Mr. PAIEWONSKY. That would limit the revenues. But I think where Schenley would do well for the Virgin Islands by coming in, and I think this is one of the reasons they are interested, is they also have an overseas international division, and since the Virgin Islands offer them the type of place to perform an operation which is an international operation in scope and nature, they can ship from the Virgin Islands to all of the various countries and bases outside of the United States.

I think this offers a tremendous potential and will create employment for people in the Virgin Islands.

Senator DwORSHAK. And also larger grants in the return of taxes from the United States?

Mr. PAIEWONSKY. I do not think that it would change very much the question of the quantities that sold in the United States. I think the quantity of rum sold in the United States is fairly limited by consumer taste.

Even though tremendous advertising programs have been carried on, especially by Puerto Rico in the last few years, the amount of increase has been rather small in comparison. So I do not think there is any fear from that, Senator.

Senator DwORSHAK. I am troubled, Mr. Paiewonsky. I know you have been very successful as a businessman and you are not to be criticized or condemned for that. I assume your record reflects your ingenuity and resourcefulness. But I am wondering if you as the holder of—what, 10,000 shares of Schenley stock?

Mr. PAIEWONSKY. Approximately.

Senator DwORSHAK. And if you are going to be the Governor of the Virgin Islands, would you not feel obligated to some extent to influence the operations of VICORP, to make it profitable for the Schenley Co.? I realize you might rationalize by pointing out that whatever you did to stimulate business by Schenley or any other company in the islands would be reflected in employment opportunities for the people there, and in that way you would be a benefactor more or less.

But do you not feel that there would be a constant conflict of interest between your loyalties to the position of Governor and its obligations and responsibilities and your interest in the Schenley Co., by virtue of 10,000 shares, holding 10,000 shares of stock?

Mr. PAIEWONSKY. Senator, I thought I made it clear. In my statement you will see that I plan to place this 10,000 shares in a trust and not hold 10,000 shares of Schenley's

Senator DwORSHAK. You will put it in a trust.

Mr. PAIEWONSKY. In a trust that will have maybe $50 million worth of other shares. So that the amount of Schenley shares, or what I will receive indirectly from any interest that the fund might have, and the fund might sell these shares out within 6 months, or as they see fit.

Senator DWORSHAK. But if they did not, after the completion of your term as Governor, you would still be the owner of that stock, would you?

Mr. PAIEWONSKY. No, sir.

Senator DwORSHAK. You are sure of that?

Mr. PAIEWONSKY. Positive, sir.

Senator DwORSHAK. So that would remove that conflict?

Mr. PAIEWONSKY. Definitely, sir. That has been provided for. It is an irrevocable trust that has set up this arrangement.

Senator DwORSHAK. You will receive payment in cash, then, for that stock, and that will terminate your interest in it?

Mr. PAIEWONSKY. I will receive shares of Schenley which I will in turn turn over to an investment trust fund, a mutual fund. It is a mutual fund.

Senator DwORSHAK. What do you get for turning that over?

Mr. PAIEWONSKY. The shares of the mutual company, one of the mutual funds. It can be one like the Lehman Fund. It is a fund that will most likely be operated and managed by a Boston bank.

Senator DWORSHAR. So the Schenley stock will be diluted to a great extent?

Mr. PAIEWONSKY. And it might be disposed of completely. I will hold the shares of a mutual trust. Those shares I can move in and out of them as I see fit. I will have no control and no interest in that.

Now, in answer to the question that you have said about a conflict of interest, I think I will do, as I see it, what will be the best for the Virgin Islands as a whole, regardless of whether it is Schenley or whether it is VICORP or whether it is any other company that is involved.

If I feel that the action that I have to take is one that will be adverse to Schenley and that that would be the best interests for the Government of the Virgin Islands, that is the action I would take.

Senator DwORSHAK. I would believe that. Of course, you have Mr. PAIEWONSKY. But I believe, sir, that if I take an action in regard to VICORP that would make it self-sufficient, that would turn it from a losing corporation into a profitable corporation, and if, due to those efforts, whether it is by increasing or a more efficient increase in the production of sugar and a greater quantity of molasses, that that would make larger amounts available for the distillers of the islands, and they benefit in that way, I do not think that I should be accused by so doing of showing undue interest and favoring the distilleries.

I think this is a course of action that you people here would be very much interested in. I know the chairman of the committee, Senator Anderson, here has shown an interest to try and convert the Virgin Islands Corporation into a profitable business, or for the Government to get out of it.

Senator DwORSHAK. I can believe that statement of yours. I think that that is likely true. But I am wondering also whether the distillery business and the rum business is the only industry which means anything so far as the economic stability of the islands is concerned. You have tourism, you are visualizing a terrific expansion of the tourist business. You own a lot of real estate. You own a lot of other businesses.

I do not think there is anything illegal in you benefiting from any growth or development through your diversified investments, but I am wondering whether you will not have to make decisions as Governor which might have some direct bearing on some of the policies which indirectly would provide very generous profits for you through your ownership of these various companies and real estates in the islands. How much real estate do you own in the islands?

Mr. PAIEWONSKY. In the nature of buildings, or what?

Senator DwORSHAK. Well, yes; how many acres of land and how many buildings?

Mr. PAIEWONSKY. I think I gave you a prepared statement on it. I think most of the properties we own are commercial properties in St. Thomas. We own no agricultural or undeveloped land on the island of St. Thomas.

We own, my brother and I own, acreage on the island across the harbor, Hassell Island. We did own some land that I saw a lot of fuss was made about on the top of a hill several years ago.

Senator DwORSHAK. You sold that?

Mr. PAIEWONSKY. I owned 3 acres there for a house site which was divided and sold to two people 21/2 years ago, and my brother owned, I think, 8 to 10 acres, which he sold about 22 years ago to some people from Connecticut.

Senator DwORSHAK. One more question.

So far as the islands are concerned, and as I said the other day, I have not been privileged to visit the islands and it is difficult for me to visualize some of the things we have been talking about during the hearings, but St. Thomas, St. Croix, and St. Johns are the three islands?

Mr. PAIEWONSKY. Yes, sir.

Senator DwORSHAK. You consider them to be one community and you are not interested in developing one island in a preferential way over either of the other two. Your interest lies to the overall development of the entire area?

Mr. PAIEWONSKY. That is quite true, Senator.

Senator DwORSHAK. There is no conflict there?

Mr. PAIEWONSKY. I just received, and I will ask permission to put it into the record, an additional petition signed by the members of the chamber of commerce of St. Croix who said they were late getting this up and asked if I would be kind enough to ask permission to have this added to the list of other members.

I have spent considerable time in St. Croix as well as St. Thomas, and one of the reasons I think I have this universal support in both islands is because they consider me an insular candidate so to speak.

Senator DwORSHAK. It is natural for them to give you some support. They certainly would not want to oppose you, and then have you confirmed as Governor and find themselves out in the cold. I imagine the people are pretty shrewd operators over there on the islands just as they play at pretty good politics in this country.

Mr. PAIEWONSKY. I have worked, as you heard the former State chairman of the Republican Party, who has come up here unsolicited

Senator DWORSHAK. That proves my point.

Mr. PAIEWONSKY. What I was going to say was this: I serve on many committees. I serve on the Governor's Tourist Advisory Committee and I have served on many committees of the chambers of commerce of both islands and I have worked with the Republican members as well as the Democratic members.

Senator DWORSHAK. I have one question that has bothered me a little bit since the other day. It is difficult to appraise accurately the statements which are made here. I realize some of the testimony has been given after the witness has been sworn and some of it has not.

But as I recall, it was alleged that you had purchased in the operations of your distillery, I think the figures was, 1 million gallons of alcohol from the industry in Philadelphia which was shipped into the islands, processed, and subsequently shipped out in the form of rum to this country.

Do you admit to having done that? Whether you do or not, I do not know whether there is anything illegal in doing that. But it confused me a little bit. Do you want to comment on that?

Mr. PAIEWONSKY. Yes, sir.

Senator DwORSHAK. Or would you prefer not to?

Mr. PAIEWONSKY. I think there is a statement in the record. I have inserted that here.

Senator DwORSHAK. Well, of course, we have not had a chance to read carefully what you have put into the record. We probably should have had you read it.

All right, Mr. Chairman, I will not pursue that.

The CHAIRMAN. That is the signal for a vote. We will take a coffee break for about 15 minutes and return when we have voted. We will take up the questioning of the other members of the committee. (A short recess was taken.)

The CHAIRMAN. The committee will come to order.

I think Senator Long was going to be next.
Senator Gruening, do you want to start off?
Senator GRUENING. No, Mr. Chairman.

The CHAIRMAN. Senator Burdick, do you have some questions you want to direct to the witness?

Senator BURDICK. I have only three.

Mr. Paiewonsky, you made a fine statement with regard to gambling on the islands and you stated that your enterprises did not have slot machines in them and that you were totally against gambling in the islands.

Assume that the legislaure should ever legalize gambling in the islands. Would you veto such legislation if it passed?

Mr. PAIEWONSKY. I certainly would, Senator.

The CHAIRMAN. Was that a direct question on how your attitude would be toward gambling?

Mr. PAIEWONSKY. Definitely. There is no question about it.

Senator BURDICK. No. 2, would you use the power of your office to the fullest extent to make certain that recipes and formulas for the making of all types of liquor would be confidential and not be used by the public?

Mr. PAIEWONSKY. Definitely, sir. That is in the jurisdiction of the government secretary. There is no question about that.

Senator BURDICK. I just wanted to know if you would use all of your influence to maintain that.

Mr. PAIEWONSKY. I would see to it that it is also kept confidential in the secretary's office; that no one else violates that trust.

Senator BURDICK. And as Governor of the Virgin Islands, would you scan the legislation carefully so that there was no business discrimination against anybody in the islands?

Mr. PAIEWONSKY. Yes, sir.

Senator BURDICK. So that in all events, anyone that wanted to enter any pursuit, whether it was in distilling liquors, whether it is in hous

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ing, whether it is in movie theaters, you would make certain that there is no discriminatory legislation?

Mr. PAIEWONSKY. That is correct.
Senator BURDICK. That is all.

Mr. CHAIRMAN. Mr. Metcalf?

Senator METCALF. I have no questions, Mr. Chairman.

The CHAIRMAN. Senator Hickey?

Senator HICKEY. No questions, Mr. Chairman.
The CHAIRMAN. Senator Gruening?

Senator GRUENING. No questions.

The CHAIRMAN. Mr. Miller has a question.

Senator MILLER. Do you own an export-import business?

Mr. PAIEWONSKY. No, sir.

Senator MILLER. I believe testimony was given the other dayMr. PAIEWONSKY. All licenses in the islands permit a merchant to import and also to export. I do not think that there is any special type of license for import-export.

Senator MILLER. In other words, as a gift shop you might do some importing and exporting, but you do not own any export-import business as such?

Mr. PAIEWONSKY. That is correct, sir.

The CHAIRMAN. Thank you.

Mr. Lausi?

STATEMENT OF ANTHONY LAUSI, FORMER DIRECTOR, OFFICE OF TERRITORIES, DEPARTMENT OF THE INTERIOR

The CHAIRMAN. Are you the Director of the Office of Territories, or were you that during the period of this rum subsidy?

Mr. LAUSI. Yes, I was, Mr. Chairman. I was Director from May 1, 1955, to March 3, 1961.

The CHAIRMAN. Was that subsidy beneficial, in your opinion, to the Virgin Islands?

Mr. LAUSI. Are you referring to the legislation passed by the local legislature?

The CHAIRMAN. Yes.

Mr. LAUSI. I would say "yes," it was beneficial. For an expenditure of about $150,000 or $200,000, they were assured of this matching fund which amounted to at least $5 million a year.

The CHAIRMAN. I asked some questions the other day when you were here, and I asked you if you would give me the authority for the subsidy provisions that you had down there. That involves the funds of the United States to a degree, does it not?

Mr. LAUSI. As I understood your question, Mr. Chairman, you referred to the molasses contract.

The CHAIRMAN. They gave the subsidy above 7 cents, and then they modified the contract to bring it down to about that figure. Did you think that was done and I ask this a little reluctantly because I notice that the Secretary of Interior, Mr. Seaton, the Secretary of Agriculture, Mr. Benson, and Mr. Ward Canaday, to mention three people, are on that Board, and they are all people whom I esteem as fine people-but did you think that was in full compliance with the obligations of the enabling legislation down there for VICORP?