Mr. FLANAGAN. Go ahead. Mr. LEECE. That was a 15-year bareboat charter, at a rate of 88 cents per deadweight ton per month. On the same date, October 21, 1947, the Greenwich Marine Corp. subchartered the five vessels to the Panama Transport Co., a Panamanian subsidiary of the Standard Oil Co. of New Jersey That also was a bareboat charter, but at a rate of $2.20 per deadweight ton per month. Mr. FLANAGAN. And that was a 5-year charter? Mr. LEECE. That was a 5-year charter; yes, sir. Mr. FLANAGAN. Now, that charter rate and we may be getting ahead of ourselves here was sufficient, was it not, to pay off the cost of these vessels in 5 years?. Mr. LEECE. The subcharter rate was; yes, sir. Mr. FLANAGAN. That is what I mean. The subcharter rate. Mr. LEECE. Yes, sir. Mr. FLANAGAN. Go ahead. Mr. LEECE. Under the terms of these chartering agreements, all charter hire accruing from the operation of these vessels was assigned to the Metropolitan Life Insurance Co., which company at a later date loaned the American Overseas Tanker Corp. $9,705,000, which money was to be used for the purchase of these vessels. I might say here that by this assignment, or through the use of this assignment idea, this Metropolitan mortgage became self-liquidating in 5 years. Senator HOEY. You mean under the terms it could be paid off in 5 years? Mr. LEECE. It could be paid off in 5 years; yes, sir. The plan worked about as follows: The monthly subcharter hire which Greenwich Marine Co. hoped to acquire from the operation of five tankers averaged about $182,000 a month. The American Overseas obligation to the Metropolitan Life Insurance Co., on the $9 million loan, aggregated something in the neighborhood of $175,000. Mr. FLANAGAN. What was the rate of interest on that loan, by the way? Mr. LEECE. Three percent. However, by reason of the application of the entire amount of subcharter hire, the liability of the American Overseas Tanker Corp. to the Greenwich Marine Corp., accumulated monthly, in the amount by which the charter hire assigned by Greenwich exceeded the amount that they were, under the 15-year charter, required to pay to American Overseas Mr. FLANAGAN. In other words, under charter agreements, no cash money was to go into American Overseas Tanker Corp., which is shown the top of the chart; is that right? Mr. LEECE. That is right. Mr. FLANAGAN. Money was to come from the Standard Oil subsidiary into Greenwhich, the Panamanian corporation, and then go from there directly into the Metropolitan Life Insurance Co. Mr. LEECE. Provision was made in the charter to assign directly $2.20 per month. As indicated in the chart, the annual fleet hire for five vessels in the year would be $2,191,305, which was going directly to Metropolitan. Now, the difference between the charter hire receivable by Greenwhich of $182,000, roughly, per month, and the $73,000 a month which they were required to pay to American Overseas under the terms of that 15-year bareboat charter, was set up by the Greenwich Marine Corp. as an unsecured loan. Mr. FLANAGAN. In other words, Greenwich, instead of giving the money to American Overseas, said, "We will loan that money back to you, and we will pay that to Metropolitan and retire your debt." Mr. LEECE. Theoretically, it would be repaid after the mortgage notes to Metropolitan were canceled and paid off. Mr. FLANAGAN. Now, on the tax picture here, we will just cover this briefly and get other witnesses on it. We find that the bulk of the charter hire, the great percentage of it, is going into the Panamanian corporation. Is that true? Mr. LEECE. That is right, sir. Mr. FLANAGAN. Greenwich Marine. Mr. LEECE. Yes. Mr. FLANAGAN. And that that corporation paid no United States income taxes, or corporate taxes? Mr. LEECE. It was a Panamanian corporation. Mr. FLANAGAN. And that the only moneys going into the Overseas Tanker Corp. were the 88 cents per month charter hire? Mr. LEECE. That is right, roughly $870,000 a year. Mr. FLANAGAN. $870,000 a year? Mr. LEECE. Yes. Mr. FLANAGAN. During the years that American Overseas Tanker operated, which would be 1948, 1949, 1950, and 1951, did they in fact pay any American taxes? Mr. LEECE. No, sir. Mr. FLANAGAN. And the reason they did not pay any American taxes was because of the expenses involved in amortizing the vessels, was it not? Mr. LEECE. Well, let me put it this way. Their only income was the $876,000 accruing from this 15-year, bare boat charter at 88 cents per deadweight ton. Their depreciation on the vessels and other overhead expenses were such as to put them from an operating position at a loss. They could state that they were operating at a loss. Mr. FLANAGAN. In other words, every year they operated by this procedure they set up, they paid no taxes, because they were operating at a loss ostensibly? Mr. LEECE. That is right. Mr. FLANAGAN. And the corporation on the books never made any money? Mr. LEECE. That is right, sir. Mr. FLANAGAN. And the profit has been made by the Greenwich Marine Corp., which is a Panamanian corporation, and for that reason did not pay corporate Federal taxes. Mr. LEECE. The records we have on Greenwich Marine showed that in 1948 they showed a net income of $1,063,006.34. In the same year the American Overseas Tanker Corp. showed a loss of $1,282,885. So for tax purposes, American Overseas paid nothing. Senator HOEY. I believe we probably will have to suspend now. Senator NIXON. Could I just clear one question, Mr. Chairman, before you recess? Do I understand that the American Overseas Tanker Corp. operated at a loss, and for that reason paid no income taxes; as a corporation, that is? Mr. LEECE. That is right. Senator NIXON. But the Greenwich Marine Corp. did operate at a profit? Is that correct? Mr. LEECE. That is correct. Senator NIXON. Who were the stockholders of the two corporations? Were they identical? Mr. LEECE. Yes. It was a joint ownership of both corporations. Senator NIXON. In other words, the stock ownership of Greenwich Marine and American Overseas was the same? Mr. LEECE. That is right; sir, yes. Senator NIXON. The Greenwich Marine Corp. had been set up, as you indicated, by an attorney in New York whose business it was to set up such corporations for purposes like this? Mr. LEECE. Well, I couldn't commit myself to that statement. But let me put it this way, Senator: I have been advised that Mr. Luley set up Panamanian corporations for the use of shipping companies who had ships to operate under the Panamanian flag. Senator HOEY. The committee will take a recess until tomorrow at 10 o'clock. (Whereupon, at 1:05 p. m., Monday, February 18, 1952, the hearing was recessed until 10 a. m., Tuesday, February 19, 1952.) SALE OF GOVERNMENT-OWNED SURPLUS TANKER VESSELS TUESDAY, FEBRUARY 19, 1952 UNITED STATES SENATE, INVESTIGATIONS OF THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS, Washington, D. C. The subcommittee met at 10: 15 a. m., pursuant to Senate Resolution No. 251, Eighty-second Congress, second session, agreed to January 24, 1952, in room 357 of the Senate Office Building, Senator Clyde R. Hoey (chairman of the subcommittee) presiding. Present: Senators Hoey, McClellan, Underwood, Mundt, and Nixon. Also present: Francis D. Flanagan, chief counsel; William A. Leece, assistant counsel; Louis W. Sornson, accountant; and Ruth Young, chief clerk. Senator HOEY. The committee will please come to order. Mr. Flanagan will resume the examination of Mr. Leece. Mr. FLANAGAN. Mr. Leece, yesterday, when we stopped for the day, we were still discussing this chart 1. I believe there are a couple of exhibits we want to put in the record. Will you just state what the exhibits are, so that we may place them in the record? TESTIMONY OF WILLIAM A. LEECE, ASSISTANT COUNSEL, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON EXPENDITURES IN THE EXECUTIVE DEPARTMENTS-Resumed Mr. LEECE. Yes. Exhibit 3 is the contract of sale entered into between the American Overseas Tanker Corp. and the Maritime Commission on the 19th of December. Mr. FLANAGAN. 1947? Mr. LEECE. 1947; with regard to the sale of the five T-2 tankers originally purchased by American Overseas. Senator HOEY. That will be marked "Exhibit 3." (The contract referred to was marked "Exhibit 3," and will be found in the appendix on p. 627.) Mr. LEECE. Exhibit No. 4 is amendment No. 4, dated January 22, 1948, asking to take title of three tankers in the name of National Tanker. Senator HOEY. That will be marked "Exhibit No. 4." (The amendment referred to was marked "Exhibit No. 4" and will be found in the appendix on p. 631.) Mr. FLANAGAN. I think there is one more exhibit to be placed in the record. Mr. LEECE. Exhibit 5 is a copy of a charter entered into on October 21, 1947, by the American Overseas Tanker Corp., on the one hand, and the Greenwich Marine Corp. on the other. That will be exhibit 5, Senator HOEY. It may be so marked. (The copy of the charter referred to was marked "Exhibit 5," and will be found in the appendix on p. 631.) . Mr. LEECE. Exhibit 6 is a copy of a bare-boat charter entered into on October 21, 1947, by the Greenwich Marine Corp. on the one hand and the Panama Transport Co. on the other. That will be exhibit 6. Senator HOEY. Exhibit 6. (The copy of the charter referred to was marked "Exhibit 6" and will be found in the appendix on p. 639.) Mr. FLANAGAN. Mr. Leece, my recollection is that when you finished your testimony yesterday you had discussed the chartering arrangements between the American Overseas Tanker Corp. and its subsidiary, Greenwich, and in turn the chartering operations between Greenwich Marine and Panama Transport, the subsidiary of Standard Oil of New Jersey. At one point in your testimony you also made some reference to the profit and loss positions of American Overseas Tanker and Greenwich. Now, to complete the record, will you state for us the profit or loss position for tax purposes of American Overseas Tanker Corp. during the 3 years this corporation was operated by the Casey group? Mr. LEECE. In 1948-I am speaking now of the American Overseas Tanker Corp.-they operated at a loss of $1,282,885. Mr. FLANAGAN. Just give that to the nearest round number. Mr. LEECE. 1948 was $1,280,000 plus; 1949, $269,835 loss; 1950, a loss of $218,427. Mr. FLANAGAN. In 1950, that loss was incurred in the first 6 months of the year, was it not? Mr. LEECE. That is right. Mr. FLANAGAN. And after that the corporation was transferred to another group of stockholders? Mr. LEECE. That is correct. Mr. FLANAGAN. Now, will you give us the profit or loss position of Greenwich Marine, their subsidiary? Mr. LEECE. The net profit of the Greenwich Marine Corp. for 1948 was $1,063,006. In 1949 it was $1,362,885. And for 6 months in 1950, it was $814,033. Mr. FLANAGAN. So that based on those figures, we find that AOTC, which was an American corporation, of course liable for American corporate taxes, didn't have to pay any taxes, because of a loss position. Mr. LEECE. That is correct. Mr. FLANAGAN. While on the other hand, Greenwich Marine, which was a Panamanian corporation, showed substantial profits but didn't pay United States taxes, being a foreign corporation. Mr. LEECE. That is correct. Mr. FLANAGAN. Now, Mr. Leece, will you continue to explain in marine form the remainder of this chart No. 1? |