grain companies and the private inspection agencies that inspect them?

Mr. RYAN. I have long felt that there was. I wrote many letters in the early 1960's that the grain exchange here locally was owned by the grain trade members themselves, and that was to no avail. My letters, I am sure, were read, and all, but it was legal, and this was neverthere was never anything done about it.

Senator CLARK. Explain that in a little more detail. You said that the inspection agencies themselves are under the control of the grain companies? How can that be?

Mr. RYAN. The grain companies own the stock of the inspection agencies and dictate the policies within the agency. Well, they pay their salaries through the inspection agency, so it seems like too close of a relationship to me to be

Senator CLARK. Is it fair to say that the grain companies are being inspected by themselves?

Mr. RYAN. It would seem that way, yes.

Senator CLARK. Then doesn't that lend itself to a lot of problems? Doesn't that invite a lot of problems, in your judgment, as a person with some 17 years experience in Iowa?

Mr. RYAN. Well, probably one of the things that was happening here in Des Moines-it is not going on now, I am sure- -but when I came here, the inspection agency was charging a high fee to the shippers that were sending grain into Des Moines, and going out, loading out of their own elevators, they had a much cheaper fee.

Senator CLARK. They had two fees?

Mr. RYAN. Right.

Senator CLARK. One for people coming in and one for people going out, but for the same service?

Mr. RYAN. Yes. They had to pay for the one going out. The shipper had to pay for the one coming in. Then I think the weight fees are very similar to that. I think the weight fees they charged coming in, and at least at one time there was no charge for outbound weights. The same work involved, so to me it appeared to be a conflict of interest. Senator CLARK. Now. you spoke earlier, just in passing, about something called a yellow certificate. What does that mean, and how does that yellow certificate inspection system work?

Mr. RYAN. It is designed to help the country elevator. It is a warehouse certificate, we call it. The warehouseman takes the sample and mails it or delivers it personally to an inspection agency, and anybody buying on that yellow certificate, of course, it is well-stated on there that the sample has been drawn by the warehouseman at the elevator. Senator CLARK. So it has no official governmental sanction. It is simply a private kind of

Mr. RYAN. No; it is a legal certificate under the U.S. Grain Standards Act.

Senator CLARK. Who actually takes the sample?

Mr. RYAN. The warehouseman, the elevator superintendent; in some cases an employee of the elevator does.

Senator CLARK. In the 17 years that you were in Iowa,

revoke a license of a private inspector?

Mr. RYAN. Yes; I did.

did you ever

Senator CLARK. Under what circumstances, will you tell us!
Mr. RYAN. I had one locally here that was

SELLTOP CLARK. Locally here in Des Moines!

Mr. Brax. Yes; in Des Moines—whose lecuse was revoked for misgrading 56 boxcars in a row.

Senator CLARK. He misgraded 56 straight boxcars of corn, or what? Mr. RYAN. Of corn, right. I was on the spot when part of it happened. It told him. "Hey, you are missing a little bit of this." He said. "Oh, yes. I knew they had some in there", so while I was there, the cars that-I believe it was six cars while I was there that graded OK. It was correctly graded 3 Yellow corn instead of 2 Yellow corn, but when I left. they immediately went back to 2 Yellow corn,

Senator CLARK. Well, you lifted his license on the basis of that? Mr. RYAN. Yes. We suspended it temporarily, and then after inves tigation, we revoked the license, and he didn't contest it at all. As I understand it, he is now working for the Farmers Grain Dealers Association.

Senator CLARK. The same inspector, after he was revoked, went to work for who?

Mr. RYAN. The Farmers Grain Dealers Association.

Senator CLARK. Is he still employed there!

Mr. RYAN. To my knowledge, he is, yes.

Senator CLARK. On these yellow certificates, if I can go back to that for just a moment, I gather that they are rather widely used-is that fair to say, or not?

Mr. RYAN. I think they are very widely used here in Iowa.
Senator CLARK. Are they misused in any way?

Mr. RYAN. We have probably seen some examples that would indicate that. One that I would think that would be more prevalent than any that I can think of here locally would be in Muscatine, Iowa. They have an inspection agency located there. They have a warehouse sampling license there, too, so they get the warehouse sample by an elevator employee, and they send the sample, not to the local inspection agency, but to the inspection agency that they own here in Des Moines. Senator CLARK. How can they do that? You can legally do that? Mr. RYAN. It is perfectly legal, yes, sir.

Senator CLARK. So they can send it to an inspection agency that they have got a closer connection with?

Mr. RYAN. Yes.

Senator CLARK. They have reason to believe that they are going to get a more favorable reading on it, a more favorable certification on it? Mr. Ryan. I wouldn't be able to comment on that, because I don't know.

Senator CLARK. Well, now, do you see any parallel between inspection in Iowa and in the other interior markets, and inspection in New Orleans? You have seen both these market systems work in Iowa, Illinois, and New Orleans. How would you compare them, draw distinetions between them, whatever you would like to say about them?

Mr. RYAN. They are all of the same type. We have some very good, honest inspection agencies here in Iowa, and I think probably they are the top in the Nation, and they are all operated approximately within the provinces of the Department, within the act, and we have good ones and bad ones, I will put it that way.

Senator CLARK. But the system is the same?

Mr. RYAN. Yes.

Senator CLARK. That is to say, private inspection agencies, in some cases, have a rather close connection with the grain companies they inspect?

Mr. RYAN. Yes.

Senator CLARK. That exists at every level, whether you are talking about the interior or the export markets. There may be different personnel, in the terms of the quality of people who are inspecting, but the system is the same, as I understand it.

Mr. RYAN. Yes.

Senator CLARK. The last area that I wanted to discuss with you is your experience in Chicago. When you left Des Moines, you were assigned to go there. What was your position, official position there, and what was your assignment there?

Mr. RYAN. I was officer in charge in Chicago and was assigned to the regular duties of the officer in charge.

Senator CLARK. You saw problems there, as I understand it, when you went to Chicago. Can you kind of describe what the basic problems were there, and what your assignment was as a result?

Mr. RYAN. The basic problems were within the State organization. They didn't have real good management.

Senator CLARK. This was a State inspection agency?

Mr. RYAN. Yes.

Senator CLARK. So, instead of a private inspection in Chicago, the State had developed an inspection system

Mr. RYAN. Yes.

Senator CLARK [continuing]. To inspect all the grain that went out, export grain

Mr. RYAN. Yes.

Senator CLARK [continuing]. That went out of the Chicago Port? Mr. RYAN. Yes; they also got a lot of Iowa grain in boxcars, and hoppers, in Chicago.

Senator CLARK. Now, how would you describe the problems that you saw there that had to be dealt with?

Mr. RYAN. The management was very poor. The wages were very bad, which is typical, I think, of most State organizations. They don't pay the best I think in New Orleans, for instance, our State agency down there starts an inspector, who is experienced with them at least one year, they start him out at $450 a year as an inspector.

Senator CLARK. A month?

Mr. RYAN. A month, excuse me.

Senator CLARK. $450 a month?

Mr. RYAN. Yes; as a salaried employee.

Senator CLARK. Why is this bad, and what kind of problems can this lead to?

Mr. RYAN. Well, as I heard the statement made last night, if I had $100 in my pocket and I needed $20, I wouldn't be too dangerous, but if I had $20 in my pocket and needed $100, I would be very dangerous. Senator CLARK. You think the low wages are an incentive to cooperate?

Mr. RYAN. Very definitely.

Senator CLARK. Well, other than low wages and poor management in the State agency there, what other problems did you see in Illinois? Mr. RYAN. The inspectors were extorting overtime payments from the elevators by means of inspecting the grain, normally giving the elevator a better grade, because the elevator superintendent had to sign his overtime slip. If the superintendent didn't cooperate with him and sign for overtime that he had not worked, why, he might, in turn, grade his grain better. If he was loading 2 Yellow corn, he might grade it 3.-2.5 damage, and 211⁄2 percent of FM,* just on the lower limits of 2, make it No. 2, and in turn, his boss would come back to him and say, "Hey, you're giving away the house. How come you haven't put this grain out to the limits of No. 2." which he actually had done, but about two of those slips, and one elevator superintendent told me he would be looking for a job, so he said he had no choice. He had to sign these overtime slips.

I noticed also stealing of grain among the inspectors and samplers on a very small scale, not so much out of boxcars, but within the elevator itself, more of the State samples that had been taken. This was due, of course, to poor management.

Senator CLARK. In your judgment, did the State agency in Illinois, or does the State agency in New Orleans, as you know it-you said that they inspect the Port Allen elevator?

Mr. RYAN. Yes.

Senator CLARK. Do those State agencies do any better job than the private agencies?

Mr. RYAN. No. I would say that there is no difference; really.

Senator CLARK. You don't feel that a State agency in the two that you have direct experience with, the Illinois and Louisiana, have worked any better than the private agencies did?

Mr. RYAN. Not at all.

Senator CLARK. We are talking about going to a Federal system. Have you had problems in the grain division in anywhere near the same magnitude, people who have taken bribes, people who have worked closely with the grain companies, who have developed some kind of a buddy relationship? Has that been a problem in Iowa or Illinois or Louisiana, in your experience?

Mr. RYAN. No; not to any large extent. I did have one man that was when I moved to New Orleans, that was a pretty good buddy of most of the elevator superintendents. Needless to say, he is not working for me now.

Senator CLARK. Lastly, a couple or three questions that occur to me that are somewhat aside-they deal not with the grain inspection system, but the Grain Standards Act itself. Is it fair to say that our present Grain Standards Act invites blending in of foreign material consistent with the law?

Mr. RYAN. We have the tolerances on foreign material, and certainly this is legal within the Grain Standards Act, to mix foreign material in the grain.

Senator CLARK. So as I understand it, from talking with elevator superintendents in New Orleans, the goal, even consistent with the law, is to get as much foreign material as you can within the tolerance level of that grade.

*FM means foreign material.

Mr. RYAN. Yes; that is right.

Senator CLARK. There is a motivation under the present law to downgrade, in a sense, consistent with the tolerance level?

Mr. RYAN. I heard that the Bunge Corp. in Destrehan actually gave commendations to their superintendents when their foreign material was right on the line.

Senator CLARK. It makes a lot of money for them if they can do it that way.

Mr. RYAN. Yes.

Senator CLARK. Who profits from the corruption that we have seen in the New Orleans Port? That is to say, if there is short weighing, if there is misgrading, who profits from that?

Mr. RYAN. The individuals and the large companies.

Senator CLARK. How do the individuals profit, and how do the large companies profit? First, the individuals.

Mr. RYAN. The individuals have gained by short weighing ships, short weighing barges coming in, and then the stealing, as you might think of going out and taking the grain, never happens in most cases, the large-scale stealing. The barges and ships were short weighed, and when the volume in the warehouse became big enough, they would go out into the fleet and have one barge number, a certificate issued on it, and a weight certificate. They would have 50,000 bushels of soybeans, if you will, that they took and sold on their own.

Senator CLARK. Well, how does a private inspector-if he short weighs grain coming down from Iowa, let's say, on a barge-how does he profit from that?

Mr. RYAN. Will you give me that one again?

Senator CLARK. You say individuals profit from this. You are speaking of the individual inspector or sampler, I assume?

Mr. RYAN. Yes.

Senator CLARK. How do they profit from cheating on the system? By misgrading and misweighing, how do they profit? What are some of the ways in which they might profit?

Mr. RYAN. By the short weighing of barges, boxcars that are coming down.

Senator CLARK. The benefits there all go to the companies, don't they?

Mr. RYAN. The individuals found that it worked for the company, so they worked it for themselves, also.

Senator CLARK. Is it fair to say that with regard to the corruption that has occurred in New Orleans, the benefits of that have gone basically to the major grain companies, or has someone else profited from the short weighing and misgrading.

Mr. RYAN. It has been to the elevator superintendents and the grain companies, as I understand it.

Senator CLARK. So that if someone is short weighed, or if more grain is sold out of the elevator than ever comes into that elevator, the people that profit from it are the elevators and the owners of those elevators? Mr. RYAN. Yes.

Senator CLARK. But aren't they the major grain companies?

Mr. RYAN. Yes, they are.

Senator CLARK. Now, just one last thing. It is my understanding that even consistent with the law, grain companies can be 10 percent