Senator CLARK. I have one brief line of questioning, Mr. Belcher. My interest is in the relationship of your investigation to the Department of Agriculture. I thought you might expand on that somewhat. Was this problem first called to your attention by the Department, or was it due to your own individual investigation?

Mr. BELCHER. It is my understanding that it was first brought to our attention, that is, the U.S. attorney of the eastern district of Louisiana, by the Department of Agriculture people.

Senator CLARK. So your investigation did not precede their investigation?

Mr. BELCHER. We had no information until we first were alerted to it.

Senator CLARK. You were alerted to it by them?

Mr. BELCHER. That is my understanding.

Senator CLARK. I wonder if you would talk with others in the Department who would be in a position to answer that for the record? Mr. BELCHER. I would be glad to do that.

[The following information was subsequently received for the record:]

Regarding Senator Clark's question above, I understand that the current investigation was instituted by the Federal Bureau of Investigation in March 1974 as a result of information provided on March 15, 1974 to the FBI by the Federal Maritime Commission and individuals employed in the grain shipping industry. The FBI immediately thereafter communicated with the United States Attorney, New Orleans, to obtain guidance. The U.S. Department of Agriculture's Office of Investigation was called upon almost immediately thereafter to assist with the investigation.

Senator CLARK. I assume that it would be common practice for the Justice Department to have under investigation matters which fall under the authority of another department, as this one does?

Mr. BELCHER. Of course, we consider criminal violations to be uniquely the responsibility of the Department of Justice, and there are certain guidelines and mechanisms to do what we can to insure that information, violations of the Federal criminal statutes are brought to the attention of the U.S. Attorneys around the country or to the Department of Justice.

Senator CLARK. When was the Federal Bureau of Investigation first brought into the investigation?

Mr. BELCHER. I have no specific knowledge, but I would believe from the information available to me that they also were alerted about the same time, which would be the spring of 1974.

Senator CLARK. Now, your investigations are limited to the question of bribery of inspectors?

Mr. BELCHER. Not at all.

Senator CLARK. Or broader than that?

Mr. BELCHER. As you know, some of these violations are contained in the statement, are from Title 7 of the United States Code, and have already encompassed Title 7 violations, but any other violations of the criminal type would also be included within the scope of our investigation and prosecution.

Senator CLARK. And as I understand it, at one point, Mr. Sloan was the Chief Inspector of the New Orleans segment of the investigation. Why was he relieved from that responsibility?

Mr. BELCHER. I have no information on that.

Senator CLARK. You have no information about it at all?

Mr. BELCHER. No, sir. I do not.

Senator CLARK. Would you provide that for the record, if that proves to be possible to do?

[The following information was subsequently received for the record:]

Regarding Mr. Sloan's reassignment, I understand that he was reassigned in the best interests of the investigation. Further inquiry about Mr. Sloan should be addressed to the Director of the Federal Bureau of Investigation.

Mr. BELCHER. It is your understanding Mr. Sloan was of the FBI or the Department of Agriculture?

Senator CLARK. I thought the FBI.

Mr. BELCHER. FBI?

Senator CLARK. Well, I think, Mr. Belcher, that concludes the questions that I have. We thank you very much for coming in. Do you have any questions, Senator Dole?

Senator DOLE. No.

Senator CLARK. The hearing is adjourned.

[Whereupon, at 1:07 p.m., the hearing was recessed, subject to call of the Chair.]

ADDITIONAL MATERIAL FILED FOR THE RECORD

[Reprint from Des Moines Sunday Register, May 4, 1975]

GRAIN SHIPS: Dirt, Bribes

(By James Risser)

NEW ORLEANS, LA.--Federal agents here and in other port cities have uncovered what appears to be widespread corruption in the grading and shipping of U.S. export grains.

Seven federally licensed grain inspectors in New Orleans and another five in Houston, Tex., already have been indicted on charges of accepting bribes in exchange for certifying that ships were clean and acceptable for loading with grain.

Five of the New Orleans inspectors have pleaded guilty, and one was convicted after a jury trial. Additional indictments are considered likely, and the inquiry has spread to other Texas ports.

The federal probe now is entering a new phase, aimed at checking into the possible misgrading of grain and the involvement, if any, of shipping and grain company officials in the bribery schemes, The Register has learned.

The Register's own investigation indicates that the government's system of grading export grain and inspecting ships is full of conflicts of interest and the potential for a variety of abuses.

As a result, foreign purchasers and countries that get humanitarian food aid from the United States may have received substandard grain and grain that was contaminated by being transported in dirty or insect-infested ships.

Privately employed

Although the indicted inspectors were licensed by the U.S. Agriculture Department, they actually were employed by private inspection agencies such as the New Orleans Board of Trade and the Houston Merchants Exchange. The agencies are controlled by business executives, including grain and shipping company officials, who have a huge financial stake in seeing that grain exports are not unduly delayed at the inspection stage.

If an inspector finds a ship dirty and demands that it be cleaned before grain is is put aboard, or if he places a low grade on a shipment of corn or wheat, the ruling can mean many thousands of dollars in lost profits for the grain and ship companies.

One federal official involved in the case described the entire grain and ship inspection system as "a rather incestuous relationship" that was set up as “an accommodation to local interests" in the export trade.

For years

The bribery schemes apparently had been going on undetected for a number of years on a rather modest scale, and came to light only as the grain export business began booming, and as the inspectors started demanding pay-offs of as high as $5,000 per ship.

Shippers apparently were willing to make the payments because the cost was considerably less than the thousands of dollars a day lost while a ship is tied up in port being cleaned.

The corruption was revealed to the FBI which is conducting the investigation at a number of grain-exporting points with the help of the Agriculture Department's office of investigation.

As a result of the still unfolding scandal, the Agriculture Department's agricultural marketing service, which licenses the inspectors, has suspended the licenses of those indicted and says steps have been taken to improve supervision over the remaining inspectors.

Need for integrity

But several officials said in interviews that they question whether future abuses can be prevented unless the inspection system is overhauled completely. They stressed the need for maintaining the integrity of grain grading and ship inspection, if the U.S. is to continue to develop its agricultural export trade.

The indictments issued last August by a federal grand jury in New Orleans came out of an investigation directed by U.S. Atty. Gerald J. Gallinghouse and the chief of his criminal division, Assistant U.S. Atty. Cornelius R. Heusel.

Seven inspectors were indicted for accepting bribes, a ship-cleaning firm and its president were accused of paying bribes and a federally licensed grain sampler was charged with perjury.

Most pleaded guilty and received light fines and were placed on probation, after promising to cooperate with the prosecutors in pursuing the investigation. One case is still to be tried, and one inspector who was convicted by a jury has appealed.

With the exception of the one ship-cleaning firm, none of the ship company representatives accused of paying the bribes has been charged yet.

One trial

Most of the limited information now available in public records about the investigation is contained in the transcript of the trial of William E. Fleetwood III, who was convicted in U.S. District Court in December on three counts of bribery. He has filed an appeal.

The witnesses described a pattern of bribery payments, which allegedly were authorized by high officials of ship companies who were anxious that their ships be certified as clean to receive grain.

The "going rate" at one time was $250 to $500 per ship, the jury was told by Robert E. Wilde, an operations clerk for the shipping firm of Hansen & Tidemann, Inc.

Payments rise

But the payments began to rise in 1973 and 1974 until, said Wilde Inspector Fleetwood on Mar. 14, 1974, demanded $5,000 to issue a cleanliness certificate for the "M-V Achilles, an oil tanker that was to be used to ship grain.

Fleetwood turned down the ship after the New York owners refused to meet his demands, but another inspector, Clarence P. Baker, Jr., approved it the next day after asking and receiving a $2,500 payment, the jury was told.

Baker confirmed the story at the trial, and described the Achilles as "very difficult to clean and to convert over to grain storage" because it previously had carried oil.

Hansen & Tidemann agent Lloyd L. Scallan, Jr., testified that he actually gave the money to Baker.

Part of job

"I knew it wasn't right, but I was doing what my company instructed me to do as part of my job," Scallan testified.

At two points in the Fleetwood trial, the jury was shown checks allegedly involved in the briberies. One, for $5,000, was made out from Hansen & Tidemann to L. Caro, identified as a delivery boy from the firm. He cashed the check, endorsing it on the back with his name and the words "for M-V Achilles," and gave the money to Scallan.

The other check, from Gulf Coast Shipping Corp., to Mike Hardee, a Gulf Coast agent, was for $1,000 and had an attached voucher reading, "M-V Lotus Flower, F-1010, gratuities for grain surveyor."

To Fleetwood

Hardee testified that he cashed the check and delivered it to Fleetwood's home on Jan. 30, 1973, two days after another inspector had rejected the Lotus Flower. because of rust scaling and residue from earlier cargoes.

Fleetwood then okayed the ship, Hardee said.

Fleetwood was convicted on three of four counts, was fined $600 and was placed on five years probation.

The inspectors who have pleaded guilty are Baker, who received the payment on the Achilles, and inspectors Vincent Marconi, Raymond S. Schultz, William E. Fedrick and Barry Barrios.

Marconi and Schultz, both of whom were employed by the New Orleans Board of Trade, were accused of taking bribes ranging from $150 to $3,500 each for issuing certificates of cleanliness to various ship owners.

In addition, the two were charged with having a continuing arrangement with Peterson Maritime Services, Inc., a ship-cleaning firm, under which the two inspectors received from the firm $100 a month each for more than four years. The firm and its president, Dean Leslie Peterson, were indicted and pleaded guilty of bribery and imporperly influencing inspection personnel. Peterson was fined $1,000 and put on two-years probation, and has since died. The firm was fined $9,000.

Another trial

Another inspector, James Timonet, is to be tried next month.

Also, Lawrence J. Berthelot, a federally licensed grain sampler, was charged with putting an incorrectly high grade on a load of corn in 1973. He pleaded guilty and was put on one-year probation.

In the investigation at Houston, being directed by U.S. Atty. Edward B. McDonough, jr., five inspectors were indicted Mar. 25 on 18 counts of taking payments from Captain Victor G. Diaz of Maritime Overseas Corp. to certify a number of ships owned by that firm.

The defendants, accused of taking between $50 and $500 per ship between 1970 and 1974, are Arthur J. Taute, Bill Gene Marcy, Billy Ray Davenport, Jerry R. Parker, and Billy J. Westbrook.

All were employed by the Houston Merchants Exchange.

The five have pleaded innocent, and trials are scheduled for later this spring.

Won't say

U.S. Attorney McDonough would not say whether he has evidence of involvement by high-ranking ship or grain company executives, but said his investigation is continuing and includes the ports of Brownsville, Corpus Christi and Galveston. Grain grading and ship inspections are conducted under the U.S. Grain Standards Act, which specifies that the initial inspections are to be done by federally licensed inspectors employed by inspection agencies designated by the Agriculture Department.

There are five such agencies in the New Orleans area, serving eight big grain exporting elevators along the Mississippi River.

Tariff schedules

The agencies are paid on the basis of tariff schedules they file with the agricultural marketing service's grain division, which routinely approves the charges. A typical charge at present is around $100 per ship inspection, and about $1 per 1,000 bushels of grain inspected and graded.

More than a third of all grain exported from the U.S. is shipped out of the New Orleans-area elevators. Much of it is Midwest corn, which comes down the Mississippi to New Orleans by barge.

All of the major U.S. grain exporting companies have an elevator at New Orleans, including such giants as Continental, Cargill, Cook and Bunge.

The agricultural marketing service's grain division has "appeal inspectors" at each port who can be asked to overrule an adverse decision by one of the agency inspectors.

Seldom used

As a practical matter, however, the Fleetwood jury was told, the appeal process is seldom used by grain owners or ship companies because the government appeal inspectors are known to be tougher than the agency inspectors.

Gilbert Vorhoff, president of the New Orleans Board of Trade, defended the board's inspection procedures and said a new map has been employed to supervise the inspectors as a result of the cases. Two of the indicted men worked for the Board of Trade, while others in New Orleans worked for other inspection agencies. Vorhoff acknowledged that the Board of Trade's main function is to promote trade and commerce, and that its members and directors include officials of grain and shipping firms. But he insisted that there is "absolutely and unequivocally not a conflict of interest" in such an organization's also being a regulatory agency for the inspection of ships and grain.

Bank official

Vorhoff is a vice-president of Hibernia National Bank and specializes in international finance.