Section is derived from subdivision (2) of the above-cited ordinances. The remainder of such ordinances are carried into the other sections of this chapter. Changes were made in form and phraseology.

§ 3. Tax on inheritances to distant relatives and strangers

A tax of 14% is hereby imposed on inheritances exceeding $100 which fall to persons other than those mentioned in sections 1 and 2 of this title.

HISTORY

Revision note: Based on Ord. Mun. C. St. T. and St. J. app. July 16, 1952 (Bill no. 154), eff. July 1, 1952; and Ord Mun. C. St. C. app. June 30, 1952 (Bill no. 52), eff. July 1,

1952.

Section is derived from subdivision (3), of the above-cited ordinances. The remainder of such ordinances are carried into the other sections of this chapter. Changes were made in form and phraseology.

Senator ALLOTT. I think that is all on this point, Mr. Chairman. I just simply wanted to make the point that I do believe that this growth in bank resources is not the result of the establishment of new bank loans, but rather because of the very favorable tax treatment that the Virgin Islands offers.

Mr. PAIEWONSKY. May I answer that?

Senator ALLOTT. Yes.

Mr. PAIEWONSKY. I think that the growth of the banks was due to several factors. I think the major factor that was involved was that the merchants of the islands realized that there were several charges that they had to pay to the one then existing bank. In other words, if you came into the Virgin Islands with a check from your bank in the United States, the merchant would have to pay a discount to the bank of a quarter of 1 percent. And then, when his merchandise came in from the States, he would have to buy a draft from the bank and pay them a quarter of 1 percent.

So the merchants, since most of their money and checks from the United States, American Express checks or private checks drawn on mainland banks, would keep accounts in the mainland, and these accounts, I think, amounted to between $5 and $6 million. We made a survey and found that was so.

Senator ALLOTT. As I understand it, Mr. Paiewonsky, this practice was discontinued with the establishment of the connection with Chase Manhattan. Is that right?

Mr. PAIEWONSKY. No; it was established before that. Our bank did away with the charges and brought back into the Virgin Islands about $5 to $6 million of funds belonging to Virgin Islanders that had been kept in mainland banks up here, on account of the charges. Senator ALLOTT. And being kept in mainland banks due to the excessive charges?

Mr. PAIEWONSKY. That is correct. We did away completely with the charges on checks and made it a free exchange, so that any person could write a check and get the full value for the face of that check in the Virgin Islands. And that brought back into the Virgin Islands I believe between $4 to $6 million, almost, right away.

In addition to that, the economy has been growing, and with the stimulation of the economic provisions of the 1954 organic act, I think we have seen a tremendous growth in the Virgin Islands. I think it is a healthy type of growth.

The CHAIRMAN. Would that account for the great loss each year of the VICORP?

Mr. PAIEWONSKY. I think the VICORP operation is in a different category from private enterprise in the Virgin Islands.

The CHAIRMAN. I was going to get to it later, but since you are a good businessman down there, can you explain why this Virgin Islands Corporation lost $635,000 on its sugar operations last year?

Mr. PAIEWONSKY. I do not think I can answer that question. The CHAIRMAN. Well, now, was part of their assets sold to your corporation, the Riise Co.?

Mr. PAIEWONSKY. No, sir.

The CHAIRMAN. The molasses was sold?

Mr. PAIEWONSKY. The molasses was sold.

The CHAIRMAN. How do they separate the molasses from sugar down there? You buy only raw molasses?

Mr. PAIEWONSKY. We buy only raw molasses. I can assure you the molasses we got from VICORP during the last year was almost unfit to be used in a distillery, also, sir.

The CHAIRMAN. Did they get income from that?

Mr. PAIEWONSKY. They did.

The CHAIRMAN. Or did they sustain a loss in that?

Mr. PAIEWONSKY. They received an income from that, the market value of the molasses.

The CHAIRMAN. They did not sustain a loss?

Mr. PAIEWONSKY. No, sir; not on the sale of molasses.

The CHAIRMAN. Did they report a loss from growing cane?

Mr. PAIEWONSKY. I think they have reported a loss in almost every direction.

The CHAIRMAN. The reported loss was $208,000 from cane growing. Does that have anything to do with the molasses?

Mr. PAIEWONSKY. No, sir; except that molasses is a byproduct of sugarcane.

The CHAIRMAN. That is what I thought.

Mr. PAIEWONSKY. But I do think the loss on the growing of the sugarcane might have resulted from a severe drought that was experienced last year. We did have a severe drought. But I do believe that a lot of the problems of VICORP might be questions of management and questions of a number of other things that would have to be carefully studied. I could not give you an answer on that without studying it.

The CHAIRMAN. The Virgin Islands Corporation has cost the Treasury of this country many, many millions of dollars; has it not? Mr. PAIEWONSKY. It certainly has, sir.

The CHAIRMAN. And now, as a businessman, with all these investments down there, can you explain the loss of $662,000 in sugar operations in 1 year, after several millions of capital had been poured into it by the United States over the years?

Mr. PAIEWONSKY. There should be no reason for that, sir.

The CHAIRMAN. How did it occur? You were down there. You saw it.

Mr. PAIEWONSKY. I had nothing to do with the management of VICORP.

The CHAIRMAN. I did not say you did. I am merely trying to find out why you think it lost it.

Mr. PAIEWONSKY. Well, as I said before, there was a severe drought. That was one of the reasons. I think maybe poor planning. Maybe a series of things in VICORP.

The CHAIRMAN. Would you have anything to do with it if you were Governor?

Mr. PAIEWONSKY. Would I have anything to do with VICORP? The CHAIRMAN. Would you not be Chairman of the Board?

Mr. PAIEWONSKY. No, sir; I would just be a member of the Board, but I would at least be in a position to voice my opinion and look into the facts and make recommendations on how to turn the tide and how to change that.

The CHAIRMAN. The Secretary of the Interior would be a member of the Board. Would he sort of look to you for guidance in this matter?

Mr. PAIEWONSKY. Well, I hope so; because at least I would be an onthe-spot director that would be keeping in touch with the operations and what is taking place in the company.

The CHAIRMAN. Now, as an on-the-spot director, have you any plans for trying to repair this loss to the Federal Treasury?

Mr. PAIEWONSKY. I believe there are a lot of things that can be done to reverse this trend. Yes, sir. Definitely, sir.

The CHAIRMAN. Could you indicate what some of them are?

Mr. PAIEWONSKY. Well, in the first place, I think that the Virgin Islands Corporation has never carried out the full intention of the law establishing it. I think it has restricted itself into one narrow field of sugarcane cultivation. And even in this particular field of sugarcane cultivation, I do not know whether they have explored the possibility of scientific research, development, and so forth, to make this phase a profitable phase.

I am not a sugar chemist in any way, but I do know that a lot of things can be improved upon.

I know that VICORP could have been an Economic Development Administration similar to the one in Puerto Rico, that could have sparked our economic development, with the resources that they have. VICORP controls the power, the water, and has the possibility of extending help to the small farmers, so that we can raise more of the foods that we consume in the Islands ourselves. We would not have to import the tremendous quantity of foods for the hotels and the needs of the local people.

.

I think there is a lot that can be done. I think that people with vision and understanding of the problems of the islands can help tremendously in bringing the Virgin Islands Corporation into the position of a corporation that can make money, or at least break even. The CHAIRMAN. Well, I raise the question purely from this standpoint: The Department of the Interior, as others have, comments upon your successful business administration in many other branches. You can make a drugstore go, a liquor store go, a stationary store go. If you are going to become the Governor of the Islands, I would think that you would be giving some thought to how you can make the sugarcane business go to where it could not lose $600,000 a year when the Government already has $10 million invested in it and gets nothing from it and gets no taxes from the island.

Mr. PAIEWONSKY. Senator, I agree with you. And I think quite a number of us realize the importance of the Virgin Islands Corporation, but we have never had the opportunity of having a voice or say in the corporation or its management.

The CHAIRMAN. Mr. de Castro is going to testify. He has had some voice in it. He has been Governor.

Mr. PAIEWONSKY. Yes, he has been a very good Governor in the Virgin Islands.

The CHAIRMAN. Did he keep it from losing money?

Mr. PAIEWONSKY. I think so. I think one year the Virgin Islands Corporation made some money. I am not familiar with the balance sheets and the internal operations of the company. I have been very critical of the company, on the outside, of many of their operations. And I think that this company can, under proper management and under proper direction, be the economic spark of the islands, and would not lose money. It should not lose money.

The CHAIRMAN. My sole point is that you were on the Chase Manhattan's Advisory Council and have been connected with a bank of your own, and everything else. Does it not distress you to see anybody losing that much money?

Mr. PAIEWONSKY. It certainly does. I am very much concerned about it.

Every business, sir, that we have been in, we have worked very hard in, and we have made it a success. We have worked to make it a success. And I can assure you that if I am a member of the board of this company, I will work tirelessly to make it a success.

The CHAIRMAN. Who appoints the other three members that are appointed at large?

Mr. PAIEWONSKY. They are appointed by the President. I know the three members. They are good men, but you cannot run a company with absentee management, sir.

The CHAIRMAN. Who are the other three directors?

Mr. PAIEWONSKY. The other three? One is Mr. Ward Canaday. The CHAIRMAN. Of Willy Overland?

Mr. PAIEWONSKY. Yes. And Mr. Claytor, Dr. Claytor, I think it is. And the third person is Victor Bornn, who is a native of the Virgin Islands.

The CHAIRMAN. Do you have any recommendations? Some of us have opposed this payroll padding device down there for quite a while. Have you any recommendations as to what might be done?

Mr. PAIEWONSKY. Sir, when I look into it, I certainly will have. The CHAIRMAN. I am trying to get a commitment in advance, that if you are confirmed you will spend at least a little time trying to make a losing business profitable. You seem to know how to do it.

Mr. PAIEWONSKY. I have done it in the past in the islands. But here I feel I will have to study the inside workings of the company. I think I know how it can be done. But I will just be one member on a board of seven.

The CHAIRMAN. You discourage me a little. When I was in the Department of Agriculture, we made a couple of hundred million dollars in the cotton business, and I got criticized by everybody. They said the Department of Agriculture is supposed to lose money. Now,

do you regard the Virgin Islands Corporation as a device to lose money?

Mr. PAIEWONSKY. Oh, no, sir. I think the Virgin Islands Corporation should make money. As a matter of fact, I was in a sense responsible for having the local government turn over the power authority, the power division, to the Virgin Islands Corporation, hoping that they would be

The CHAIRMAN. Did that not result in a greater loss?

Mr. PAIEWONSKY. And now, my goodness, it is worse than ever. The CHAIRMAN. It is losing?

Mr. PAIEWONSKY. It is not losing, but the service that is being rendered and the poor planning.

The CHAIRMAN. Well, why transfer it to a bad corporation? That is not the way you generally build a business, is it?

Mr. PAIEWONSKY. No, sir.

The CHAIRMAN. Well, can we get any suggestions from you as to what you might like to see done down there?

Mr. PAIEWONSKY. With the Virgin Islands Corporation?

The CHAIRMAN. Yes.

Mr. PAIEWONSKY. I do not know whether I could at this moment, Senator. I would be very happy to in time.

The CHAIRMAN. You have a fine record as a successful businessman. I mean you are able to turn things into dollars. And the reason we put people on boards is clear. The reason you were put on the Chase Manhattan board was because you were successful, was it not? When you studied your bank, did you pick directors on the basis of their business failures, or their success?

Mr. PAIEWONSKY. Their success.

The CHAIRMAN. You are being put on the board. I am just trying to see if you will not say to us that you are going to make it a first order of business to try to stop this drainage on the Federal Treasury.

Mr. PAIEWONSKY. That is exactly what I am going to do, Senator. But I cannot put my finger now on the specific things in the Corporation.

The CHAIRMAN. You have been down there for a great many years. You must know what is going on. I think I know what is going on. Senator DwORSHAK. Mr. Paiewonsky, you said that the quality of the molasses sold by VICORP is very poor. Your distillery does buy molasses from VICORP?

Mr. PAIEWONSKY. Yes, sir; we buy 70 percent of what they produce. Senator DwORSHAK. 70?

Mr. PAIEWONSKY. 70 percent of VICORP's production we buy from VICORP.

Senator DwORSHAK. I understand that in 1959 you had some controversy over the quality of the molasses, and you refused to pay for that molasses.

Mr. PAIEWONSKY. That is correct, sir. We wanted to focus attention on it. Not only that, but I will give you the reasons why.

They use in the VICORP a new method of harvesting, which they bought as a labor-saving device; and they used mechanical means. And they loaded the canes from the field with bulldozers and pickup machinery into trucks, which brought with it about 25 percent or maybe 30 percent of field dirt, mud, trash, to the sugar mill. And