JANUARY 14, 1932. Hon. REED SMOOT, United States Senate. MY DEAR SENATOR SMOOT: I inclose herewith a copy of a note dated January 13, 1932, from the ambassador of Chile, asking that there be transmitted to you as chairman of the Senate Finance Committee the formal request of the Chilean Government for a thorough inquiry as to whether any special premiums, commissions, or favors of any kind were given to any of the Chilean officials in charge of, or under whose authority, negotiations were conducted for the flotation of loans in the United States. Sincerely yours, HENRY L. STIMSON. His excellency HENRY L. STIMSON, The Secretary of State, Washington, D. C. JANUARY 13, 1932. EXCELLENCY: In the course of the investigation into the floating of LatinAmerican bonds in the New York market, now being conducted by the Finance Committee of the United States Senate, testimony has been received to the effect that it was customary and necessary to pay bribes to officials of LatinAmerican Governments in order to successfully negotiate with them for loan contracts. In view of the very general nature of the accusation, which injures the traditional pride of my country in the honesty of its officials, and due to the fact that on the previous occasion when I had the honor to serve as ambassador before your excellency's Government, it was my duty to sign four loan agreements with banking houses of New York City. I have been instructed to respectfully ask that your excellency be good enough to transmit to the chairman of the Finance Committee of the United States Senate the formal request of my government for a thorough inquiry as to whether any special premiums, commissions, or favors of any kind were given to any of the Chilean officials in charge of, or under whose authority negotiations were conducted for the flotation of loans in the United States. I avail myself of this opportunity to reiterate to your excellency the assurances of my highest consideration. (Witness excused.) MIGUEL CRUCHAGA. TESTIMONY OF FRANCIS WHITE, ASSISTANT SECRETARY OF STATE, WASHINGTON, D. C. (The witness was previously sworn by the chairman of the committee.) The CHAIRMAN. You are Assistant Secretary of State, are you not? Mr. WHITE. Yes, sir. The CHAIRMAN. How long have you held that position? Senator, availing myself of the statement which you made to the chairman of the committee at the beginning of this afternoon's session, I should like to make a statement regarding this matter, and then, of course, I should be very glad to answer any questions whatsoever. Senator JOHNSON. I am very glad to have you do anything that you wish. The gentleman, Mr. Chairman, wishes to make a statement, and then subsequently I will be permitted the appropriate cross-examination. But before you begin, let me ask you this. This morning I requested a certain communication passing between Mr. Caffery at Bogota and the department. There was some little debate concerning it. I will ask you whether or not you have that with you. Mr. WHITE. I did not bring it with me. Senator JOHNSON. Do you decline to produce it? Mr. WHITE. Yes, sir. Senator JOHNSON. And the reason for declining to produce it is what? Mr. WHITE. Is that one can not conduct foreign relations, publishing all the correspondence between one's agents abroad? Senator JOHNSON. I asked you not for all of your correspondence with your agents abroad, but I asked you for a particular dispatch from the United States minister at Bogota relating to the Barco concession to the Mellon interests in this country; and that and that alone is what I asked. Do you decline to produce it? Mr. WHITE. That I shall have to take under consideration, Senator. Senator JOHNSON. But that is exactly what I asked this morning, and that alone. Mr. WHITE. I have not had a chance to make any consultation, Senator. Senator SHORTRIDGE. What is that? Mr. WHITE. I have not had an opportunity to consult with the Secretary of State. Senator JOHNSON. But you decline, offhand? Mr. WHITE. As I told the Senator this morning, all the correspondence is at the disposal of the Senator and of any other Senator, at the Department of State, if he wishes to examine it under the confidential rule. Senator JOHNSON. And I told you then that I declined absolutely as in derogation of the position of a United States Senator to look at your correspondence confidentially and be precluded thereafter from discussing it either with my fellows who are United States Senators, or with the people of the United States. That was understood this morning. Mr. WHITE. Any other Senator, of course, might see the correspondence as well, Senator. Senator JOHNSON. But they could not discuss it at all, nor could they do anything about it, because they would see it confidentially. I decline absolutely. I should consider that I was a very peculiar character of Senator if I accepted any such proposition as that. But that is neither here nor there. What I asked for was a specific dispatch that came from Mr. Caffery, as our United States Minister at Bogota, to the Department of State in which Mr. Caffery spoke of the Barco concession that was accorded ultimately to the Mellons, and I am asking you the question, Do you decline to produce that dispatch? Mr. WHITE. The dispatch was quoting the President of Colombia, giving the views of the President of Colombia. Senator JOHNSON. I don't care whom it quoted. Do you decline to produce it, or will you produce it? Mr. WHITE. That I will take under consideration. I think my statement will probably stand. Senator JOHNSON. That you will not produce it to the committee here? Mr. WHITE. Yes. Senator JOHNSON. I wanted a definite conclusion upon that proposition. Mr. WHITE. All right. Senator SHORTRIDGE. I wish to say that it is very easily conceivable there might be communications passing between our minister in a given country and our Government which neither my colleague nor any other Senator would deem it wise to make public. That is a proposition I am sure we are all agreed upon, that it might be unwise to make it public. Senator JOHNSON. If you are addressing me Senator SHORTRIDGE (interposing). No; I was not addressing you, but making an observation. Senator JOHNSON. May I say to you in response to that observation that there is no communication from a minister, consul, or other representative of the people of the United States at Bogota concerning a private concession to the Mellon family that in my opinion should be held confidential from the American people. Senator SHORTRIDGE. That might well be so.. We do not disagree. But I made a general observation that many questions put to this and other witnesses seemed to call for communications from our ministers to foreign governments, or our representatives to foreign governments, and that it was quite possible some or all of them should not be made public. But we will pass on. Senator JOHNSON. In answer to my colleague I will say that the whole problem, it seems to me, is whether there is some sacrosanct character in the Mellon family that precludes the United States Senate or the people of the United States from knowing what has been done about a Mellon concession by a United States official at Bogota in conjunction with the State Department of the United States. Mr. WHITE. I can answer that. Nothing was done. Senator SHORTRIDGE. I will say to my colleague now that I think he is quite as familiar with the Mellon family or those corporations, and perhaps more, than I am. I am merely making the general observation that I thought we would all agree to: That this communication which the Senator asks for may be very important. I think I should like to see it. And it may be of vast importance that it be put into this record. I think you should bring it to us so that we may see it. Mr. WHITE. I shall be glad to show it to you in confidence. Senator SHORTRIDGE. Well, I would say the same as my colleague, that upon seeing it if I thought it should go into the record I certainly would urge that it be put in the record and not treat it as confidential. Senator JOHNSON. Well, Mr. White, if you desire to make a statement on the particular matter under investigation by this committee, I shall be very glad for you now to do so. Senator JOHNSON. Mr. White, as I understand, you want to make a statement. Mr. WHITE. Yes, Senator. The CHAIRMAN. You may proceed. Mr. WHITE. The President elect of Colombia was in this country during 1930. He was in New York at that time and conducted negotiations with a group of New York bankers for a credit to his Government. This was a part of the program which President Olaya announced when he ran for the presidency in Colombia in 1929. His program then was to try to solve the financial difficulties of his country. There was a large floating debt outstanding. He wanted to bring order into the finances of Colombia, and, as he said, to settle on a basis of justice and equity and their merits the outstanding claims against his Government. In pursuance of this purpose he undertook negotiations with American bankers in New York and concluded an agreement on June 30, 1930. A copy of that agreement has already, I believe, been placed in the record of this committee. The Department of State was not consulted regarding that issue. It was not an issue of bonds to the public. They were short-term credits. The American minister to Colombia was in this country on leave at the time and was assigned to accompany the President elect throughout his stay in the United States, as is usual in such cases, he and certain protocol officials, and military and naval aides. At the request of the President elect of Colombia the American minister accompanied him and was present during those negotiations, but did not take part therein. This Government had no interest in the matter whatsoever. It was not consulted and had nothing to do with the contract or the terms thereof. Subsequently, on October 25, 1923, as I recall it, an additional arrangement was made Senator SHORTRIDGE (interposing). Did you mean 1923? Mr. WHITE. On October 25, 1930, I meant. Pardon me. Mr. WHITE. An additional arrangement was made whereby a further $4,000,000 would be issued. The agreement of June 30, 1930, provided for various issues of credit. I won't go into the details of them. They are before the committee. But for the sake of clarity I will point out that there was one issue for $3,000,000, and one for $4,000,000, and one for $5,000,000, or a total of $12,000,000. It was provided in the agreement that the bankers could refund those credits by a loan of $20,000,000 if market conditions permitted, or if not, that they would make an additional advance of $4,000,000, bringing the total up to $16,000,000. The Department of State, as I have already said, was not consulted and had no concern in the matter. We did not pass upon the loans as a business proposition, and in the case of bankers' credits the department is not consulted. The Department of State, of course, did not ask that the credit be extended to Colombia. It was the President elect of Colombia who came up to this country and negotiated an agreement which was concluded in June of 1930. In March of 1931– The CHAIRMAN (interposing). Was the State Department asked anything in regard to the negotiations about that loan? Mr. WHITE. No, sir. The CHAIRMAN. You did not take part in the negotiations at all? Mr. WHITE. No, sir. The CHAIRMAN. Proceed. Mr. WHITE. I will say that in the agreement it was provided Colombia would take certain fiscal measures to strengthen its credit position, and on the basis of that this advance of $4,000,000, raising the total from $12,000,000 to $16,000,000, was then to be made. In March of 1931 the Department of State received a telegram from the American minister in Bogota, saying that the President of Colombia was very much disturbed over the fact that, having complied with the requirements of the agreement so far as he was concerned, and expecting the $4,000,000 to be paid over, the bankers were holding up the turning over the $4,000,000 to him until a goldmining claim of British interests should be settled. The President of Colombia had made his financial arrangements and counted on getting the money at that time, and was very much disturbed not to get it. When I received that telegram I telephoned to New York, to Mr. Winston, of counsel for the National City Bank, and told him of the point of view expressed to the American Minister in Bogota by the President of Colombia. He promised to look the matter up. The next day, not having heard from him, I called up again and found he was out of town, and I spoke with Mr. Lancaster, and my subsequent conversations were with him. I repeated to Mr. Lancaster what I had said to Mr. Winston. He promised to look the matter up, and a day or so thereafter he telephoned me from New York to say that there had been a mistake, that this condition should not have been raised with regard to that particular credit of $4,000,000, and I mean the credit which raised the total amount from $12,000,000 to $16,000,000, but should be in connection with a second one raising it from $16,000,000 to a total of $20,000,000, and that the $4,000,000 was being paid on that day. The reason that Mr. Lancaster gave for the bankers taking that stand in this matter was that one of the conditions precedent to extending the last $4,000,000 credit, which would complete the $20,000,000, was that the bankers should successfully expand their group. They wanted to expand the group not only to take care of the last $4,000,000 credit, but also for eventually financing the bond issue to refund all the short-term credits. And for that reason they took in as associates with them Lazard Bros. of London, and their corresponding house in Paris, Lazard Freres. And it was these latter that made it a condition in coming into the group that this claim should be settled. However, he said that the $4,000,000 then in question, raising the total from $12,000,000 to $16,000,000, was being paid that day. That ended the matter so far as we were concerned. The Department of State took the matter up with the bankers, not as a banking matter with which we had any connection whatsoever, but as a subject about which a possible misunderstanding might arise, in fact had arisen, between a friendly foreign government and an American institution; it took the matter up and expressed the point of view of the foreign government as explained to us, in the thought that they might take the matter under consideration with a view to an orderly and satisfactory arrangement. The matter did not then come before us again until May of 1931. On May 13, 1931, we received a telegram dated May 12, in which the minister at Bogota stated that the President of Colombia again was very much concerned because he felt that he had complied with the bankers' conditions for paying over the remaining $1,000,000, |