I would like to discuss three matters affecting United Tanker Corp. on which particular stress has been laid during these hearings: (1) The organization of United Tanker Corp.; and its status as a United States citizen; (2) the arrangements between United Tanker Corp. and stockholders of American Overseas Tanker Corp.; and (3) the organization of the China International Foundation, Inc., the charitable foundation which now owns all of the common stock and most of the preferred stock of United Tanker Corp.

1. ORGANIZATION OF UNITED TANKER CORP. AND ITS STATUS AS A UNITED STATES CITIZEN

In November 1947, I was approached by representatives of China Trading and Industrial Development Corp., a Chinese corporation, regarding their desire to purchase or charter tankers or to invest the necessary funds for the purchase of tankers in a United States corporation to be managed and controlled by experienced United States shipping people. I discussed the matter with Mr. Harold C. Lenfest, who had been a client of our firm. He was interested in the matter; and also introduced me and the representatives of China Trading to Mr. Walter H. Sieling and Mr. Arthur M. Tode. United Tanker Corp. was organized as a joint effort of these three United States citizens, all of whom had had experience in the shipping field, and China Trading and Industrial Development Corp. Messrs. Lenfest, Sieling, and Tode held the controlling stock of United Tanker Corp., purchased at a nominal price. Their contribution was to be in supplying the knowledge and ability required to operate and manage the enterprise. China Trading provided the initial capital of $2,000, and additional funds amounting to about 20 percent of the total financing ultimately required.

The Maritime Commission received a complete statement as to the organization of United Tanker Corp. and the arrangements which it contemplated for the investment of Chinese capital in United States shipping. The arrangements were fully described in the application filed by United Tanker Corp. on December 11, 1947, with the Maritime Commission seeking the allocation of two T-2 tankers. I believe this application has been received as an exhibit in these hearings.

The application pointed out (a) that substantially all the capital of United Tanker would be provided by China Trading; (b) that additional funds required would be borrowed either from China Trading or from the National Resources Commission of China or commercial banks; (c) that the secretary and treasurer of United Tanker would be C. C. Wei, a young Chinese engineer who had been in the employ of the National Resources Commission of China prior to becoming an officer of China Trading, and (d) that the tankers, if obtained, would be chartered to the National Resources Commission of China, or one of its subsidiaries, to carry oil from Persian Gulf ports to Chinese ports.

It was the opinion of our firm in 1947, and it is still our opinion today, that the investment of Chinese capital in United Tanker Corp. violated neither the spirit nor the letter of the provisions of the applicable shipping statutes.

The purpose of the Shipping Act of 1916, as amended, was to preserve control of United States flag vessels in United States citizens

so that the vessels would be available to the United States in times of war or national emergency. I believe this purpose has been fully served in the case of United Tanker Corp., the control of which has been at all times in the hands of its United States citizen board of directors and stockholders. The physical operation of its vessels has been in the hands of experienced American operators specifically approved by the Maritime Commission. Today, and for some time past, all of the vessels owned by subsidiaries of United Tanker Corp. are operated by Sieling & Jarvis Corp. During the last war, Sieling & Jarvis were general agents for the War Shipping Administration. They have also been specifically approved as operator of the United Tanker vessels by the Maritime Commission.

China Trading was ready to assist in financing the purchase of tankers because it wished to make them available to Chinese Petroleum Corp., a subsidiary of the National Resources Commission of China, a branch of the Nationalist government of China. An application for the purchase of tankers to be transferred to Chinese flag was filed by China Trading with the Maritime Commission at the same time that United Tanker Corp. filed its application. Our firm sent both applications to the Commission under the same covering letter explaining that the applications were in the alternative and that any tankers allocated would be chartered to the National Resources Commission of China. The application filed by China Trading had the support of the Chinese Embassy and our own State Department. While these applications were not acted upon, we received from the Maritime Commission expressions of regret that the applications had been filed too late and assurances that the applications would be given the most serious consideration if more tankers became available.

At no time did any representative of the Maritime Commission raise any question as to the citizenship of United Tanker or express any objection in principle to allocating tankers to United Tanker. On the contrary, counsel for the Maritime Commission on February 3, 1948, gave us a written opinion confirming that United Tanker Corp. complied with the citizenship requirements of the Shipping Act of 1916.

There has been considerable discussion in these hearings as to whether counsel for the Maritime Commission had reviewed the application of United Tanker and was familiar with the investment of Chinese capital in United Tanker at the time of giving this opinion. The answer to these questions is contained in the opinion itself which refers to the examination of the application of United Tanker and quotes from the application the statement that substantially all the capital is to be provided by China Trading.

2. ARRANGEMENTS BETWEEN UNITED TANKER CORP. AND STOCKHOLDERS OF AMERICAN OVERSEAS TANKER CORP.

When it became apparent that it was unlikely that United Tanker would obtain a direct allocation of tankers from the Maritime Commission, it sought to obtain tankers by charter or purchase from more successful applicants, or from persons already owning tankers. In early 1948 there were a number of persons who had been allocated tankers by the Maritime Commission who found that they could not. finance them when the major oil companies stopped making bareboat

charters. The successful applicants, however, held an asset of value in the mere fact of a Maritime Commission allocation. In the winter of 1947-48 a tanker was worth more than the fixed price at which Congress had directed the Maritime Commission to sell tankers. Some attempted to preserve this asset by finding partners to assist in the financing. Others sought to realize on this asset by selling out entirely. United Tanker was approached by a number of brokers suggesting a variety of possible financing and chartering deals in the early winter of 1948.

Anyone who purchased tankers from the Maritime Commission in the winter of 1947-48 benefited from the excess of the market value above the statutory sales price. This benefit was just as much present. in the case of those who purchased and retained tankers as in the case of those who realized their profit by disposing of their tankers. The major oil companies who purchased the bulk of the surplus tankers received the same benefit per tanker as the small ship operator. The Maritime Commission could not avoid this result, since it was required to sell tankers at a fixed price. During the last 5 years I understand that the market value of a United States flag T-2 tanker has fluctuated between about $800,000 and $2,500,000.

Mr. Casey and Mr. Klein, two of the stockholders of American Overseas Tanker Corp., were introduced to representatives of United Tanker by Mrs. Konow at a meeting held in our office on January 19, 1948. After some further negotiations, agreements were entered into on January 24, 1948, by which United Tanker Corp. agreed to finance the purchase of the three tankers, and in return was to receive 10-year bareboat charters of the tankers and an option to purchase the stock of National Tanker Corp., the company formed by the American Overseas Tanker Corp. stockholders to take title to the tankers from the Maritime Commission.

Before concluding the agreement with National Tanker Corp., United Tanker insisted that the proposed transactions be fully disclosed to the Maritime Commission. Testimony has already been introduced that this was done. Both in the chartering agreement and in the stock option agreement, National Tanker and its stockholders represented that the subject matter of the agreements had been discussed with members of the Maritime Commission, who advised that there was no objection to the carrying out of the agreements. On February 13, 1948, Admiral Smith, the then Chairman of the Maritime Commission, told the House Committee on Merchant Marine and Fisheries of the arrangements between the stockholders of American Overseas Tanker Corp. and United Tanker Corp., referring specifically to (a) the bareboat charters to United Tanker, (b) the option, and (c) the investment of Chinese capital in United Tanker. Admiral Smith's testimony was given 212 months before the delivery by the Maritime Commission of the first of the three vessels concerned.

In addition, the 10-year bareboat charters on the steamship Kettleman Hills and the steamship Meacham to United Tanker were submitted to the Maritime Commission at the same time that approval was requested for the charters of the two vessels by United Tanker to China Trading and in turn by China Trading to Chinese Petroleum Corp. The latter charters, which were to noncitizens, were approved by formal orders of the Commission issued pursuant to section 9 of the Shipping Act.

It is, therefore, clear that prior to the transfer of title to the vessels from the Maritime Commission to National Tanker Corp., the Commission knew of the arrangements between United Tanker Corp. and National Tanker Corp. and the charters made by United Ttanker Corp. to carry oil from Persian Gulf ports to Chinese ports.

United Tanker Corp., during 1948 and 1949, acquired the stock of companies which purchased six tankers from the Maritime Commission, including the three tankers allocated to American Overseas Tanker Corp. The funds required amounted to over $11 million, including the mortgages given to the Maritime Commission. Of this amount China Trading provided about 20 percent. The Maritime Commission sold the six tankers at the full statutory sales price. The mortgages which it took back on four of the tankers have been paid up to date.

Two of the six tankers were chartered for the use of the Nationalist Government of China, as set forth in United Tanker's original application to the Maritime Commission, until the spring and summer of 1949 when the Nationalist Government was no longer able to obtain dollars to pay charter hire. Other charters of these and the other four tankers have been mostly to United States major oil companies and to British cil companies, with some charters, mostly on a single voyage basis, to French, Italian, Swedish, German, Argentine, Russian, and Mexican charterers. Two of the tankers were sold in 1951. The four remaining tankers are now under charter to United States oil companies, two being under long-term charters to Gulf Oil Corp., and two being chartered on a voyage-to-voyage basis, the next voyages being for Esso Standard Oil Co. All of the tankers are included in the voluntary pool of tanker owners making their vessels available to the Military Sea Transportation Service of the United States.

3. THE ORGANIZATION OF THE CHINA INTERNATIONAL FOUNDATION, INC.

The foundation was incorporated on June 4, 1948, as a nonprofit membership corporation under the laws of the State of Delaware. China Trading donated its holdings of class A stock of United Tanker Corp. to the foundation, and also gave the foundation about $20,000 in cash, part of which constituted the purchase price for shares of class B stock of United Tanker acquired by the foundation. Subsequently, the class A and class B stock were reclassified into one class of common stock, all of which is now owned by the foundation.

The foundation was organized after the arrangements for the acquisition of tankers by United Tanker Corp. had been completed and after United Tanker Corp. had already been approved as a United States citizen by counsel for the Maritime Commission. The organization of the foundation did not affect the tax status of United Tanker Corp. No claim for exemption of United Tanker Corp. from the payment of taxes has ever been made.

Since its original acquisition of the stock of United Tanker Corp., the foundation has received gifts and dividends amounting to an aggregate of about $280,000. It has had virtually no overhead expenses, and its income is thus almost entirely available for expenditures for charitable purposes. It has provided fellowships for American and Chinese students at universities in this country, has supported teacher training courses conducted by the Board of Educa

tion of New York City and China Institute in America, has made gifts to libraries in Formosa, and has supported other philanthropic endeavors. The present trustees of the foundation are: Dr. Magnus Gregersen, Dr. Edward H. Hume, Mr. Newbold Morris, and Mr. Arthur M. Tode.

All of the members, trustees, and officers of the foundation are United States citizens. The foundation owns all of the common stock of United Tanker Corp. and, through a wholly owned subsidiary, 11,750 shares out of a total of 15,300 outstanding shares of nonvoting preferred stock. The only foreign interest remaining in United Tanker Corp. is the 3,550 shares of nonvoting preferred stock (less than 25 percent of the total now outstanding) held by United Securities Corp., a Liberian corporation with Chinese stockholders.

The original foreign investment in United Tanker Corp. has thus been almost entirely repaid. The major outside financial interest in the United Tanker vessels is that of the Maritime Commission, which holds mortgages on four tankers aggregating about $4 million. The United States Government has received the full statutory sales price of the vessels in cash or partially in mortgages on which all installments to date have been paid. The tankers are under United States flag, controlled by United States citizens, operated by United States citizen operators, chartered to United States oil companies, and available in every way to the United States in time of war or national emergency.

Thank you.

Senator HOEY. Thank you, Mr. Wasson.

The committee will take a recess now until 2:30, and we will ask you to return at that time for questioning.

(Whereupon, at 12: 30 p. m., a recess was taken until 2: 30 p. m., same day.)

AFTERNOON SESSION

Senator HOEY. The committee wil come to order, please.
Mr. Wasson, will you please come back to the stand.

this

TESTIMONY OF HOUSTON H. WASSON, ATTORNEY, LOVEJOY, MORRIS, WASSON & HUPPUCH, NEW YORK, N. Y.-Resumed

Mr. WASSON. Yes, sir.

Senator HOEY. Mr. Flanagan, you may proceed with the examination.

Mr. FLANAGAN. Mr. Wasson, will you explain to the committee exactly how the law firm of, I believe the name at that time was Post, Morris & Lovejoy, became retained and who retained them at the very beginning of these transactions?

Mr. WASSON. I believe it was the latter part of November 1947 when two representatives of China Trading came to see me in my office. They were not employees of China Trading, but employees of another corporation which China Trading had requested to act as consultants in connection with their attempts to obtain tankers to charter to Chinese Petroleum Corp.

Mr. FLANAGAN. Who were these people?

Mr. WASSON. Their names are P. T. Chin and Darfoon Du.