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Senator KENDRICK. Just a word before Mr. Bonfils goes. I want to call attention to the fact that the joint resolution introduced here by myself was not inspired by anything that I had seen in any paper in the West or East. My action was prompted by messages, telegrams, asking for information that came from the people in Wyoming.
Mr. BONFILS. May I say one thing, because this may be a little bit inharmonious?
Of course, the people of Wyoming were very glad in a measure to see Mr. Sinclair come in there, because it meant competition for the little fellow. It meant some one who would buy his oil, whereas before that it all went through one channel and they paid just whatever they wanted. There was no outlet. You either went to the Standard Oil of Indiana or the Midwest Refining crowd; there were no other buyers.
Now, when Mr. Sinclair came in there the little fellow who had suffered from this lack of competition felt very grateful that some one was going to come finally to give him an outlet for his oil, and that he would not be held down to, say, 30 per cent production, when maybe the Midwest people and the Standard were taking 100 per cent of their own oil. So it was not regarded as an unmixed evil by those people out there, because they felt that they would benefit by having competition come into that field.
Senator KENDRICK. I think it might be said in connection with that, however, that these same people were very greatly disappointed to find that the Sinclair interests were owned half and half by the Standard Oil Co.
Mr. BONFILS. Yes, sir; they were.
Senator KENDRICK. So that the competition between the two has never been quite so fierce as was expected, after all.
Mr. BONFILS. No. But they have a chance, with this new pipe line, of getting more oil out. In other words, they can sell more. In the last few months they have been selling 40 per cent of the oil, and there will be 60 per cent sold before they get through.
Senator KENDRICK. Under the provisions of the Sinclair lease, as I recall, the preference right to ship that oil, or transport that oil, is reserved for the royalty oil of the Government.
Mr. BONFILS. Yes, that is true.
Senator KENDRICK. And at the beginning, at least, the terms as to the size of the pipe would leave but very little opportunity for independent oil operators to have any of the benefits of such transportation.
Mr. BONFILS. Yes.
Senator WALSH of Montana. Mr. Chairman, I have received a telegram from Mr. George Creel, which I intended to offer in evidence this morning. Mr. Creel is desirous of having an opportunity to come before the committee to testify, but we have some other witnesses who must be heard first. When it is agreeable, at some time in the future, I will notify Mr. Creel when he can be heard.
The CHAIRMAN. That may be done. The committee will stand adjourned until Monday, at 10 o'clock.
(Thereupon at 1.10 o'clock p. m., the committee adjourned until Monday, February 11, 1924, at 10 o'clock a. m.)
LEASES UPON NAVAL OIL RESERVES.
MONDAY, FEBRUARY 11, 1924.
UNITED STATES SENATE,
Washington, D.C. The committee met, pursuant to adjournment taken on Saturday last, at 10 o'clock a. m., in the minority conference room, Senate Office Building, Hon. Irvine L. Lenroot (chairman) presiding. Present: Senators Lenroot (chairman), Smoot, Ladd, Jones of New Mexico, Kendrick, Walsh of Montana, Adams, and Dill.
The CHAIRMAN. The committee will come to order. Will Mr. McAdoo please come forward?
TESTIMONY OF HON. WILLIAM G. MCADOO, LOS ANGELES, CALIF.
The CHAIRMAN. Mr. McAdoo, we suggest that you be sworn, as all witnesses are being sworn.
(Thereupon the witness was duly sworn by the chairman.) The CHAIRMAN. Do you desire to make a statement, Mr. McAdoo? Mr. McAdoo. Yes, sir.
Gentlemen of the committee, I am informed by your chairman that already there has been inserted in the record the letter I addressed to him on February 7, 1924, setting forth in detail the facts concerning the professional services rendered by my former law firm in New York, Messrs. McAdoo, Cotton & Franklin, and subsequently by myself in Los Angeles, in connection with the Mexican properties of Mr. Doheny's companies. It is clearly shown in my letter and in the testimony before the committee that neither they nor I have had any relation whatever to the leases made of the Teapot Dome and naval reserve. There is, therefore, nothing more to be said on that score. But I have sought the privilege of appearing before you in person for the purpose of contributing in any way in my power as a private citizen to the objects of this inquiry.
It has been assumed that honorably conducted law practice of a citizen holding no public office is not ordinarily a subject of congressional inquiry. I think it may fairly be presumed that if my name was not prominently mentioned in connection with high office my private practice as a lawyer would be of no interest to this committee or to the public. Whether or not it has been drawn into this inquiry to serve a partisan political purpose the country will judge.
It would be a crime against the public if the dragging of innocent people into this affair should divert attention from the guilty or prevent the discovery of those who have betrayed the public interest. The whole country is shocked and appalled by what has been revealed in this investigation. The fact that a former Cabinet officer of this administration is already gravely involved has raised a strong suspicion in the public mind that others may be guilty. The faith of the people in their own Government is shaken, and the damaging (ff cts upon public morale are so grave that the security of democratic institutions is seriously imperiled. The first duty, the imperative duty of the hour, is mercilessly to uncover and to bring to public view and scorn and punishment everyone who has betrayed the public trust or who has been guilty of wrongdoing in this humiliating and dangerous affair.
This question transcends political parties and partisan consideration. Clean and incorruptible government is vital not alone to Republicans and Democrats but to every citizen. For my part, I am eager to see partisanship stilled in the face of so grave a danger to our common country. It would be an inspiration to see men and women in private life and partisans of all parties in public life united as they were in the Great War in the common effort to destroy corruption and bring the Government back to honesty.
I should like to supplement my letter of February 7 with some of the reasons that prevailed upon me to represent Mr. Doheny's companies professionally in his Mexican difficulties.
Article 27 of the Mexican constitution of May 1, 1917, was an attempt to assert ownership by the Mexican Government in the mineral deposits of the subsurface land in Mexico. If this article should be given retroactive effect, it would result in the confiscation of properties of American citizens lawfully acquired prior to the adoption of that constitution. This presented a grave situation for American property rights in Mexico; so grave, in fact, that the Wilson administration on April 2, 1918, through Ambassador Fletcher, at Mexico City, filed a solemn protest against it.
I desire to introduce into the record the protest filed by Ambassador Fletcher on April 2, 1918.
The CHAIRMAN. It may be placed in the record. (The protest referred to is as follows:)
APRIL 2, 1918. Excellency: The decree of the 19th of February, 1918, which was published in the Diario Oficial on the 27th of February last, establishing a tax on oil lands and on oil contracts executed prior to the 1st of May, 1917, etc., has been brought to the attention of my Government, and I am under instruction to state to your excellency that my Government has given most careful consideration to the effect which this decree, if carried into operation, will have upon American interests and property rights in Mexico.
The said decree provides for the imposition of certain taxes on the surface of oil lands, as well as on the rents, royalties, and production derived from the exploitation thereof. It is noted also that among the provisions for the collection of such taxes is one requiring that payment in kind shall be delivered to the Mexican Government at the storage stations of the operators. Articles IV, XIII, and XIV of the said decree seem to indicate an intention to separate the ownership of the surface from that of the mineral deposits of the subsurface, and to allow the owners of the surface a mere preference in so far as concerns the right to work the subsoil deposits upon compliance with certain conditions which are specified. While the United States Government is not disposed to request for its citizens exemption from the payment of their ordinary and just share of the burdens of taxation so long as the tax is uniform and not discriminatory in its operation, and can fairly be considered a tax and not a confiscation or unfair imposition, and while the Unted States Government is not inclined to interpose in behalf of its citizens in case of expropriation of private property for sound reasons of public welfare, and
upon just compensation and by legal proceedings before tribunals, allowing fair and equal oportunity to be heard, and giving due consideration to American rights, nevertheless the United States can not acquiesce in anp procedure ostensibly or nominally in the form of taxation or the exercise of eminent domain, but really resulting in confiscation of private property and arbitrary deprivation of vested rights.
Your excellency will understand that this is not an assertion of any new principle of international law, but merely a reiteration of those recognized principles which my Government is convinced form the basis of international respect and good neighborhood. The seizure or spoilation of property at the mere will of the sovereign and without due legal process fairly and equitably administered, has always been regarded as a denial of justice and as affording internationally a basis of interposition.
My Government is not in a position to state definitely that the operation of the aforementioned decree will, in effect, amount to confiscation of American interests. Nevertheless, it is deemed important that the Government of the United States should state at this time the real apprehension which it entertains as to the possible effect of this decree upon the vested rights of American citizens in oil properties in Mexico. The amount of taxes to be levied by this decree are in themselves a very great burden on the oil industry, and if they are not confiscatory in effect-and as to this my Government reserves opinion—they at least indicate a trend in that direction. It is represented to the State Department that the taxation borne by the oil fields of Mexico very greatly exceeds that imposed on the industry anywhere else in the world. Moreover, it would be possible under the terms of the decree, in view of the fact that the Mexico Government has not storage facilities for the taxes or royalties required to be paid in kind, by storing the same in the tanks of the operators, to monopolize such storage facilities to the point of the practical confiscation thereof until emptied by order of the Mexican Government or by the forced sale of the stored petroleum to the operators at extravagant rates.
It is, however, to the principle involved in the apparent attempt at separation of surface and subsurface rights under this decree, that my Government desires to direct special attention. It would appear that the decree in question is an effort to put into effect as to petroleum lands, Paragraph IV of article 27 of the constitution of May 1, 1917, by severing at one stroke the ownership of the petroleum deposits from the ownership of the surface, notwithstanding that the constitution provided that “private property shall not be expropriated except by reason of public utility and by means of indemnification."
So far as my Government is aware, no provision has been made by your excellency's Government for just compensation for such arbitrary divestment of rights nor for the establishment of any tribunal invested with the functions of determining justly and fairly what indemnification is due to American interests. Moreover, there appears not the slightest indication that the separation of mineral rights from surface rights is a matter of public utility upon which the right of expropriation depends, according to the terms of the constitution itself. In the absence of the establishment of any procedure looking to the prevention of spoilation of American citizens and in the absence of any assurance, were such procedure established, that it would not uphold in defiance of international law and justice the arbitrary confiscations of Mexican authorities, it becomes the function of the Government of the United States most earnestly and respectfully to call the attention of the Mexican Government to the necessity which may arise to impel it to protect the property of its citizens in Mexico divested or injuriously affected by the decree above cited.
The investments of American citizens in the oil properties in Mexico have been made in reliance upon the good faith and justice of the Mexican Government and Mexican laws, and my Government can not believe that the enlightened Government of a neighboring Republic at peace and at a stage in its progress when the development of its resources so greatly depends on its maintaining good faith with investors and operators, whom it has virtually invited to spend their wealth and energy within its borders, will disregard its clear and just obligations toward them.
Acting under instructions, I have the honor to request your excellency to be good enough to lay before His Excellency the President of Mexico this formal and solemn protest of the Government of the United States against the violation or infringement of legitimately acquired American private property rights involved in the enforcement of the said decree. Accept, excellency, the renewed assurance of my highest consideration.
HENRY P. FLETCHER. Mr. McAdoo. This attitude was consistently maintained by the Wilson administration throughout its life. When the Harding administration came in Secretary Hughes adopted the same policy. This policy was insisted upon by the American commissioners to Mexico, Messrs. Warren and Payne, and, as I understand it, was practically made a condition of recognition of Mexico by the United States.
During the year 1918 I was Director General of Railroads of the United States. The fuel problem was one of the most serious with which we had to deal. I was then made to realize keenly the tremendous importance of fuel oil from Mexico. A great number of American industries along the Atlantic seaboard were dependent upon Mexican fuel oil. The preservation of this fuel oil supply was then and is now essential to our internal economy. Not alone is this true, but the question of an adequate oil supply and of an adequate oil reserve is one of the most important for any nation under conditions of modern warfare. In fact the crucial test, in the next war if one should come, is going to be not alone war machinery and appliances but control of an adequate supply of petroleum to meet the needs of national defense and offense. It is no exaggeration to say that the strongest nation in petroleum resources will be the most likely victor in such a contest. For all of these reasons, therefore, the American Government and the American people were interested in preserving the Mexican oil supply which was lawfully owned or controlled by American citizens.
In 1915 I called the First Pan American Financial Conference in Washington. It was attended by all the South and Central American republics except Mexico, which was then in a state of revolution. The following year, 1916, I attended the first session of the International High Commission of all the South and Central American Republics at Buenos Aires in Argentina. At this session were discussed economic, financial, and other problems of great consequence to the whole of Latin America, and I gained a familiarity with conditions prevailing throughout South and Central America which could not have been secured in any other way. I was deeply interested not alone in these economic and financial problems but in promoting closer and better relations between the United States and all of these Republics.
Mr. Doheny's companies as well as Mr. Doheny enjoyed an enviable reputation when he called on me in 1919. His companies were the outstanding independent oil companies furnishing the required supply of Mexican fuel oil to our industries along the Atlantic seaboard. They were also the only strong companies offering competition with the so-called Oil Trust in the United States. For the purpose of preserving competition and securing the essential supplies of fuel oil for our industries along the Atlantic seaboard, it was highly desirable to protect, by every legitimate and proper means, the oil-bearing properties of American citizens in Mexico.
When Mr. Doheny, therefore, asked my firm to act for him professionally in trying to prevent the confiscation of his valuable petro