tell us 
the basis of your confidence ? 

Mr. Armstrong. Well, that is a difficult question. 

Read that question again, will you, please? 

(The question was read back by the reporter.) 

Mr. Armstrong. I will have Mr. Woodside respond to that. 

Mr. Woodside. I think perhaps the best way to answer that ques- 
tion is to explain a little bit how this system works. We receive 
something around 32,000 or 33,000 16-A reports a year. Those re- 
porting requirements relate to officers and directors of listed com- 
panies and owners of equity securities in the amount of 10 percent or 
more. Now, we have had complaints from time to time by the offi- 
cials of an American corporation that there were rumors that an ac- 
cumulation of stock was going on, and the suspicion was that the ac- 
cumulation was being carried out in such a way as to place the stock, 
say, in 3 or 4 accounts, no one of which would equal 10 percent — in 
other words, deliberate evasion by someone of the reporting require- 
ments, assuming that these interests all reflected the same beneficial 
interest. And we have considered from time to time the problem that 
perhaps there were, on occasion, syndicates operating for the purpose 
of acquiring a sizable block or a sizable position in a domestic com- 
pany through the device of having the shares split up in street names, 
3 or 4 accounts, so that the reporting requirement was evaded. Now, 
when that occurs, it occurs for only one reason, basically, and that is 
that the person or persons acquiring the block intend ? at some point 
of time, to exert a pressure or a lever, leverage position, upon the 
management of that company, to accomplish some objective. Usually, 
it is for representation on the board ; it may be for purposes of nego- 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3873 

tiating a merger ; it may be for purposes of developing a business re- 
lationship. Sooner or later it comes out who they are and what they 
want. 

And the reason I can say to you I do not think it has been a very 
significant problem over the years, is because the frequency with 
which that occurs would impress me as indicating that that device 
is not used too much because, unless it does come out, then pre- 
sumably all that is involved is the taking of an investment position, 
and taking of an investment position is not something that really is 
too material to anyone, it seems to me. Now you apply the same 
problem to the matter of ownership of securities by foreign interests, 
likewise divided among several accounts in order to preserve ano- 
nymity — and, again, people just do not go out and invest tremendous 
sums of money in the securities of American companies, using that 
kind of a device, unless they have an objective. And the objective 
is almost invariably, I would say, a reportable objective. And, 
again, I would say the reporting of the fact, at which point we learn 
a lot about what goes on and who has done what — the reporting of 
the fact when it does occur, indicates that that sort of gimmick or 
device has occurred with sufficient infrequency to make me believe 
that by and large we can reply pretty well upon the integrity of the 
reporting requirements. 

Now that is not to say everyone complies with the law. Every 
pedestrian does not follow the street signs. But I do not think that 
I could say to you that the Commission has been concerned with 
having been faced with any major problem of the evasion of the 16-A 
reports, whether it be by foreigners or citizens, simply because of the 
fact that when the acquisition occurs, it is usually for some purpose 
and the purpose eventually comes to light, and then you discover that 
there was something done in violation of the rules. And when that 
does come to light, you can deal with it. And the fact that it does 
not come to light very often indicates to me that you do not have 
much to be concerned about, basically. 

Mr. Rusher. Let's take another illustration, Mr. Woodside. Just 
let me state a supposition case. 

Suppose an officer of an American corporation, knowing of the 
pending rise in stock, were to open a Swiss account and in that 
account they make purchases of that stock, and after they resell it, 
close out the account. What internal pressure would arise which 
would ultimately bring that to light ? 

Mr. Woodside. Well, you are asking, in effect, how do you do a 
detective job, and how do you enforce the law when someone is trying 
to evade the law. 

The officer has the duty to report. The company also has the duty 
to report, because it files annual reports and ownership of manage- 
ment, I think, is a specific requirement in those forms. So someone 
has to make inquiries. And an officer of a company who deliberately 
sets about concealing his ownership and his activities perhaps could 
get away with it for quite a while 

Mr. Rusher. He could get away with it once, I assume, in the ab- 
sence of some special fact 

Mr. Woodside. But sooner or later he would run afoul of one of 
the provisions, and we would catch him. And when that occurs, he 



3874 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

has committed a criminal offense and he is subject to a criminal 
prosecution. 

Mr. Rusher. I did not understand how you said that you would 
catch him. 

Mr. Woodside. It has been our experience that people do not, over 
a long period of time, evade the law and get away with it. 

Senator Hruska. You are saying crime does not pay. 

Mr. Woodside. Well, there are a good many people who are re- 
posing in various prisons in this country who learned the hard way 
that these securities acts have some teeth in them. 

Mr. Rusher. There may be others who have gotten away scot free 
and may still be doing so. I was just asking, could you state with 
confidence that they are not? That was my original question. 

Mr. Woodside. The officers and directors of this country are not 
evading the reporting requirements as a generalization? That is an 
impossible question, and it is impossible to answer. 

Mr. Rusher. That there are not a large number of evasions taking 
place with the Swiss numbered accounts ? 

Mr. Woodside. It would be my judgment that that was a fair 
conclusion. 

Mr. Rusher. On what basis? 

Mr. Woodside. The one I just explained to you. 

Senator Hruska. Do you have something to add ? 

Mr. Heller. Perhaps I am more of a detective than Mr. Woodside 
is, Mr. Rusher. 

Any rise in price of a listed security is immediately investigated 
by our New York office which maintains a constant surveillance of 
all the securities traded on the New York Stock Exchange. If there 
is an unexplainable rise 

Mr. Rusher. This could be a perfectly explainable rise, but an 
insider, however, would have advance notice? 

Mr. Heller. All right, but that is not public. If there is no pub- 
lic explanation for the rise — and my judgment is, even if you act 
through a Swiss bank, the transactions will be executed on an Amer- 
ican exchange by the Swiss bank — the first thing we would do, we 
have done, is to find out who is buying the shares and why they are 
buying the shares. The first thing that happens, you will find that a 
Swiss bank is buying the shares. You won't know why. Then, 
naturally, you go to the company and say: "Do you have any ex- 
planation of why this stock is going up, what business affairs or 
activities are you engaged in which could account for this rise." 

Then they will tell you. Then suspicion immediately is cast on 
every member of the board of directors and every officer who pre- 
sumably knows this. Then you interrogate them as to whether they 
had anything to do with the purchases by the Swiss bank and you can 
examine their bank accounts and you can see whether they have 
written checks to the order of Swiss banks and sent them out. So 
there are investigatory processes by which you can determine whether 
an American director or officer is buying through Swiss banks. 

Mr. Rusher. I was not thinking so much of an unexplained rise 
in stock; just an ordinary rise, let us say. 

Mr. Heller. Well, if a director was using inside information and 
making his purchases through the Swiss bank before the stock was 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3875 

split, or before public notice was given that it was about to be split, 
then our inquiry would go to the company as to what might cause 
this rise, and they would tell you they were contemplating splitting 
this stock, and you would interrogate whether they bought. These 
are not unusual procedures. 

Mr. Rusher. And a director who was concealing his ownership 
would presumably conceal the fact of a Swiss account ? 

Mr. Heller. If he is going to commit perjury, Mr. Rusher, I do 
not know what we can do. But I do say we can find and check his 
funds, his bank accounts, his checking accounts. I do not think any 
Swiss bank is going to buy securities on the New York Stock Ex- 
change without getting dollars from somebody to do it with. And 
if the money goes out, we will trace it. 

Mr. Rusher. Well, too, in speaking of this, I have not intended to 
attempt to imply or establish any particular quantitative situation. 
I am much more interested in whether or not mechanics exist whereby 
these things could happen, and the degree to which they happen, par- 
ticularly if there is internal security problem. 

Mr. Heller. Something is always possible. I agree with Mr. 
Woodside that the great majority of our American directors and offi- 
cers are not utilizing Swiss banks to engage in stock trading. 

Mr. Rusher. I agree with you, we are merely trying to find out 
whether or not they could be concealed by someone who, not being 
one of the great majority, wanted and had something to conceal. 

Mr. Armstrong. I think you have stated right there the problem 
that we, the Commission, face because agreeing, as the Commission 
does, with the statements made by Mr. Woodside and Mr. Heller, on 
the incidence of such transactions, substantially indicating the prob- 
able lack of incidence of such transactions, nevertheless, the fact that 
the possibility does exist, is one of the things that keeps us working 
on it and dealing with it all the time. It is very important to under- 
stand the work that we do up in our New York office in connection 
with watching the prices of securities on the exchanges to get any 
kind of an indication we can, as to whether there is any improper 
activity going on. 

I think it might be helpful for the record, Senator Hruska, if we 
submitted, from the 22d Annual Report of the Commission to the 
Congress, which was submitted to Congress on January 3, 1957, the 
material on manipulation and stabilization that begins at the bottom 
of page 97 and carries over to the top of page 99. There are some 
very interesting data as to just how we go about policing the quota- 
tions, that is to say, watching the quotations both on the listed and 
unlisted markets, too. 

Senator Hruska. That material will be inserted in the record at 
this time. Will you please mark it for the reporter ? 

Mr. Armstrong. Yes, sir ; I will. 

(The material referred to was marked "Exhibit No. 459" and reads 
as follows:) 

Exhibit No. 459 

Manipulation and Stabilization 

manipulation 

The Exchange Act describes and prohibits certain forms of manipulative 
activity in securities registered on a national securities exchange. The pro- 



3876 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

hibited activities include wash sales and matched orders, if effected for the 
purpose of creating a false or misleading appearance of trading activity or 
with respect to the market for any such security ; a series of transactions in 
which the price of such security is raised or depressed, or in which the appear- 
ance of active trading is created, for the purpose of inducing purchases or sales 
by others ; circulation by a broker, dealer, seller, or buyer, or by a person who 
receives consideration from a broker, dealer, seller, or buyer, of information 
concerning market operations conducted for a rise or a decline ; and the making 
of material false and misleading statements by brokers, dealers, sellers, or 
buyers, or the omission of material information regarding securities for the 
purpose of inducing purchases or sales. The act also empowers the Commission 
to adopt rules and regulations to define and prohibit the use of these and other 
forms of manipulative activity in securities whether or not such securities are 
registered on an exchange or traded over the counter. 

The Commission's market surveillance staff in our Division of Trading and 
Exchanges in Washington and in our New York regional office and other field 
offices observes the ticker-tape quotations of the New York Stock Exchange and 
the American Stock Exchange securities, the sales and quotation sheets of the 
various regional exchanges, and the bid and asked prices published by the 
National Daily Quotation Service for about 6,000 unlisted securities to see if 
there are any unusual or unexplained price variations or market activity. The 
financial news ticker, leading newspapers, and various financial publications and 
statistical services are also closely followed. 

When unusual or unexplained market activity in a security is observed, all 
known information regarding the security is evaluated and a decision made as 
to the necessity for an investigation. Most investigations are not made public 
so that no unfair reflection will be cast on any persons or securities and the 
trading markets will not be upset. These investigations, which are conducted 
by the Commission's regional offices, take two forms. A preliminary investiga- 
tion or "quiz" is designed rapidly to discover evidence of unlawful activity. 
If no violations are found, the preliminary investigation is closed. If it appears 
that more intensive investigation is necessary, a formal order of investigation, 
whch carries with it the right to issue subpenas and to take testimony under 
oath, is issued by the Commission. If violations are discovered, the Commission 
may suspend or revoke the registration of a broker-dealer or it may expel him 
from the National Association of Securities Dealers. Similarly, a member of a 
national securities exchange may be suspended or expelled from the exchange. 
The Commission may also seek an injunction against any person violating the 
act and it may recommend to the Department of Justice that any person violat- 
ing the act be criminally prosecuted. In some cases, where State action seems 
likely to bring quick results in preventing fraud or where Federal jurisdiction 
may be doubtful, the information obtained may be referred to State agencies 
for State injunction or criminal prosecution. 

The following table shows the number of quizzes and formal investigations 
initiated in 1956, the number closed or completed during the same period, and 
the number pending at the ending of the fiscal year : 

Trading investigations 



Quizzes 



Formal 
investigations 



Pending .Tune 30, 1955_ 

Initiated during fiscal year 

Total 

Closed or completed during fiscal year 
Changed to formal during fiscal year.. 
Adjustment ' 

Total 

Pending at end of fiscal year 



107 
69 


9 

1 


176 


10 


74 
1 


3 


1 









76 
100 



1 Two quizzes were combined as 1 case during year. 



Mr. Rusher. Mr. Armstrong, I would like to cover one other area 
just briefly, if I may ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3877 

Mutual funds and investment funds are managed, as I understand 
it, by investment houses. Does the Commission have means of check- 
ing whether such an investment house has abused its fiduciary posi- 
tion by accumulating large blocks of stock and funds which they 
manage for other than investment purposes, such as participating 
or aiding a participant in a control battle? This would apply, I 
take it, not only with regard to mutual funds, but insurance companies, 
union pension funds, and the like? 

Mr. Armstrong. We do have the means of investigating that situa- 
tion. We have similar investigative powers under the Investment 
Company Act of 1940, as we have under the Securities Act and the 
Exchange Act that we have been discussing here. 

This year, for the first time in the history of the Commission, we 
have recommended to the Appropriations Committee that we be pro- 
vided with funds in our 1958 appropriation to make inspections of 
investment companies on a limited basis. The Commission historically 
has never exercised the right to make inspections of investment com- 
panies which the Investment Company Act of 1940 gives it. 

Now we made that request of the Appropriations Committee, not 
because of the type of situation that you were describing, but because 
of 1 or 2 other situations that we found where investment company 
funds had not been handled in accordance with the statements or 
purposes that were provided in the charters of those companies, and 
we thought there should be a litle more checking into that problem 
by the Commission. 

Now, also, the Investment Company Act of 1940 contains a section 
which authorizes the Commission to make a study of the investment 
company industry, having regard particularly to size. Again, that 
provision had never been implemented by the Commission, but in 
our 1957 appropriation and in our 1958 appropriation requests — in 
1957 we received and in 1958 we requested some funds to make a 
study under that section of the act. And that study will have some 
of the objectives which you have just described. In other words, to 
find out more about that situation. Now in asking for that — excuse 
me, Senator Hruska — we have not been aware of any abuses, but we 
felt, there is a section in the act, that has been in the act for 15 years, 
that we ought, if the Congress provides the staff, to implement it. 

Thank you, Senator Hruska. 

Senator Hruska. What do you mean by investment company? 
How broad is that term ? 

Mr. Armstrong. Well, the investment company is a particular type 
of company as defined in the act, but, generally speaking, is engaged 
in holding securities for investment purposes. There are two types 
of the so-called open-end investment company, which is constantly 
selling 

Senator Hruska. What is commonly referred to as mutual ? 

Mr. Armstrong. Yes, sir, and there is the closed-end company. 

Senator Hruska. Is that the act which you referred to, to extend to 
the insurance companies, union pension funds or any pension funds 
of any kind, where there is apt to be a sizable investment of funds ? 

Mr. Armstrong. No, sir; we have no jurisdiction over the union 
pension funds, although there is legislation pending in the Congress 
which would give us some jurisdiction over them. Whether that will 
pass, of course, is up to Congress. 



3878 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Rusher. The particular matter that raised that question, again 
just looking at the article we found this morning, referring to this 
particular foreign syndicate purchase of an American utility com- 
pany, I notice down toward the end of the article, the paragraph : 

On November 30, 1956, the largest single other investment in the utility con- 
cern was some 84,600 shares held by 3 of the Axe-Houghton mutual funds. 
It is not known whether or not this stock is still held by these funds. 

Has the gentleman who was going to explain about that subject 
come in ? 

Mr. Armstrong. He has not arrived, but he is on his way over. 

Mr. Rusher. We can suspend that. 

Mr. Armstrong. On page 183 of our annual report, there appears 
a paragraph on the growth of investment company assets and a para- 
graph on the study of the size of investment companies. I would 
suggest, Senator Hruska, that that be offered for the record? 

Senator Hruska. Very well, that will also be inserted. 

Mr. Armstrong. Thank you, sir. 

(The information referred to was marked "Exhibit No. 460" and is 
as follows:) 

Exhibit No. 460 

Growth of Investment Company Assets 

The striking growth of investment company assets during the past 15 years, 
particularly in the most recent years, is shown in the following table : 

Number of investment companies registered tinder the Investment Company Act 
of 1940 and. the estimated aggregate assets at the end of each fiscal year 19Jfl 
through 1956 





Number of companies 


Estimated 
aggregate 


Fiscal year ended June 30 


Registered 

at beginning 

of year 


Registered 
during 

year 


Registration 
terminated 
during year 


Registered 

at end of 

year 


assets at 
end of year 
(in millions) 


1941 



436 
407 
390 
371 
366 
361 
352 
359 
358 
366 
368 
367 
369 
384 
387 


450 
17 
14 
8 
14 
13 
12 
18 
12 
26 
12 
13 
17 
20 
37 
46 


14 
46 
31 
27 
19 
18 
21 
11 
13 
18 
10 
14 
15 
5 
34 
34 


436 
407 
390 
371 
366 
361 
352 
359 
358 
366 
368 
367 
369 
384 
387 
399 


$2, 500 
2 400 


1942 


1943 


2,300 
2 200 


1944 


1945 


3 250 


1946 


3 750 


1947 


3,600 
3,825 
3 700 


1948 


1949 


1950 


4 700 


1951 


5 600 


1952 


6,800 

7,000 

8,700 

12,000 

14, 000 


1953 


1954 


1955 


1956 




Total 




729 


330 















STUDY OF SIZE OF INVESTMENT COMPANIES 

Under section 14 (b) "The Commission is authorized, at such times as it 
deems that any substantial further increase in size of investment companies 
creates any problem involving the protection of investors or the public interest, 
to make a study and investigation of the effects of size on the investment policy 
of investment companies and on security markets, on concentration of control 
of wealth and industry, and on companies in which investment companies are 
interested, and from time to time to report the results of its studies and investi- 
gations and its recommendations to the Congress." This provision has been in 
effect since the adoption of the Act, but no study or investigation has been made. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3879 

With funds made available by the Congress in its 1956 and 1957 fiscal year 
appropriations the Commission has commenced a study under this section of 
the Act. The great expansion in the aggregate assets of investment companies 
registered under the Investment Company Act, from approximately $2.5 billion 
in 1941 to the present total of approximately $14 billion, the rapid growth in 
size in recent years of investment companies, and the growing significance of 
investment companies as holders of equity securities traded in the market are 
some of the reasons for such a study. As the first step, the Commission has 
retained the services of Prof. Paul F. Wendt, professor of finance at the Uni- 
versity of California (Berkeley), and two associates on the faculty, James E. 
Walter and James R. Longstreet, to report on a program for research and study 
for the Commission. When this necessary groundwork has been completed the 
Commission hopes to be in a position to determine the statistical and other data 
which may be relevant, and the methods to be used in obtaining them. 

Mr. Rusher. Mr. Uriell was kind enough to prepare some informa- 
tion, I understand, with regard to the internal security problem of 
the Commission. 

I just wonder if he has that conveniently available? Could we 
have that at this time, Mr. Uriell ? 

Mr. Uriell. Well, if it is permissible with the subcommittee, I will 
read that for the record : 

Pursuant to Executive Order 10450, the Commission has authority 
to designate positions within the agency as sensitive. Sensitive posi- 
tion is defined in the regulations relating to the security program of 
the Securities and Exchange Commission as follows : 

As used herein, the term "sensitive position" shall mean any position in the 
Commission, the occupant of which could bring about, because of the nature 
of the position, a material adverse effect on the national security. Such posi- 
tions shall include, but shall not be limited to, any position the occupant of 
which (1) may have access to security information or material classified as 
"secret" or "top secret" or any other information or material having a direct 
bearing on the national security, and (2)) may have opportunity to commit 
acts directly or indirectly adversely affecting the national security. 

To date, the Commission has designated 39 positions as sensitive. 
Relating to the 39 employees presently holding these positions, 32 
have been cleared by the Commission following a full field investiga- 
tion conducted by the Civil Service Commission. Reports of full 
field investigations for six of the employees have not yet been received 
from the Civil Service Commission. These six employees are new 
appointees to these positions. One report of a full field investigation 
has been recently received from the Civil Service Commission but 
has not yet been presented to the Commission for clearance. 

The positions designated as sensitive by the Commission are as 
follows : 

Executive assistant to the Chairman and his secretary and his se- 
curity legal officer. Executive Director 

Mr. Armstrong. Mr. Uriell is the incumbent. [Laughter.] 

Mr. Uriell. Executive Director and his secretary ; Assistant Exec- 
utive Director and his secretary ; General Counsel and his secretary ; 
Associate General Counsel; attorney in Office of General Counsel 
assigned to the security program ; Director, Division of Corporation 
Finance and his secretary ; Associate Director, Division of Corpora- 
tion Finance; valuation engineer, Division of Corporation Finance; 
Director, Division of Corporate Regulation and his secretary ; Asso- 
ciate Director, Division of Corporate Regulation; Director, Division 
of Trading and Exchanges and his secretary; Associate Director, 
Division of Trading and Exchanges. 



3880 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Director of Personnel (personnel security officer) and his secre- 
tary ; records officer ; Secretary of the Commission ; Assistant Secre- 
tary of the Commission ; chief accountant of the Commission and his 
secretary; Director, Office of Opinion Writing and his secretary; 
nine regional administrators. 

Following that list are actions which the Commission has taken 
pursuant to Executive Order 10450 : 

Suspensions, separations, and resignations — Executive Order 10450, as amended 1 

Number of employees whose files contained information falling within the 
categories set forth in paragraphs (2) to (8) inclusive of sec. 8 (a) of 
Executive Order 10450, and who resigned before determination was 

completed 2 

Number of employees suspended and who resigned before hearing 1 

Number of employees suspended and restored to duty after hearing 2 

Number of employees suspended and terminated after hearing 2 1 

1 All of the above persons were incumbents of nonsensitlve positions. 

2 Restored to duty following Cole v. Young decision. 

Mr. Rusher. And is presently employed by the Commission ? 

Mr. Uriell. And is presently employed by the Commission. 

Mr. Rusher. In other words, if I understand that correctly, that 
would be the case of a person who was not under 10450, suitable for 
sensitive position, but presently employed by the Commision in a so- 
called nonsensitive position ? 

Mr. Uriell. Yes. 

Senator Hruska. What is the date of that Executive Order 10450 ? 

Mr. Uriell. April 27, 1953. 

Senator Hruska. Pardon? 

Mr. Uriell. You asked for the date, Senator. It was issued April 
27, 1953. 

Mr. Armstrong. Excuse me, may I interrupt for just a moment ? 

If the committee would care for it, I would be glad to read into the 
record a resume of the types of information which we receive, which 
might be types that have some security factor to them. Just a short 
statement 

Senator Hruska. Could that material be referred to the committee 
for its perusal ? 

Mr. Armstrong. Certainly. 

Senator Hruska. And treated in that way ? 

Mr. Armstrong. Certainly. 

Senator Hruska. That would probably be preferable, in view of 
the time limitation to which we are subject. 

Mr. Armstrong. Yes, sir. 

(The material referred to was submitted by Mr. Armstrong, in a 
letter to Chairman Eastland as follows:) 

Securities and Exchange Commission, 

Washington, D. C, April 17, 1957. 
Hon. James O. Eastland, 
United States Senate, 

Washington, D. C. 

Dear Senator Eastland : At the hearings before your Subcommitee on In- 
ternal Securities on Wednesday, April 10, 1957, we requested and received per- 
mission to insert into the record a statement setting forth generally the types of 
classified material handled by the Commission. 

I am enclosing a memorandum prepared by the Executive Director to this 
effect and would appreciate it being inserted in the record. 
Sincerely yours, 

J. Sinclair Armstrong, Chairman. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3881 

Memorandum op the Executive Director Re Classified Material Handled 

Commission 

The Commission is not empowered, under Executive Order 10501, to originate 
classified information. However, we understand Executive Order 10501 to re- 
quire the Commission to safeguard unclassified information which it has re- 
ceived and which it believes should be classified. Of course, in replying to 
previously classified inquiries from other agencies or departments, the Com- 
mission is required to place the transmitting classification on its replies. 

The Commission may receive information or material with a classified designa- 
tion from several sources, particularly the following : 

(1) The Department of State, particularly as to matters relating to foreign 
securities and foreign economic information ; 

(2) The White House, Office of Defense Mobilization, and the General Services 
Administration, particularly as to matters of physical security of documents, 
emergency relocation plans, and safeguarding of indispensable operating 
records ; 

(3) Certain special interagency governmental committees engaged in gather- 
ing and analyzing various statistics of a classified nature, to which certain staff 
members of the Commission have been appointed from time to time ; 

(4) The Civil Service Commission, the Federal Bureau of Investigation, and 
other Government agencies, as to matters of personnel background investiga- 
tions, under the terms of Executive Order 10450 and the Civil Service Rules and 
Regulations, through the security legal officer and the personnel security officer. 
Such information or material so received has already been classified by the 
originating agency prior to receipt by this agency. 

From time to time, material is inadvertently included in various public 
filings made with the Commission pursuant to the statutes and rules adminis- 
tered by it, which material, in the opinion of the staff, might be of a classified 
nature. Such information may, for example, refer to military potential or unit 
production sales in defense contracts, or mining and metallurgical information 
with respect to the discovery and production of strategic minerals. Immediately 
upon the discovery of any of this type of information, it is removed from the 
public files and safeguarded until a determination as to its classification can be 
made by the appropriate classifying agency. 

The Commission's rules now require the elimination from public filings of 
information contained in or relating to contracts involving the national defense. 
The Commission carries on correspondence with the appropriate classifying 
agency including agencies such as the Canadian Atomic Energy Commission, 
and this correspondence is classified. 

A. K. Scheidenhelm, 

Executive Director. 

Mr. Rusher. I believe the gentleman whom we have been waiting 
for has arrived. 

Mr. Armstrong. Yes. May I present Ray Garrett, Jr., the Director 
of the Division of Corporate Regulation, which assists the Commis- 
sion in connection with the Holding Company Act. 

Mr. Rusher. Mr. Garrett, we had our attention called to this article 
in the New York Times this morning. 

Mr. Garrett. Yes, sir. 

Mr. Rusher. I wonder whether it is your impression that control is 
intended by this large purchase and it is not, therefore, merely an 
investment proposition — the control is intended ? 

Mr. Garkett. Well, I would hesitate to say that it is because we 
have not yet gotten into the facts. At the time, we knew of the sale, 
or that the sale was intended abroad, at that time we were assured 
and believed that no control was intended. The subsequent holding 
of the shares by the Dutch bank as it appears and the apparent inter- 
est in the Dutch bank in the management of Cenpuc indicates that 
there is something more than a mere distribution, or maybe something 
more than a mere distribution. But I should say that this all w T ill 
become a part of the processing of Cenpuc's exemption application 



3882 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

under section 3 (a) (5), and I should not indicate in any way that 
I have any final view on the thing, because it is a matter which we 
must investigate, and on which we must advise the Commission. 

Mr. Rusher. You say initially you were assured it was not for con- 
trol purposes that the purchases were made? 

Mr. Garrett. Yes. 

Mr. Rusher. By whom was that assurance given ? 

Mr. Garrett. Mr. Edersheim and by his attorney, Mr. Bratter. 
Edersheim is with — I cannot say that he is a partner, of the firm of 
Burnham & Co., New York. 

Mr. Rusher. I noticed the article says : 

An attorney for Burnham & Co. said it did plan to ask for Mendes Gans repre- 
sentation, and thought the Dutch bank would be entitled to 1 or 2 directorships 
on the utility's 5-nian board. 

So that they are seeking that representation on the board. 

Mr. Garrett. So it appears. 

Mr. Rusher. How did you first learn of the purchases of the foreign 
syndicate ? 

Mr. Garrett. This block of stock had been involved in our handling 
of Cenpuc's exemption application for over a year. Central Public 
Utilities Co., or Cenpuc, is still a registered holding company, but 
it has disposed of all of its domestic utilities. And, therefore, it at 
least meets the formal requirements for exemption under section 
3 (a) (5) of the Holding Company Act, namely, that if a utility's 
subsidiaries are all foreign, it is a basis for exemption. The exemp- 
tion cannot be granted, however, unless and except insofar as the 
Commission may find the exemption detrimental to the public interest 
or the interest of investors or consumers. In other words, the exemp- 
tion is ultimately discretionary with the Commission, based upon the 
broad standards of the act, and is not automatic upon proof of meeting 
the formal requirements. 

Now, Cenpuc has something of a problem because its exemption 
requires a variation, or an amendment, of an earlier order that it divest 
itself of an intermediate holding company. We were prepared to set 
that down for hearing before the Commission to see whether that 
amendment to the earlier order could be granted, and the exemption 
granted, when we discovered that a subsidiary of Equity Corp. had 
purchased a large block of the stock, some 27 percent of the voting 
stock. That injected a new element in the picture that caused us 
some concern because it imposed a substantial number of other hold- 
ing companies over the Cenpuc picture, and also because it raised 
some thought that there might be a conflict of business purpose be- 
tween Equity's holding of this stock and the taking advantage of a 
substantial tax loss which was the purpose of the ordinary stock- 
holders of Cenpuc. We, therefore, had a series of conferences in 
which they attempted to work out a plan which would keep the Equity 
Corp. in the nonutility aspect of Cenpuc and it would spin off the 
foreign utility properties in a separate corporation. Those negotia- 
tions led nowhere and Equity finally decided to sell. They told us 
they were going to sell, and they told us they were going to sell to 
Burnham & Co. Naturally, we asked who was going to buy, and that 
led to the disclosure of a plan to sell through the Netherlands bank, 
the full name of which is given in the Times, referred to in its short 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3883 

form as Mendes Gans, I believe. And Mendes Gans, in turn, was going 
to create a Dutch administrative office which would be a nominee or 
holder of the registered shares, and it would, in turn, issue against 
the registered shares, bearer certificates, which, in turn, would be 
listed on the Netherlands Exchange and traded in the ordinary course 
as bearer shares, creating a right to a specified number of shares 
which, in fact, would be held by this administrative office or nominee. 

The plan indicated a sufficient dispersion of the stock as to actual 
Equity ownership and control of the vote, so that it seemed to us it 
would not create a new holding company. 

You understand that the holding of 10 percent or more of the 
voting securities of a utility, or of a utility holding company, creates 
a presumptive holding company under the Public Utility Holding 
Company Act. 

But we do not regard, by rule, a nominal holder or street name 
holder in our own terminology who may hold more than 10 percent 
but without the power to vote or control the use of the stock as a 
holding company. This appeared to be within that last category. 

What you read in the newspaper suggests that perhaps that was not 
the correct picture as it turned out. 

Mr. Rusher. Addressing yourself then specifically to the question : 
When you learned, you learned about it actually before the trans- 
action was consummated ? 

Mr. Garrett. That it would be sold abroad ; yes. 

Mr. Rusher. So there was no need, in this particular case, for notice 
to come to you from the American management of the company of the 
invasion of foreign interests here ? 

Mr. Garrett. No. 

Mr. Rusher. Was any report made by the Commission to any other 
agency of the Government with respect to this purchase ? 

Mr. Garrett. We did not even report this to the Commission proper, 
to tell you the truth, at that time. It was a staff decision not to recom- 
mend any action. And I am confident that no report went from the 
Commission to anybody else. 

Senator Hruska. Would the fact that now they are apparently go- 
ing to seek representation on the Board, affect that decision ? 

Mr. Garrett. Affect the decision as to whether to notify some other 
agency of the Government? Well, to tell you the truth, that had not 
occurred to me. 

Mr. Armstrong. I am* not, of course, in any position to say where 
the Commission will go with this, because it will be coming before us 
on the exemption application under the section of the statute to which 
Mr. Garrett referred. But I am not really too concerned about the 
case from any security standpoint, because here is a company which, 
in compliance with section 11 provision of the Holding Company Act, 
has, in fact, divested itself of its domestic utility properties. The only 
utility properties it owns are outside this country. 

Mr. Rusher. We were merely using this illustratively because it 
was the only one we had. In other words, Is there a procedure for 
reporting such matters? And I take it, from what you say, there is 
no regular procedure for reporting it to the other agencies that Mr. 
Woodside mentioned, so that it is a matter in each case, I gather from 
what you said, Mr. Armstrong, of the Commission deciding whether 



3884 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

or not there is a security angle — or potentially one — which should be 
reported. Would that be correct ? 

Mr. Armstrong. I think that is correct. But I believe the incidents 
are very low, if there have been any incidents. What would you say 
to that, Mr. Woodside? Have we reported any number of cases to 
other agencies for security reasons ? 

Mr. Woodside. Well, let's say that we report a great many cases to 
other Government agencies, but not necessarily for the reason that we 
recognize a security problem. Although many of the cases that are 
referred to other agencies, no doubt, do. But it is standard operating 
procedure in the handling of the work of the Division with which I am 
connected. In other words, in the processing of registration state- 
ments for new financing in this country and the annual reports and 
periodical reports and proxy material, we, as matter of course, are 
in frequent communication with the Treasury, State, Defense Depart- 
ment 

Mr. Armstrong. Justice 



Mr. Woodside. Department of Justice, Federal Trade Commission, 
Department of Commerce, Bureau of Standards, Atomic Energy Com- 
mission, because we seek to employ all the facilities of Government 
in the discharge of our obligations under the disclosure requirements 
of the statutes. And they frequently can help us. 

So that in the ordinary course of processing, a great deal of our 
work, as to these cases, as they come along, are brought to the atten- 
tion of other Government agencies. 

Senator Hruska. The occasion for such is dictated by the circum- 
stances of the case and the developments as they occur? 

Mr. Armstrong. That is right, Senator Hruska. 

Senator Hruska, before you close, I would like to offer a few addi- 
tional pages of our annual report for the record, in areas which I 
think would be helpful to the subcommittee. 

Senator Hruska. Fine, they will be inserted. Will you please mark 
them ? 

Mr. Armstrong. I can give you page numbers and mark them, and 
give them to the reporter. 

Senator Hruska. That is fine, I think they will be very helpful. 

Mr. Armstrong. Thank you, sir. 

(The pages of the annual report referred to were marked "Exhibits 
Nos. 461, 461-A, 461-B, and 461-C" and are as follows :) 

Exhibit No. 461 
Foreword 

The 22d Annual Report of the Securities and Exchange Commission to the 
Congress for the fiscal year July 1, 1955, to June 30, 1956 (herein called "1956"), 
describes the work of the Commission during the year in discharging its duties 
under the Federal securities laws which it was established by the Congress to 
administer. These include supervision of the registration of securities for sale 
in interstate commerce to the public, the surveillance of the interstate securities 
markets, regulation of the activities of brokers and dealers and investment 
advisers, the regulation of public utility holding company systems and invest- 
ment companies, and litigation in enforcement of the Federal securities laws in 
the courts. 

The year 1956 has been one of great activity in the regulation and supervision 
of securities markets by the Commission. The increasing responsibility of the 
Commission was brought about by the sustained high level of economic activity 
in the country, and the accompanying stepped-up activity in the Nation's capital 
markets. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3885 

In 1956 new issues of securities registered for public sale totaled $13.1 billion, 
the largest amount in the Commission's history and more than $2 billion in 
excess of the amount registered in the preceding year. The value of securities 
traded on stock exchanges during 1956 was $38 billion, more than double the 
figure of fiscal 1953. Stockholders in publicly owned American corporations are 
estimated by the New York Stock Exchange to include about 8.5 million domestic 
individuals, 2 million more than 5 years ago. About 4,600 brokers and dealers 
were registered with the Commission as compared with 4,100 3 years ago. 

Enforcement activities such as broker-dealer inspections and investigations 
of fraud and market manipulations have been greatly expanded to meet current 
needs occasioned by abuses incident to the marketing of certain types of securi- 
ties of speculative quality. The Commission's enforcement program, to assure 
fair disclosure of material facts in connection with the marketing of corporate 
securities and for the prevention, detection and punishment of fraud in the 
sale of securities, has been intensively pursued in the interest of the investing 
public. Administrative and legal actions taken under the Enforcement Program 
have exceeded those of any prior year. These include 100 suspensions of offer- 
ings for which the small issues exemption was claimed, 8 stop orders of securities 
for which registration statements were filed, 45 revocation and denials proceed- 
ings against broker-dealers and investment advisers; 33 injunctive and 1 
subpena enforcement actions and 20 criminal referrals to the Department of 
Justice. 

The Commission has continued its program of strengthening and simplifying 
its rules, forms and procedures with a view to the more effective dissemination 
of information to investors, the prevention, detection and punishment of fraud 
and the elimination of unnecessary complexities and duplications. An inten- 
sive study of the problems of small business in marketing securities, particu- 
larly for equity capital, was conducted by the Commission in 1956, and shortly 
after the close of the year our exemptive regulations for issues of $300,000 or 
less were revised and streamlined so as to provide better protection to the 
investing public without unnecessary or burdensome compliance requirements 
on small business enterprises seeking access to the interstate capital markets. 
There was also established shortly thereafter a Branch of Small Issues in our 
Division of Corporation Finance in Washington, D. C., to coordinate and facili- 
tate the handling in our nine regional offices throughout the country of the 
filings for small issues. 

During the year, the Commission and its staff have appeared before com- 
mittees of the Congress on many occasions in connection with proposed legisla- 
tion dealing with the Commission's work and other subjects of interest to the 
Congress. Various legislative proposals considered are discussed in this report. 
This work of the Commission in assisting the Congress is of great importance 
to the public interest. 

To meet the greatly increased workload in accordance with the recommenda- 
tion contained in the President's Budget, the Congress granted the Commission 
an appropriation for an average employment of about 730, in 1956, which 
represented a small increase from 1955 and, most significant, an end of successive 
annual curtailments of staff from a high of over 1,700 in 1942 to an all-time low 
of 666 on June 30, 1955. For 1957, the Congress, recognizing this Commission's 
request in light of the vastly expanded economy and capital markets, appro- 
priated funds for an average employment of 794. 

Statutory fees for registration of new issues of securities and trading in 
issues registered for trading on stock exchanges are imposed by the Federal 
securities laws. These fees are not available to the Commission for expendi- 
ture and are covered into the Treasury as miscellaneous receipts. These fees, 
however .amounted to 39 percent of the 1956 appropriation for the Commission 
and therefore represent a reduction in the cost of the Commission which must 
be provided by the general taxpayer. 

During 1956 the Commission has rendered an effective administration at a 
minimum cost. However, constantly increasing regulatory and supervisory 
responsibility brought about by the great activity in the securities markets 
makes it essential that the Congress provide funds for this Commission ade- 
quately to fulfill its statutory function of protection of the investor, the con- 
sumer and the public in accordance with the acts of Congress which it has the 
responsibility to administer. 

The work of the Securities and Exchange Commission in protecting the in- 
vestor, the consumer and the public according to the standards established 
by the Congress in the Federal securities laws is vitally important to the 
maintenance of confidence in the securities markets which is essential to the 
preservation of the free enterprise system. 



3886 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

The charts which follow show in graphic form various aspects of the activities 
and personnel of the Commission relating to its increased workload. 



»*l 



(NUMBER) 
1000 - 



800 



600 



400 



200 



!♦%*♦ 





I S9EK3 




WmMMENTAL 



RATIO OF FIELD TO TOTAL PERSONNEL 




1951 52 53 54 55 56 



(END OF FISCAL YEAR) 



DS- 37 48 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3887 

S.E.C. BUDGET, FEES RECEIVED, 
AND NUMBER OF PERSONNEL 



DOLLARS 

MILLIONS 

6 



^ 4 

I 

H 3 

1 2 



S.E.C. BUDGET 




NUMBER 
1000 







RATIO OF FEES REC'D TO BUDGET 
40 




1951 52 53 54 55 56 



NUMBER OF 
PERSONNEL 



SCALE- 



FEES RECEIVED 




5! 

I 
I 

500 $ 
10 



1951 52 53 54 55 56 



'END OF FISCAL YEAR) 



OS- 3747 



3888 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

SECURITIES REGISTERED WITH S.E.C. 



REGISTRATION STATEMENTS FILED 



1000 



800 



600 




12 



SECURITIES REGISTERED 



( IN DOLLARS BILLIONS) 




1951 52 53 54 55 56 



(END OF FISCAL YEAR) 



OS- 3744 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3889 

S.E.C. BROKER-DEALER 
REGISTRATION AND INSPECTION 



BROKER-DEALER INSPECTIONS 



1500 



1200 



900 P 



600 
4800 



4600 — 



4400 — 



4200 — 



4000 — 




REGISTERED BROKER-DEALERS 




1951 52 53 54 55 56 



(END OF FISCAL YEAR) 



DS- 3746 



3890 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Exhibit No. 461-A 
Part I 

ENFORCEMENT PROGRAM 

The most important aspect of the Commission's activities during 1956 has been 
its Enforcement Program. The aim of the Enforcement Program is to assure 
fair disclosure of all material facts about corporations offering securities to the 
public in interstate commerce and to prevent fraud, deceit and manipulation in 
the sale, purchase and trading of securities, and thus to provide the protection 
to the public investors which is the objective of the Congress expressed in the 
Federal securities laws. Tbe Enforcement Program, under the day-to-day 
direction of the Commission, has been carried out by the Commission's operating 
divisions and offices in Washington, and by its 14 regional and branch offices 
in principal cities throughout the Nation. The necessity for an increasingly 
vigorous Enforcement Program has arisen from the tremendous economic activ- 
ity of the country, which has been reflected in the most active capital markets 
in our Nation's history. Enforcement problems confronted by the Commission 
during the relative economic stagnation of the 1930's, the World War II period 
of market quiescence, and the postwar recovery have been dwarfed by the prob- 
lems confronting the Commission in the past 2 years of dynamic economic- 
growth and the accompanying requirements for capital. 

At no time in the Commission's experience have activities and prices in the 
securities markets reached such highs. This upsurge has taken place in a rela- 
tively short period of time. For example, the dollar amount of securities regis- 
tered under the Securities Act of 1933 increased by 75 percent from $7.5 billion 
in the comparatively recent fiscal year 1953 to $13.1 billion in fiscal 1956. Dur- 
ing the 1930's, the average dollar amount of securities registered was about $2.5 
billion, and in some years was below $1 billion. In the postwar years from 
1945 to 1950, it was $4.5 billion a year on the average. 

Of the $400 billion gross national product annual rate figure, over $60 billion 
is applied for capital purposes of industry, that is to say, to provide plant facil- 
ities, tools and working capital needed by American industry. Much of the $60 
billion amount is supplied from internal sources, such as depreciation accruals 
and retained earnings. The capital formation process supplies the balance esti- 
mated at $7 to $8 billion annually through investments in the capital markets by 
the American people. 

The work of the Commission in sustaining the investors' confidence in the 
integrity of the capital markets must take into account conditions which if 
permitted to exist can only result, ultimately, in the destruction of investor con- 
fidence and the thwarting of the Congressional objectives set forth in the securities 
laws. Our free enterprise system will be damaged if these conditions grow and 
are not stamped out. A few of these problems with which the Commission has 
been faced and our efforts to cope with them are deserving of consideration 
by the Congress and the public generally. 

1. The problem of new, inexperienced and, in some cases, dishonest brokers and 
dealers registering under the Exchange Act. The activity in the capital markets 
has attracted many new brokers and dealers to the securities business. The 
number of registered broker-dealers increased from 3,924 at June 30, 1949, to 
4,591 at June 30, 1956. Many of the new broker-dealers are inexperienced and 
unfamiliar with the obligations owed to their customers. Some have been 
drawn into the business in the hope of a quick profit rather than the establish- 
ment of a sound business reputation built painstakingly upon just and equitable 
principles of trade. 

The aggregate market value of all stock on all stock exchanges, which never 
exceeded $100 billion before 1946, except briefly in 1929, increased from $111 
billion at December 31, 1950, to over $250 billion at June 30, 1956. The Dow 
Jones Industrial average of stock prices on the New York Stock Exchange 
reached an all-time high of 521.05 on April 6, 1956. During the years 1933 to 
1949 it never exceeded 220. The value of the gross national product broke 
through the $400 billion annual rate figure in 1956 as compared with $340 billion 
in 1952. 

The dollar value of securities which changed hands on the New York Stock 
Exchange rose to $32 billion in fiscal 1956, more than double the comparable 
figures of fiscal 1953, and like increases were registered on the regional exchanges 
and are believed to have also occurred in the over-the-counter market. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3891 

Attending this rapid expansion has been a favorable climate for the marketing 
of new securities issues, including securities of speculative quality, a marked 
increase in the number of stockholders (estimated by the New York Stock 
Exchange to include 8y 2 million domestic individuals), including many inex- 
perienced investors. 

Capital markets such as these, which have no precedent in the Commission's 
history, have been accompanied by adverse conditions which have required in- 
tensified enforcement activities by the Commission so to assure to the investing 
public the protection which the Congress intended should be provided by the 
securities acts. A number a new brokers and dealers either lack adequate 
financial resources or speculate unwisely, thus getting into financial difficulties 
which threaten the safety of customers' funds or securities entrusted to them. 
The Commission has no authority under the Exchange Act to bar a person from 
registration (absent proof of earlier violations of law) nor is there any financial 
or educational requirement. Expanded and more frequent broker-dealer in- 
spections, prompt investigations of irregularities discovered in inspections or 
complaints received from the public, and prompt and vigorous legal action in 
the case of violations have been the Commission's program for the protection of 
investing customers. 

2. The problem of "boiler rooms." The term "boiler room" is used to refer to 
a securities sales organization employing high-pressure, fraudulent, and de- 
ceptive sales techniques to "tout" highly speculative securities over the telephone. 
An increasing number of securities of speculative quality have been sold to 
unsophisticated investors lured by representations of large profits under present 
market conditions and willing to buy securities on the basis of representations 
made over the long distance telephone by complete strangers. Prevention and 
detection of fraud in such sales has been a particularly difficult task necessitating 
the careful collection of evidence from widely scattered sources. 

The Commission's program has been threefold — to bring broker-dealer revoca- 
tion proceedings against broker-dealers found to be selling or purchasing securi- 
ties by misrepresentation or fraud, to bring injunction actions in the Federal 
courts to prevent such transactions, and to prevent broker-dealers from doing 
business in violation of any of the Exchange Act protective provisions or the 
Commission's rules, such as the net capital rule, the rule against improper exten- 
sion of credit (regulation T) and the like, and, where the violation is wilful, 
reference of the case to the Department of Justice for criminal prosecution. 

One particularly difficult aspect of the "boiler room" problem is the gullibility 
of the public. The Commission has had a public information program under 
which Commissioners have talked at public gatherings, particularly to profes- 
sional and civic groups, to the press and on radio and television, seeking to ac- 
quaint the public with the dangers of stock transactions with unknown persons 
calling on the long distance phone and holding out promises of riches if the 
person called will only buy the stock. The public is asked to tell the person 
calling to put a letter in the mail about the securities (this often ends the call 
because use of the mails gives Federal jurisdiction under the Exchange Act and 
the Mail Fraud Act) or to put the official prospectus or offering circular (which 
in the case of a new issue is required to be filed with, and is examined by, the 
Commission) in the mail. 

The press, radio and television news media have rendered great service to the 
American people by helping to get this message across. But, fundamentally, a 
government agency can do just so much in protecting the public, and in the final 
analysis the American people must learn to use ordinary care and prudence 
in investing their money. The Commission needs the help of the investing public 
which should report to us transactions in which it is believed misrepresentation 
and fraud have occurred and the public has been bilked. But the public must 
also learn not to buy the proverbial "gold brick." The tragedy from the stand- 
point of the public interest is that the widow, the wage earner, the person of 
small income is often the victim of the "boiler room" salesman. The Commission 
will welcome every help from the public in reporting to us fraudulent trans- 
actions and in using commonsense in their securities transactions. 

3. Sales of unregistered securities based on claimed exemptions. It appears 
that a substantial but undetermined number of securities have been sold in 
violation of the registration, prospectus, and antifraud provisions of the Secu- 
rities Act pursuant to claimed exemptions which, in fact, were not available. 
We believe that these sales have been made in the main under claims of exemp- 
tion pursuant to the so-called private offering exemption 1 and the intrastate 



1 Securities Act of 1933, sec. 4 (1) — second clause. 



3892 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

exemption. 2 In most of these cases the Commission has no means to discover 
facts showing the unavailability of a particular exemption until it receives, 
months after sales have been made, reports or complaints from unwary public 
investors who have been taken for substantial sums. Further complicating 
the Commission's problems in this area has been the fact that an increasingly 
large number of securities claimed to have been issued pursuant to these ex- 
emptions have been transferred to United States citizens through Canadian, 
Swiss, Lichtenstein, and other foreign financial institutions, under foreign laws 
which preclude the Commission from tracing the transactions in which the 
securities have been publicly sold or the availability or unavailability of the 
claimed exemption. The Commission has increased its efforts to make factual 
discoveries of sales made without registration at the earliest opportunity in 
order to determine the availability or unavailability of these exemptions and 
thus to take legal action to afford the protection to public investors contem- 
plated by the Securities Act. 

4. The problem of illegal sales from Canada. The Commission has been con- 
cerned about the illegal sale of issues in the securities markets of the United 
States by issuers and broker-dealers located in Canada. These transactions 
have appeared to reach public investors in the United States as a result of pri- 
mary distributions effected on Canadian securities exchanges or through Ca- 
nadian brokers and dealers. Although it has not been possible, in many in- 
stances, to directly reach Canadian issuers or broker-dealers, the Commission 
has attempted to review more closely the activities of broker-dealer firms in 
this country suspected of participating in the illegal marketing of Canadian 
securities or of American securities sold through Canadian sources in order 
to protect United States public investors more effectively. Efforts are also 
being made through appropriate diplomatic channels to correct the virtual nulli- 
fication of the Extradition Treaty between the United States and Canada which, 
as amended in 1952, provides for the extradition of persons indicted for secu- 
rities frauds perpetrated in Canada upon persons in the United States. This 
resulted from a decision of Canadian Extradition judge in 1954, 3 in the first 
case under the 1952 treaty amendment, denying extradition though conceding 
the fraud. During the year, continued excellent cooperation on law enforce- 
ment matters by Canadian officials, both Federal and Provincial, aided greatly 
our efforts to detect, thwart and proceed against fraudulent securities sales. 

5. The problem of the "front money" racket. Under the Commission's ex- 
emptive regulation for new issues not in excess or $300,000 in aggregate public 
offering price (Regulation A) and sometimes under registration, it has been 
discovered that "rings" have developed through which groups of promoters, 
dealers, attorneys, and engineers collaborate in the creation of a series of com- 
panies primarily employed to "manufacture" securities for public sale in the 
guise of legitimate promotions. Often these facts have not been developed or 
discovered until after public investors have bought securities which have little 
or no actual value. These various transactions frequently have been carefully 
timed so that it is difficult to relate one issue with another even though a particu- 
lar issue may have been part of a scheme of the character mentioned. Under 
the revised regulation A, the Commission now requires disclosure of the names 
of such individuals in connection with the filing of Form 1-A which will greatly 
assist its enforcement program. 

6. Evasion of the registration requirements through the "no sale" theory. 
By Commission Rule No. 133, certain types of corporate mergers, consolidation, 
reclassifications of securities and acquisition of assets of another person in con- 
formity with statutory provisions of the state of incorporation, have been deemed 
not to constitute a "sale" of securities issued in the transactions for purposes 
of section 5 of the Securities Act.. The rule, in effect, exempts such issues from 
the requirement of registration under that Act. The rule has been used by 
numerous issuers, domestic and foreign, to distribute securities without regis- 
tration. As in the case of the "private offering" and "intrastate" exemptions, 
many transactions ostensibly exempted under the rule, in fact involve violations 
of the registraion provisions. The Commission recently released a notice of a 
proposed revision of the rule which is designed to make exemptions unavailable 
in the cases now exempted under it. 4 If adoption of the proposal results, it will 



2 Securities Act of 1933, sec. 3 (a) (11). 

3 See 20th Annual Report, p. 103 ; 21st Annual Report, p. 113. 
* Securities Act Release 3698 (October 2, 1956). 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3893 

involve a substantial increase in the number of registration statements filed 
under the Securities Act and in the annual and periodic reports filed under the 
Securities Exchange Act. 

7. The problem of promotional stocks. In addition to the problems created by 
the sale of promotional uranium stocks, the Commission has been concerned 
with the sale of new insurance company securities in both exempt and regis- 
tered issues. Many of these new insurance company ventures are located in the 
South Central, Southwestern, and Southeastern parts of the country. A large 
number of these issues have given the appearance of involving abuses or probable 
violations of either the Securities Act or of the Securities Exchange Act, necessi- 
tating thorough investigation. 

S. Stop order and suspension proceedings for new issues. For the protection 
of public investors, the Commission has instituted a substantially increased 
number of stop-order proceedings and suspension orders. Each of these has been 
preceded by an investigation, and, in many instances, has required a formal 
administrative hearing. These actions have involved the establishment of facts 
and the obtaining of testimony. Securities, which, if sold, would have defrauded 
the public, have thus been kept off the market . 

The effectiveness of the Enforcement Program depends in large measure upon 
a staff, both in the headquarters and regional offices, adequate to discharge the 
exacting duties which this program places upon it, and upon the availability 
of travel funds necessary to give this personnel the mobility necessary to cover 
the large geographical areas in which the investigative work has to be done. 
Further, the Enforcement Program has been related to the complex and ever- 
changing pattern of the securities markets and the securities industry. The 
facts concerning the business, property, and financing of a security issuer must 
be ascertained and related to the representations made to investors. Investors 
must be identified and interviewed. Books and records of brokers, dealers, is- 
suers and others must be examined and analyzed. Frequently, securities must 
be traced, often through intricate channels, to ascertain whether they have been 
offered by an issuer or underwriter in violation of the registration and prospec- 
tus requirements of the acts. The information thus obtained has had to be 
then developed in a form which would permit its introduction in evidence in 
legal proceedings, which is not a simple matter, where complex legal and eco- 
nomic facts and theories are concerned. 

Violations, however, have often been carefully concealed and, under present 
conditions, frequently have involved elaborate and shrewdly conceived schemes 
carried out on a large scale. Such activities could be properly dealt with only 
by assigning a competent team of attorneys, accountants, analysts, and investi- 
gators to concentrate on the particular case until it has been completed. 

Careful and painstaking work usually over a period of many months has pre- 
ceded formal enforcement action by the Commission. In some cases the work 
of the Commission has led to some form of restitution to public investors; in 
others, the violations have been discovered in time to prevent serious injury to 
the public; and in others, the violators have been forced out of business or 
prosecuted. 

As a further implementation of the Enforcement Program, and as a means 
of giving greater protection to public investors, the Commission has undertaken 
through the media of public speeches made to various civic groups and other 
organizations, and through adequate coverage in the press and on radio and 
television, to warn the American people against hasty investments in companies 
whose financial and background facts have not been disclosed. Such warnings 
inevitably have had a great deterrent effect and have caused companies which 
are seeking to raise money in the capital markets to comply with the registra- 
tion requirements by making the disclosures so necessary to informed invest- 
ment by the public. 

If the confidence and faith of the American public in the capital markets is 
to be maintained so that the essential supply of capital can be continued at the 
high rate of demand anticipated by present estimates of industrial production 
with the resultant high standard of living, it is essential that this agency 
continue its Enforcement Program by supervising the capital markets in ac- 
cordance with the standards established by the Congress in the Federal securi- 
ties laws. 



3894 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



Exhibit No. 461-B 

Personnel and Fiscal 

The personnel of the Commission as of June 30, 1956, compared with June 30, 
1955, consisted of the following : 



Commissioners 

Staff: 

Headquarters office- 
Regional offices 



Total. 



June 30, 1956 



458 
271 



729 



734 



June 30, 1955 



411 
251 



662 



666 



The table on the following page shows the Budget Estimates of the Commis- 
sion, the recommendations of the President, the appropriations actions of the 
House of Representatives, the Senate and the House-Senate Conferees and the 
appropriations (including supplementary appropriations for statutory pay in- 
creases) made for the Commission by the Congress for the fiscal years 1949- 
1956. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3895 



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3896 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Exhibit No. 461-C 
Section of Securities Violations 

A section of Securities Violations is operated by the Division of Trading and 
Exchanges of the Commission as a part of its enforcement program and to 
provide a further means of detecting and preventing fraud in securities trans- 
actions. The Securities Violations Section maintains files which provide a 
clearing house for information concerning persons who have been charged 
with violations of various Federal and State securities statutes. Considerable 
information is also available concerning violators who are resident in the prov- 
inces of Canada. The specialized information in these files is kept current 
through the cooperation of the United States Post Office Department, the 
Federal Bureau of Investigation, parole and probation officials, State securities 
authorities, Federal and State prosecuting attorneys, police officers, Better 
Business Bureaus, and chambers of commerce. At the end of the fiscal year 
these records contained information concerning 95,664 persons against whom 
Federal or State action had been taken in connection with securities violations. 
In keeping these records current there were added during 1956 information 
concerning 4,798 persons, including 1,695 concerning persons not previously 
identified therein. 

The Securities Violation Section issued and distributed quarterly a Securities 
Violations Bulletin containing information received during the period concern- 
ing violators showing new charges and developments in pending cases. The 
bulletin includes a 'wanted" section in which are listed the names and references 
to bulletins containing descriptive information as to persons wanted on securities 
violations charges. The bulletin is distributed to a limited number of cooperating 
law enforcement officials in the United States and Canada. 

Extensive use is made of the information available in these records by regula- 
tory and law enforcing officials. During the past year the Commission received 
3,204 "securities violations" letters or reports and dispatched 1,823 communica- 
tions to cooperating agencies. 

Mr. Armstrong. I also have a comparative table of certain enforce- 
ment actions for the fiscal years 1955, 1956, and 9 months ending 
March 31, 1957, which will be of interest to you. 

Senator Hruska. That will also be made a part of the record. 

Mr. Armstrong. Thank you, sir. 

(The comparative table referred to was marked "Exhibit No. 462" 
and is as follows:) 

Exhibit No. 462 

Securities and Exchange Commission 

Comparative tables of certain enforcement actions, fiscal years 1955 and 1956, 

and 9 months ended Mar. 31, 1957 



Type of action 



Fiscal 1955 



Fiscal 1956 



9 months 

ended 

Mar. 31, 1957 



Injunctive actions authorized 

Administrative proceedings to deny or revoke registrations of 

brokers and dealers instituted 

Cases referred to Department of Justice for criminal prosecu- 
tion 

Number of possible defendants named in such references. . . 
Investigations of violations of the Securities Acts: 

Pending at beginning of period 

Opened during period - - 

Subtotal ... 

Closed during period 

Pending at end of period 

Broker-dealers registered at end of period 



26 

162 

8 
12 

725 
392 



1,117 
2 473 



644 
4,334 



33 

•45 

17 
43 

644 
362 



1,006 
193 



813 
4,591 



65 

54 

18 
100 

813 
392 



1,205 
209 



996 
4,699 



• This includes a substantial number of proceedings instituted in the last quarter of the year because of 
failure to file financial reports during the 3d quarter of the year as required by regulation. 
2 This includes 75 dormant Canadian cases and a substantial number of others closed to clear the records. 



SCOPE OF SOVIET ACTIVITY EN THE UNITED STATES 3897 

Mr. Armstrong. And Mr. Meeker, our General Counsel, has an- 
other statement that he would like to offer. 

Mr. Meeker. I have a statement, Mr. Chairman, which summarizes 
in general language the state of our negotiations in an effort to get 
information from the Swiss through diplomatic channels, and the 
exploration, if possible, of treaty arrangements, and I would like to 
offer this for the record. 

Senator Hruska. The statement will be received. 

(The statement referred to follows:) 

Statement of Thomas G. Meeker, General Counsel, SEC, Before the Senate 
Internal Security Subcommittee With Respect to the Obtaining of 
Information From Foreign Sources 

Recently, as the subcommittee is aware, the Commission has encountered 
difficulties in completing investigations of certain transactions because they 
were effected through Swiss banks. Under the Swiss Banking Act (art. 47) 
and the Swiss Espionage Act (art. 273 of the penal code) it is a criminal offense 
to disclose banking or other business secrets. In view of these restrictions, the 
banks of Switzerland originally took the position that they could not divulge the 
identity of parties involved in the transactions in which the Commission was 
interested. 

In these situations we have made direct approaches to the Swiss banks and 
have been utilizing diplomatic channels in an effort to obtain full disclosure of 
the transactions under investigation. We have been and still are negotiating 
with the Swiss banks in an effort to obtain the information concerning the 
transactions in which we are interested. We have also discussed in some detail 
our particular problems with a representative of the Swiss Government. It is 
our understanding that the Swiss are very much concerned over the unfavorable 
publicity which they have been receiving. They have emphasized that the Swiss 
Banking Secrecy Code and the drastic economic espionage laws were not designed 
for the purpose of assisting the perpetration of criminal frauds or other viola- 
tions in the United States. The secrecy laws, they point out, had their genesis 
in events and circumstances occurring during the rise of German fascism and 
other "isms," and when such secrecy was important. to protect the lives and 
fortunes of individuals, who were the victims of such political movements. The 
traditional Swiss neutrality placed Swiss institutions in an excellent position 
to offer these safeguards. Accordingly, they appear to be seriously concerned 
over the present allegations concerning the use of their facilities for possible 
crimes or frauds upon the American public. 

It appears that the banks are most desirous of working out some arrangements 
so that information which may be needed by the Commission to uncover fraud 
or other illegal activities against American investors may be made available. 
However, the secrecy provision presents a problem that cannot be easily resolved. 

Recently a conference was held between counsel for the Subcommittee on 
Securities of the Senate Banking and Currency Committee, representatives of 
the Commission and the State Department with a representative of the Swiss 
Government. The Swiss representative was fully briefed as to the troublesome 
areas in which the Commission was concerned. Tentative suggestions were 
advanced, including the possibility of a treaty or executive or some other agree- 
ment which would permit the Swiss to make information available and at the 
same time protect their own position. 

Our impression is that the Swiss are concerned, if not alarmed, about the 
present situation and we are hopeful that they will make a conscientious en- 
deavor to work out a reasonable solution. 

This problem with the Swiss is not unique. To the extent that foreign parties 
are not amenable to our legal process, the problems of compliance and enforce- 
ment exist in respect of all foreign institutions generally. 

Mr. Rusher. May I to clarify one point ask Mr. Meeker a question? 

Mr. Meeker, I take it when you speak of treaties, you are thinking 
of possible reciprocal arrangements for the exchange of information 
which would let us know more, let us say, in the particular case of 
Switzerland, is that correct ? 



3898 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Meeker. I have in mind — the only country which we are con- 
sidering, and which this memo refers to, is Switzerland. It is only 
with respect to Switzerland that we are having any discussion. 

Mr. Rusher. And the distinction between that and the statute, 
would be that the treaty, of course, would cover only Switzerland, 
whereas the statute would apply to any country which adopted similar 
laws 

Mr. Meeker. Yes, I suppose so. I am not sure that we would get 
more out of the statute, though, than we might get out of the treaty. 

Mr. Rusher. The only reason I asked, I heard mention of Uruguay, 
where these similar numbered accounts are permitted 

Mr. Meeker. We are going to look into the laws of Uruguay, as I 
promised the committee yesterday. I do not know anything about 
them now, so I cannot answer as to that. 

Senator Hruska. Is there anything further, Mr. Armstrong, that 
you would like to comment on before we close the meeting? 

Mr. Armstrong. I would like to say this on behalf of the Commis- 
sion and the staff, Senator Hruska, that we appreciate the courtesy 
with which the subcommittee has conducted the hearings in the past 
2 days. We are delighted to aid and assist you in any way we can to 
the extent of our powers to work with your staff, and please let us 
know when we can be of service to you. 

Senator Hruska. Thank you, Mr. Armstrong. I want to thank 
you and the members of your staff for appearing before the sub- 
committee. 

The meeting is adjourned. 

(Whereupon, at 12: 05 p. m., the meeting was adjourned.) 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance 
to the mere fact of the appearance of the name of an individual or an organiza- 
tion in this index. 

A Page 

Appropriations Committee 3853, 3877 

Armed Services Committee 3S36 

Armstrong, J. Sinclair, chairman, Securities and Exchange Commission, 

statement of 3S24-3S9S 

Atomic Energy Commission 3884 

Attorney General 3851, 3852 

Axe-Houghton 3878 

B 

Becker, William E., Director of Personnel, SEC 3823 

Bratter, Mr 3882 

Brookings Institution 3832, 3934 

Bureau of the Budget 3853 

Bureau of Standards 3884 

Burnham & Co. (New York brokerage house) 3864, 3882 

Business Records Act (Ontario) 3844 

C 

Canada 3835, 3836, 3838, 3847, 3865 

Canadian/s 3833, 3838, 3851, 3863 

Canadian restricted list (exhibit No. 454) 3827, 3828 

Canary Islands 3864 

Capehart, Senator 3839, 3840 

Central Public Utility Co. (St. Louis) 3864, 3865, 3881 

Chicago 3850 

Chicago regional administrator 3850 

CIA 3871 

Civil Service Commission 3879 

Colorado Plateau 3849 

Commerce, Department of 3834, 3835, 3884 

Communist 3829 

Congress 3824, 3825, 3836-3838, 3853, 3863, 3871, 3877 

Current report— Form 8-K (exhibit No. 458) 3856-3862, 3867 

D 

Defense, Department of ,, 3837, 3871, 3884 

Denver 3850 

DuBois, Orval L., Secretary, SEC 3834 

Dutch 3881, 3883 

E 

Eastland, Senator James O 3819 

Edersheim, Mr 3882 

England 3869 

Equity Corp 3882 

Europe 3829, 3835, 3836 

Executive Order 10450 (April 27, 1953) 3879, 3880 

Exhibit No. 453 — Letter, February 12, 1957, to J. Sinclair Armstrong from 

James O. Eastland 3819-3820 

Exhibit No. 453-A— Letter, April 2, 1957, to James O. Eastland from J. 

Sinclair Armstrong 3820-3823 

Exhibit No. 454 — Enforcement problems with respect to Canadian secu- 
rities 3825-3828 



II INDEX 

Exhibit No. 455 — Records of nonresident brokers and dealers, text of rule Pa ^ e 

X-17A-7 3833-3834 

Exhibit No. 456 — Summary of transactions in domestic corporate stocks 

by foreigners, 1955 and 1956 3835 

Exhibit No. 457 — Value of foreign investments in domestic corporate stock, 

excluding holdings of United States citizens resident abroad, 1954-55 3836 

Exhibit No. 458— Current report, form S-K 3S56-3862 

Exhibit No. 458 — Manipulation and stabilization 3875-3876 

Exhibit No. 460 — Growth of investment company assets 3878-3879 

Exhibit No. 461 — Foreword to 22d Annual Report of the Securities and 

Exchange Commission 3884-3889 

Exhibit No. 461-A— Enforcement program 3890-3893 

Exhibit No. 461-B— Personnel and fiscal 3894-3895 

Exhibit No. 461-C — Section of securities violations 3896 

Exhibit No. 462 — Comparative tables of certain enforcement actions 3896 

F 

Fairbanks-Morse 3837 

Fascist 3S29 

Federal Bureau of Investigation 3871 

Federal Reserve Board 3831 

Federal Trade Commission 3884 

Fulbright bill ( S. 1168, 85th Cong., 1st sess. ) 3863 

G 

Garcia, Roy C 3819, 3855 

Garrett, Ray, Jr., Director, Division of Corporate Regulation, SEC 3864, 

3872, 3881, 3883 
H 

Haiti 3864 

Hastings, Earl F., Commissioner, SEC 3823 

Heller, Harry, Assistant Director, Division of Corporation Finance, SEC_ 3824, 

3837, 3839, 3843-3845, 3855, 3874, 3875 
Holding Company Act. (See Public Utility Holding Company Act.) 

Holland 3869 

House Appropriations Committee 3853 

Hruska, Senator Roman L 3819, 3855 

Humphrey, Hon. George M. (Secretary of the Treasury) 3845 

I 

Internal Revenue Code 3840 

Investment Company Act of 1940 3875 

J 

Jenner, Senator William E .3819 

Justice, Department of 3884 

Justice Department, Criminal Division 3852 



Latin America 3835, 3836 

Ledes, Mr., legal assistant to Commissioner Sargent 3823 

Letter, February 12, 1957, to J. Sinclair Armstrong from James O. East- 
land (exhibit No. 453) 3819-3820 

Letter, April 2, 1957, to James O. Eastland from J. Sinclair Armstrong 

(exhibit No. 453-A) 3820-3823 

Letter, April 17, 1957, to James O. Eastland from J. Sinclair Armstrong 

re classified material handled by the Commission 3S80-3881 

Liberia 3846 

Loomis, Philip A., Jr., Director, Division of Trading and Exchanges, SEC_ 3823, 

3837, 3840-3842, 3844-3847, 3865, 3866 

M 

Mandel, Benjamin 3855 

Meeker, Thomas G., General Counsel, SEC 3823, 3844, 3897, 3898 

Statement of 3897 

Mexico 3847 



index ni 

Page 

Moran, William D., assistant regional administrator, New York, SEC 3823 

Morgenthau, Secretary 3845 

Morris, Robert 3819 

N 

Nazi 3829 

Netherlands Exchange 3883 

New Jersey 3846 

New York 3846-3848, 3864 

New York, eastern district of 3852 

New York Stock Exchange 3832, 3834, 3841, 3847, 3874, 3875 

New York Times 3864, 3871, 3881, 3882 

N. V. Bankierskantoor van Mendes Gans & Co. (Amsterdam) 3864,3883 

O 

Orrick, A. Downey, Commissioner, SEC 3823 



Patterson, Harold C, Commissioner, SEC 3823 

Phelan, James T., legal assistant to Commissioner Hastings 3823 

Philippines 3864 

Pollack, Irving M., Assistant General Counsel, SEC 2823, 3844, 3851 

President's budget, the 3853 

Public Utility Holding Company Act of 1935 3864, 3872, 3881-3883 

Puerto Rico 3864 

R 

Records of nonresident brokers and dealers, text of rule X-17A-7 (exhibit 

No. 455) 3833-3834 

Rusher, William A 3819, 3855 

S 
•Salt Lake City 3850 

Sargent, James C, Commissioner, SEC 3823 

Scheidenhelm, A. K., Executive Director, SEC , 3881 

Securities Act of 1933 3820. 3821, 3830, 3855, 3856, 3862, 3868, 3877 

Securities Exchange Act of 1934 3820, 3821, 3829-3834. 3837, 

3839, 3841, 3842, 3845, 3850, 3855, 3856, 3863, 3864, 3866, 3875, 3877 

Securities and Exchange Commission (SEC) 3823-3825, 

3829-3S34, 3836, 3838-3840, 3S42, 3843, 3850-3853, 3855, 3856, 
3863-3867, 3871-3873, 3875, 3877, 3879, 3880, 3882, 3883, 3898. 

Assistant executive director 3824 

Commissioners 3823 

Division of Corporate Regulation 3864, 3881 

Division of Corporation Finance 3S24, 3837, 3855 

Division of Trading and Exchanges 3823, 3837 

Executive Director of - 3881 

General Counsel 3823, 3897 

Legal assistants to Commissioners 3823 

New York regional office 3823, 3844, 3851, 3863, 3874, 3S75 

» Personnel Director of 3S23 
Secretary of 3834 

Classified material handled by 3880, 3881 

Positions designated as "sensitive" 3S79, 3880 

Securities and Exchange Commission, 22d Annual Report of : 

(Charts (exhibit No. 461) 38S6-3889 
Comparative tables of certain enforcement actions (exhibit No. 462 )_ 3896 
Enforcement problems with respect to Canadian securities (exhibit 
No. 454) 3825-3828 

Enforcement program (exhibit No. 461-A) 3890-3893 

Foreword (exhibit No. 461) 3884-3889 

Growth of investment company assets (exhibit No. 460) 3878-3879 

Manipulation and stabilization (exhibit No. 459) 3875-3876 

Personnel and fiscal (exhibit No. 461-B) 3894-3895 

Section of securities violations (exhibit No. 461-C) 3896 



IV INDEX 

Page 

Senate Banking and Currency Committee 3863 

Senate Resolution 22 (85th Cong., 1st sess.) 3836 

State, Department of 3871, 3884 

Statement of Thomas G. Meeker, General Counsel, SEC, with respect to 

the obtaining of information from foreign sources 3897 

St. Louis _— 3864 

Subcommittee on Security of the Committee on Banking and Currency 

(U. S. Senate) 3838 

Summary of transactions in domestic corporate stocks by foreigners, 1955 

and 1956 (exhibit No. 456) 3835 

Survey of current business (August 1956) 3835 

Swiss 3819, 3829-3831, 3838, 3S39, 3845, 3848, 

3850, 3851, 3863, 3866-3869,3871-3875, 3897 
Switzerland 3820, 3829, 3835, 3836, 3844-3846, 3869, 3897, 3898 

T 
Treasury Department 3829, 3834, 3835, 3845, 3871, 3884 

U 

United Kingdom 3836 

Upham, F. Bourne, Assistant Executive Director, SEC 3824 

Uriell, Frank G., Executive Assistant, SEC 3823, 3879, 3880 

Uruguay 3898 



Value of foreign investments in domestic corporate stock, excluding hold- 
ings of United States citizens resident abroad, year ends 1954 and 1955 
(exhibit No. 457) 3836 

Venezuela 3847 

W 

Windels, Paul, Jr., Administrator, New York regional office, SEC 3823, 

3845-3852 

Woodside, Byron D., Director, Division of Corporation Finance, SEC 3855, 

3864-3875, 3883, 3884 
Y 

Youngblood, Charles, legal assistant to Commissioner Patterson 3823 

o 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



j HEARINGS 

BEFORE THE 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIAEY 
\ UNITED STATES SENATE 

EIGHTY-FIFTH CONGRESS 

FIRST SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



MAY 8 AND 9, 1957 



PART 60 



Printed fox* the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRDNTING OFFICE 
93215 WASHINGTON : 1957 



Boston Public Library 
Superintendent of Documents 

NOV 18 1957 



COMMITTEE ON THE JUDICIARY 

JAMBS O. EASTLAND, Mississippi Chairman 

BSTES KEFAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER. Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

JOSEPH C. O'MAHONEY, Wyoming EVERETT McKINLEY DIRKSEN, Illinois 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 

SAM J. ERVIN, Jr., North Carolina ROMAN L. HRUSKA, Nebraska 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 

OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

SAM J. ERVIN, Jr., North Carolina JOHN MARSHALL BUTLER, Maryland 

MATTHEW M. NEELY, West Virginia ROMAN L. HRUSKA, Nebraska 

Robert Morris, Chief Counsel 

J. G. Sodrwine, Associate Counsel 

Benjamin Mandel, Director of Research 

II 



CONTENTS 



Witness : Page 

Applegate, Robert L 3900 

Bollinger, Mrs. Ruth 3926 

Hageman, E. L 3905 

Lagos, Frank 3929 

Lagos, Mrs. Lillian 3930 

Lenahan, Joseph J 3902 

Selly, Joseph P 3916 

Siebenberg, Louis 3925 

Silberman, Charles L 3922 

in 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



WEDNESDAY, MAY 8, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 
and Other Internal Security Laws, 
of the Committee on the Judiciary, 

Washington, D. 0. 

The subcommittee met, pursuant to call, at 10:35 a. m., in room 
457, Senate Office Building, Senator Roman L. Hruska presiding. 

Also present : Robert Morris, chief counsel ; William Rusher, asso- 
ciate counsel; Benjamin Mandel, research director and Frank 
Schroeder, chief investigator. 

Senator Hruska. The committee will come to order. 

Mr. Morris. This morning, Senator, we have continuation of the 
hearings that the subcommittee engaged in last November 21, 1956. 
That was immediately prior to the subcommittee's trip to Honolulu, 
where extensive testimony was taken about the operation of the 
ILWU, the International Longshoremen's and Warehousemen's 
Union. 

On November 21, 1956, Mr. E. L. Hageman, national president of 
the Commercial Telegraphers Union, Western Union division, AFL- 
CIO, testified. He testified about a situation which has been de- 
scribed by the Internal Security Subcommittee in the past as a threat 
to the internal security of the United States. 

This morning, Senator, we have two witesses prepared to testify. 
The first witness is Mr. Robert L. Applegate, Staff Director of the 
Industrial Security Programs Division, Office of the Secretary of 
Defense. 

I suggest, Senator, having had a previous session with both wit- 
nesses, that the hearing might be best developed by starting with 
Mr. Applegate, who will give the broad general policy. Then we 
will ask Mr. Lenahan to testify as to the situation in New York, that 
he be the second witness, and Mr. Applegate be called upon to give 
amplification on testimony of Mr. Lenahan. 

Senator Hruska. We will do it that way, then. 

Will you be sworn, Mr. Applegate ? 

Do you solemnly swear that the testimony you will give before this 
subcommittee will' be the truth, the whole truth, and nothing but the 
truth, so help you God ? 

Mr. Applegate. I do. 






3899 



3900 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

TESTIMONY OF ROBERT L. APPLEGATE, ALEXANDRIA, VA. 

Mr. Morris. What is your name, sir? 

Mr. Apr-LEGATE. Robert Lee Applegate. 

Mr. Morris. What is your address ? 

Mr. Applegate. 2916 Argyle Drive, Alexandria, Va. 

Mr. Morris. What is your position in the Government, Mr. Apple- 
gate ? 

Mr. ArPLEGATE. I am Staff Director of Industrial Security Pro- 
grams Division, Office of Personnel Security Policy, Assistant Secre- 
tary of Defense for Manpower Personnel Reserve in OSD — Office of 
Secretary of Defense. 

Mr. Morris. Do you have a statement to make with regard to your 
testimony ? 

Mr. Applegate. Yes; I do. Shall I proceed? 

Mr. Morris. Yes, please. 

Mr. Applegate. Mr. Chairman, I am delighted to be here and to 
be of any assistance I can to this committee. 

At the outset, I would like to repeat a statement made before this 
committee by Secretary Wilber M. Brucker on April 29, 1955, in 
connection with the proposed Defense Facilities Protection Act, 
which was then under active consideration : 

The employment of known or potential subversives in facilities vital to the 
defense effort has long been a matter of deep concern to the Department of 
Defense. As matters now stand, the legal authority of the Department of De- 
fense is limited to the protection of classified information or material in the 
possession of the contractors of the Department of Defense and, based on this 
authority, access to such classified information or material is controlled by 
denying access to persons who are determined, under appropriate rules and regu- 
lations, to be security risks. 

Today, 2 years later, the situation described by Secretary Brucker 
remains unchanged. While the Secretary was speaking of the large 
number of facilities of importance to the Department of Defense, cov- 
ering a wide range of activities, it is my understanding that the com- 
mittee this morning wishes to fix its attention upon the security con- 
ditions in certain communication facilities which may be considered 
vital to the defense effort. 

Obviously the entire communication system of this country plays 
an important part in our defense effort, a part which extends far and 
beyond the immediate and direct needs of the military departments. 
There are, however, certain facilities which, although serving the 
world community as a whole, perform important direct services for 
the military departments. 

Any loss or disruption of such services under emergency conditions 
by sabotage or other cause, or any compromise of classified informa- 
tion in these facilities, could have serious consequences. Such a pos- 
sibility causes us grave concern when these services bear directly on 
the transmission of our military messages, either coded or uncoded, 
which, of necessity, must be transmitted speedily, not only throughout 
the United States but to many points across the world. 

Where classified information is involved under these conditions, its 
protection requires that we make every effort to be sure the communi- 
cation company and each employee having access to such information 
is trustworthy. The company and its employees and field personnel 
of the three military departments are directed to follow carefully pre- 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3901 

pared procedures and regulations, including those to meet unusual or 
emergency situations. This is strengthened further by frequent in- 
spections and reports. 

I might note here that the Department of Defense has always re- 
ceived splendid compliance from the many communication companies 
involved and their employees, in handling and protecting our military 
secrets. 

Up to this time we have been unable to satisfactorily meet under 
existing legislation all the security problems which arise in this com- 
plex field. This is best illustrated in the facility where we may or may 
not have classified information but which, because of the nature of 
the service rendered by the facility, the Department of Defense de- 
pends upon to a high degree. Many public-utility type facilities fall 
into this category. 

In such facilities, when classified information is involved, we are 
able to determine the employee who is considered a security risk and 
to prevent him from working on classified work or from having access 
to classified information. Such an individual, however, may continue 
his employment with the facility, thus constituting a potential threat 
to our security posture. 

This situation is further aggravated in instances where the employ- 
ees of the facility, who, with minor exceptions, are loyal, trustworthy 
Americans, yet are being represented in labor-management relation- 
ships by a union which is Communist controlled. Such loyal employ- 
ees, although ostensibly serving a genuine union cause, can be misled 
to serve a purpose which, in fact, is politically inspired and contrary 
to our Government's best interests. Notwithstanding the good inten- 
tions of a majority of the members of such a union, the fact that 
Communist leadership controls the policy of the union presents a real 
danger. 

We should recognize that whenever any kind of situation, such as 
that discussed here, is identified and then permitted to continue, the 
element of risk to our Nation's security runs unacceptably high. 

Mr. Morris. Thank you very much, Mr. Applegate. 

Now, Senator Hruska, we have taken testimony in the past which 
indicates that officials of the American Communications Association 
have been identified as members of the Communist Party. We have 
also had testimony, sworn testimony, that certain employees of the 
RCA and the Western Union in New York, working at the place 
which was organized by the American Communications Association, 
have also been Communists. 

We had subpenaed for yesterday the four officials of the ACA. 
They are Mr. Joseph Kehoe, secretary-treasurer ; Mr. Joseph P. Selly ; 
Mr. Louis Silverberg; and Mr. Charles L. Silverman. 

Mr. Silverberg is the editor of the union newspaper, the ACA News. 
The rest are associated with the ACA. 

We have subpenaed for tomorrow some employees who have been 
identified in our record as having been members of the Communist 
Party. 

Because it was necessary to defer the hearing of yesterday, Senator, 
the ACA officials will testify tomorrow at the same time as the 
employees of the Western Union. 

Now, in 1953, Senator, when this Internal Security Subcommittee 
looked into the situation, the subcommittee made an extensive recom- 



3902 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

mendation to the chairman of the Senate Labor Committee. The 
idea of making that recommendation was to set in motion steps which 
would lead to legislation which would clear what the subcommittee 
then held to be a bad security situation. 

I will read, Senator, if I might, one paragraph from that letter 
which Senator Jenner, who was then chairman of the Internal Secur- 
ity Subcommittee, sent to the Senate Labor Committee : 

In 1951, the Internal Security Subcommittee of the Senate Committee on the 
Judiciary held extensive hearings on the American Communications Association. 
In those hearings, the Communist control over the labor organization was amply 
established. This American Communications Association is now the certified 
bargaining agency for some approximately 5,000 employees of the Western 
Union Telegraph Co. in the metropolitan area of New York, and some 200 em- 
ployees of the Western Union Cable Company of New York City, for RCA 
communications on the east and west coasts, and for employees in certain broad- 
casting stations, mostly in New York and Philadelphia. 

I would suggest, Senator, that Mr. Lenahan, who is down from New 
York and is acquainted from his own long experience with the precise 
nature of the facilities about which we are concerned here — that he 
testify at this point, and that Mr. Appelgate then ask questions or be 
asked questions about Mr. Lenahan's statement. 

Senator Hruska. Have you a prepared statement, Mr. Lenahan ? 

Mr. Lenahan. No ; I have no prepared statement. 

Senator Hruska. Will you be sworn. 

Do you solemnly swear that the testimony you are about to give 
before the Internal Security Subcommittee will be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Lenahan. I do. 

TESTIMONY OF JOSEPH J. LENAHAN, HACKENSACK, N. J. 

Mr. Morris. What is your business or profession, Mr. Lenahan ? 

Mr. Lenahan. I didn't hear you. 

Mr. Morris. What is your business or profession ? 

Mr. Lenahan. I am technician for the Western Union Telegraph 
Co., and I am also president of the Telegraphers Union, Local No. 
146, located at 150 Nassau Street, New York City. 

Mr. Morris. How long have you been working in the work you have 
just described to the subcommittee ? 

Mr. Lenahan. Forty years. 

Mr. Morris. Will you give us a brief sketch, by way of qualifying 
as a witness today, of your 40 years' experience ? 

Mr. Lenahan. Well, I had 42 years' service with the Western 
Union Telegraph Co., 40 years of which has been associated with the 
testing and regulating department of that company. 

Now, my work mostly consists of testing wires and circuits. We 
have access to these circuits by being called in by customers or Gov- 
ernment agencies, whoever happens to lease these circuits from the 
Western Union Telegraph Co. 

Mr. Morris. What is your title right now, Mr. Lenahan ? 

Mr. Lenahan. With the Western Union ? 

Mr. Morris. Yes. 

Mr. Lenahan. Wire chief. 

Mr. Morris. You are a wire chief. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3903 

Now, as a wire chief, what are your duties ? 
Mr. Lenahan. Well, if these circuits fail- 



. . _ , , j — 

Mr. Morris. You say, "these circuits." What circuits, generally, 
are we talking about ? 

Mr. Lenahan. I handle all sorts of circuits. Government circuits, 
private industry circuits, Western Union traffic circuits. 

Mr. Morris. I wonder if you would, physically, tell us what some of 
these circuits are that extend through Western Union in New York ? 

Mr. Lenahan. Well, we have the United States Army circuits, the 
United States Air Force circuits, United States Coast Guard cir- 
cuits, the CAA, Civil Aeronautics circuits, and most of your com- 
mercial airlines. Many industrial firms also, that handle classified 
business for the Government. 

Mr. Morris. Now, these circuits all physically run from New York ; 
is that right ? 

Mr. Lenahan. The majority of them do ; yes. 

Mr. Morris. To your knowledge, do these circuits carry classified 



sages ? 



Mr. Lenahan. I assume so. Many of them carry coded messages. 

Mr. Morris. Now, as a wire chief, do you have access to the mes- 
sages that come through all these various circuits? 

Mr. Lenahan. I will have to qualify my answer on that. My 
duties are general, as far as a wire chief is concerned. I also work 
in the repeater department, where I do have access to going in on 
these circuits. It is very necessary that someone does go in on these 
circuits every once in a while to check biases or to find out why the 
circuit is not working properly. 

Mr. Morris. Well, now, how many people are there who would 
have access to all these circuits ? 

Mr. Lenahan. Well, in my own department, there is approximately 
50. However, there are other circuits that may go through what we 
call the varioplex 

Mr. Morris. Would you spell that, please ? 

Mr. Lenahan. V-a-r-i-o-p-l-e-x. That is located on another floor. 

The title of the men handling them is automatic technician. Now, 
there could be drops off main circuits going over these varioplex cir- 
cuits to local industry or local Government agencies. 

Mr. Morris. If these various people have access to the wires — does 
that mean that at any time any of these people can intercept whatever 
message is going through that wire ? - 

Mr. Lenahan. Well, Mr. Chairman, when I am called in on these 
circuits, or any other man in my position, it is necessary for us to cut 
in with a printer — a teletype printer — these types are usually tape 
printers. Whatever is being sent over there — some of it is live busi- 
ness, but when we go in, we usually run a test. 

We can stay in there, and we do quite often, to see if the circuit gets 
underway. 

Mr. Morris. You mean, you can intercept 

Mr. Lenahan. I can read whatever the customer is sending, whether 
Government or industrial. We are supposed to destroy that tape — 
throw it in the wastebasket. 

93215— 57— pt. 60 2 



3904 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

For the purposes of this investigation, I believe you are looking for 
the potential accessibility for espionage and sabotage. I said a 
moment ago that we are supposed to throw this tape away, and we do, 
in most cases. But the possibility is there, that if someone wanted to 
take that material, they could roll that tape up instead of throwing it 
in the wastebasket, and put it in their pocket. 

Mr. Morris. That would be true, whether it is coded or noncoded ? 

Mr. Lenahan. That is true. 

Mr. Morris. Suppose these messages were coded that are being sent 
over these particular wires. What would come out of this tape that 
you describe ? 

Mr. Lenahan. Well, on most of your military circuits, the Defense 
Department uses what is known as a telecrypton. That changes the 
pulses coming over the circuit. For a man like myself, working on 
the circuit, we could not read that. That would look like a bunch of 
junk to us. But there is a potential danger there, because I could take 
that coded tape and stick that in my pocket, if I were a member of an 
espionage ring, and deliver it to a key point where another member of 
the espionage ring could take it where they have people who could 
change the telecrypton on these machines. 

That tape would be of no value to me personally as an individual, or 
as a member of an espionage ring. But it could possibly be of some 
service to an overall espionage ring. 

Mr. Morris. Now, Senator, I would like to point out at this time 
that the evidence that we have in our records indicates that the over- 
whelming majority of the employees organized by the American 
Communications Association are loyal citizens. At the same time, the 
evidence does show that there are some who have been identified as 
Communists. 

The fact of the matter is that, in the election, it is the so-called 
Communist slate that prevails. 

Mr. Lenahan, can you tell me what the last election result was ? 

Mr. Lenahan. No. 

I would like to make it clear here that I know of no individual that 
I would suspect- — that is, in my department — that would give the ACA 
any information. But, as I said earlier, the potential is there if 
anyone desired to do so. 

I think, to answer your question on the results of the last election, 
Mr. Hageman back here could give us those results better than myself. 
I don't recall them. 

Mr. Morris. Well, the slate that is now in office prevailed over the 
opposition slate by roughly 2 to 1 — is that not right ? 

Mr. Lenahan. I would say that is approximately right. 

Mr. Morris. Senator, Mr. Hageman is here. Would it be out of 
order if we asked him at this time ? 

Senator Hruska. It would not be out of order. 

Would he come forward and sit at the table to answer what ques- 
tions are put to him ? 

Senator Hruska. Do you solemnly swear that the testimony you 
will give before the Internal Security Subcommittee will be the truth, 
the whole truth, and nothing but the truth, so help you God ? 

Mr. Hageman. I do. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3905 

TESTIMONY OF E. L. HAGEMAN, ARLINGTON, VA. 

Mr. Morris. Could you tell us what the results were at the last 
election ? 

Mr. Hageman. Are you referring to an ACA election ? 

Mr. Morris. Yes ; the ACA election. 

Mr. Hageman. An election of the ACA officers ? 

Mr. Morris. That is right. 

Mr. Hageman. They had no opposition. That is understandable, 
because there was testimony before this subcommittee in 1951 or 1952 
that in one ACA election, the ballot boxes were stuffed. Some of the 
ballots were opened, and the ballots were changed, and it was a com- 
pletely rigged election. 

Since that testimony, which was made public, there has been no 
opposition to the ACA officers, and it is my recollection that, in the 
last election, they had no opponents. They were elected without 
opposition. I suppose the opponents, after reading how they con- 
ducted their elections, gave up and decided not to run any more. 

Mr. Morris. How about the elections as to who would represent the 
employees of the RCA and "Western Union as bargaining agent? 
What was the voting that way ? 

Mr. Hageman. I don't recall that they have had an election. You 
are talking about an NLRB certification election % 

Mr. Morris. Yes. 

Mr. Hageman. I don't recall that they have had a certification elec- 
tion in RCA Communications for years. In the Western Union, our 
organization, the Commercial Telegraphers Union, Western Union 
division, conducted two campaigns, in 1952 and in 1953. 

In the first campaign, the votes for ACA were approximately 2,200, 
and for the CTU, AFL-CIO, it was about 1,800. 

Mr. Morris. That is 2,200 to 1,800 ? 

Mr. Hageman. That is correct. 

In the 1953 election, it was about 2,400 to 1,600. 

Senator Hruska. What was the second organization? The ACA 
had 2,100, and 

Mr. Hageman. And the Commercial Telegraphers Union, our or- 
ganization, in the second election, we received about 1,600 votes; in 
the first one about 1,800. 

Senator Hruska. For the record, will you give your address, please, 
and your official title ? 

Mr. Hageman. My official title is national president of the Western 
Union division, Commercial Telegraphers Union, AFL-CIO. We 
represent all of the Western Union workers throughout the country 
except in the New York metropolitan area. 

Senator Hruska. And your address, Mr. Hageman ? 

Mr. Hageman. My office or home ? 

Senator Hruska. Both. 

Mr. Hageman. My home address is 4205 Fourth Street, South, 
Arlington, Va. My office address is 918 Dupont Circle Building, 
Washington. 

Senator Hruska. In reference to the work you described as wire 
chief, and your activities there, Mr. Lenahan, which of the employees 
belong to the one union or the other in this particular instance? 



3906 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Lenahan. The employees I am referring to all belonged to the 
ACA, the American Communications Association. I am also under 
their jurisdiction, although I am an officer of the AFL. 

Mr. Morris. And the significance of the vote, 2,200 to 1,800, would 
be if the Commercial Telegraphers Union prevailed, you would then 
be working under the Commercial Telegraphers Union rather than 
the ACA? 

Mr. Lenahan. That is right. 

Mr. Morris. I wonder if you could tell us how many categories of 
employees there are working in Western Union in New York ? 

Mr. Lenahan. I would say there are about 100. But the main 
categories are automatic operators. 

Mr. Morris. What are automatic operators? 

Mr. Lenahan. They handle commercial messages, and work on tie 
lines to industrial concerns and military establishments. 

Mr. Morris. Do they have access to messages on wires ? 

Mr. Lenahan. Yes; they could read anything that is in English. 
There is also the possibility that they could lift those messages. 

Mr. Morris. You mean, take the tape ? 

Mr. Lenahan. Take the tape, or the message itself could disappear. 

Senator Hrtjska. In their testing activities, could they take the 
tape, as you have described ? 

Mr. Lenahan. No; they don't do any testing; they just transmit 
the messages over the circuits. 

Senator Hrtjska. Is there a teletype record of those messages made 
which would be available to them ? 

Mr. Lenahan. That is right; yes. 

Senator Hrtjska. As well as the text of the message from which 
they work? 

Mr. Lenahan. That is right. 

Mr. Morris. Roughly, how many automatic operators are there? 

Mr. Lenahan. I would say around 400. 

Mr. Morris. What other general categories of employees are there ? 

Mr. Lenahan. Well, there are teletype operators, route clerks, 
service clerks, printer maintainers 

Mr. Morris. I wish, Mr. Lenahan, for the record, that you would 
describe generally whether these particular people have access to 
these wires. 

Mr. Lenahan. Well, to go back to the teletype operators, they 
have the same access to commercial messages as I described for auto- 
matic operators. 

Now, a printer maintainer is an individual that is sent out from 
the main office to maintain the equipment on the circuits in indus- 
trial firms or military establishments. They would be able to see 
correspondence laying around, or they could see the messages com- 
ing over the printers that they are working on. It is usually a prac- 
tice to stay around after they do repair these machines, to see that the 
circuit does get under way. 

Mr. Morris. What other classifications are there now, Mr. Lenahan ? 

Mr. Lenahan. Well, we have the automatic technician. He also 
has access to commercial messages, and some of these men also work 
in what is known as the varioplex department and on these varioplex 
circuits, they have what they call subchannels that are leased to firms 
for what they call telemeter service. That is where they count the 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3907 

number of characters to determine the charges. But these men in the 
varioplex department do have access to what is going over these sub- 
channels from both the industrial firms and military establishments. 

Senator Hruska. What are the duties of the automatic technician ? 

Mr. Lenahan. That is what I just described. He maintains the 
equipment on the varioplex. 

Senator Hruska. He maintains the equipment you have just de- 
scribed ? 

Mr. Lenahan. That is right. 

Senator Hruska. What about the service clerks you described? 
What do they do, and where ? 

Mr. Lenahan. That is where all your messages are filed after they 
are sent on the circuits. Anyone in there could go through any par- 
ticular file. I don't know how much they separate them. They 
might separate them into districts, or they may separate them into 
different classifications, like alphabetically for the industrial firms, or 
put all Government messages in the same pigeonhole. 

I don't know just how they break it down, but the employees in the 
service department do have access to all commercial messages. 

Senator Hruska. As to messages which are sent, whether they are 
classified, coded, industrial, or commercial, are those messages which 
are transmitted and then placed on file, the text of those messages ? 

Mr. Lenahan. Yes. 

Senator Hruska. Plow long are they retained on file ? 

Mr. Lenahan. I don't know exactly. I have heard they retain 
messages in some form or another for 2 years. 

Senator Hruska. Of course, they would be available in their filed 
form to these service clerks in charge of filing and maintaining the 
office generally ? 

Mr. Lenahan. They are only available to these service clerks for 
a couple of days, and then taken out of there and stored for a period 
of 2 years. 

Senator Hruska. Who is in charge of the files in their stored con- 
dition ? 

Mr. Lenahan. I don't know. 

Senator Hruska. Wouldn't it be some aspect of the duties of the 
clerks in charge of the filed records ? 

Mr. Lenahan. I imagine that would come under the accounting 
department. 

Senator Hruska. Now, Mr. Lenahan, how many of these workers 
to whom you refer are members of the ACA ? 

Mr. Lenahan. Well, I would say approximately 80 percent. 

Senator Hruska. And the balance of them would be members of 
what union? 

Mr. Lenahan. They would not be members of any union in New 
York City. They may be members of the CTU, but we have no juris- 
diction over them as far as the NLRB is concerned. We can't bar- 
gain for them, or anything like that, They are only members of the 
CTU local there, because they don't like the ACA, and for some 
reason or another have either resigned or never did join the ACA. 

Senator Hruska. But the ACA is the bargaining agent for all of 
them ? 

Mr. Lenahan. That is right. 



3908 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Hruska. And it is your estimation that about 80 percent 
of these workers in the work you have described, the various lines 
of work, are members of the ACA? 

Mr. Lenahan. That is correct. 

Senator Hruska. All told, how many would you say there are, 
those that you have just described? 

Mr. Lenahan. In the Western Union Telegraph Co., that is, the 
landlines, I would say there is around 4,500. 

Mr. Morris. The EC A? 

Mr. Lenahan. That is not including KCA. 

Mr. Morris. How many, including RCA ? 

Mr. Lenahan. I think there is around 200 in RCA. 

Mr. Morris. They are also organized by ACA? 

Mr. Lenahan. They are under the jurisdiction of American Com- 
munications Association. 

Senator Hruska. And it is this total of which you say approxi- 
mately 80 percent is ACA ? 

Mr. Lenahan. I am only referring to Western Union Telegraph 
Co. landlines department. 

Mr. Morris. Are there any other job lines you should tell us about? 

Mr. Lenahan. Not that I know about. 

Mr. Morris. What are T. and R, men? 

Mr. Lenahan. That means testing and regulating. They are either 
wire chiefs or repeater chiefs. 

Mr. Morris. They, too, have access to all the wires ? 

Mr. Lenahan. Yes; that is what I talked about here earlier in 
describing my own duties. 

Mr. Morris. Isn't it true, then, Mr. Lenahan, that virtually all of 
these employees of the RCA and the Western Union have access to 
the wires? 

Mr. Lenahan. By degrees. Some have a greater access than 
others. But there are hardly any employees in the communications 
system that don't have access to any message file, whether it be on 
lease lines or regular commercial messages. 

Mr. Morris. Now, is there also a possibility of sabotage? I mean, 
what you are generally describing is interception of messages and has 
to do with espionage. 

Now, is there any danger of sabotage, do you know ? 

Mr. Lenahan. Yes; there is a great danger of sabotage. If we 
were at war with Soviet Russia, there is nothing to stop an individual 
from pouring acid on the cables. 

Prior to the last time I was before this committee, I purposely went 
around and just touched each cable without anybody detecting me 
doing that. 

Mr. Morris. That is by way of aiding your testimony ? 

Mr. Lenahan. That is right. 

I could just as easily have gone along with a bottle of acid and 
poured it on those cables, and nothing would have happened for per- 
haps a couple of days. By that time, nobody would have known who 
did it. There is great potential of sabotage in the event of war there. 

Mr. Morris. Is there any other way of disrupting cables other than 
applying acid to the wire. 

Mr. Lenahan. You could stick spikes in them, or use a hacksaw on 
them. But if someone wanted to put the telegraph company out of 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3909 

service, I think the acid method would be the best, because there is 
the least possibility there of being detected. 

Mr. Morris. How much time would be consumed in repairing these 
wires that had been severed or cut or burned ? 

Mr. Lenaiian. It would take weeks or months to put the New York 
office back in operation if any such thing as I described took place. 

Mr. Morris. Is there anything else you can tell us, generally, about 
the possibility of sabotage ? 

Mr. Lenahan. No ; not that I can think of at the moment. 

Mr. Morris. Is there anything more that you feel this Internal 
Security Subcommittee should know in analyzing this situation from 
the security point of view, that you can tell us now in testimony? 

Mr. Lenahan. Well, I have always felt with a Communist-domi- 
nated American Communications Association being the bargaining 
agent there, there is a great possibility of both sabotage and espionage. 

We realize that the Western Union Telegraph Co. is in an unten- 
able position with one Government agency certifying an organization 
where there has been so many hearings, and practically everybody 
concedes that the leaders of this organization are members of the 
Communist Party. 

We feel that some legislation should be passed to decertify this 
organization. 

Mr. Morris. Senator, I might say that at the time of the last testi- 
mony, Mr. Hageman's testimony, he brought up the possibility which 
again arose in the subsequent hearings at Honolulu, that considera- 
tion should be given to legislation. I recall Mr. Hageman wanted to 
be very careful to say he was not recommending this legislation. But, 
as a point of fact, previously the NLRB had always annulled the 
existence of a union if evidence were presented that the union was 
company dominated. Therefore, the Board decided by a prepon- 
derance of evidence that the union was in fact company dominated 
and the union could therefore be disestablished. 

Mr. Hageman. May I say something on that 1 

Mr. Morris. Surely. 

Mr. Hageman. The point I was trying to bring out in my testimony 
was this: In the Western Union Telegraph Co., we had a company 
union for about 20 years. Charges were filed against that company 
union. It was called the Association of Western Union Employees. 
Charges were filed against that company union about 1936 or 1937. 

The NLRB held hearings and declared it a company-dominated 
organization. The courts upheld it, and that company union was 
wiped out. The NLRB used the word "disestablished." That com- 
pany union was wiped out within a matter of 2 years — I belive it was 
2 years, at the outside. 

I believe that, under the Wagner Act, the NLRB just about wiped 
out all of the company-dominated unions in the United States. I 
don't think there are any, or very few, of them in this country today. 
I think the people feel that way. 

But these Communist-dominated unions, which I feel are a far 
greater danger to our country than company-dominated unions, go on 
and on for years, and nothing is done. This testimony about the Com- 
munist-dominated ACA was given a couple of years ago. They were 
kicked out of the CIO because of Commie control and domination 
following the Commie Party line in 1950. But they go on and on. 



3910 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

But, as a union officer and an American citizen, I can't understand 
why they can wipe out the company unions in a couple of years, but 
nothing is ever done about the Commie-dominated unions. 

Senator Hruska. Are any complaints filed before the NLRB in 
that connection ? 

Mr. Hageman. Complaints have been filed, but it is my under- 
standing that under the law, the NLRB must certify. 

Now, for example, many of my good friends, some of them good 
Republicans, told me in 1947, when Taft-Hartley went into effect, 
that one of the best things in Taft-Hartley was that it would get 
after Commies in the labor movement. 

At that time I thought it was a good thing. I didn't like Taft- 
Hartley, but I thought that part of it was good. So what happened ? 
All the labor leaders, union leaders, in this country have to sign non- 
Commie affidavits about every year. I have to sign them, Mr. Lena- 
han has to sign them, everybody has to ; all the labor unions, if they 
get NLRB approval. 

Under that provision in the Taft-Hartley, I bet they haven't 
caught a half-dozen Communists. The Commies are signing those 
affidavits. 

So, what has been done? Who has gained by that provision in 
Taft-Hartley? The notaries have gained. We have to shell out 25 
or 50 cents every time we sign one. That is the only gain I have seen 
under Taft-Hartley. 

My understanding is NLRB receives those affidavits and can do 
nothing about it. They have to certify. 

Senator Hruska. So it amounts to what you said before, that there 
are not any mechanics by which the NLRB can entertain any com- 
plaints for disestablishing this union. In essence, is that what you 
are saying again this morning ? 

Mr. Hageman. That is right. 

There is a Communist Control Act — I believe that is the name of 
it — which provides that the Attorney General can request the SACB 
to hold hearings, and the SACB can rule after hearings that an 
organization is Communist dominated. But that law has been on the 
books for quite a while, a few years, and nothing has ever come of it, 
that I know. 

Senator Hruska. As a matter of fact, there are some proceedings 
pending right now under that statute. 

But isn't the trouble with that statute that it proceeds under crim- 
inal standards, and is a difficult thing to prove? But under the dis- 
establishing unions procedure, it was only a preponderance of evidence 
that was necessary for taking action. 

Mr. Hageman. That was my understanding when they held hear- 
ings on company-dominated unions. They looked at the pattern, and 
made the decision on that basis. 

Senator Hruska. But not on criminal standard proceedings, where 
they have to prove beyond a shadow of a doubt. 

Mr. Hageman. I am not a lawyer, and I don't know what is re- 
quired under that Criminal Control Act, but if the law requires that 
you must prove that somebody is a Communist member, that is pretty 
difficult to prove. I think it is a fact that the Communist Party went 
underground 10 years ago, and they no longer use Communist cards. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3911 

It is a pretty difficult thing to prove, that a man is a Communist. 
1 think the newspapers and history books are full of cases of that 
kind. 

Mr. Morris. I think the provision is that you have to show member- 
ship in an international Communist organization within the last 2 or 
3 years. The standard is quite high. It is within the last 2 or 3 
years. 

As you know, Senator, we have very great difficulty getting Com- 
munists to testify that they were Communists within 2 or 3 years. 
As you know, for the most part, when we get evidence, it is 2 or 3 
years old at the time. 

If the Communist Control Act of 1954 requires this other high 
standard, that makes it difficult. We have talked to the Justice De- 
partment on that. 

Mr. Lenahan. I would like to point out at this point that I am 
not pointing the finger at any individual as being disloyal, even 
though they are a member of the — that is, I am not talking about 
Western Union employees in New York as being disloyal, even though 
they are members of the American Communications Association. 

However, as Mr. Applegate pointed out here, because of the politi- 
cal activities of Communists, these loyal Americans and honest Amer- 
icans who are members of the American Communications Association 
could inadvertently give information to the association, the American 
Communications Association officers. 

I think that was brought out in Mr. Applegate's statement. That, 
in itself, is a potential for espionage. 

Senator Hrtjska. I am awfully happy, personally, as one member 
of this subcommittee, that you make that statement. I feel quite 
confident that it will be true that the great body of the members of 
that union, as well as your union, are loyal, honest, and law-abiding 
citizens. 

However, inasmuch as there is leadership in there which is suspect — 
and highly suspect — it provides a vehicle whereby even 1 or 2 or 3 — 
and that is all it would take to pour 1 bottle of acid, judiciously dis- 
tributed, to do great damage — it provides a vehicle of that sort to do 
espionage and sabotage, as well. It is that potentiality of activity 
to which we would like to address ourselves. 

I am glad you brought that point up. It is one we should con- 
stantly bear in mind. 

Mr. Lenahan. I am very happy to get the opportunity to come 
down here and help to eliminate any possibility of sabotage or espion- 
age in the communications industry, whether Western Union or any 
other companies. 

Senator Hrtjska. Have you any further questions of Mr. Apple- 
gate, in view of the testimony given by Mr. Lenahan and Mr. Hage- 
man, Mr. Morris ? 

Mr. Morris. Mr. Applegate, is your department concerned about 
the possibility of sabotage with respect to these lines ? 

Mr. Applegate. Well, yes, very definitely we are. 

Mr. Morris. Does that pose a real threat to the security of the 
country in the event of any hostilities, let us sav, with the Soviet 
Union? 

93215— 57— pt. 60 3 



3912 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Applegate. These facilities represent and fill a very valid need 
in the communications pattern of the Department of Defense. Any 
loss or disruption could prove very serious under certain circum- 
stances. 

Mr. Morris. If there is a clash between the Soviet Union and the 
United States, would disruption of the communication lines present 
a threat to the security of the United States ? 

Mr. Applegate. Very definitely. 

Any loss of these facilities would have an impact on the overall 
good of the country, or facilities that were available for transmission 
of messages. 

Senator Hruska. That impairment of services would reflect itself 
not only in military operations but likewise in industrial and logistics 
operations, wouldn't it ? 

Mr. Applegate. That is quite true. 

Mr. Morris. Do you think persons who have been identified as 
members of the Communist Party in our record, at least in the past — 
do you think that such people should have access to the messages that 
go over the wire ? 

Mr. Applegate. I think we should clarify something about these 
messages before I answer that question. 

Mr. Morris. Please do. 

Mr. Applegate. The Department of Defense sends no messages over 
any wire service of any kind that are classified in any way, without 
first encrypting the message so that the kind of messages that are 
sent through this service are in the same type of form, you might say, 
as messages which are released over the air through our radio com- 
munication facilities that all three military departments use. 

So in that sense, there is not much more danger in having persons 
employed, such as you have identified, having access to these messages 
under these circumstances. There is not much more danger to it 
there than there would be if they picked up a message coming over 
the air, which is certainly easy to do. 

Mr. Morris. What about intercepting a coded message in its coded 
form ? Wouldn't that be of some assistance, as Mr. Lenahan pointed 
out? 

Mr. Applegate. Well, it could be. We have great confidence in our 
encrypting system and those who perform it. We have enough faith 
in them that we release messages over the air where they can be 
picked up by anybody who has a desire to pick them up. 

In the form they are in, of course. What he discovers after he gets 
them is another matter. Whether he can do anything about it or not 
is entirely 

Mr. Morris. Senator, with Mr. Applegate today is Mr. Stempler, 
from the Department of Defense. 

Would you identify yourself for the record, Mr. Stempler ? 

Mr. Stempler. Jack L. Stempler, Assistant General Counsel for 
Department of Defense. 

Mr. Applegate. We feel this way, that certainly the presence of any 
known Communist in a facility where our messages are being trans- 
mitted is not a desirable thing. 

Mr. Morris. Is there anything more now on the general subject of 
sabotage that you would like to tell the committee? 



SCOPE OF SOVIET ACTIVITY EN THE UNITED STATES 3913 

Mr. Applegate. I think if there is a real threat here, and I believe 
there is, the threat is one in the main in the field of sabotage, rather 
than in the field of espionage. 

Senator Hruska. It has been suggested that you can't pour acid on 
a radio wave. But pouring it on the wires or apparatus that sends 
that wave — then you are in trouble. 

Mr. Morris. Senator, we have had testimony from witnesses identi- 
fying people as at some point in the past having been members of the 
Communist Party. One witness alone, Mrs. Ewell, has identified 22 
people, both officials of the ACA and people who are actually work- 
ing on these facilities, as having been members of the Communist 
Party. They participated in the same Communist meetings she did. 

We are going to be calling in, in the next few days, some of these 
people. 

As far as these witnesses are concerned now, I have no more ques- 
tions, Senator. 

Senator Hruska. I have none, either. 

I should like to thank them very much for appearing here today 
and cooperating with us. 

The subcommittee is adjourned. 

(Whereupon, at 11 : 30 a. m., the subcommittee adjourned.) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



THURSDAY, MAY 9, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 
and Other Internal Security Laws, 
or the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursuant to call, at 11 a. m., in room 457, 
Senate Office Building, Senator John Marshall Butler presiding. 

Also present: Robert Morris, chief counsel; William Rusher, as- 
sociate counsel; Benjamin Mandel, research director: and Frank 
Schroeder, chief investigator. 

Senator Butler. The committee will come to order. 

The Internal Security Subcommittee has been assessing the strength 
of Communists in the labor movement. 

Yesterday we had the Department of Defense officials and some 
labor leaders point out that there was a Communist-dominated union 
in the field of communications which had access to the important tie 
lines and other communications, which may pose a threat to the 
internal security of the United States. 

TVe have therefore asked certain witnesses to appear and give 
testimony in the field of communications today. 

Counsel, will you please call the witness ? 

Mr. Morris. Mr. Rabinowitz, one witness is not here this morning; 
is that right ? 

Mr. Rabinowitz. That is right. 

I requested that one witness be excused, Senator, and Judge Morris 
kindly consented to excuse him. I told Judge Morris that his testi- 
mony would generally follow the outline of the testimony given by 
Mr. Selly and his attitude with respect to answers to questions would 
be the same, and I think it was agreed that the stipulation be accepted. 

Mr. Morris. I think you said he was not well, health prevented his 
attendance? 

Mr. Rabinowitz. That's right. That was Joseph Kehoe, secretary- 
treasurer of the international union. 

Mr. Morris. Mr. Selly, will you stand and be sworn, please? 

Senator Butler. Do you swear the testimony you are about to give 
will be the truth, the whole truth, and nothing but the truth, so help 
you God? 

Mr. Selly. I do. 

Senator Butler. The witness is sworn. 

3915 



3916 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

TESTIMONY OF JOSEPH P. SELLY, FORT LEE, N. J. 

Mr. Morris. Will you give your name and address to the reporter, 
please ? 

Mr. Selly. My name is Joseph S. Selly, S-e-1-l-y. My home ad- 
dress is 3021 Edwin Avenue, Fort Lee, N. J. My business address is 
5 Beekman Street, New York City. 

Mr. Morris. Now, how long have you been president of the Ameri- 
can Communications Association ? 

Mr. Selly. Since 1940, approximately. 

Mr. Morris. Now, will you tell us how big a union is the ACA ? 

Mr. Selly. Roughly — we currently have about 8,000 dues-paying 
members. 

Mr. Morris. I wonder if you would give us a breakdown, as to 
where these members are employed. 

Mr. Selly. In the Western Union Landline Co., in the New York 
metropolitan area? 

Mr. Morris. Western Union 

Mr. Selly. Western Union Telegraph Co., the landline division ; I 
am distinguishing that from the cable division. 

Mr. Morris. How many are there, roughly ? 

Mr. Selly. About 5,000. 

RCA Communications, which is an international telegraph carrier, 
roughly 1,500. 

French Cables, which is an international cable company, roughly 
100. 

Western Union Cables, which is the cable division of Western 
Union Telegraph Co. 

Mr. Morris. That goes overseas ? 

Mr. Selly. That is correct. Roughly 300. 

I would revise one figure — the RCA currently would be closer to 
2,000 rather than 1,500. 

Teleregister Corp., which manufactures equipment for use in brok- 
ers' offices, electronic equipment for them, those are the boards that 
flash the bids and prices — approximately 400. 

A cafeteria which is operated on the premises of the Western Union 
Telegraph Co.'s main office at 60 Hudson Street, New York City, 
approximately 100. 

A group of radio stations located in — as closely as I can recall now, 
in Philadelphia and New York City, and in these cities we repre- 
sent mainly the studio technicians, and in some cases the transmit- 
ter technicians. 

Mr. Morris. What stations are they ? 

Mr. Selly. I can't recall the call letters of the stations. They are 
secondary stations in the New York City area. I say secondary ; they 
are not the major networks. 

Senator Butler. Would you provide those for the committee at a 
later date? 

Mr. Selly. Yes, I can give you a full list of those.* 

•Mr. Selly, in a letter to the subcommittee listed the stations as follows : New York — 
WLIB, WB'NX ; Philadelphia — WIGB, WPEN, WDAS, WHAT and WIP, adding that the 
contracts cover mainly technical personnel. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3917 

Roughly, in total, in all of these radio broadcasting or television — 
no, not television — radio broadcasting stations, 200. 

Senator Butler. Tell me this, Mr. Selly. Does your union have 
exclusive rights in the field of communications, so far as the or- 
ganization's workers are concerned ? 

Mr. Selly. Well, let me answer that this way : 

The constitution of our union asserts the right to organize all 
workers in the communications industry. 

Senator Butler. In actuality, what percentage 

Mr. Selly. The actuality is we represent a comparatively small pro- 
portion of the organized workers. For instance, there is an organiza- 
tion in the telephone industry which claims 350,000 members. There 
is a rival organization to us in the telegraph industry which claims 
roughly 35,000 to 40,000 members. There are at least 6 or 7 organiza- 
tions in the broadcast and television industry which claim and repre- 
sent substantial numbers of workers. 

I would say there are roughly employed in the communications in- 
dustry — we include radio, telegraph, telegraph cables, radio, and 
television — the total field probably employs close to three-quarters of a 
million people. 

Senator Butler. Let me ask you this question : 

In the field of international communications, what percentage of 
the workers do you represent ? 

Mr. Selly. There we represent a substantial percentage. 

Senator Butler. Including tie lines from the Department of State, 
Department of Defense, and other Government agencies ? 

Mr. Selly. Well, you mean, do the companies we represent service 
these agencies ? The answer is, "Yes." 

Senator Butler. In other words, you organize the workers who 
monitor the lines and send the messages over the communications 
system that services the Federal Government and these various Depart- 
ments ? 

Mr. Selly. The question of monitoring lines is not so simple to 
answer. 

The second part of your question can be answered unequivocally; 
yes. 

The members of my union who are employed, for example, in West- 
ern Union Cables, send and receive messages to every point that is 
serviced by that company, because — I say that because my union repre- 
sents all the workers in that particular company. 

Now, as to monitoring, when a worker receives a message for re- 
transmittal, he may be required to check that message for accuracy, 
and he — generally, if there are any mistakes, he gets in touch with the 
sender and gets the corrections. 

In many cases the worker is not required to do that, because the 
mechanization of the industry has resulted in mechanical transmission 
through the main office. In other words, the sender sends on a ma- 
chine, and it is automatically reperf orated and not received by a 
worker at the Western Union Cable office, and it goes to the distant 
point without the intermediate operation by an operator. 

Senator Butler. But the membership of your international union 
is in charge of the machine, and the machines are in their physical 
control at all times ; is that not right ? 



3918 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Selly. Those employees whose function it is to service the 
machine, service those machines, they are members of my union. 

Senator Butler. And that is true of all international communica- 
tions ? 

Mr. Selly. It is true of RCAC, of French Cables, and of Western 
Union Cables. There is another international communications car- 
rier which represents a fairly substantial proportion of the business — 
the A. C. & R., American Cable & Radio. And there is, of course, 
A. T. & T., which represents a very substantial proportion of the in- 
ternational communications, and in neither of the latter two do we 
have any members. 

Senator Butler. Are there any general cables now in use to Ger- 
many, direct cables in use ? 

Mr. Selly. There are no direct cables to Germany. They would 
terminate either in Ireland or the Azores, or some coastal point at a 
cable-landing place. If a cable were destined for Germany or for 
Russia or for anywhere else other than the country in which the 
cable-landing station was located, it would be transmitted from the 
point of reception, from the cable-landing station, via one of the 
several means of communication — via telephone, radiotelegraph, by 
landline telegraph. 

Mr. Morris. Now, your T. and R. men, testing and regulating per- 
sonnel, they have access at all times to all messages going through 
any cable, any time, do they not, Mr. Selly ? 

Mr. Selly. I am not a cable technician, and I 

Mr. Morris. We had a man testify yesterday; he said the wires 
were completely open for testing purposes and for regulating pur- 
poses at any time. 

Mr. Selly. I would accept that as generally a correct statement. 

Mr. Morris. And there are other technicians, too, who have access, 
generally, to the wires and the cables ? 

Mr. Selly. They could have. If their function 

Mr. Morris. If the occasion arises ? 

Mr. Selly. Yes. If the function of their work required that they 
service a particular printer or repeater, they could see the message 
that was being transmitted. 

Mr. Morris. There are other employees who have access to the mes- 
sages before transmittal, people in the office, who help in originating 
the message, who send it on ? 

Mr. Selly. Of course, if you come in a Western Union Telegraph 
office and file a cable, the clerk who takes your message checks it for 
the number of words, in order to tell you what the tariff is. Simply, 
when that message is transmitted from this telegraph office to the 
cable office, if it isn't automatically imperforated and sent to a dis- 
tant point, an operator may receive it and simply check it at this 
occasion, not for the tariff but for the word count, for corrections, 
and so forth. 

Senator Butler. But the T. and R. men also have access to various 
descriptions of coded messages ; do they not ? 

Mr. Selly. I wouldn't think so, I don't know. 

Senator Butler. Don't coded messages go over these tie lines from 
the Department of Defense, Department of State? 

Mr. Selly. I have been told that that is so. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3919 

Senator Butler. They would have access to that, then; wouldn't 
they ? 

Mr. Selly. They would have access to the machinery which is doing 
the transmitting, and if that 

Senator Butler. They have access to the complete system at any 
time, for the purpose of testing or revising; wouldn't they? 

Mr. Selly. Testing, or what? I didn't understand. 

Senator Butler. Testing or regulating it. 

Mr. Selly. Yes, yes ; that would be their function. 

If anything went wrong with the printer in the office operation, 
the T. and K. man would be called by the supervisor or operator. 

Senator Butler. Well, whether or not it went wrong, he would 
have the right to break in on the cable at any time ? 

Mr. Selly. Well, he wouldn't have the right to do that. He would 
have the power to do it, physically ; he would have the opportunity. 
He wouldn't have the right to it. 

Senator Butler. I will not draw such a fine distinction. 

Mr. Selly. Well, the companies would. The point is, if you want 
an accurate description of what a T. and R. man does, he is a trouble- 
shooter. He is called on when a machine breaks down, when there 
is something wrong with a circuit, a line, a piece of equipment, he 
repairs that circuit, line, piece of equipment. 

Mr. Morris. Now, Mr. Selly, there has been testimony before this 
subcommittee that some operators organized by your union have 
been members of the Communist Party. Let me ask you at the outset : 

Are you now a member of the Communist Party ? 

Mr. Selly. I decline to answer that question. 

Senator Butler. What is the basis of your declination? 

Mr. Selly. My constitutional rights under the first and fifth amend- 
ments to the Constitution. 

Senator Butler. Well, the committee will recognize your rights 
under the fifth amendment; we will accept that as a justifiable reason 
for refusing to answer. 

Mr. Morris. Could you tell us, Mr. Selly, whether or not there are 
Communists in the ACA ? 

Mr. Selly. Same answer ; I refuse to answer on the same ground. 

Mr. Morris. We also received testimony that officials in the Ameri- 
can Communications Association have been Communists. 

Can you tell us whether, to your knowledge, there are officers of the 
ACA who have been members of the Communist Party ? 

Mr. Selly. I refuse to answer, on the same ground. 

Mr. Morris. Now, Mr. Selly, do you have — Who is your account- 
ant? 

Mr. Selly. I don't recall his name, I don't recall the name of the 
firm. 

Mr. Morris. How long has that firm been doing your accounting? 

Mr. Selly. I think the present accountant has been employed by 
the union for roughly the last 4 or 5 years. 

Mr. Morris. And you can't tell us who he is ? 

Mr. Selly. I can check with my office and give you the name, but 
I don't know it offhand. 

Mr. Morris. Have you got the authority to make available the 
books and records of your company to the committee ; do you have 
the authority ? 



3920 SCOPE OF SOVIET ACTIVITY IN THE "UNITED STATES 

Mr. Selly. Of my nnion ? 

Mr. Morris. Of your union. 

Mr. Selly. No ; I don't have the authority, without authorization 
by the international executive board of the union. 

Senator Butler. Mr. Selly, would you be amenable to the produc- 
tion of those records, or requesting the board to release those records 
for the purposes of this subcommittee ? 

Mr. Selly. I would like to consider that question with my col- 
leagues. I should mention that my union, long before it was a legal 
requirement, as a matter of fact, the constitution of my union re- 
quired — and this was many, many years before there was any legal 
requirement — that we publish regularly in our journal, which is 
available to all members, a regular audited financial statement, and 
we have done that since the inception of this union. 

In addition, of course, we file the required financial statement with 
the Department of Labor. 

Senator Butler. Well, of course, they are not open to public in- 
spection, as you know. 

Mr. Selly. My newspaper is available. 

Senator Btjtler. As a matter of fact, they have been denied con- 
gressional committees; have they not? 

Mr. Selly. I don't know. 

Senator Butler. Well, I can tell you that they have. 

Now, also, there may be other matters that we would be interested 
in. You published this newspaper; we may want to know who the 
subscribers are, and to whom you send this newspaper. 

Would you be willing to submit a list of the persons to whom this 
paper is sent? 

Mr. Selly. There are several problems involved in that, and I will 
consult with my international executive board, but I want to mention 
what the problems are. 

You are, in effect, asking me to submit a list of my membership, 
because under the constitution, every member of the union receives a 
copy of that newspaper. 

I don't know whether it is appropriate for this committee to ask 
me to supply membership lists. 

Senator Butler. We are also interested in whether or not any 
copies of this paper go to organizations outside the United States. 

Mr. Selly. As I indicated to you in the executive session, I can 
recall of a specific instance where it does. We exchange our news- 
paper, I assume we exchange it, with the paper called the Australian 
Telegraphist. I assume it, because in the recent issue of that paper I 
saw a quote from our newspaper. 

Senator Butler. Would you also exchange it with some of the 
unions in Red China ? 

Mr. Selly. You say, "Do we?" 

Senator Mutler. I say, "Would you ?" 

Mr. Selly. I don't know; the occasion hasn't arisen for us to make 
that judgment. 

Senator Butler. In other words, it is your testimony that the paper 
does not now go to any union or organization or person in Red China? 

Mr. Selly. I don't know what the answer to that is. I would have 
to consult the records. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3921 

Senator Butler. Would you let us know later, for the record, 
whether or not such contact was made through this newspaper, or 
otherwise, by your union ? 

Mr. Sellt. I will, as you suggested in executive session, consult 
with the members of the international executive board to determine 
whether or not, in their judgment, this is appropriate to submit the 
list to you. 

Senator Butler. Yes. 

Mr. Sellt. I assume now you would limit the list to outside re- 
ceivers and not members of the union ; is that correct ? 

Senator Butler. Well, that would be satisfactory. 

Now, I see here in your international general fund, January 1- 
December 31, 1956, ACA News, the total subscription is $9. 

Don't the members pay for the newspaper ? 

Mr. Selly. No ; it is included in their dues. 

Senator Butler. Who would pay for it ? 

Mr. Selly. The Senate, the House, the Library of Congress, almost 
every university in the country that asks for it, and most of them do. 

In many cases we exchange newspapers with universities, or with 
others. In some, they pay a nominal subscription, I don't know 
what it is. 

Mr. Morris. How extensive is the distribution of the ACA News 
to universities? 

Mr. Selly. To universities ? 

Senator Butler. I would say, from the standpoint of the $9 total 
subscriptions, that it is not very substantial. 

Mr. Selly. I think we are rather generous in connection with uni- 
versities, and in many cases we don't collect. I think it is pretty 
substantial. All of the major universities, I think, get the paper. 

Mr. Morris. How about Government agencies ? 

Mr. Selly. My impression is that any Government agency that ever 
asked for it, gets it. We send it to those who are interested, they get it. 

The members of the Federal Communications Commission some- 
times perhaps wish they didn't get it. We send it to any Government 
agency which expresses interest in it. 

If you would like to be put on the mailing list, we would be happy 
to put you on the mailing list and maybe get a buck from you. 

Senator Butler. How frequently is the paper published ? 

Mr. Selly. Once a month — with the exception of 1 month in the 
summer, when it is not published. 

Senator Butler. It has an advertised price of 10 cents a copy, and 
I assume that an annual subscription would be a lesser amount than 
12 times 10 cents ? 

Mr. Selly. Well, you wouldn't get hurt too much if you got on the 
mailing list. 

Mr. Morris. Has the American Communications Association ever 
contributed to any organization which was controlled by the Com- 
munist Party ; specifically, let me ask about the Civil Rights Congress ? 

Mr. Selly. I would refuse to answer on the same grounds cited 
previously. 

Mr. Morris. That would be true in regard to any other organiza- 
tions similarly described to you \ 

Mr. Selly. Yes. 



3922 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Butler. In other words, as to those questions, you take the 
protection of the fifth amendment ? 

Mr. Selly. I do. The first and the fifth, which I regret to say you 
don't recognize, but I am going to try to convince you that the first is 
as valid as the fifth. 

Mr. Morris. Senator, I have no more questions of this witness. 

Senator Butler. Thank you, Mr. Selly. 

Mr. Morris. Will you have the editor of the ACA News come next ? 

Mr. Rabinowitz. Yes. 

Mr. Morris. Will you be sworn, Mr. Silberman ? 

Senator Butler. Mr. Silberman, will you hold up your right hand. 

Do you solemnly swear the testimony you are about to give will be 
the truth, the whole truth, and nothing but the truth, so help you God ? 

Mr. Silberman. I do. 

TESTIMONY OF CHARLES L. SILBERMAN, NEW YORK, N. Y. 

Mr. Morris. Will you give your full name and address to the 
reporter ? 

Mr. Silberman. Yes. My name is Charles L. Silberman. I am 
editor of the American Communications Association ; address, 5 Beek- 
man Street, New York City. 

Mr. Morris. That is S-i-1-b-e-r 

Mr. Silberman. "B"; "b" for "boy." 

Mr. Morris (continuing). M-a-n. 

You say you are the editor of the ACA News ? 

Mr. Silberman. Yes. 

Mr. Morris. Will you give us the circulation of the ACA News ? 

Mr. Silberman. I don't know exactly. I think it is between eight 
and ten thousand, somewhere. 

Mr. Morris. Now, you heard the testimony of Mr. Selly to the 
effect that he was going to make an effort to find out what your over- 
seas distribution was ? 

Mr. Silberman. Yes. 

Mr. Morris. And can you tell us anything more about the distribu- 
tion of the ACA News to Government agencies and universities, 
libraries ? 

Mr. Silberman. Well, no ; I think that Mr. Selly pretty much cov- 
ered it. He described our policy as a generous one. I think it is just 
that. 

We get a request from a university; in some cases the university 
has — they send us a bill, in which case we will send them a bill, and, 
by the way, the bill is one buck, $1 for a year's subscription. In other 
cases they may ask for it on an exchange basis, and we will work that 
out. 

In other cases they just ask for it, and in which case they get it 
without getting billed. 

Mr. Morris. What is the general policy of your paper, Mr. Silber- 
man? 

Mr. Silberman. That is a very large — it's a huge question. 

Mr. Morris. I realize that. 

Mr. Silberman. The policy that the paper follows is the policy 
of the organization, the American Communications Association, which 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3923 

is adopted by convention actiton, referendum, whatever the forms are 
that are set out in the constitution of the union. 

The job of the paper is to reflect those policies as best I can make 
them reflect those policies. 

Mr. Morris. Mr. Silberman, are you now a Communist? 

Mr. Silberman. I won't answer that. 

Mr. Morris. Why will you not answer that ? 

Mr. Silberman. I won't answer it because I am not required to an- 
swer it under the first amendment of the Constitution, and under the 
fifth amendment of the Constitution. 

Senator Butler. Mr. Silberman, do you believe that an honest and 
true answer to that question would tend to incriminate you ? 

Mr. Silberman. I believe, in the first place, that under the first 
amendment what I believe in and what I am is my business and not 
the business of this committee. That is, under the fifth amend- 
ment 

Senator Butler. Even though you may be a member of the conspir- 
acy whose sole purpose is to destroy the Government of the United 
States by force and violence ? 

Mr. Silberman. I believe that what I believe is strictly my business, 
and not this committee's business, and that is stipulated in the 

Senator Butler. Do you believe that this country should be over- 
thrown by force and violence by an international conspiracy ; is that 
what you believe ? 

Mr. Silberman. Well, as I understand it, there is a considerable 
body of criminal law which would take care of this kind of ques- 
tion, and I imagine 

Senator Butler. I am not interested in the criminal law. I asked 
you the plain and simple question : Do you believe that it is your 
business and not the business of the Senate of the United States or 
any agency of the Government, that you believe in a conspiracy that 
is dedicated to overthrowing the Government of the United States 
through force and violence ? 

Mr. Silberman. If there is any violation, if I am involved in any 
violation of the criminal law — I imagine that would be the business 
of the 

Senator Butler. That goes to the point that I am asking you. 
Would an honest answer to the question 

Mr. Silberman. I am trying to give you a straight and honest 
answer. 

Senator Butler. That we have asked you subject you to prosecu- 
tion under the criminal law ? That is just the question we are asking 
you. 

Mr. Silberman. Well, I don't know. 

Senator Butler. Is it your honest belief that it would ? 

Mr. Silberman. If you are asking me the question which goes to 
the fifth amendment 

Senator Butler. That is the question I am asking you. 

Mr. Silberman. Would you reformulate it, sir, so* I know exactly 
what I am answering? 

Senator Butler. What I am asking you : Do you believe that an 
honest answer to the questions just asked you by the chief counsel of 
the Internal Security Subcommittee would tend to incriminate you ? 



3924 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Silberman. I believe that under the fifth amendment I am not 
required to give testimony against myself ; I am not required to give 
answers which might lead to any unjustified prosecution of me. 

Senator Butler. Well, let's don't talk about 

Mr. Silberman. That's pretty clear. 

Senator Butler. A prosecution of you. 

Mr. Silberman. I think the language of the 

Senator Butler. All right, That's enough. 

Mr. Morris. Mr. Chairman, I would like to point out there is evi- 
dence in the record of the Internal Security Subcommittee of a wit- 
ness who w T as a Communist — at least one witness — that the witness 
today has been a member of the Communist Party. The subcommit- 
tee, having that evidence, recognizes that this witness is competent 
to testify , fe if he will, to the nature of the particular Communist 
group that he was in, and he is in a position to give us the identifica- 
tion of all people who were in that particular group. 

Now, Senator, it is our obligation to find out the extent of the 
Communist strength in the United States. Specifically, in this par- 
ticular inquiry, we are trying to find out the extent and strength of 
the Communist Party in labor unions. If this man would identify 
the people whom he has worked with in the past, we would be able 
to proceed from there and give the Senate a full answer with respect 
to Communist strength as it now exists in the labor union, with what- 
ever bearing it may have on this hearing. 

Senator Butler. You have heard the remarks of counsel. Would 
you be willing, under proper examination, to disclose the persons 
whom you know, if there are any such, who worked with you or with 
any persons that you know in connection with the Communist Party 
or its activities? 

Mr. Silberman. Senator, I didn't get the first phrase. You said 
something about counsel ? 

Senator Butler. The first phrase was : Would you be willing to 
answer questions propounded to you by the counsel of this subcom- 
mittee in connection with your associations with Communists or 
persons engaged in the conspiracy, the Communist conspiracy? 

Mr. Silberman. You are really not asking a specific question. If 
you will ask me the questions, I will determine what I am going to do. 

Senator Butler. Counsel will ask you. 

Mr. Morris. Have you been a member of a Communist unit? 

Mr. Silberman. I refuse to answer that question. 

Mr. Morris. Have you attended Communist Party meetings with 
people in the communications field? 

Mr. Silberman. I won't answer that one. 

Mr. Morris. Have you attended Communist Party meetings with 
members who are now officials in the American Communications 
Association ? 

Mr. Silberman. I am not going to answer that one. 

Mr. Morris. We are not trying to find out what your present status 
is. The point is, you come before us, according to our testimony, a 
witness who was competent to testify to the extent of Communist 
strength in the United States, and specifically in the labor unions, and 
that is why we asked those questions. 

Mr. Silberman. You have asked them and I have refused. 

Senator Butler. Are you an officer of this union ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3925 
Mr. SlLBERMAN. No. 

Mr. Morris. Senator, I have no more questions. 

Senator Butler. No further questions. 

Mr. Morris. Will you have Mr. Siebenberg take the stand? 

Senator Butler. Mr. Siebenberg, do you swear the testimony you 
are about to give is the truth, the whole truth, and nothing but the 
truth, so help you God? 

Mr. Siebenberg. I do. 

TESTIMONY OF LOUIS SIEBENBERG, NEW YORK, N. Y. 

Mr. Morris. Will give your full name and address to the reporter? 

Mr. Siebenberg. Louis Siebenberg, S-i-e-b-e-n-b-e-r-g; my office ad- 
dress is GO Leonard Street, New York City. 

Mr. Morris. And what is your business or profession ? 

Mr. Siebenberg. I am an officer of Local 40, American Communica- 
tions Association. 

Mr. Morris. You are the president? 

Mr. Siebenberg. I am chairman of the local. It is the equivalent 
of the presidency of the local. 

Mr. Morris. Now, how many workers are there in your local ? 

Mr. Siebenberg. Approximately 5,000. 

Mr. Morris. Will you tell us the general jurisdiction of your local? 

Mr. SiEr.ENBERG. My local is the bargaining agent for the employees 
of the Western Union Telegraph Co. in the metropolitan division; 
that is, the area in the metropolitan New York. We are also the 
bargaining agent for a group of cafeteria workers who work in the 
cafeteria in the Western Union Building in New York City, 60 Hud- 
son Street. We are the bargaining agent for a group of workers for 
the Teleregister Corp., in Stamford, Conn., New York City, and a few 
scattered throughout the country. 

Mr. Morris. You said the membership amounts to about 5,000 ? 

Mr. Siebenberg. That's right. 

Mr. Morris. And the whole membership of the international or- 
ganization being 8,000, your particular local has the bulk of it? 

Mr. Siebenberg. That is correct. 

Mr. Morris. Senator Butler said about five-eighths ? 

Mr. Siebenberg. I think that's about right. 

Mr. Morris. Now, Mr. Siebenberg, we have received testimony from 
a witness under oath that you have been a member of the Commnist 
Party. Have you been a member of the Communist Party % 

Mr. Siebenberg. I decline to answer that question, using my rights 
under the fifth amendment. 

Mr. Morris. Are you now T a Communist ? 

Mr. Siebenberg. I refuse to answer that question. 

Mr. Morris. Are you a member of the international board, the 
executive board of the international? 

Mr. Siebenberg. I am. 

Mr. Morris. To your knowledge, are persons on that executive 
board of the international union members of the Communist Party? 

Mr. Siebenberg. I decline to answer that question, using the same 
grounds. 

Mr. Morris. Due to the witness' responses, I have no more ques- 
tions. 



3926 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Butler. To your knowledge, is there any person who is a 
member of the Communist Party who has access to the international 
cables of RCA and Western Union ? 

Mr. Siebenberg. I decline to answer that question, Senator. 

Senator Butler. What is the basis for your declination ? 

Mr. Siebenberg. My rights under the fifth amendment. 

Senator Butler. Would the answer to that question tend to incrim- 
inate you ? 

Mr. Siebenberg. It might, sir. 

Senator Butler. I have no further questions. 

Mr. Siebenberg. All right. Thank you. 

Mr. Morris. The next witness is Mrs. Bollinger. 

Senator, the following three witnesses are employees of the 

Senator Butler. In the interests of time, if the witnesses are all 
here, we will swear them all at once. 

Are these the only three remaining witnesses ? 

Mr. Morris. These are the three remaining witnesses. 

Senator Butler. Do you, and each of you, swear the testimony 
you are about to give is the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mrs. Bollinger. I do. 

Mr. Lagos. I do. 

Mrs. Lagos. I do. 

Senator Butler. The witnesses are sworn. 

TESTIMONY OP MRS. RUTH BOLLINGER, NEW YORK, N. Y. 

Mr. Morris. Mrs. Bollinger, will you give your full name and ad- 
dress to the reporter ? 

Mrs. Bollinger. Mrs. Ruth Bollinger. 

Mr. Morris. Mrs. Ruth Bollinger ? 

Mrs. Bollinger. That's right. 

Mr. Morris. Would you spell Bollinger, please ? 

Mrs. Bollinger. B-o-l-l-i-n-g-e-r. My address is 157 East 89th 
Street, Manhattan. 

Mr. Morris. And what is your business or occupation ? 

Mrs. Bollinger. I am an automatic telegraph operator. I work 
what we call a perforated tape, automatic. 

Mr. Morris. Mrs. Bollinger, you are Mrs. Carl R. Bollinger, are 
you not ? 

Mrs. Bollinger. That is right. 

Mr. Morris. What does Mr. Bollinger do ? 

Mrs. Bollinger. He is an electronic technician. 

Mr. Morris. Where is he employed ? 

Mrs. Bollinger. He is employed in the microwave research section 
of the Polytechnic University in Brooklyn. 

Mr. Morris. The Polytechnic University in Brooklyn ? 

Mrs. Bollinger. That is correct. 

Mr. Morris. What is that ; what is the nature of that work ? 

Mrs. Bollinger. I haven't the faintest idea. 

Mr. Morris. You don't know what your husband does ? 

Mrs. Bollinger. No, aside from the fact that he is an electronic 
technician. He never talks to me about his work. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3927 

Mr. Morris. Does he not talk to you about it because it is classified 
or because it is of no interest to you ? 

Mrs. Bollinger. No ; he does his work, and that's all. We rarely 
discuss it. We have quite a lot of things at home. 

Senator Butler. How long have you been married to your present 
husband ? 
Mrs. Bollinger. My present husband ? Seventeen years. 
Senator Butler. How long has he been engaged in the work he is 
now carrying on ? 

Mrs. Bollinger. Four or five years, I guess, something like that. I 
wouldn't know exactly. 

Senator Butler. And he never told you the nature of his work for 
4 or 5 years ? 

Mrs. Bollinger. I don't know, it's technical work ; I have no tech- 
nical education ; I have no formal education of any kind which would 
make it interesting for him to discuss that sort of thing with me. 

Mr. Morris. Will you tell us what your job is, Mrs. Bollinger? 

Mrs. Bollinger. Yes. I am an automatic telegraph operator. I 
work one of the heavy circuits there ; I think I told you in the executive 
session that we handle between 60 and 80 messages an hour. Most of 
them are meatpacking messages, business messages; I guess about a 
full 80 percent are business messages. The rest are social messages. 

Mr. Morris. In other words, the messages coming through are 
mostly of a business nature and some are social ? 

Mrs. Bollinger. Oh, yes, yes, almost all of them, except for a few 
social messages that you get — somebody died or got married — some- 
thing of that sort. 

Mr. Morris. Are any of these destined for overseas, or any come 
from overseas ? 

Mrs. Bollinger. Oh, yes; of course. They are all — they must be 
sent through, because the Western Union landlines is the one com- 
pany that sends these things through. This is the relay point from 
which they send messages from one company to another. This is 
the landline operation that are sent through to the country. 

Mr. Morris. Now, have you ever lived on Drewsville Road, in 
Brewster, N. Y. ? Did you ever live in Brewster, N. Y. ? 

Mrs. Bollinger. No. 

Mr. Morris. Are you now a member of the Communist Party ? 

Mrs. Bollinger. I must decline to answer that question. I invoke 
the fifth amendment. 

Senator Butler. Have you ever been a member of the party ? 

Mrs. Bollinger. I have to invoke the fifth amendment on that ques- 
tion ; I decline to answer. 

Mr. Morris. Now, have you been a member of the Herman Boetts- 
cher Club 

Mrs. Bollinger. I will have to decline to answer that question on 
the same ground. 

Senator Butler. Are you an officer of your local union ? 

Mrs. Bollinger. I am a member of the executive board of my local, 
representing the division in which I now work. We are elected every 
2 years ; they conduct elections through nominating committees, and 
then after that there is a referendum vote and each section generally 
has a member on the board, represented on the board, maybe more- 



3928 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Butler. How long have you been your section representa- 
tive? 

Mrs. Bollinger. Oh, only about a year, I guess; since this last 
election. 

Senator Butler. Who did you succeed ? 

Mrs. Bollinger. I didn't succeed anyone. 

Senator Butler. You had no representation prior to your election? 

Mrs. Bollinger. Well, they have, it is a combined — I don't know — 
how to explain it, how it works — well, each, the union, just like the 
companies, is divided into certain divisions. In the traffic division, 
now, the traffic division will have a certan number of representatves 
on the executive board, depending upon the number of people who 
work in that particular division. 

Senator Butler. Did they add a new member when they put you 
on, or did you take somebody's place ? 

Mrs. Bollinger. Let me see how that worked. I think — this is a 
small area — up until now we had all the other people representing 
this section, just the same. 

Senator Butler. You mean, New York is a small area ? 

Mrs. Bollinger. No, no; I don't represent New York. Let's put 
it this way : 

I am one of the officers elected to represent the traffic division, 
wherever it is. 

Senator Butler. I am interested to know who was your predecessor 
in that office. 

Mrs. Bollinger. Every 2 years we have — I don't know 

Senator Butler. An election, and somebody is elected. 

Mrs. Bollinger. And there are 5 or 6 people elected, and that's 
all there is to it, in the whole division. 

Senator Butler. And they can't elect anybody else ? You have been 
there for about 1 year, and they add 

Mrs. Bollinger. The term of office is 2 years. At the end of 2 
years we will have another election, and there will be 5 more people 
elected in this entire division. 

Senator Butler. Will they be different people than the ones elected 
before ? 

Mrs. Bollinger. If the people want it that way, of course. 

Senator Butler. Did you take anybody's place on that board, and 
if so, what was the name of that person? 

Mrs. Bollinger. I don't remember; I can't possibly tell you. 

Mr. Selly. Shall we clarify this? 

Senator Butler. I think it is clear. 

Mr. Selly. It isn't clear. 

The traffic division, so called traffic division, is a comparatively 
large division in the overall group that she is talking about. That 
group is entitled to X number of representatives. I don't know what 
the number is; it may be 5 or 6, or whatever it is. She was elected 
one of the 5 or 6 at large. That doesn't mean she represents specifically 
the workers at her job location; it is 5 or 6 out of the whole traffic 
department, which covers many physical areas. 

So the most she could tell you, it is not avIio she replaced, but 
who the 5 or 6 predecessors or representatives from the traffic de- 
partment were. She didn't recognize any particular individual. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3929 

Four or five — whatever it was — were elected at large from various 
locations. 

Senator Butler. Is that public information, who those people are, 
from time to time ? 

Mr. Selly. Yes. We publish a list of elected officers of the union. 

Senator Butler. That is what I wanted. 

Mrs. Bollinger. I am sorry, Senator; I didn't understand your 
question. 

Mr. Morris. Have you ever been in Brewster, N. Y. ? 

Mrs. Bollinger. Possibly I passed through there; I don't know. 

Mr. Morris. But you never lived in Brewster for any period of 
time ? 

(Mrs. Bollinger moved head.) 

The Beforter. Would you give me an oral answer, please ? 

Mrs. Bollinger. No. 

Mr. Morris. Have Communist Party meetings ever been held in your 
home ? 

Mrs. Bollinger. I decline to answer that question, on the grounds 
of the fifth amendment. 

Mr. Morris. Senator, I have no more questions of this witness. 

Senator Butler. I have no further questions. 

Next witness. 

Mr. Morris. You have something more to say, Mr. Rabinowitz ? 

Mr. Rabinowitz. No. 

Senator Butler. I would like to ask this question : 

You very emphatically said "No" 

Mr. Rabinowitz. She was talking to the reporter. 

Mrs. Bollinger. He asked me to give a verbal report. I had 
shook my head. 

Mr. Morris. This witness has been sworn. 

TESTIMONY OF FRANK LAGOS, BROOKLYN, N. Y. 

Mr. Morris. Will you give your name and address to the reporter? 

Mr. Lagos. Frank Lagos. 

Mr. Morris. And where do you reside ? 

Mr. Lagos. 136 St. Paul's Place, Brooklyn. 

Mr. Morris. And what is your business and profession ? 

Mr. Lagos. I am a teletype operator, or teleprinter operator, for 
Western Union Telegraph Co. at 60 Hudson Street, New York. 

Mr. Morris. Will you give us a description of what your job is? 

Mr. Lagos. Well, I work in the tie lines section on one floor of the 

Western Union Building, and on that side of the floor I handle the 

tie lines; that is, private wires that are tied into the general communi- 

ations system of Western Union — private companies, like Lentheric, 

textile companies, in the general order of that, private users. 

Mr. Morris. Mostly industrial rather than Government ? 

Mr. Lagos. Mostly industrial rather than Government. 

Mr. Morris. Is there any Government work at all from wires that 
you have access to ? 

Mr. Lagos. Not generally, in my section. There is one wire only, 
the GSA, the General Services Administration wire, and I don't work 
'hat wire. 



3930 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. How long have you worked in this position ? 

Mr. Lagos. Well, I am going into my 30th year. 

Mr. Morris. Generally, have you had the same type of work all 
the time ? 

Mr. Lagos. Yes. 

Mr. Morris. Are you now a member of the Communist Party ? 

Mr. Lagos. I refuse to answer that question on the ground of the 
fifth amendment. 

Mr. Morris. Have you attended Communist Party meetings ? 

Mr. Lagos. I decline to answer, on the same grounds. 

Mr. Morris. I think I have no further questions, Senator. 

Senator Butler. Are you an officer of your local union ? 

Mr. Lagos. I am a member of the executive board. 

Senator Butler. I have no further questions. 

Mr. Morris. I might point out, I think you probably know, the tes- 
timony before the Internal Security Subcommittee is that you have, at 
least in the past, been a member of the Communist Party. Are you 
acquainted with that testimony ? 

Mr. Lagos. I refuse to answer, on the same grounds. 

Mr. Rabinowitz. What is the question? 

Mr. Morris. Do you know that there has been testimony to that 
fact? 

Mr. Lagos. Yes ; a previous report was published, I think. 

Mr. Morris. Was that testimony accurate ? 

Mr. Lagos. I refuse to answer, on the ground of the fifth amendment. 

Mr. Morris. I have no further questions. 

Senator Butler. I have no further questions. 

Mr. Morris. Mrs. Lagos ? 

TESTIMONY OP MRS, LILLIAN LAGOS, BROOKLYN, N. Y. 

Mr. Morris. Will you give your name and address to the reporter, 
please ? 

Mrs. Lagos. Mrs. Lilliam Lagos, 136 St. Paul's Place, Brooklyn. 

Mr. Morris. And what is your business ? 

Mrs. Lagos. I am a teletype operator at Western Union. 

Mr. Morris. How long have you been a teletype operator ? 

Mrs. Lagos. About 28 years. 

Mr. Morris. Will you give us a general description of what a tele- 
type operator, such as you, does ? 

Mrs. Lagos. Yes. For a quite a few years I have worked around 
the area of wires that were dress wires, jewelry wires, and just recently 
I have acquired the skill of working on this new switching-tape 
system, and that is all Brooklyn wires. 

Mr. Morris. What is the nature of the wires in the instance you 
work on them ? 

Mrs. Lagos. Mostly business. 

Mr. Morris. Business messages? 

Mrs. Lagos. Yes. 

Mr. Morris. Any Government transactions at all ? 

Mrs. Lagos. There may be some, but I don't recall the members, 
because the tape comes in so fast that all we are interested in is finding 
the destination of where the message is to go to, mark the destination, 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3931 

and switch it through. We couldn't even see the text of the message 
at all ; it's all over the floor — it's that fast. 

Mr. Morris. But you could see it if you wanted to, if you had a 
particular interest ? 

Mrs. Lagos. I suppose so. 

Senator Butler. It is perfectly visible ; it is right there before your 
eyes, if you wanted to see it ? 

Mrs. Lagos. Yes, sir; it is in print, but I have worked on those 
Brooklyn wires before, and I know that most of them are business 
wires. They have been transferred over. 

Mr. Morris. Are you a Communist, Mrs. Lagos ? 

Mrs. Lagos. I decline to answer that, under the fifth amendment. 

Mr. Morris. Have you attended Communist Party meetings in the 
past? 

Mrs. Lagos. I decline to answer, for the same reason. 

Mr. Morris. Are you aware at the present time there is testimony 
before the Internal Security Subcommittee that you had, in fact, 
attended Communist Party meetings ? 

Mrs. Lagos. I read the pamphlet; yes. 

Mr. Morris. Was the testimony true ? 

Mrs. Lagos. I decline to answer, under the fifth amendment. 

Senator Butler. Are you a member of the official family of the 
union ? 

Mrs. Lagos. I wouldn't say I am an official member. I am a shop 
steward ; I don't know whether you would call that official. 

Senator Butler. Is that post held by an officer of the union? 

Mrs. Lagos. No, no. I am elected by the people. I have been 
elected, so I am not, I am not connected with the union in any official 
capacity. 

Mr. Morris. Are you related to Mr. Kehoe, one of the officials? 

Mrs. Lagos. Yes ; Mr. Kehoe is my brother-in-law. 

Mr. Morris. How is he related to you ? 

Mrs. Lagos. Well, my husband's sister is married to Mr. Kehoe. 

Senator Butler. No further questions. 

Mr. Morris. One other thing, Counsel. Mr. Kehoe did not testify 
here today, and your stipulation, now that the hearing is over, states 
his position? 

Mr. Rabinowitz. That is right. 

Mr. Morris. Senator, we had expected to have here today, in addi- 
tion to the 4 officials of the ACA scheduled to testify here on Tuesday, 
that hearing was deferred for the reason of Mr. Rabinowitz' request, 
and we had all 4 witnesses here today. That is why we had so many. 
Originally, we had asked Mr. Louis Goldblatt, secretary-treasurer of 
the ILWU, to testify. We have stipulated with that organization 
that he will appear here after the 1st of June, Senator. They are 
having negotiations on the west coast, and we deferred that, at his 
request. 

The other witness subpenaed today was Mr. Paul Boatin, who was 
the head of the Dearborn engine unit of the Ford local, of the United 
Auto Workers. At his request, we have given him an extension of 
time, and it may be, Senator, that he will testify here on Tuesday. 

There are other witnesses scheduled here for Tuesday. 

Senator Butler. Then the hearings will be recessed, subject to the 
call of the Chair. 



3932 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

(Whereupon, at 11 : 55 a. m., the subcommittee adjourned, subject 
to the call of the Chair.) 

(The following press release from the Western Union Telegraph 
Co., relative to testimony received by the subcommittee at the above 
hearing, was later received and ordered into the record :) 

[From the Western Union Telegraph Co. — for immediate release] 

May 9, 1957. 

Immediate suspension of three New York telegraph employees, who invoked the 
fifth amendment and refused to testify concerning alleged Communist Party 
membership before the Senate Internal Security Subcommittee at Washington, 
D. C, today, May 9, was announced by J. L. Wilcox, Western Union vice 
president. 

Mr. Wilcox's notice to Mrs. Ruth Bollinger, of 157 East 89th Street, New York 
City, and Frank Lagos and Mrs. Lillian Lagos, of 136 St. Pauls Place, Brooklyn, 
follows : 

"This company is gravely concerned in the protection of its service, facilities, 
and equipment and with safely discharging its responsibility to our Government 
and patrons in safeguarding the secrecy of communications entrusted to our 
care. 

"Today, you refused to testify before the Senate Internal Security Subcom- 
mittee concerning Communist affiliations. Effective immediately, you are sus- 
pended from the active rolls of the company with pay. 

"You may become eligible for reinstatement if. prior to June 15, 1957, you 
appear before the Senate Internal Security Subcommittee and fully answer 
under oath all questions pertaining to Communist affiliations and, in addition, 
if in the course of such testimony you do not admit being a Communist. You 
may also become eligible for reinstatement if, prior to June 15, you obtain from 
an accredited security agency of the United States a certificate or statement 
clearing you of being a Communist. 

"If you fail to qualify for reinstatement, you will be discharged at the end of 
such suspension period." 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance 
to the mere fact of the appearance of the name of an individual or an organiza- 
tion in this index. 

A 

Page 

ACA News 3901, 3921, 3922 

American Gable & Radio (A. C. & R.) 3918 

American Communications Association (ACA) 3901, 

3902, 3904, 3906-3909, 3911, 3913, 3916, 3919, 3922, 3925 

Elections 3905 

Applegate, Robert L. : 

Testimony of 3900-3902 

2916 Argyle Drive, Alexandria, Va 3900 

Staff Director of Industrial Security Programs Division, Office of Per- 
sonnel Security Policy, Assistant Secretary of Defense for Man- 
power Personnel Reserve in OSD 3900 

Association of Western Union Employees 3909 

A. T. & T 3918 

Attorney General 3910 

Australian Telegraphist (newspaper) 3920 

Azores 3918 



Boatin, Paul 3031 

Bollinger, Ruth (Mrs. Carl R.) 3932- 

Testimony of 3926-3929 

157 East 89th Street, Manhattan . 3926 

Automatic telegraph operator 3926 

Fifth amendment if member of Communist Party 3927 

Fifth amendment if member of Herman Boettseher Club 3927 

Boettscher, Herman 3927 

Brewster. X. T 3929 

Brucker, Wilber M 3900 

Butler, Senator John Marshall 3915 

C 

CAA circuits 3903 

CIO _ 3909 

Civil Rights Congress 3921 

Commercial Telegraphers Union (GTU) 3905,3907 

Communist/s 3901, 3904, 3910, 3911, 3912, 3915, 3919, 3923, 3924,' 3931 

Communist Control Act of 1954 3910 3911 

Communist Party— 3901, 3909, 3910, 3912, 3913, 3919, 3921, 3924-3927, 3929-3932 

D 

Defense Department 3900, 3901, 3904, 3912, 3915, 3917, 3918 

Defense Facilities Protection Act 3900 

F 

Federal Communications Commission 3921 

Fifth amendment 3919, 3922, 3923, 3925-3927, 3929-3932 

First amendment 3919, 3922, 3923, 3924 

French Cables 3916, 3918 



II INDEX 

G 

Page 

General Services Administration wire 3929 

Germany 3918 

H 

Hageman, E. L 3899 

Testimony of — 3905-3913 

4205 Fourth Street, South, Arlington, Va 3905 

National president of Western Union division, Commercial Telegra- 
phers Union, AFL-CIO 3905 

Herman Boettscher Club — 3927 

Hruska, Senator Roman L 3899 



Ireland. 



3918 



J 

Jenner, Senator William E 3902 

Justice Department — 3911 

K 
Kehoe, Joseph, secretary-treasurer of ACA 3901,3915,3931 

L 

Labor Department 3920 

Lagos, Frank  — 3932 

Testimony of 3929-3930 

136 St. Paul's Place, Brooklyn 3929 

Teleprinter operator for Western Union Telegraph Co., N. Y 3929 

Fifth amendment if member of Communist Party 3930 

Lagos, Lillian : 

Testimony of 3930-3932 

136 St. Paid's Place, Brooklyn — 3930 

Teletype operator at Western Union 3930 

Fifth amendment if Communist - 3931 

Sister-in-law to Mr. Kehoe 3931 

Lenahan, Joseph J.: ^^ ^^ 

Testimony of 3902-3904 

Technician (wire chief) for Western Union Telegraph Co. for past 

40 years 3902 

President of Telegraphers Union, Local No. 146 3902 

M 

Mandel, Benjamin 3899, 3915 

Morris, Robert . 3899, 3915 

N 
NLR B_ 3905, 3907, 3909, 3910 

New York 3901-3903, 3906, 3909, 3911, 3916, 3925 

Philadelphia 3902, 3916 

Polytechnic University in Brooklyn 3926 

Press release of Western Union Telegraph Co., dated May 9, 1957, re sus- 
pension of Ruth Bollinger, Frank and Lillian Lagos 3932 

R 

Rabinowitz, Mr 3915, 3929, 3931 

RCA Communications 3901, 3902, 3905, 3908, 3916, 3918, 3926 

Red China 3920 

Rusher, William — 3899, 3915 



INDEX ITT 

S 

Page 

S'ACB 3910 

Schroeder, Frank 3899, 3915 

Selly, Joseph P. : 

Testimony of 3916-3922 

3021 Edwin Avenue, Fort Lee, N. J 3916 

President of ACA since approximately 1940 3916 

Fifth amendment if member of Communist Party 3919 

Senate Labor Committee 3902 

Siebenberg, Louis : 

Testimony of 3925-3926 

66 Leonard Street, New York City 3925 

Officer of Local 40, ACA 3925 

Fifth amendment if member of Communist Party 3925 

Silberman, Charles L. : 

Testimony of 3922-3925 

5 Beekman Street, New York City 3922 

Editor of ACA News 3922 

Fifth amendment if Communist 3922 

Soviet Union 3911, 3912 

State Department 3917, 3918 

Stempler, Jack L., Assistant General Counsel for Defense Department 3912 

T 

Taft-Hartley 3910 

Teleregister Corp 3916, 3925 

U 

United States 3900, 3912, 3923 

United States Air Force circuits 3903 

United States Army circuits 3903 

United States Coast Guard circuits 3903 

W 

Wagner Act : 3909 

Western Union ____ 3901,3903,3905,3906,3911,3926 

Western Union Cable Co 3902,3916,3918 

Western Union Landline Co 3916,3927 

Western Union Telegraph Co 3902,3908,3909,3916,3918,3925,3929,3932 

Press release of 3932 

Wilcox, J. L., Western Union vice president 3932 

o 



\>w»i ; v^rw / 



f s ,~ , , 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARINGS 



BEFORE THE 



SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OF THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIAEY 
UNITED STATES SENATE 

EIGHTY-FIFTH CONGRESS 

FIRST SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



MAY 13 AND AUGUST 22, 1957 



PART 61 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
93215 WASHINGTON : 1957 



Boston Public Library 
Superintendent of Documents 

NOV 18 1957 



COMMITTEE ON THE JUDICIARY 

JAMES O. EASTLAND, Mississippi, Chairman 

ESTES KEPAUVER, Tennessee ALEXANDER WILEY, Wisconsin 

OLIN D. JOHNSTON, South Carolina WILLIAM LANGER, North Dakota 

THOMAS C. HENNINGS, Jr., Missouri WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

JOSEPH C. OMAHONEY, Wyoming EVERETT McKINLEY DIRKSEN, Illinois 

MATTHEW M. NEELY, West Virginia JOHN MARSHALL BUTLER, Maryland 

SAM J. ERVIN, Jr., North Carolina ROMAN L. HRUSKA, Nebraska 



Subcommittee To Investigate the Administration of the Internal Security 
Act and Other Internal Security Laws 

JAMES O. EASTLAND, Mississippi, Chairman 
OLIN D. JOHNSTON, South Carolina WILLIAM E. JENNER, Indiana 

JOHN L. McCLELLAN, Arkansas ARTHUR V. WATKINS, Utah 

SAM J. ERVIN, Jr., North Carolina JOHN MARSHALL BUTLER, Maryland 

MATTHEW M. NEELY, West Virginia ROMAN L. HRUSKA, Nebraska 

Robert Mokeis, Chief Counsel 

J. G. Sourwinb, Associate Counsel 

William A. Rusher, Associate Counsel 

Benjamin Mandel, Director of Research 

II 



CONTENTS 



Witness : Page 

Ketcham, Frank S 3953 

Marton, Andrew 3934 

in 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



MONDAY, MAY 13, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act 

and Other Internal Security Laws 
of the Committee on the Judiciary, 

Washington, D. 0. 

The subcommittee met, pursuant to call, at 2 : 40 p. m., in room 424, 
Senate Office Building, Senator Roman L. Hruska presiding. 

Also present : Robert Morris, chief counsel ; William Rusher, asso- 
ciate counsel, and Benjamin Mandel, research director. 

Senator Hruska. The committee will come to order. 

Mr. Morris. Senator, before proceeding with the witness for today, 
I would like to offer for the record two charts about the Chinese Com- 
munists on the mainland, published by the Asian People's Anti-Com- 
munist League, Republic of China, the years 1955 and 1956. 

These have been transmitted by Ku Cheng-Kang who is chairman 
of the Asian People's Anti-Communist League, who was here on Fri- 
day and he met with at least one member of the subcommittee and 
with the staff and presented this, among other documents, in connec- 
tion with the hearings that we have on the general nature of the 
Chinese Communist organization and its effects upon the United 
States. 

I feel that I would like to offer these for the record, Mr. Chairman, 
and may they be printed as part of the official record together with a 
letter of transmittal. 

Senator Hruska. The charts will be received, together with the 
letter of transmittal. 

(The material referred to was printed separately under the title 
"Nature of Communism in Occupied China.") 

Mr. Morris. Senator Hruska, we have here today Mr. Andrew 
Marton who was the Associated Press reporter in Budapest at the 
time of the Hungarian revolution. 

As you know, Senator, the Internal Security Subcommittee has 
been holding a series of hearings since last October on the nature of 
the Hungarian revolution with a view toward trying to determine 
the effect that that particular historic development may have had 
upon the Communist parties of the United States and the rest of the 
world. 

I think, Senator, that Mr. Marton will be, probably, almost the last 
witness we will have now in the series and the recommendation was 
made by the staff that we will now be able to proceed and write a 
report as a result of all this after the testimony of Mr. Marton. 

3933 



3934 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Senator Hruska. Very well. 

Mr. Morris. Mr. Marton, will you stand to be sworn, please? 

Senator Hruska. Do you solemnly swear that the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mr. Marton. I solemnly swear that the testimony I am about to 
give will be the truth, the whole truth, and nothing but the truth, so 
help me God. 

Mr. Morris. Will you give your full name and address to the steno- 
type reporter ? 

TESTIMONY OF ANDREW MARTON, WASHINGTON, D. C. 

Mr. Marton. My name is Andrew Marton and my present address 
is 2224 F Street NW., Washington. 

Mr. Morris. And what is your business or profession ? 

Mr. Marton. I am a newspaperman. I was staff reporter of the 
Associated Press for the last 10 years in Budapest between 1947 and 
1957. After that I was assigned to the Vienna Bureau of the AP 
in January and February and now last month I am assigned to the 
Washington bureau of the AP. 

Mr. Morris. Mr. Marton, for this reporting you have gotten the 
Polk award, have you not, for reporting ? 

Mr. Marton. I got the George Polk award from Long Island Uni- 
versity and I got the presidential award of the Overseas Press Club 
and a third award for my reporting on the Hungarian revolution. 
Actually, the first award, the George Polk award, I got jointly with 
my wife. 

Mr. Morris. I see. Who is your wife? 

Mr. Marton. My wife is Dr. Ilona Nyilas, and she was a staff re- 
porter of the United Press in Budapest from 1949 until 1957. 

Mr. Morris. And she was the UP reporter ? 

Mr. Marton. She was the United Press correspondent. 

Mr. Morris. Senator, Mrs. Marton is available if the committee 
desires to take her testimony ; but at staff level, Senator, we felt, Mr. 
Marton at this time could tell the story for such purposes of the work 
of the subcommittee. 

Mr. Marton, where were you born ? 

Mr. Marton. I was born in Budapest. 

Mr. Morris. And would you tell us something about your education ? 

Mr. Marton. I graduated from the Budapest University of Eco- 
nomics. I got two degrees, the master's and the doctor's degree in 
economics. From Budapest I spent some time all around Europe 
and was a member of the resident group of the Smallholders Party 
which, as you know, has been the majority political party in the 
Hungarian Parliament, the anti-Communist political party after 
World War II. 

Immediately after the war the Smallholders Party published its 
official newspaper and I became the assistant publisher of the paper 
and a columnist. I also joined at the same time the London con- 
servative newspaper, the Daily Telegraph, was the Budapest reporter 
of the Daily Telegraph, and in 1947 I joined the Associated Press and 
2 years later I became a staff reporter of the AP. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3935 

Mr. Morris. That would be 1939. 

Mr. Marton. 1949; in 1947 I joined the AP and in 1949 I became 
a staff reporter. During this time I covered all the major political 
trials in Hungary. 

Mr. Morris. Did you remain a member of the Smallholders Party 
during that period? 

Mr. Marton. I beg your pardon ? 

Mr. Morris. Did you remain a member of the Smallholders Party 
during that period? 

Mr. Marton. I was not a member of any political party. 

Mr. Morris. While you were a reporter. 

Mr. Marton. Yes. 

Mr. Morris. Were you arrested at all by the Hungarian Communist 
regime, Mr. Marton? 

Mr. Marton. When Mr. Rakosi made his rather spectacular come- 
back in 1955, January, some weeks later, in February, I was arrested ; 
4 months later my wife was arrested. 

Mr. Morris. This is after Mr. Rakosi made his, as you say, spectacu- 
lar comeback in the year 1955 ? 

Mr. Marton. I call it a rather spectacular comeback. He ousted 
Imre Nagy. Imre Nagy took over actually on July 1, 1953, and he 
in a most dramatic way proclaimed the "new look" policy in Hungary. 
The same Imre Nagy who is now in exile in Rumania, if not in a 
prison somewhere. 

That was 1953. He made the mistake to tolerate Mr. Rakosi in the 
background and Mr. Rakosi took the first opportunity to oust him. 

As you may remember, Mr. Nagy was purged from the Communist 
Party, accused with writers' deviation and all sorts of things, and 
Mr. Rakosi was firmly back in power. That was early 1955 and simul- 
taneously I was arrested. Four months later my wife was arrested. 

Mr. Morris, And for how long did you stay incarcerated ? 

Mr. Marton. I was "only" 18 months in prison. I was sentenced 
to 13 years imprisonment and later a court of appeals reduced this 
term to 6 years in prison. Then, during the more liberal atmosphere 
of the prerevolution months, in August 1956, I was pardoned and set 
free as so many other political prisoners in Hungary. 1 was accused 
openly with having been the master spy of the United States of Amer- 
ica. All since 1945, since World War II. 

Mr. Morris. Now, did you subsequently learn from an authoritative 
source or certainly a credible source, the real reason for your arrest? 

Mr. Marton. I did. 

Mr. Morris. At that time, Mr. Marton ? 

Mr. Marton. I did. 

Mr. Morris. What did you learn it to be and to what extent can you 
tell us, having in mind the source of your inf ormation, to be the reason 
for your arrest ? 

Mr. Marton. The theory is the following : 

During the revolution, gates of the secret police in Budapest were 
wide open and I and so many others could get hold of an amazing 
amount of information. So I learned why I, and later my wife, was 
arrested. 

Mr. Morris. In other words, evidence became available during 
the few days that the 



3936 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Marton. Of freedom. 

Mr. Morris. Of freedom. 

Mr. Marton. A certain Colonel Ivanzov 

Mr. Morris. Is that his last name? 

Mr. Marton. I have only one name and that is his name. Colonel 
Ivanzov, who is a colonel of the NKVD, the Russian secret police, 
came in January 1955 from Moscow with specific orders that I should 
be arrested. The reason was that Moscow wanted to stage a show 
trial before the Geneva Summit Conference, a show trial with me as 
defendant No. 1 in the dock, unmask the United States of America 
in the usual way, and specifically to prove how the United States of 
America influenced Imre Nagy in proclaiming the New Look and 
trying to establish, let us call it, a more liberal atmosphere in my 
country. 

Actually, during the 4 months of, let's call it, the first period of my 
arrest, I was convinced that Mr. Nagy was in a neighboring cell some- 
where in the prison because the way I was interrogated and questioned 
every day for many, many hours, I had to assume that he will be 
with me together in the dock. 

Mr. Morris. Now, you were arrested in what month ? 

Mr. Marton. In February 1955. 

Mr. Morris. That was to say, 4 months before the Geneva Con- 
ference. 

Mr. Marton. That was 4 months before the Geneva Conference. 
And may I remind you, Mr. Nagy was forced to retire just 1 week 
before my arrest and purged from the Communist Party sometime 
since spring when I was ordered imprisoned. 

Now, this was the Moscow plan. I think it is pretty obvious why 
they wanted to do it. It would have given Mr. Khrushchev a good 
chance to attack Mr. Eisenhower the first time he met him in Geneva, 
saying, well, look, we are innocent lambs and you have this man 
Marton spying on us in Hungary. 

Now, why this plan was dropped, I do not know, but it was dropped 
and Moscow informed Budapest that we are no more interested in 
Marton and his wife. 

Of course, the Hungarian secret police couldn't just say we are 
sorry; you can go home. They hesitated for months what to do 
with us. I was arrested in February and we were tried in November, 
which is a very unusual thing. May I remind you that Cardinal 
Mindszenty was arrested in December and was tried in February. 

Foreign Secretary Rajk was arrested in May and was tried in 
October. The preparation of my trial and the trial of my wife 
lasted from February to November, which is very unusual, and the 
only reason for that is that they just didn't know what to do with us. 

So, finally we were tried in camera. There was no show trial and, 
as I told you, my wife was sentenced to 6 years and I was sentenced 
to 13 years in prison. 

Then, in 1956, the summer of 1956, when every sign indicated some- 
thing will happen soon, and finally, Mr. Rakosi was ousted the second 
time and I hope the last time, and in July 1956, months later, I was 
freed. I was pardoned. 

Mr. Morris. Now, was there anything that occurred during the 
term of your imprisonment that you feel could be helpful to the United 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3937 

States Senate Internal Security Subcommittee, of the methods of 
operation, the methods of the secret police? 

Mr. Marton. I don't think I can tell you anything new in that re- 
spect. May I refer to a small booklet "written by Arthur Koestler 
who, incidentally, was born in Hungary, Darkness at Noon. It is 
enough to read that. You know everything about the methods, how 
they can break a man even without touching him with a finger. It 
it a fact that after 1953, after Stalin's death, when so called legality 
was restored in Hungary and also in the other satellite countries, 
they don't use physical torture. I had the opportunity to talk with 
dozens of foreign political prisoners during the revolution who were 
freed before or during the revolution and they all confirmed that. 
But there are hundreds of other methods to break a man, especially 
if he has a family, and I had my wife and two children still free. 

So, it is the easiest thing to say, all right, if you don't confess in the 
way we want you to confess, your wife will confess. What can 
you do? 

Mr. Morris. Now, Mr. Marton, you were, therefore, a free man 
when the October uprising occurred ? 

Mr. Marton. I was. 

Mr. Morris. Now, was there anything in particular — you were a 
reporter on the spot at the time. As you know, I think I have called 
to the attention of this witness — he knows something about them — 
that we have held a long series of hearings with many of the people 
who participated in that uprising, and without covering any of that 
ground, I wonder if there is anything you can say about that revolu- 
tion generally, Mr. Marton, that you think would be helpful to the 
United States Senate in understanding the nature of the revolution or 
the course it took. 

Mr. Marton. Yes, sir. Of course, you were kind enough to tell me 
earlier that you have ample evidence and many testimonies. So I 
don't want to repeat the history, because it is already history, of what 
happened there. 

I had the privilege, and it was a privilege, indeed to cover the rev- 
olution for the Associated Press from the very first day until the 
end of it. Now, what I would like to emphasize, which I am afraid 
was not stressed in our reports — our, I mean, the reports of corres- 
pondents over there — how the Russian Empire, the Soviet Union, 
whatever you may call it, was prepared that something will happen. 
May I recall that the Russian tank units the first time arrived in 
Budapest at 4 o'clock in the morning, October 24. 

The revolution itself started with a peaceful demonstration of 
people on Budapest streets between 2 o'clock and 3 o'clock in the 
afternoon, October 23. 

According to all military experts — I am not a soldier, I quote 
them — these tank units arrived in Budapest coming from various 
bases in Hungary. The fact that they arrived at 4 o'clock in the 
morning meant that they were rolling toward the Hungarian capital 
at 2 o'clock in the afternoon, October 23, before anything started in 
Budapest, which again meant that they were alerted the latest at 
noon October 23. 



93215— 57— pt. 61- 



3938 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Anybody who is familiar with army affairs and how they work can 
judge it certainly much better than I do, that they knew something was 
cooking or they were prepared. 

On November 11 or 12 I met two Russian Army officers, young sol- 
diers who spoke some German. They came with those reinforcement 
troops that attacked Budapest the second time, November 4. They 
came from Rumania and Bessarabia and they both told me that their 
troops were alerted on October 21, 2 days before the Hungarian 
revolution got started. 

I consider these facts, because they are facts, rather significant 
without venturing to draw any conclusions. 

Mr. Morris. May I break in there, Mr. Marton, to ask a question % 

Mr. Marton. Yes, sir. 

Mr. Morris. Much evidence has been given to the subcommittee the 
effect of which was that this revolution was more or less spontaneous. 

Mr. Marton. It certainly was. 

Mr. Morris. What you say at first blush might indicate something 
to the contrary. 

Mr. Marton. I don't think it does. x\nyone who witnessed events 
in Hungary before the revolution, I would say, since May, June, I, 
myself could witness it only since August when I was released from 
prison, but I was briefed, when I was released, by my wife and many 
friends. 

So, anyone who witnessed the events which were properly reported 
by many newspapers and the Petoefi Circle 

Mr. Morris. Just describe for the record what that was. 

Mr. Marton. The Petoefi Circle was sort of a club of young intellec- 
tuals, university students, writers, journalists in Hungary. In fact, 
those elements who sparked the Hungarian revolution. 

This was going on since the spring of 1956, and when I say that the 
Russians were apparently prepared to intervene, I mean to say only 
that they knew that, to use the expression, something was cooking. 
Something was there. Nobody could foresee that there will be a revo- 
lution but something might happen any minute. That, we all knew. 

Mr. Morris. And for that reason you feel there is not necessarily a 
conflict between the fact that the Soviet 

Mr. Marton. No. 

Mr. Morris. The Soviet seemed to be alerted. 

Mr. Marton. The official version, according to the official version, 
the Russian troops were requested to intervene to assist the Communist 
government of Hungary in subduing the revolution. 

Now, if you will watch carefully this timetable, I think you will 
agree with me that there was simply no Hungarian Government which 
requested anything like that. The Russians came because they were 
an occupying power and because they thought it was in their interests 
to come. They didn't ask for any request to intervene. 

The Russian tanks were rolling between noon and 2 o'clock, October 
23, the time when Prime Minister Hegedes and the Communist Party 
first secretary, Gero, were still on the train coming from Belgrade, as 
you may remember, to Budapest. 

It was practically no possibility for them to ask for Russian inter- 
ference. 

Senator Hruska. From what points did the tanks proceed? 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3939 

Mr. Marton. Various points within Hungary as far as I recall. 
There were about eight bases in Hungary but, as you know, Hungary 
is a small country and the farthest point couldn't be more than 400 
kilometers, which is about 300 miles from Budapest. 

Mr. Morris. Now, Mr. Marton, could you tell us something of the 
present situation in Hungary? 

Mr. Marton. Yes. I had been in Vienna until the 1st of April and 
since I am here, I got several reports from people I trust and these 
reports, of course, do not come through normal channels. They con- 
tained a detailed situation of the present situation in Hungary. 

Now, there is no doubt, I think, that one can say that a handful of 
people — Kadar, the present Premier, and this handful of people who 
are behind him on the one hand, and there are 10 million Hungarians, 
a nation unified apparently as never before in its thousand-year-old 
history, on the other side. 

Now, there is no doubt about it, that all methods of the darkest pe- 
riod of Stalinism in Hungary were restored. These include the 
dreaded method of internment which is arrest without trial. Intern- 
ment camps were reopened all over Hungary and according to these 
informations I got, they are just packed with people. So are the 
prisons. 

They restored the system of what they call banishment of people, 
of unreliable or undesirable elements, which means deportation to 
the countryside. All measures of the Stalinist period which got 
abolished by Imre Nagy in and after 1953, when he proclaimed the 
new look policy in Hungary. 

According to a letter I just got yesterday, practically all political 
prisoners who were freed before or during the revolution are back in 
the prisons again. 

This is one side of the matter. The other side is those 10 million 
Hungarians. Now, in this respect I want to call your attention to 
something which I consider most significant and that is the Hun- 
garian revolution achieved one thing, maybe more, but this is a fact. 

The Hungarians do not fear any more, and fear, as you will agree 
with me, is the basis of every totalitarian system in general and 
every Communist state in particular. They do not fear. They real- 
ized during the revolution that they can trust each other. They are 
not alone. There are 10 million all right. And they can lick the 
secret police, and they did it, and they can lick the modern armor of 
a great power and they did it. 

Now, this I consider a fact of greatest importance. I had similar 
reports from Poland. 

Mr. Morris. You say the same absence of fear prevails in Poland? 

Mr. Marton. Yes. In Poland. Not in the other satellite countries. 

Mr. Morris. What is the basis for its existence in Poland ? 

Mr. Marton. I think we can safely say that there are only two 
people in central Europe among the satellite nations who can revolt 
and can resist. These are the Poles and the Hungarians. That is my 
private opinion. I am not an objective observer in this respect because 
I am Hungarian myself. But the history of last fall has proved this. 

We always knew it and events of October and November, I think, 
have proved this. 

Mr. Morris. Do you find that there has been any shaking of confi- 
dence in the West ? 



3940 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Mr. Marton. I wouldn't use this term, Judge Morris, but certainly 
the people do not hope for tangible help from the West any more. 
They still consider the West as their only friend. They still do not 
understand why there was no help whatsoever. But they certainly 
hope that when the day comes next time there will be some help from 
your part. 

Senator Hruska. Let me ask you, in that regard, they are disap- 
pointed and they cannot understand why no help was forthcoming to 
them in the revolution of last fall. What type of help would you say 
they expected to come, or would like to have had come ? 

Mr. Marton. Mr. Chairman, I can quote only what we journalists 
call the man in the street, and I would like to quote him because I had 
opportunity to talk with the man in the street, the simple man in the 
factory, day after day, I and my colleagues in Budapest, during and 
after the revolution, for weeks. 

Now, if I wanted to simplify things, I could quote one saying — I 
asked him actually the same question. What do you expect? And 
the answer was, they expected you to do something but you did nothing. 

Now, that is a simplification of things. But I think it depicts some- 
how a feeling of many, many Hungarians in that time. 

Now, I asked them, all right, but specifically what could the West 
have done. And they had a rather long list starting with retaliation in 
the diplomatic field. 

Mr. Morris. Retaliation of what? 

Mr. Marton. In the diplomatic field. Retaliation in the economic 
field. 

Mr. Morris. In other words, retaliation in the diplomatic field, 
withdrawing diplomatic representation. 

Mr. Marton. Yes. Or they said, why does the United Nations 
accept representatives of Radar? Who is Kadar? Kadar became a 
Prime Minister of Hungary illegally, even according to the Hungarian 
Communist constitution. Why does the United Nations not kick out 
the representatives of Kadar? Don't kick out Hungary. Let the seat 
be empty. But why do you accept his people ? We were asked when 
Nagy proclaimed the neutrality of Hungary — I think it was Novem- 
ber 1 — why didn't the ambassadors of the Western Powers go to the 
Kremlin the next day and tell Mr. Khrushchev or Mr. Bulganin or 
whoever there was that our country accepted Mr. Nagy's proclama- 
tion ? We consider Hungary a neutral country and we advise you to 
do so. 

They asked us why didn't Mr. Hammarskjold come forward? Why 
did he obey Mr. Kadar's order not to come? Who is Mr. Kadar, to 
boss him around? Why didn't he come? I can quote an old worker 
who asked me : This man has no guts ; why is he the Secretary General 
of the United Nations ? 

Did I answer your question, sir ? 

Senator Hruska. Yes. Now, then, was that as a result of inquiries 
at that time, at the time of the revolution, these things you are telling? 

Mr. Marton. Yes. During and after the revolution. 

Senator Hruska. Now, you say they are hopeful that when next 
they arise there will be some help of some kind. What have they in 
mind in the future that can be done by way of help to be extended from 
the western nations ? 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3941 

Mr. Marton. Let me say, Mr. Chairman, that very few people- 



naive, maybe — hope for United Nations armies arriving, being para- 
chuted to Hungary during the revolution. Very few. More, but still 
few, hope for arms. They didn't care how they were to come, or the 
neutrality of Austria, and so forth, and so forth, but they were hope- 
ful. Most people hope that the West — and when they say the West, 
of course, they mean the United States — will bang the table and will 
say, now, we consider Hungary a neutral, independent, sovereign 
country which can choose Nagy as its premier, would choose a multi- 
party system, and to behave. That is what the majority of the Hun- 
garians hope for, and apparently that was not done or not done to 
such an extent what the Hungarians hope for. 

Of course, there was another thing, the stab in the back, Suez. That 
was something which the Hungarians never could understand. How 
and why some western powers used just this moment to attack Egypt 
and, therefore, give a good excuse for the Soviet Union to come back 
with a force. So, everyone, I think, who was in Hungary that time, it 
was obvious that this encouraged the Soviet Union to come back. The 
Russians pulled out from Budapest 

Senator Hruska. When ? 

Mr. Marton. No doubt about that. The last days of October. 
There was not a single Russian soldier, not a single Russian tank in 
Budapest the first days of November. Why did they pull out ? I can't 
answer this question and apparently nobody can, but it is a fact. It 
is a fact that they came back on November 4, and meanwhile there 
was Suez. 

Senator Hruska. Do you think there was any cause-and-effect 
relationship between the two ? 

Mr. Martost. I am convinced of it, and so are the Hungarians. 

Senator Hruska. What reaction among the Hungarians did the 
United States position have, insofar as the invasion of Suez was con- 
cerned? How did they accept it? What were their views on it ? 

Mr. Marton. They said, "Well, here we are. Great Britain, France 
obey the United Nations and the Soviet Union does not. Why do you 
tolerate that ?" I quote that. Those are not my words. 

Mr. Morris. Have you another question, Senator ? 

Senator Hruska. Not at this time. Go ahead. 

Mr. Morris. I was just wondering if you were pausing for questions. 

Senator Hruska. I have some more questions, but if you have some- 
thing 

Mr. Morris. I was going to offer for the record, Senator, your letter 
to the Assistant Secretary of State, dated April 25, 1957, which is on 
the subject of Hungary, and I think, Senator, it would be most appro- 
priate in the record as of this time. 

Senator Hruska. Very well; it will be received and incorporated 
into the record. 

(The letter referred to was marked "Exhibit No. 463" and reads as 

follows:) 

Exhibit No. 463 

April 25, 1957. 
Hon. Robert C. Hill, 

Assistant Secretary of State for Congressional Relations, 
Department of State, Washington, D. C. 
Dear Ambassador Hill : I appreciate the courtesy of your reply to my letter 
about the activities of the Food and Agriculture Organization in Hungary. How- 



3942 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

ever, since FAO has just issued another press release stating that they are con- 
tinuing with the Hungarian project, I feel I must write to you again. 

It may interest you to know that this latest press release was put out in Rome 
and several other cities around the world, but was withheld in Washington by 
order of the head of the FAO office here. This action appears to be an attempt 
by the FAO staff to forestall further inquiry from the United States Government 
or the Congress about this questionable undertaking. 

In spite of the careful explanation contained in your letter, I am still far from 
satisfied that FAO's mission will not substantially alleviate one of the major 
economic problems facing the puppet government of Janos Kadar. In fact, the 
FAO press release, which caused me to write to you in the first place, contains 
the following statement : 

"The agricultural portion of the report emphasized that the estimates of aid 
needs were aimed primarily at maintaining the agricultural production apparatus 
in the interest of insuring future food supplies. Examination on the spot and 
discussions with the Hungarian authorities have shown that the supply of seeds, 
feeds, and fertilizers is the most effective way of accomplishing this goal." 

No matter how I read those words, they still mean that FAO's purpose in Hun- 
gary is to prop up the agricultural economy. Apparently, the Communist oppres- 
sors agree with me that using FAO's services to obtain gifts of seeds, feeds, and 
fertilizers from other countries to insure their own future production "is the 
most effective way of accomplishing this goal." 

The long-range economic purpose of the FAO mission is emphasized still 
further by the following statement in their report : 

"It is, moreover, essential that every effort should be made to raise agricul- 
tural production in 1957 to the highest possible level, especially crop production. 
The events of recent months have held back fieldwork, in particular the autumn 
sowing of cereals. If this lost time cannot be made up, the insufficiency, of 
national supplies would not only prevent Hungary, which in the past has been 
a traditional exporter of agricultural products, from maintaining its flow of 
foreign trade during the coming year, but would also prolong its dependence 
on external sources of supply." 

Somehow, I cannot reconcile the worldwide wave of sympathy for the Hun- 
garian people, which gave rise to U. N.'s "humanitarian resolution," with FAO's 
apparent concern to "maintain the agricultural production apparatus" for the 
Communist authorities, who are able to hold the Government of Hungary against 
the will of the people only because they are backed by the presence of a dozen 
divisions of Russian troops. Neither do I agree that "maintaining (Hungary's) 
flow of foreign trade during the coming year" will do anything but strengthen 
the Kadar government. 

The humanitarian resolution of the U. N. General Assembly, which, you say, 
prompted FAO's entry into Hungary, referred to the "suffering of the Hungarian 
people." According to the FAO report, lack of food played no part in the suf- 
fering. In fact, the report says : 

"At the time when the mission was carried out, the food situation in Buda- 
pest (and, it seems, in other large cities) was, on the whole, satisfactory. The 
basic commodities, bread and milk, were obtainable without rationing. * * * 
The price levels fixed before October have been more or less maintained for the 
essential foodstuffs. * * * 

"Meat is plentiful at present in Budapest and, probably, throughout the 
country. Slaughterings have been accelerated, especially of pigs, on account of 
the insufficient supplies of feeding stuffs. Since storage facilities are not such 
as to accommodate all the available quantities, arrangements have been made to 
utilize cold stores in neighboring countries. * * * 

"These stocks will, in part, make up for the shortfall of meat production which 
will occur during the summer (after the end of May). * * * 

"Certain traditional exports of Hungarian produce (poultry, for example) 
will have to continue in order to fulfill trade commitments already made and to 
pay for the planned imports of basic foods." 

In other words, it is clear from the above that FAO went into Hungary on 
the pretext of assessing emergency food needs of suffering people, but, after 3 
days of consultation with the Kadar authorities, produced a set of proposals 
aimed at restoring for the dictator government any damage done to the agri- 
cultural economy when the people got out of hand last fall. 

I am glad to learn from your letter that the United States took exception 
when the FAO secretariat circulated various countries in Western Europe to 
locate sources of seed grain, feed grain, and fertilizer available for donation 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3943 

to Hungary. However, judging by the FAO press release just issued every- 
where but Washington, the opinion of the United States Government did not 
sufficiently impress the secretariat to put a stop to the program. 

In view of hte fact that the United States is a member of FAO and Hungary 
is not, and that the United States contributes the largest share of the FAO budget 
while Hungary contributes nothing, what justification is there for the FAO 
secretariat to provide service to the Hungarian Government over the protests 
of the United States Government? 

According to the constitution and rules of FAO, the money appropriated by 
the member governments can be spent by the secretariat only for work which 
is examined, approved and budgeted by the governments. There was no such 
examination or approval in advance of the Hungarian mission. The secretariat 
seems to have undertaken this activity entirely on their own initiative. Further- 
more, if the secretariat explanation to you is correct that they went into 
Hungary in response to resolutions passed in the U. N. General Assembly, 
then the fact is that they not only acted without authority of their own govern- 
ing body, but they acted in defiance to it. 

Documents submitted to the Senate Internal Security Subcommittee by the 
major United States farm organizations 2 years ago include a number which 
show that each time the issue of U. N. control of FAO work has come up, the 
governments of FAO have emphatically rejected the idea that FAO programs 
can be decided by anyone other than the governments which are members of 
FAO. The following quotations from a statement by the United Kingdom 
delegate during the 1951 FAO conference, which incidentally was overwhelm- 
ingly supported by other governments, will illustrate the point: 

"The delegate of the United Kingdom cannot accept such an amendment. 
The effect of it would be to bind this organization automatically, and in advance, 
to accept recommendations of the General Assembly of the United Nations in 
the context of uniting for peace. * * * 

"* * * I must empbasize most strongly that the Food and Agriculture Organi- 
zation is an independent agency and is at the moment only bound automatically 
to cooperate with the United Nations to the extent of its undertakings in the 
agreement which it negotiated freely * * * Under them, this organization is 
not obliged to accept as binding resolutions of the General Assembly. 

"If we now adopt wording in this draft to the effect that FAO will cooperate — 
that is to say, must cooperate — with requests of the General Assembly, then we 
shall be placing an additional obligation on the organization. We shall also 
be renouncing a measure of its independence — and that in a sphere of con- 
troversial policies — a sphere which is foreign to the purpose and ideals which 
we are here pursuing. The United Kingdom delegation thinks that to bind 
this organization in this way is both unnecessary and unwise. 

"Furthermore, for very good reasons, on which I need not elaborate this 
afternoon, resolutions of the General Assembly are not binding on individual 
members of the United Nations ; they are, in fact, merely recommendations. 

"If we are to adopt a resolution which pledges FAO automatically to accept 
as binding recommendations of the General Assembly * * * then we shall be 
obliging member nations to accept as binding in the vital field of food and agri- 
culture recommendations which, as individual members of the United Nations, 
they are not bound to accept. 

"* * * ^ ij as been the practice for the various agencies to take action in 
accordance with the special interests and circumstances of each one of them. 
Indeed, the World Bank and the International Monetary Fund, dealing in im- 
portant spheres of capital and finance, both adopted resolutions in which they 
undertook to do no more than have 'due regard for' recommendations of the 
General Assembly. * * * 

"* * * It would be an act of peculiar rashness for us here today to sacrifice 
unnecessarily such an important principle and the right of this Organization to 
examine critically the recommendations of another body, in return for which we 
should gain nothing. * * *" 

I have quoted rather fully from this statement to emphasize that the FAO 
secretariat had no authority whatsoever to spend FAO's money merely because 
the U. N. General Assembly passed a resolution appealing to members of the 
U. N. to take certain action. Because the FAO secretariat did so anyway, the 
United States taxpayer now is in the unfortunate position of having paid 31.5 
percent of the cost of providing agricultural and economic assistance to the very 
group in Hungary whose actions have outraged him and shocked the whole 
civilized world. 



3944 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Moreover, the American taxpayer was given no opportunity to be represented 
when the FAO secretariat took it upon themselves to spend his money to help 
the Hungarian "authorities." His Government was not consulted, either di- 
rectly or through any of FAO's executive bodies. Therefore, it seems only right 
that the United States Government should at this point demand a complete 
financial accounting of every cent spent by the secretariat on this unauthorized 
Hungarian mission, including pro rata salaries, travel, and expenses of every 
person involved. The accounting should cover the trips of the man who went 
to Austria and Switzerland in December, the two men who went to Budapest 
in January as part of the U. N. joint team, the several people who traveled 
around Western Europe to solicit seeds, feeds, and fertilizers for Hungary, 
and the staff sent to Hungary to handle sales to Hungarian farmers of items 
which were donated by other countries. 

Perhaps the FAO staff have been able to liberate themselves from controls 
by their member governments. But the employees of the United States Gov- 
ernment are still the servants of the people and, as such, are required to report 
to the people through the Congress on how the tax money is spent. It is for 
this reason that the United States delegation to FAO should find out and tell 
the Congress immediately how much FAO's mission to Kadar Hungary has 
cost the United States taxpayer. 

As before, a copy of this letter is being sent to the Senate and House Appro- 
priations Committees. 
Sincerely yours, 

Roman L. Hruska, 
United States Senator, Nebraska. 

Mr. Morris. I have shown this letter to the witness this morning — 
to Mr. Marton — Senator, and I think he is in a position to answer 
some questions, if that is your wish. 

Senator Hruska. That would be very fine. 

Mr. Morris. Have you read this letter of Senator Hruska to the 
State Department ? 

Mr. Marton. I certainly did, sir, and, Mr. Chairman, I personally 
very much agree with what you said here in this letter. Moreover, 
and this is far more interesting : Before I left Hungary I had the op- 
portunity to talk with several anti-Communist political leaders of my 
country on this matter, not FAO specifically, but on any kind of aid 
the West might consider to give Hungary, and they all said that it 
would be nonsensical to prop up the Kadar government with any 
kind of economic aid. 

Now, there is, of course, these humanitarian angles and nobody will 
understand that better than the people of the United States. This is 
another thing. But this is a task of the International Red Cross. 
They have the organization, how to do it, how to find out when there 
is a lack of food, — I personally don't think there is — and according 
to my information there is none, or a lack of, let's say, some kind of 
medicine, and I am inclined to believe that there is one. 

They are here to distribute such aid. 

I would like to recall when in 1953 and 1954 the United States of 
America sent aid for flood victims in Hungary. I was present a few 
weeks before my arrest when this aid was distributed among the vic- 
tims of the flood and I can testify that the people received this aid 
which was known— on every sack there was a huge inscription "The 
aid of the people of the United States of America." But as you said, 
sir, to send feed and fertilizer, and I don't know what, through 
FAO 

Senator Hruska. Machinery and equipment. 

Mr. Marton. Machinery — this would be only to support a Com- 
munist government, a Communist government of this kind. Senator 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3945 

Kennedy, some days ago, addressed the Overseas Press Club on the 
night when I received their award and he said that there were more 
shades— I don't quote him, but as far as I recall, there are more shades 
of gray between black and white when talking about Communist 
countries, and I agree with him. 

Now, Poland certainly is gray today. And I personally — you didn't 
ask me, but I use this opportunity— I think that you should aid Poland 
because Poland is gray and with aiding Poland you can prevent Po- 
land being black again. But Hungary undoubtedly is black, as black 
as it can be. So I agree a hundred percent, Senator, with what- 
ever you wrote to Mr. Hill in this respect. And as I told you, this 
was the firm belief of about six leading Hungarian anti-Communist 
politicians. 

I had opportunity to talk about this question before I left Hungary. 
They said don't help Kadar in any respect. If you want to help the 
Hungarian people, use the Red Cross. 

Senator Hruska. Did you make inquiry as to the extent of the help 
that came through the FAO and the efforts which are referred to in 
that letter of April 25 ? 

Mr. Marton. I couldn't. I couldn't find time. 

Senator Hruska. You couldn't find it. 

Mr. Marton. No. 

Mr. Morris. Senator, in that connection I also have the answer 
of Mr. Hill dated May 10, 1957. May that go into the record, also? 

Senator Hruska. That may also go into the record. 

(The letter referred to was marked "Exhibit No. 464" and reads as 

follows :) 

Exhibit No. 464 

Department of State, 
Washington, D. C. May 10, 1951. 
Hon. Roman L. Hruska, 

United States Senate. 

Dear Senator Hrtjska : Receipt is acknowledged of your letter of April 25, in 
regard to certain activities of the Food and Agriculture Organization in Hungary. 
A member of the staff of the Bureau of International Organization Affairs tele- 
phoned your offce to state that certain additional information which you 
requested is being obtained. This will confirm the fact that a fuller reply to your 
letter will be available shortly. 
Sincerely yours, 

Robert C. Hiix, Assistant Secretary. 



Exhibit No. 464-A 



Department of State, 
Washington, D. C, Jane 20, 1957. 
Hon. Roman L. Hruska, 

United States Senate. 

Dear Senator Hruska : Further reference is made to your letter of April 25, 
1957, to which I sent an interim reply on May 10, indicating that the Department 
of State had requested from the Director General of the Food and Agriculture 
Organization of the United Nations the information which you asked for concern- 
ing the costs of the RAO mission in Hungary in January, and certain more recent 
activities of FAO staff members in Hungary. The Department has now received 
the following information from the Director General : 

"In the course of the action taken by FAO to assist Hungarian farmers a sum 
of $3,406.49 was spent on travel costs ; $1,0S8.90 on communications ; and a pay- 
ment of $111 made to an outside expert for technical advice in connection with 

93215 — 57— pt. 61 3 



3946 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

the seed potatoes supplied for use by Hungarian farmers. This represents a total 
expenditure of $4,606.39." 

In response to the request for an estimate of the amount represented by pro 
rata salaries of those officers who participated in the relief action, the Director 
General states that it would be difficult to make any estimate as the FAO staff is 
always engaged on a wide range of duties. He points out that, even in the case 
of those who visited Hungary in connection with the relief action, traveling via 
Geneva and Vienna, the opportunity was taken by them to attend to other official 
duties in Switzerland and Austria. He expresses the view that he feels it unwise 
and misleading to attempt to allocate salary costs to particular projects as FAO's 
program is a coherent whole, and indicates that "It has been fullly recognized by 
the Committee on Financial Control and other bodies that costing on a project 
basis is an unnecessary and undesirable undertaking." 

In transmitting this information to you, I feel obligated to call to your attention 
a request of the Director General which reads as follows : 

"* * * I am very anxious to be as helpful as possible and I am therefore 
supplying the following information regarding the relief action which FAO took 
in Hungary on the understanding that the information is required by the United 
States Government and that it will not be published." 

The Director General has been informed that we are passing this request on to 
you, but that under the United States system of government the executive branch 
is not in a position to make a commitment on behalf of a member of the legislative 
branch insuring that the Director General's request will be met. 

There appear to be three other central points in your letter of April 25 to which 
the Department should address itself even though you have not specifically 
requested further information on them. These are : 

1. Whether the FAO action in Hungary substantially alleviated one of the 
major economic problems facing the puppet Kadar regime (p. 1, par. 3). 

2. The effect of the views expressed by the United States Government on the 
program of the FAO (p. 3, second full paragraph) ; and 

3. The view that the FAO Secretariat acted in defiance of its governing body 
(p. 4, third full paragraph ) . 

As indicated in my letter of March 18, it is felt in the Department of State 
that the FAO action clearly "went beyond the declared intent of the relevant 
GA resolutions." The FAO action was undertaken on the assumption that the 
problems of recovery and relief could not be logically separated and therefore 
shortages and hardship which it was anticipated would confront the Hungarian 
people in midsummer could most effectively be met by stimulating production 
rather than through direct relief. The conclusion was logical but the Depart- 
ment did not and does not concur in the assumption. It regarded the action as 
going beyond the intent of the General Assembly appeal, and considers that the 
distribution of seed may have contributed in a limited degree to the recovery 
of the general economy of Hungary. The total quantities actually distributed 
amounted to 7,000 tons of seed, barley and oats which were donated by the Fed- 
eral Republic of Germany. However, this seed was distributed through the 
International Red Cross and went to some 100,000 Hungarian peasants indi- 
vidually and in a manner to minimize the political importance to the Kadar 
regime. 

Regarding the second point above, the Department is convinced that the ques- 
tions raised by the United States Government were very seriously considered 
by the Director General of the FAO. In this connection, it is our understanding 
that following representations made by the United States, the FAO made no 
further appeals and limited its continuing activities to the administration of the 
program which already had been initiated. On this point, the press release of 
March 28, to which it is assumed you refer in the second paragraph on page 3 of 
your letter, is not regarded as an additional appeal on behalf of FAO's activities 
but as reporting a response to the earlier appeal made prior to the representa- 
tions of the United States. 

Once FAO had initiated the project it did not seem in the interest of the United 
States Government to protest the later phase of FAO activity, which was designed 
to prevent control by the Kadar regime and the misuse of supplies for political 
purposes. It is understood that the FAO supervision team that was cooperating 
with the International Red Cross, began its activities in mid-February and 
terminated them by mid-April. The maximum number engaged in the FAO 
supervisory program at any one time, was four. 

Apropos of this question of FAO responsiveness to the United States viewpoint 
there is every indication that in the light of the position taken by the United 
States in the Hungarian case, the Director General of the FAO has more recently, 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3947 

in the case of contemplated relief action in Morocco, meticulously observed the 
United States view. After investigating the situation upon the request of the 
Moroccan Government, he has submitted the issue for action to the FAO Council 
now convened in Madrid. 

In commenting on the matter of defiance of the governing body of the FAO 
Secretariat, you refer to the fact that the governments, members of the FAO, 
have rejected the idea that the FAO programs can be decided by anyone other 
than the governments that are members of the FAO. The Department is in 
full agreement with this position. However, the legality of the FAO action in 
Hungary is not based on the question of its responsiveness to a United Nations 
appeal, but is to be found in Resolution No. 15 adopted at the sixth session of 
the FAO Conference held in 1951 (text enclosed). 

The FAO Secretariat has indicated that the Director General's action was 
permissible under this resolution : inferentially because it refers to his discretion 
in convening a meeting of the Council or interested governments. As indicated 
previously, the Department considers that the action appeared to be outside of 
the FAO's "terms of reference:" i. e., in conflict with this resolution, and that 
his discretion is limited to a convening of the Council or of the interested gov- 
ernments and does not extend to initiating emergency action upon his own 
initiative. However, the Department does not consider his action as one of 
intentional defiance of the governing body. 

It is hoped that you find this letter of assistance and fully responsive to yours 
of April 25. 

Sincerely yours, 

Robert C. Hill, Assistant Secretary. 

Resolution No. 15 — Food Shortages and Famine 

The Conference Resolves : 

1. That on receiving intimation from a Member Nation or region that a serious 
food shortage or famine exists or is likely to develop, which it is unable to cope 
with from its own resources, the Director-General shall depute one or more 
FAO officials to investigate the nature of the problem with the consent of the 
government concerned and to report on the extent, if any, of international 
assistance needed and communicate the report to the United Nations and the 
interested Specialized Agencies: 

2. That when, in the opinion of the Director-General, there is an emergency 
requiring international relief measures, he shall at his discretion convene forth- 
with a meeting of the Council or of interested governments to devise the most 
practical lines of action which may be required to bring about prompt, concerted 
and effective assistance by governments as well as by voluntary agencies : and 
that the Director-General shall thereupon report the action taken to the Secre- 
tary-General of the United Nations for transmission to the Economic and Social 
Council. 

Senator Hruska. Mr. Mart on, some time ago it was the thinking of 
some of the witnesses who were here — and I imagine it is probably 
3 or 4 months ago, now — that there would come a time sometime yet 
this year, when a renewed effort would be made to revolt. 

What is your thinking on that at this time? 

Mr. Marton. I would not venture to predict the time, but let's put 
it this way. "Whenever Kadar relaxes and thinks the time has come 
to relax, then the Hungarian people will revolt. When he thinks that 
he is firmly backed, his position, nothing can happen to him, then the 
Hungarian people will rise up again. Whether this will be this year, 
next year, or when, I do not know. 

Senator Hruska. Do you think there will be an effort made to await 
a time when there can be reasonable success of the effort? Will that 
enter into the thinking of those who might revolt ? 

Mr. Marton. Sir, the Hungarian revolution was — you, Judge Mor- 
ris, used this word, and you couldn't choose a better one — entirely 
spontaneous, an entirely spontaneous thing, and I feel sure that it will 
be spontaneous again. There was no planning whatsoever, and there 



3948 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

won't be any planning next time. It will be spontaneous again anu, 
therefore, I think it will be too bold to venture to predict any time. 
The time will come again when people will say, "We are fed up ; we 
just can't go further" ; and something will spark it again. What, I do 
not know. And when, I do not know. 

Senator Hruska. Is there an organized underground in existence 
and effective now ? 

Mr. Marton. There is none. There is none. There was none. The 
Hungarians are somehow — take the Poles. They have a tradition in 
conspiring in underground and plotting. Not the Hungarians. The 
Hungarians have a tradition in revolting against a power that tries to 
suppress them. They revolted against the Hapsburgs more than a 
hundred years ago, but there was no planning. There was no under- 
ground in 1848. There was a revolt of the people, and so it was last 
fall. 

However, there is another thing. The geographical position of Hun- 
gary just does not tolerate an underground movement. It is a plain 
country without woods, without mountains. We just can't hide. You 
remember Yugoslavia during the war. Tito could always retire to 
his mountains. In Poland they have the big woods. There is nothing 
like that in Hungary. 

Mr. Morris. I wonder, did you run across the path of a- — I suppose 
he is a former American now, I don't know, although he is still tech- 
nically an American citizen — Mr. Field, Mr. Noel Field ? 

Mr. Marton. I did, and I was very much interested in this person. 
As you remember, he was released in November 1954, and he asked for 
political asylum in Hungary just before Christmas 1954. Of course, 
my wife and myself, we tried to interview him and we couldn't. He 
declined. 

Now, during the revolution you had much chance to find out things 
which otherwise you didn't know, and after the revolution I had a 
chance to see Mr. Field and interview him. This interview was printed 
in the press here, newspapers here, and I don't want to repeat it. 

Mr. Field impressed me very much as a fine intellectual type, the 
type what I would like to term as an idealist Communist. Mr. 
Field is a Communist, as he himself said. He is a Communist with 
reservations, which means that he accepts the Marxist doctrine with 
the exception of the theory of violence, the theory that the workers' 
class has to seize power by force, using force. This he does not — 
this theory he does not accept. 

Now, how a man can be a Marxist without accepting the theory 
in full, I do not know, but he is certainly one of them. My impres- 
sion was that Mr. Field is a rather weak man. The strong charac- 
ter is Hertha, his wife. That was my impression. Field, as you know, 
came to Central Europe in the spring of 1949. He said that the 
reason of his visit in the satellite countries was because he wanted to 
write a book on them. 

Now, he was arrested in the Prague airfield, airport, sometime in 
May and was brought to Budapest and used as a witness, what they 
call a witness, against those hundreds of Communists who were ar- 
rested during the anti-Tito purges in the spring of 1949. 

Field first refused to cooperate, but he was broken in no time in 
the usual way, and later, when he learned in prison, some months 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3949 

later, that one man, who was the chief of the so-called cadre depart- 
ment of the Communist Party and was No. 3 defendant in the Rajk 
case, was sentenced to death on the grounds of his testimony, he 
wanted to withdraw his testimony but it was too late. The man was 
hanged. 

Now, Field and his wife were held for more than 5 years without 
trial, as you know, and then, in 1953-54, when the Imre Nagy gov- 
ernment started to rehabilitate those Communists who survived those 
purges, when somebody remembered that the AVH, which is the 
Hungarian Secret Police, that they had this American couple rotting 
here somewhere in prison, then Mr. Field and his wife were brought 
back to the central prison of the AVH — actually, it is the same prison 
where I spent my 18 months — and then his case was brought up. 

He spent there 8 months from the spring of 1954 to November 1954. 

Now, Mr. Field, during those 8 months, testified and confessed that 
he is a good Communist. He also proved that he is a good Com- 
munist. As you know, Mr. Field was in Switzerland during World 
War II. He worked for a Quaker relief organization and also for— 
I don't know how, but for Mr. Dulles, Allen Dulles, who was the 
Chief of the United States Intelligence Service in Switzerland during 
World War II. 

Now, these intelligence agencies in Switzerland decided during the 
war that they do not recognize certain German Communist under- 
ground groups as resistance organizations. I don't know the reason 
and I don't know what effect this had, but anyway Mr. Field as a 
good Communist opposed this decision. He couldn't do it singular 
but he opposed it and then when the decision was passed he found 
ways of informing these German Communist underground organiza- 
tions about this decision made in Geneva and this information was 
of great value to these German Communist groups in the underground 
and they were very grateful to Mr. Field. 

All this gratefulness could not save him from being arrested in 
1949. 

Now, what else about Mr. Field ? When I met him I was sort of 
sorry for him. Everyone who was arrested and who spent some time 
in a Communist prison is inclined to be forbearing. But when he 
said — he told me that he spent the weeks of the Hungarian revolu- 
tion — this was in December — in a hospital in Budapest. He was ill. 
And he was in bed throughout the weeks of the Hungarian Revolution. 
Then some minutes later when I asked him about his opinion on Kadar 
and the postrevolution regime, he said that he is convinced that Kadar 
had saved Hungary from what he called white terror, and I asked him 
how he knew that. He just told me earlier that he was in a hospital 
throughout the time of the whole revolution. Then he became hesitant 
and mumbled something that even in the sickbed of the hospital he 
felt it and that was the information he got from others. 

Then we asked him — we, my wife and myself and a certain Ameri- 
can colleague— what his plans are and he said he was very satisfied 
to live in Hungary and to stay there. He is not interested to go 
abroad. He has no passport, his American passport expired, and he 
finds life behind the Iron Curtain rather interesting. 

In this respect I agreed with him, most interesting, indeed. 



3950 SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 

Now, I don't think that there is any doubt why he didn't come back. 
He knew perfectly well that he was involved in the Hiss case and as his 
brother did, Herman, his brother Herman got a nice sum from the 
Polish Government when he was released. So did Noel. 

Senator Hruska. In what way was he interested in the Hiss case ? 

Mr. Marton. He was involved in the Hiss case. That is what he 
said. It wasn't apparent to me what he meant. So it was obvious why 
he preferred to remain in Hungary. 

Senator Hruska. Did he comment in any way on his activities in 
this country in that regard? 

Mr. Marton. I beg your pardon ? 

Senator Hruska. Did he comment in any way about his activities 
in the United States in that regard? 

Mr. Marton. No, he did not. 

Mr. Morris. Well, Field had acknowledged that he was a Commu- 
nist, then. 

Mr. Marton. He did; with reservations. 

Senator Hruska. You say with reservations. With that one reser- 
vation that you had described, that is, that he did not subscribe to the 
use of force and violence. 

Mr. Marton. Yes. 

Mr. Morris. I think I have no more questions, Senator. Do you 
plan to stay in the United States, Mr. Marton? 

Mr. Marton. I do. I hope to get citizenship in the United States. 
I and my family. And I am assigned to the Washington Bureau of 
the AP. We are happy in this country. 

Mr. Morris. Now, there are several things, Senator. I think one 
thing we can mention here publicly, Mr. Marton, and that was, you 
did encounter some evidence of a very effective counterintelligence 
organization on the part of the Hungarian Communists, did you not, 
the AVH ? I think you mentioned an episode about your acquiring a 
copy of the Hungarian budget. 

Mr. Marton. Yes. 

Mr. Morris. I think you can tell us that without any breach of your 
own obligations, can you not, Mr. Marton ? 

Mr. Marton. I think I can. 

In the summer of 1954 1 had a copy of the Hungarian budget which 
was passed by Parliament, already printed, a printed copy which, ac- 
cording to the Communist regulations and laws, is perfectly legiti- 
mate to possess. 

Now, I dug it out for the AP, of course, on my dispatch, and then I 
handed it over to friends in the legation, diplomats, because they 
had no such copy. They gave it back to me about a week later, and 
when I was arrested and interrogated for weeks and weeks and weeks, 
I was told that the AVH secret police knows everything about that. 
They knew it, that I handed this copy of the budget to the Americans 
in the legation, and they even know what I didn't, that the legation 
used it, copied it, and sent it to Washington. 

Mr. Morris. Did the American Legation use it, copy it, and send it 
to Washington ? 

Mr. Marton. That I do not know. That, they told me, the AVH. 
Wri en I came out, when I was pardoned, of course, the first thing I 
did was to go to my friends in the American Legation in Budapest 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3951 

and warn them that I was told that they had really used it. So it was 
not a bluff. 

Mr. Morris. So that the AVH knew more about it than you did ? 

Mr. Marton. They certainly did. When I got back this copy about 
a week later, I was not interested in how they used it. I was only 
happy that I could be at their disposal. They were good friends, and 
there is always a swap of information between newspapers and diplo- 
mats, behind the Iron Curtain, and I assume anywhere else. 

Mr. Morris. Senator, so the record will be perfectly clear on it, I 
would like to point out that there would be no inference that should 
be drawn that any one of these officers told the AVH. 

Mr. Marton. Oh, no. 

Mr. Morris. Because the AVH could have had a microphone there. 

Mr. Marton. I am pretty sure they did. They had several other 
places. I vouch for my friends at the legation. 

Senator Hruska. Anything further, Judge Morris ? 

Mr. Morris. Mr. Mandel reminds us in our preliminary session 
that you said you had an interview where the Soviet officers told you 
what great fear they had of the Hungarian people. Is that some- 
thing you can tell us ? 

Mr. Marton. Yes, certainly. That was rather interesting. 

Mr. Morris. That is my last question, Senator. 

Mr. Marton. I had the opportunity to talk with a young Russian 
officer in a hotel which was sort of the headquarters of the western 
newspapermen in Budapest, and the man was rather intelligent. He 
spoke good German and he told me we are — no — he used first person 
singular. He said, I am scared. And I told him, of course you are 
scared. After all, your experience here, teen-age boys blowing up 
your tanks, et cetera. He said, Oh, no. That is not what I mean. 
I came only afterward. I came with the troops that were sent in 
after the revolution was through. 

I asked him, what do you mean, you are scared? Why are you 
scared? A young man, a professional soldier, an officer of the glo- 
rious Red army. Why are you scared ? 

He said, oh, look, I am scared. I have a tank unit, four tanks. 
And they guard the four corners of the huge square in Budapest. 
And I am watching the people, women and children, day after day, 
how they just ignore my huge T-54 tanks, the huge muzzle of my 
guns. They go around it and they don't even look at me, and if they 
look, there is only hatred in their eyes, but usually they don't look. 
They just ignore us and that is what I just can't bear. 

That is what he said. And I think that was a rather character- 
istic thing. They were scared. They had to be scared during the 
revolution and for many weeks after. After all, I don't think it 
happened ever before that boys and girls, 12 and 13 and 14, blew up 
their tanks. They are not safe in the tanks when the lid was open or 
closed. 

Senator Hruska. Anything further, Judge? 

Mr. Morris. No, Senator. 

Senator Hruska. If not, on behalf of the committee, I want to ex- 
tend our thanks to you for coming here, Mr. Marton, and for your 
cooperation as a witness. 

Mr. Marton. Thank you, Senator. 






3952 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. I would like to mention that we have four union offi- 
cials subpenaed for tomorrow morning and on Thursday we have 
scheduled Marion Zieliski. He was the section chief of the book 
division of the Polish Communist Government who defected on 
April 30, just 2 weeks ago. He will testify on Thursday. 

Senator Hruska. Very well. The hearing is concluded. 

(Whereupon, at 3 : 50 p. m., the hearing was concluded.) 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



THURSDAY, AUGUST 22, 1957 

United States Senate, 
Subcommittee To Investigate the 
Administration of the Internal Security Act, 

and Other Internal Security Laws, 
of the Committee on the Judiciary, 

Washington, D. C. 

The subcommittee met, pursuant to call, at 10 : 40 a. m., in room 424, 
Senate Office Building, Senator Roman L. Hruska presiding. 

Also present : Robert Morris, chief counsel, and Frank Schroeder, 
chief investigator. 

Senator Hruska. Very well, the committee will come to order. Who 
is our witness ? 

Mr. Morris. Mr. Ketcham is the witness. 

Senator Hrusea.. Do you solemnly swear that the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mr. Ketcham. I do. 

Mr. Morris. Mr. Chairman, we had scheduled this morning as the 
first witness Mr. Boris Morros, but the Department of Justice has 
asked Senator Eastland to defer his testimony at this time because he 
has several forthcoming appearances before a Federal grand jury. 
At the same time, Senator, in connection with the continuing inquiry 
into the activities of Noel Field, Ben Mandel, our staff director, has 
been working with witnesses here this morning getting some back- 
ground on the activities of Noel Field while he was in the United 
States. 

Mr. Ketcham has appeared for his organization here this morning 
and he has consented to give us something of what his own organi- 
zation has learned about Mr. Field during his term of employment. 

Will you give your full name and address to the reporter ? 

TESTIMONY OF FRANK S. KETCHAM, ATTORNEY FOR UNITARIAN 
SERVICE COMMITTEE AND AMERICAN UNITARIAN ASSOCIA- 
TION 

Mr. Ketcham. My name is Frank S. Ketcham. I am an attorney 
in private practices in Washington and New York, a member of the 
Washington and New York bars. 

I am appearing today on behalf of the American Unitarian Asso- 
ciation and the Unitarian Service Committee. 

Mr. Morris. That is the American Unitarian 

Mr. Ketcham. American Unitarian Association. 

3953 



3954 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morkis. Association, and the 



x 5 

Mr. Ketcham. Unitarian Service Committee. 

As you know, Senator, the American Unitarian Association was 
founded 132 years ago. It is the principal organization in the Uni- 
tarian denomination serving the Unitarian churches and fellowship. 
The Unitarian Service Committee was originally set up in 1940 as a 
standing committee of the American Unitarian Association. In 1948, 
as a result of reorganization, the Unitarian Service Committee was 
set up as a separate corporation and since then has only acted with 
the American Unitarian Association in a spirit of fellowship but is 
not under the organization or direction of the association. 

Senator Heuska. What was that year again that was incorporated? 

Mr. Ketcham. 1948. With perhaps 1 or 2 exceptions, the present 
officers and staff of both organizations had no personal connection with 
the Field episode. 

Mr. Morris. That is the Noel Field episode ? 

Mr. Ketcham. Yes. Those people have long since left. The testi- 
mony that I am giving this morning is based upon conversations with 
present staff people, members of the service committee — that is, 
officers — and officers of the American Unitarian Association. Also 
it is based upon an examination of some very, very voluminous files 
which I made myself in Boston on July 9. 

Mr. Morris. You have made an extensive examination of volumi- 
nous files in Boston on July 9 of this year in connection with the 
request of the subcommittee to tell us how Noel Field operated while 
working with your organization. 

Mr. Ketcham. That is correct. When I say the files are volumi- 
nous, there is great intermixture of the Field situation along with their 
other records and the problem was of getting out the specific in- 
formation. 

Mr. Morris. Mr. Ketcham — at this point, Senator, may I, in order 
to put this a little more in perspective, bring a few things up to date 
at this time. In 1951, Hede Massing testified before the Senate In- 
ternal Security Subcommittee that she had recruited Noel Field into 
the Soviet apparatus in the mid-1930's — 1934 and 1935, and she said 
that that recruitment was delayed for a while because Field had 
expressed a preference to work in an apparatus that Alger Hiss was 
running at that time, a Soviet apparatus that Alger Hiss was in. She 
testified she had resolved it when she and Hiss met one night and dis- 
cussed the merits of the respective organizations. From that time on 
as far as she knew, Field worked with the Soviet apparatus. 

On June 26, according to an Associated Press dispatch, Noel Field 
from Budapest issued a statement in which he denounced the United 
Nations report on Hungary as a slanderous falsehood, interspersed, 
at best, with misleading half truths. He went on to say of the U. N. 
committee : 

Their real tears are reserved for their Hungarian brothers whose desperate at- 
tempts to restore their erstwhile rule of the Hungarian people have been foiled 
once and for all. Neither 400 nor 4,000 pages of dubious statemeuts by a 
hundred or 10 times that number of defectors can hamper the forward march 
of Hungary and other countries of the Socialist camp along the highroad 
toward communism which all nations will ultimately follow in their own man- 
ner and their own good time. 

which I think makes very clear where Mr. Field stands at this time. 



SCOPE OF SOVIET ACTIVITY EST THE UNITED STATES 3955 

Further, we have, in our conversations with Josef Swiatlo — a Polish 
security official who defected to the West a few years ago — he has told 
me, Senator, that when he interrogated Noel Field — he was one of the 
captors of Field when he was on the Communist side — at that time 
Field said, or rather Swiatlo told us that Field protested his arrest on 
the grounds that "Well, haven't I been a good Communist all along," 
and "Why should you arrest me?" 

He told that to Mr. Swiatlo, and Mr. Swiatlo has told us that. 

Senator Hruska. When did the arrest occur? 

Mr. Morris. In 1949. 

Mr. Ketcham, will you proceed? 

Mr. Ketcham. Noel Field joined the staff of the Unitarian Service 
Committee in the spring of ±941. His job was to administer a pro- 
gram of medical relief in southern France. 

At the time of his employment, the director of the service commit- 
tee — that is the then director — submitted a statement to the full com- 
mittee setting forth the details of Field's education and his linguistic 
abilities and showing he had held certain positions. 

The positions he held are to me extremely interesting in view of the 
various other circumstances that have become known. He was a social 
worker under the Massachusetts Department of Mental Hygiene from 
1925 to 1926. He was in the Department of State in 1926-36, includ- 
ing the Swiss and League of Nations desks, 1927-30. He was the 
assistant secretary of the American delegation, London Naval Con- 
ference in 1930. He was a member of the Disarmament Commission 
in December 1930-35. He was an assistant to Norman Davis, Naval 
Conference, in London in 1934. 

He was secretary of the American delegation to the London Naval 
Conference in 1936. He was a member of the Disarmament Section 
of the League of Nations in 1938-40, which included secretarial assist- 
ance to various organs of the Disarmament Conference. He was a 
secretary of the Third Committee of League Assembly. He was secre- 
tary to the League Military Commission for the evacuation of foreign 
soldiers in Spain — Barcelona, Valencia, Madrid, and Perpignan — in 
October 1938 to March 1939. He assisted in the League foreign aid 
work in the winter of 1940. His contract was rescinded by the League 
because of the war, World War II in October 1940. In the report of 
the director, it also appeared that Field wanted to join the service 
committee because of the experience he had had in Spain and in order 
to have an opportunity to change to another sphere of activity where 
he could contribute more directly to the relief of human suffering than 
had been possible through the League Disarmament Division. 

The director also stated that Mr. Field was well known to Mr. 
Hiram Bingham, the American consul in Marseilles who had said Field 
was a man of special ability and the committee could not find a better 
man anywhere. 

Mr. Morris. This is up to 1941. 

Mr. Ketcham. Yes ; you can see from this, Senator, that Mr. Field 
came very highly recommended to the service committee. 

In addition to that, I am informed that his personality is magnetic, 
that he could sell most anything on the basis of having to do with 
human suffering and human action. 

He displayed an intensely idealistic interest. He also had another 
facet of his personality in that he seemed to feel that his way of doing 



3956 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

things was about the only way to do things and he just could not and 
did not brook disagreement with him. 

That becomes clear, as I will show later on in my testimony. 

Mr. Morris. Did the service make inquiry of the State Department 
for instance for recommendations as to his character and reputation ? 

Mr. Ketcham. Not at this time, Judge Morris, but at a later date. 
That is if they did make such an investigation, the files don't reveal it 
and I have no information about it. 

Mr. Morris. Thank you. 

Mr. Ketcham. Herta Field, his wife, the wife of Noel Field was 
employed with him at the same time and their combined salaries, 
together with room and board, amounted in the aggregate to about 
$150 a month. 

It seems obvious that he was not getting into this job for any mone- 
tary considerations. 

He continued in the employ of the service committee along with Mrs. 
Field until late in the year of 1947. He was relieved of his duties on 
September 30, 1947. His compensation, however, continued until 
December 31, 1947. I believe we had some sort of a leave situation 
policy. The same circumstances applied to the termination of Mrs. 
Field's employment which ended exactly the same time. 

During the entire period of the Fields' employment, he was assigned 
or they were assigned to work in offices of the committee abroad, prin- 
cipally in Geneva and Paris, as director for Europe. He was in charge 
of the day-to-day operations in Europe and made several visits to the 
United States. When I say he, the files seem to indicate pretty 
strongly that it was they and sometimes I had some questions as to 
exactly who was the head man in the Field team. 

Mr. Morris. When you say "they," you mean Noel and Herta ? 

Mr. Ketcham. Yes. 

It appeared to the members of the committee staff that he was deeply 
interested in the individual people and felt a great responsibility to do 
and have the committee do everything possible to alleviate human 
suffering wherever it it was encountered. 

That policy is the policy and program of the service committee, 
which is to attempt to do anything in any portion of the world to 
attempt to help human action and, as you know, Senator, the service 
committee as of today has operations practically all over the world. 

As the war progressesd — mind you, this is going on during the war 
and during the occupation of France by the Nazis, and the statements 
in the file show that case problems in the various countries became more 
and more complex. It was the purpose of the service committee to 
render service without regard to race, color, creed, or nationality of 
victims of Nazi aggression. It was believed by the committee that 
the Fields defended and tried to carry out this purpose regardless of 
the mounting complications which arose because of the conflicting 
political and ideological beliefs in the countries where the committee 
was operating. During the year 1946 — and this is after the French 
underground had taken a pretty active role against the collaboration 
and there was great confusion as you will recall, in France as to who 
was who, and who was what and who was doing what. 

It seems also pretty clear that probably the Communists were very 
active in the French underground, which would have been the situa- 
tion. 



SCOPE OF SOVIET ACTIVITY EN THE UNITED STATES 3957 

Mr. Morris. Mr. Ketcham, just by way of amplifying what you 
are saying, would you say from surveying, looking over these files 
as you did here on July 9 of this year, was there anything to indicate, 
anything to support the charge that he was running an underground 
railroad for the Communists on the European Continent at that time 
in connection with this work? 

Mr. Ketcham. There were some statements made by people to mem- 
bers of the service committee. There were a lot of accusations which, 
as I started to say, started around 1946. That is when the central 
committee of the service committee — which is the steering committee 
in this country — in Boston, began to receive definite information that 
indicated that Field might be showing favoritism toward Communists 
in the service committee relief work. 

Mr. Morris. In carrying out the service committee's relief work 
what was he doing, was he getting people out ? 

Mr. Ketcham. As near as I can tell from the files, it was sort of a 
welfare program to provide food and medical assistance and all that, 
but it is not clear exactly what he was doing. 

That was one of the problems that the committee had in this country 
of finding out what was going on. He and Herta Field were pretty 
much free agents. They were in charge and about all they got from 
this country was the necessary wherewithal to do what they were 
doing. 

Senator Hruska. Wasn't part of the program of the service commit- 
tee the placing of displaced persons and escapees and refugees into 
other parts of the world than France and Italy and wherever they 
happened to be ? 

Mr. Ketcham. It was. But I don't know what he had to do with it. 

Senator Hruska. Wasn't their headquarters for a while in Lisbon 
for that purpose for the purpose of getting people out of Europe? 

Mr. Ketcham. I believe so. 

Senator Hruska. You don't know whether he was stationed there 
and active in that phase of the world ? 

Mr. Ketcham. Something in the files indicated he did make some 
trips to Portugal. Whether he was running an underground or not 
I don't know. He certainly could have. 

Mr. Morris. The records show that there were complaints made to 
the service that he was partial to the Communists ? 

Mr. Ketcham. Yes. There is information submitted to the service 
committee in the form of allegations that Field was a Communist and 
a member of the Communist Party, >and that I can say upset them 
greatly so they did everything they possibly could to check on this 
information and the rumors that had been brought to their attention 
and there were many of them. 

In the minutes of a meeting of the committee in October 1946 it is 
disclosed that the committee made every effort to secure the coopera- 
tion of the State Department in getting accurate information with 
respect to these charges. 

Mr. Morris. When was that? 

Mr. Ketcham. 1946. The minutes of the meeting show that the per- 
sonnel of the service committee in this country had been asking the 
State Department, "What about Noel Field?" "We have heard these 
allegations, we would like to know what you know about them." I 
would say they got nothing but pretty favorable replies about Field. 



3958 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. The State Department kept giving them favorable 
reports about Field as late as 1946 ? 

Mr. Ketcham. Yes. 

Senator Hruska. Were those reports from the State Department 
in letter form or by way of memoranda of personal telephones and 
interviews ? 

Mr. Ketcham. They were memoranda of contact made by the per- 
sonnel of the service committee with people in the State Department 
who should have known about these matters. There was no official 
communication from the State Department at all on that. 

Mr. Morris. Do you know any of the individuals in the State De- 
partment who made these favorable recommendations? 

Mr. Ketcham. I don't know offhand. 

Mr. Morris. Could you check that for us ? 

Mr. Ketcham. I will. 

Senator Hruska. Did the memorandums reveal the identity of the 
individuals involved in these inquiries both in the State Department 
and on the committee ? 

Mr. Ketcham. Yes. 

In 1946, as a result of the committee's concern about Field they 
employed Dr. Raymond Bragg who was one of the most prominent 
Unitarian and respected Unitarian ministers in the denomination. 
He was employed as director of the service committee. In other 
words he was put over Fields and he was sent to Europe for the ex- 
press purpose of securing the facts on the work in Europe with a view 
to determining whether the criticism against the committee had foun- 
dation and whether Noel Field should be returned. The records by 
implication show that when Mr. Bragg returned to this country he 
was quite concerned about what was happening in Europe. 

He was able to get no information that Field was a Communist or 
following the Communist Party line, whatever that was at the time. 
But there was pretty much evidence that many of the people or the 
large bulk of the people who were being held were Communists, but 
you could say that was understandable since they were the ones who 
needed the help most. They were the poorer people and also probably 
had been the most active against the collaborationists. The Bragg 
trip back caused more consternation in the service committee in Boston. 

So they sent a special committee of which the chairman was the 
late Dr. William Emerson — whom you know, I believe, Senator — a 
very highly respected individual. He went over to Paris along with 
a couple of other people to check on the activities of Field and the 
foreign staff. 

The files indicate that the Fields put on quite a production for them. 
He took them around to the central office of the Paris commission of 
the service department. It was in very humble surroundings and 
they had a very humble meal and Dr. Emerson was very much im- 
pressed by the humility of the operation. That is the essence of the 
report. 

Mr. Morris. He was an ascetic living man ? 

Mr. Ketcham. Yes; at no time was the service committee able to 
obtain any information that could be substantiated that Field was a 
Communist or a member of the Communist Party or that he was 
using the service committee's relief program for the special benefits 
of Communists. 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 3959 

Upon the completion of these two investigations, the committee 
became convinced that, whether the accusations and rumors could or 
could not be substantiated, he had to go, that his continued employ- 
ment was detrimental to the operations of the service committee and 
detrimental to the high respect and reputation of the Unitarian de- 
nomination. Field was advised of the various accusations and ru- 
mors that were being made against him and always insisted that they 
were without foundation. 

As a matter of fact, as I said earlier in my testimony, he seemed to 
be the kind of person who couldn't admit a mistake. He would 
seem — and I may be a little psychiatric — to have a pronounced perse- 
cution complex which would sort of be in keeping with the type of 
mind who would issue the statement with respect to Hungary. The 
whole world is wrong but not Noel and Herta Field. 

I want to accentuate also that the Unitarians, being as they are, 
always interested in seeing the good in human beings, they tried and 
they tried desperately to think of Field and believe in him and believe 
in his principles as they were enunciated. This was not a light deci- 
sion that was made by them to terminate his employment. 

I am not sure that some of the people who were impressed by his 
personality are still able to believe that he issued that statement in 
Hungary, but that is my own impression and nothing in the record 
indicates it. 

Accordingly, in September 1947, the decision was made by the serv- 
ice committee unanimously to terminate the Fields' services. They 
did it on the basis of a serious budgetary problem which had been 
encountered and I suspect that the Fields' activities had made this 
program of the Unitarians unpopular so that the funds were not forth- 
coming from the denominations who supported it. 

Accordingly they were both dismissed as I mentioned earlier and 
then there is no more in the records. 

Senator Hruska. What did the minutes of that meeting show where 
he was dismissed ? Have you summarized that ? 

Mr. Ketcham. Because of a budgetary problem, they did not think 
they could continue the operation any more and Field was notified. 

Senator Hruska. And there was no indication that they went be- 
yond that in assigning grounds ? 

Mr. Ketcham. No. 

Senator Hruska. Was there anything in the memos or in the cor- 
respondence in the files which might have indicated there were addi- 
tional grounds ? 

Mr. Ketcham. As I stated earlier 

Senator Hruska. I mean in that immediate period of time in 
October 1947. 

Mr. Ketcham. Certainly it was considered. 

Mr. Morris. Did anyone stand out as people supporting him in 
references, speaking very well of him and speaking of him highly? 
Does anyone stand out in your review of the summary as having 
done that ? 

Mr. Ketcham. The one I mentioned was the one that was most 
impressive to me was the Bingham recommendation and also the 
strong recommendation by the then director of the service com- 
mittee based upon his interviews with people. But whom he talked 
with, I don't know. 



3960 SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 

Mr. Morris. I have no questions. 

Senator, the point that this can add to our record is that here we 
have a man who, according to sworn testimony before the subcom- 
mittee and while he was in the State Department's Western European 
Division, was recruited into Soviet espionage. Subsequent to that 
we have learned from Mr. Swiatlo that he has acknowledged — this 
man Field has acknowledged to Swiatlo, his jailer, that he had been 
a good loyal Communist at the time of his arrest in 1949. We have 
seen that a man like this can hold high office in the United States 
and how he can deceive, as the witness have shown today, by his ascetic 
living, his personal and convincing appearance and demeanor, how 
he can operate and how he can carry out the work of Communist 
activities rather successfully and almost without interruption in 
connection with that work. 

And for that reason, Senator, we have presented today the testi- 
mony of Mr. Ketcham who, qualified as he is by having gone through 
the records of the Unitarian service, has given us this insight into 
the activity of Mr. Field. 

And your appearance here today is after consultation with the 
Unitarian service committee ? 

Mr. Ketcham. Specifically authorized, Senator. 

Mr. Morris. Senator, we have last heard that Noel Field is now 
the head of the translating unit in Budapest for the Communists. 
That is the last thing we heard. 

Has Mr. Field ever communicated with any members of the service 
committee or have you been in touch with him since his dismissal? 
Do the records show that ? 

Mr. Ketcham. The records show no communication. 

Senator Hruska. Anything further? 

Mr. Morris. That's all, Senator. 

Senator Hruska. If not, we want to thank you, Mr. Ketcham, for 
your appearance here and your contributions. May I suggest, if any- 
thing further as a result of this hearing may develop by way of 
disclosures, that you keep in touch with Mr. Morris? Thank you 
very much for coming. 

Mr. Ketcham. I want to put in the record that the Unitarians 
are intensely interested in cooperating with the activities of our Gov- 
ernment and anything to get at Communists. 

Senator Hruska. I'm sure that's right. 

The meeting is adjourned. 

(Whereupon, at 11 : 10 a. m., the hearing was adjourned.) 



INDEX 



Note. — The Senate Internal Security Subcommittee attaches no significance 
to the mere fact of the appearance of the name of an individual or an organ- 
ization in this index. 

A 

Page 

American Legation 3950 

American passport 3949 

American Unitarian Association 3953, 3954 

Asian People's Anti-Communist League 3933 

Associated Press (AP) 3933-3935,3937,3950,3954 

Austria 3941, 3944, 3946 

AVH (Hungarian Secret Police) 3949-3951 

B 

Barcelona 3955 

Belgrade 3938 

Bessarabia 3938 

Bingam, Hiram (American consul in Marseilles) 3955 

Bingham recommendation 3959 

Boston 3954, 3957, 3958 

Bragg, Dr. Raymond 3958 

Budapest 3933, 3934, 3936-3940, 3948-3951, 3954, 3956 

Budapest University of Economics 3934 

Bulganin, Mr 3940 

O 

Central Europe 3939, 3948 

China, Republic of 3933 

Chinese Communists 3933 

Christmas, 1954 3948 

Communist/s 3948, 3950, 3955-3958, 3960 

Communist countries 3945 

Communist Government of Hungary 3938, 3944 

Communist Party 3933, 3935, 3936, 3949, 3957, 3958 

Communist state . 3939 

D 

Daily Telegraph (London newspaper) 3934 

Darkness at Noon (booklet) 3937 

Davis, Norman 3955 

Disarmament Commission 3955 

Dulles, Allen (Chief of the United States Intelligence Service) 3949 

E 

Egypt 3941 

Eisenhower, Mr „ 3936 

Emerson, Dr. William 3958 

Europe 3934, 3956-3958 

European Continent 3957 

Exhibit No. 463 — Senator Hruska's letter to Assistant Secretary of State 

Robert C. Hill dated April 25, 1957 re : Hungary 3941-3944 

Exhibit No. 464— Mr. Hill's letter dated May 10, 1957 to Senator Hruska— 

interim reply 3945 

Exhibit No. 464-A— Mr. Hill's reply dated June 20, 1957, to Senator 

Hruska's letter of April 25, 1957, re: Hungary (includes Resolution No. 

15 of 1951 FAO Conference) 3945-3947 

F 

Federal grand jury : 3953 

Field, Herman 3950 

Field, Hertha (wife of Noel) 3948, 3949, 3956, 3957, 3959 

Field, Noel 3948-3950, 3953-3960 

Employment record 3955 



n INDEX 

Page 

Financial Control, Committee on 3946 

Food and Agriculture Organization in Hungary (FAO) 3941-3946 

Food Shortages and Famine (Resolution No. 15) 3947 

France 3941, 3955, 3956, 3957 

French underground 3956 

G 

Geneva 3946, 3949, 3956 

Geneva Summit Conference 3936 

German 3938, 3951 

German Communist 3949 

Gero, Communist Party of Hungary, first secretary 3938 

Great Britain 3941 

H 

Hammarskjold, Mr. (UN Secretary-General) 3940 

Hapsburgs 3948 

Hegedes, Prime Minister 3938 

Hill, Robert C. (Assistant Secretary of State) 3941, 3945, 3946, 3947 

Hiss, Alger 3954 

Hiss case 3950 

Hruska, Senator Roman L 3933, 3944, 3953 

Hungarian/s 3939-3941, 3947, 3948, 3951 

Hungarian anti-Communist politicians 3945 

Hungarian budget 3950 

Hungarian capital 3937 

Hungarian Communists 3950 

Hungarian Communist constitution 3940 

Hungarian Communist regime 3935, 3938 

Hungarian Government 3938 

Hungarian Parliament 3934 

Hungarian Revolution 3933, 3934, 3938-3940, 3947-3949 

Hungarian Secret Police 3936, 3949 

Hungary 3935-3945, 3948-3950, 3954, 3959 

1 

International Red Cross 3944, 3946 

Internment camps 3939 

Iron Curtain 3949, 3951 

Italy 3957 

Ivanzov, Colonel (NKVD) 3936 

J 

Justice, Department of 3953 

K 

Kadar Government 3944, 3946 

Kadar, Premier Janos (Prime Minister of Hungary) 3939, 

3940, 3942, 3945, 3949 

Kennedy, Senator 3945 

Ketcham, Frank S 3953 

Khrushchev, Mr 3936, 3940 

Koestler, Arthur 3937 

Kremlin 3940 

Ku, Cheng-Kang 3933 

L 

League Military Commission 3955 

League of Nations 3955 

Legation, American, in Budapest 3950 

Letters between Senator Hruska and Assistant Secretary of State Hill 

re : Hungary 3941-3947 

Lisbon 3957 

London 3934 

London Naval Conference 3955 

Long Island University 3934 



INDEX in 

M 

Page 

Madrid - 3955 

Mandel, Benjamin 3933, 3953 

Marseille 3955 

Mar ton, Andrew (Endre) : 

Testimony of 3934-3952 

2224 F Street NW., Washington, D. C 3934 

1947-57, staff reporter AP in Budapest 3934 

January-February 1937, Vienna Bureau AP 3934 

Washington Bureau AP, presently 3934 

George Polk Award 3934 

Presidential Award 3934 

Wife, Dr. Ilona Nyilas 3934 

Born in Budapest 3934 

Graduate, Budapest University of Economics 3934 

Member Smallholders Party 3934 

Budapest report for Daily Telegraph 3934 

February 1955 arrested by Hungarian Communist regime 3935 

August 1956, pardoned 3935 

Marxist 3948 

Massachusetts Department of Mental Hygiene 3955 

Massing, Hede 3954 

Mindszenty, Cardinal 3936 

Morris, Robert 3933, 3953 

Morros, Boris 3953 

Moscow 3936 

N 

Nagy, Imre 3935, 3939-3941, 3949 

"Nature of Communism in Occupied China" (subcommittee publication) __ 3933 

Nazis 3956 

New look policy in Hungary 3936, 3939 

New York 3953 

New York bar 3953 

NKVD 3936 

Nyilas, Dr. Ilona 3934 

Wife of Andrew Marton ,. 3934 

1949-57 staff reporter UP in Budapest 3934 

O 

October uprising 3937 

Overseas Press Club 3934 

P 

Paris 3956,3958 

Parliament 3950 

Perpignan 3955 

Petoefi Circle 3938 

Poland : 3939, 3945, 3948 

Poles 3939,3948 

Polish Communist Government 3952 

Polish Government 3950 

Polk, George, award 3934 

Portugal 3957 

Prague 3948 

Presidential award 3934 

Q 
Quaker 3949 

R 

Rajk, Foreign Secretary 3936 

Rakosi, Mr 3935, 3936 

RAO 3945 

Red army 3951 



IV INDEX 

Page 
Red Cross 3945 

Retaliation diplomatic field 3940 

Retaliation economic field 3940 

Rome 3942 

Rumania 3935,3938 

Rusher, William 3933 

Russian/s 3938,3941 

Russian Army officers 3938 

Russian Empire 3937 

Russian secret police 3936 

Russian tank units 3937 

Russian troops 3938 

S 

Schroeder, Frank 3953 

Secret police 3935-3937 

Smallholders Party 3934, 3935 

Socialist camp 3954 

Soviet 3938 

Soviet espionage 3960 

Soviet Union 3937, 3941 

Spain 3955 

Stalin's death 3937 

Stalinism in Hungary 3939 

State, Department of 3941, 3944, 3945, 3946, 3955-3960 

Suez 3941 

Swiatlo, Josef (Polish security officer) 3955,3956,3960 

Switzerland 3944, 3946, 3949 

T 

T-54 3951 

Third Committee of League Assembly 3955 

Tito 3948 

U 

Unitarian/s 3958-3960 

Unitarian Association, American 3953, 3954 

Unitarian Service Committee 3953-3955 

United Kingdom 3943 

United Nations 3940, 3941, 3943, 3945, 3954 

United Press (UP) 3934 

United States of America 3935, 3936, 3941, 3944, 3950, 3953, 3956 

V 

Vienna 3939,3946 

Vienna Bureau, AP 3934 

W 

Washington bar 3953 

Washington Bureau 3934, 3950 

West 3939, 3940, 3941, 3944, 3955 

Western European Division 3960 

Western Powers 3940, 3941 

World War II 3934,3935,3949,3955 

Y 

Yugoslavia 3948 

Z 
Zieliski, Marion 3952 



o 



SCOPE OF SOVIET ACTIVITY IN THE UNITED STATES 



HEARINGS 

i BEFORE the 

SUBCOMMITTEE TO INVESTIGATE THE 

ADMINISTRATION OE THE INTERNAL SECURITY 

ACT AND OTHER INTERNAL SECURITY LAWS 

OF THE 

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

EIGHTY-FIFTH CONGKESS 

FIRST SESSION 

ON 

SCOPE OF SOVIET ACTIVITY IN THE 
UNITED STATES 



MAY 16, JUNE 18, AND JULY 23, 1957 



PART 62 



Printed for the use of the Committee on the Judiciary 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
93215 WASHINGTON : 1957 



BOSTON PUBLIC LIBRARY 



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