sonal contact in a business dealing with the witness who has testified, the only witness that I know of who has testified against the nomination of Mr. Ralph Paiewonsky. The CHAIRMAN. Thank you. We have a letter from the firm of Bailey & Wood. Should I place that in the record also? Mr. BAILEY. I Would appreciate it if you would, sir. (The letter referred to follows:) Hon. CLINTON P. ANDERSON, ST. THOMAS, V.I., March 9, 1961. Chairman, Committee on Interior and Insular Affairs, Re nomination of Ralph Paiewonsky as Governor of the Virgin Islands. We have known Mr. Paiewonsky for a number of years and in our opinion his knowledge of the Virgin Islands where he was born and brought up, and his experience as a businessman and legislator, make him an outstanding choice for the governorship. As active participants in various community affairs, we wish to go on record as supporting wholeheartedly the nomination of Mr. Paiewonsky, and we hope that it will be reported favorably by the committee and confirmed speedily by the Senate. Respectfully, WILLIAM W. BAILEY, Former President, Virgin Islands Bar Association. Former Legislative Counsel, U.S. Senate. The CHAIRMAN. Are there any questions? If not, thank you very much. I have a telegram from the Governor. I have not been reading the telegrams, but I think that a telegram from the Governor of the Virgin Islands is in a little different category. He says: Hon. CLINTON P. ANDERSON, Chairman, Committee on Interior and Insular Affairs, U.S. Senate, Washington, D.C.: I shall be grateful if following statement signed by me, as Governor, be read before your committee at Wednesday's hearing on nomination of Hon. Ralph Paiewonsky as my successor and incorporated in the record. Item 1. While I was a member of Virgin Islands Legislature in 1957 I sponsored, jointly, with other Senators, a bill to provide relief for the rumproducing industry by a Molasses Subsidy Act, No. 197, approved by Gov. Walter A. Gordon. Justification and need based on fact that price of molasses had increased 300 percent, from 7 cents to 27 cents per gallon, jeopardizing the survival of the only two remaining producers of rum. This was necessary to assure revenue of the islands from internal revenue taxes to support hospitals, schools, and other public functions. Mr. Paiewonsky's distillery was merely one of the two beneficiaries, but the islands as a whole gained from the revenue thus raised. Molasses subsidy was then fully warranted in the public interest. Item 2. As Governor in 1960, I introduced to legislature and approved act No. 567 of Virgin Islands Legislature to provide standards for production of Virgin Islands rum to be made from the fermented juice of sugarcane and not from imported high wines. One thousand barrels of Peruvian high wines had been imported by Goddards, Ltd., and was about to be processed by one Emanuel Brauer and shipped to United States as Virgin Islands rum. Dumping of 1,000 barrels of Peruvian rum in U.S. market merely rectified here and to be labeled as Virgin Islands rum would have destroyed this market for true Virgin Islands rum for which Virgin Islands have long had a good reputation. Act was necessary and proper to save industry and Virgin Islands revenues. Item 3. Emanuel Brauer of Sunbilt Tropical Fruit Products, Ltd., did not obtain a distiller's license until January 1, 1959. The foregoing is furnished as a factual record to correct distortion arriving from testimony given before your committee. JOHN D. MERWIN, Governor, Virgin Islands. The CHAIRMAN. Mr. Paiewonsky, I have a request from a mémber of the committee who could not be here today saying: I believe the nominee should be placed under oath with respect to the matters to which he has testified and believe he should be examined thoroughly with respect to the sworn testimony before Mr. Aspinall's committee. Do you mind being sworn? Mr. PAIEWONSKY. No, sir. The CHAIRMAN. Do you object? Mr. LEVENTHAL. No, sir.. The CHAIRMAN. Do you solemnly swear that the testimony you will give before this committee will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. PAIEWONSKY. I do, sir. The CHAIRMAN. You may proceed with your statement. I want to warn you that we may have to leave here if the long bell rings for a vote on the Senate floor, but you understand that in advance. We would be right back. FURTHER STATEMENT OF RAPHAEL PAIEWONSKY, ACCOMPANIED BY HAROLD LEVENTHAL, COUNSEL Mr. PAIEWONSKY. Mr. Chairman and members of the committee, I first wish to thank each of you for the courtesy you have shown me and for giving me such a prompt opportunity to refute certain charges. During the opening hearing last Friday, March 10, I covered my intentions of divesting myself of certain holdings which might raise the possibility of a conflict of interest. The committee then graciously heard the testimony of Governor de Castro, to accommodate his need to leave early. On Saturday, the hearing was primarily devoted to testimony of other witnesses, particularly those from the Virgin Islands. I was naturally gratified to note that all but one of these witnesses testified in favor of confirmation of my nomination. The other witness will, I am confident, be totally refuted by me here today.. However, before I proceed with the rebuttal of his charges against me, I think it is highly important to state my views on the task which faces me if this committee and the Senate consent to my nomination. I believe, with President Kennedy, that the Virgin Islands offers America a splendid opportunity to exhibit a true showcase of democracy at work. The total absence of racial discrimination, and the friendly manner in which all dealings on the islands are handled is in itself a remarkable phenomenon, although we who live there take it for granted. It stands out, however, as an important object lesson in a world torn by racial strife, and an object lesson clearly labeled "Made in America." Life in the Virgin Islands is not without its problems, though, and it is to these problems that I wish to address these remarks. We do have needs in the Virgin Islands. We need water. We need roads. We need housing. We need further improvements in our schools. We need expanded public utility services. And we need time to accomplish these things. While I have some definite opinions on these problems and their solution, I emphatically do not believe in one man programs. Specific answer to our needs must be developed on the basis of surveys which must be made by qualified technicians and experts, conferences with the local people, cooperation with the legislature, and reflection on the basis of information available only to the Governor. With that thought in mind, I offer this committee my solemn assurance that if confirmed, I will work unceasingly on behalf of the Virgin Islands and its citizens within the framework of a democratic government. I will seek out the best advice available to me from the experts in the various fields involved. I will seek out the advice of the citizens of the Virgin Islands through their elected representatives in the legislature and through citizens advisory committees. I was born in the islands, and I started to work there when I was 13. Today I still walk the streets of our islands, talking with the people, calling them by name more often than not. The Virgin Islands is a friendly place, a place which has no caste system, and no second-class citizens. It is a great satisfaction to me, Mr. Chairman, that this position of trust was broached to me by the leaders of the Unity Party who formerly were my opposition but who told me at this time that they felt that I was best qualified and, perhaps more important, the man most capable of working in harmony with all the groups involved. Virgin Islanders in all walks of life, and various political persuasions, have proffered me their warmhearted support. Their confidence more than balances the personal sacrifices I make in accepting the challenge. Because of this, and with the support that Secretary of the Interior Stewart Udall has assured me in our conversations together that he will provide, I feel confident that if confirmed I can undertake a successful administration as Governor of the Virgin Islands. The chairman has expressed particular interest in the Virgin Islands Corporation. As I have indicated previously, I do not believe it is appropriate for me at this time to go into the specific changes in its operation. I do wish, however, to assure this committee that if confirmed I have every intention of working toward the day that VICORP becomes self-sufficient. This does not seem to me an impractical dream, but rather a realistic and sensible objective which can be achieved through a vigorous program which pays attention to details while not overlooking long-range goals-a program which it is fair to expect from a succcessful business executive. Diversifying the agriculture of the Virgin Islands is a subject dear to my heart. It has been pointed out by Mr. Joseph Alexander, state chairman of the Democratic Party, and a man who has spent his life in the islands, that this objective is more easily stated than realized. The Department of Agriculture has long had a team of research technicians in the islands, but as yet they have made no important recommendations for a departure from the sugar program. But the time is ripe, I think, for an intensive new look at the diversification possibili 67160-61-10 ties. We may be able to take some giant steps toward diversification as our program for expanding the water supply develops. This problem, like many another, cannot be solved from afar. It requires administration on the local level, and by people who know the islands, their limitations, and their ways. Let me tell you a fish story-a fish story with a moral. Several years ago, another survey team came up with the recommendation that the Virgin Islands should increase its local food production by expansion of fishing. This seemed natural enough in an island economy, and plans were promptly drawn up for a fishermen's cooperative. At the suggestion of the survey team, a crawl was constructed alongside the docks. The experts told our local fishermen that this underwater enclosure would accommodate surplus fish when the local markets had been saturated. All well and good. Soon, with good luck, the cooperative hauled in a mammoth catch. There was enough fish for everyone on the islands, with plenty to spare in the new, modern crawl. Everyone bought plentifully, to help out local industry and to add some variety to the diet. That night, the unsold fish were put back into the crawl. The sad part of the story is that within 2 or 3 days after the record catch, thousands of cases of food poisoning broke out in the islands. It appeared that the experts had not gotten around to telling the local fishermen's cooperative one important detail-the crawl should not be used for fish after they were dead. And so the tainted fish were sold in quantity in the following days. The epidemic of food poisoning effectively killed off the fishermen's cooperative. It also set the cause of local food production back several years. The moral of this fish story is, naturally enough, that these programs must be carried out by the people on the scene-people who know and understand the people, their customs, and their conditions. This, of necessity, also holds true for another idea which has been advanced for furthering the economy of the islands-the possibility of introducing light industry, perhaps in the form of assembly plants. This is again something that all of us want to see take hold. I feel that our glorious climate together with the expanding tourist accommodations we must continue to provide will be the predominant factor in our economy, but there is an obvious need for encouraging local industry. VICORP, serving as a sparkplug for economic development, can be most helpful in this regard. I must say, however, that there is need for caution in this area. We must not try to run before we learn to walk. And with that I turn to rebuttal and explanation of certain specific matters which have been referred to in pevious sessions. If it pleases the committee, I have prepared a point-by-point refutation of the accusations of witness A. M. Brauer, and with your permission I should like to have these incorporated in the record as if read, word by word, in this room at this time. Starting with page 7 of my statement, we take up the statement that the Riise Co. defrauded the Government by not paying customs duties and rectifying taxes, and show that this is an irresponsible charge without any foundation. On page 10 I take up the charge of alleged personal profits from the use of highway funds and show that the Paiewonsky family disposed of all its holdings on Skyline Drive long before that paving project was even authorized. This is a matter of public record which could have been ascertained by anyone seeking to provide responsible testimony. On page 11 I take up the charge of alleged misuse of tax exemption and show that we never even obtained a tax exemption certificate. The reason is that VICORP never supplied us the water they agreed to supply, a fact which caused us to set aside approximately $150,000 worth of facilities which are standing idle today in our distillery. Certain other false charges by Mr. Brauer tie in with questions of government administration and policy. For that reason it may be best to review the facts in some detail. I therefore proceed to page 12 of my prepared statement. The CHAIRMAN. Does any member of the committee object to putting in the word-by-word refutation which he has here in the text and allowing him to read briefly from it this way? Without objection, that may be done. REFUTATION OF SPECIFIC CHARGES Charge of defrauding Government on not paying customs duties and rectifying taxes Mr. PAIEWONSKY. A person appearing before this committee charged that during and after World War II, the Riise Co. imported into the Virgin Islands rum produced in Cuba and other places, including a large quantity delivered in paraffin-lined barrels; that Riise took the Cuban rum, put it in their own barrels, labeled it as having been produced in their own distillery, transshipped it to the United States, where it found a ready market since alcoholic beverages were then in such short supply, and fraudulently avoided the payment of import duty of $1.25 per proof-gallon. He charged that this defrauded the United States of a million dollars. This witness further charged that the Riise companies failed to pay the tax of 30 cents a proof-gallon required on rectified spirits; that they imported alcohol from Publicker Industries, added rum ethers and flavors, and shipped this flavored product to the United States without paying the rectification tax amounting, he charged, to $100,000 per annum. Facts. The plain and simple fact is that the Riise companies have shipped to the continental United States only two products and neither is subject to the rectification tax. (1) The first product we ship to this continent is rum produced at our St. Thomas and St. Croix distilleries. We owned a modern, enlarged distillery in St. Thomas since 1936, with facilities for aging and storing 8,000 barrels of rum. We began operating the St. Croix distillery in 1949. Every drop produced at these distilleries has been straight distilled rum, unrectified, and every drop from our distillery is checked by the insular gager who is a deputy U.S. collector of customs. (2) The second product we ship to the United States is bay rum. A very substantial amount of bay rum has long been and still is shipped here from the Virgin Islands. Every drop of this bay rum is produced under the Federal formula, and contains the denaturant |