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who have chosen to make their home in the islands. Every one of them, without exception, is opposed to this appointment.
I understand that many of them have written to this committee stating their views. When I told them that I intended to appear before this committee and testify against the appointment, some said that they wish they could appear, but that they could not manage to put together enough money to come to Washington.
Others said that they feared for their business and their families' future if they should openly testify against this man. I understand and appreciate their reluctance.
I cannot give their names in public hearings for if I did they would be victimized to the same extent as if they themselves were testifying. In a sense, I am more fortunate than any of them.
I have nothing further to fear from Mr. Paiewonsky. He has already managed to destroy my business and my future in the Virgin Islands. But I am not here today to testify about what he has done to me personally, for I am not representing myself, but the thousands who are unable or afraid to speak for themselves.
I am here to place facts before this committee which I believe warrant and perhaps require this committee to reject the nominee. As the committee is undoubtedly aware, Ralph Paiewonsky and his family own A. H. Riise, Inc., which retails liquor, gifts, novelties and stationery and has a real estate division.
They own A. H. Riise Chemical & Distillers Corp., which manufacturers no chemicals although they have been receiving a 75-percent tax exemption because they said they were going to do so.
The CHAIRMAN. May I ask you there to subsequently supply for the record, if you cannot do it now, how they got this 75-percent tax exemption? You don't have to do it now but we would like to have it. Mr. BRAUER. All right, sir.
They own the Apollo Theater, the Center Theater, and an exportimport firm. Their net worth is unknown for they have always refused to give a firm statement. But the best estimate puts their wealth at above $5 million. I am not criticizing the nominee because he and his family have accumulated enormous wealth while natives on the island live in degrading poverty. Ralph Paiewonsky, his family, and his business associates have received substantial amounts of public money for their own personal benefit. · In 1957 the Virgin Islands Legislature
The CHAIRMAN. Would you mind being sworn?
The CHAIRMAN. Do you solemnly swear the testimony you shall give before this Senate Committee on Interior and Insular Affairs will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. BRAUER. I do.
Senator DWORSHAK. That also applies to what you have already said. Mr. BRAUER. Yes, Senator.
The CHAIRMAN. Senator Dworshak is right. You have covered the preceding statements by reference. Do you object to that, Mr. Dickstein.
Mr. DICKSTEIN. I do not.
Mr. BRAUER. In 1957, the Virgin Islands Legislature passed a bill which granted a molasses subsidy to A. H. Riise Distillery and St. Croix Sugar Industries which is owned by Norman Skeoch. Mr. Paiewonsky and Mr. Skeoch are partners in consolidated distilleries which act as sales agents for both of these concerns.
The CHAIRMAN. You have heard the question I addressed to someone a while ago.
Is this Mr. Skeoch a relative of the present Governor?
A grandfather clause in the molasses subsidy bill guaranteed that the subsidy would only be available to Mr. Paiewonsky and Mr. Skeoch. Other small distilleries in the Virgin Islands which had been compelled to shut down their operations because their owners did not have the financial leverage of Paiewonsky and Skeoch were excluded from any benefit under the act.
But Paiewonsky interests were given, and I repeat given, about $150,000 of money belonging to the people of the Virgin Islands. This gift was called a molasses subsidy. In addition to this direct cash contribution, the Paiewonsky and Skeoch Distilleries have been and are being sold substantial quantities of molasses by the Virgin Islands Corporation at substantially less than the market price.
Not only have they enjoyed this advantage but, as Governor, Paiewonsky will be given copies of the formulas which other distilleries are required to file with the Treasury Department.
Senator MILLER. Mr. Chairman, may I ask a question?
Senator MILLER. With respect to your statement there that they are being sold substantial quantities by VICORP at under the market price we have had testimony that they are being sold that but as a result of an arbitration award; is that correct?
Mr. BRAUER. Well, that is what they have testified.
Senator MILLER. I am asking you whether that is correct testimony, whether that testimony is accurate? Mr. BRAUER. I know nothing about that.
Senator MILLER. You don't know whether this sale is the result of an arbitration award or arbitration decision or not? Mr. BRAUER. I don't know anything about the arbitration.
Senator MILLER. If it were the result of an arbitration would that not be all right?
Mr. BRAUER. No. There is no reason for them to get molasses at 7 cents at any time.
The CHAIRMAN. Suppose there were certain things about the molasses though that indicated that it was not up to quality or up to standard and as a result of that the contract needed renegotiation and went to an arbitration panel, there was a fair panel appointed and they did decide there were certain things involved in this molasses which merited a decrease in the price?
Mr. BRAUER. Senator, to my knowledge and my history in the business, molasses is sold on a sugar point basis. It was testified that the molasses they bought was 52 sugar points. There was no necessity for an arbitration.
The CHAIRMAN. Then you would say that if an arbitration decision was made that that decision was made by an arbitration group that either had been misled or had an ax to grind ?
Mr. BRAUER. I would say that they were misled. I don't know about an ax but I would say they had been misled.
The CHAIRMAN. Let me see if you can clear that up. Mr. Paiewonsky, in his testimony, referring to page 35 of the first day's manuscript, testified:
The CHAIRMAN. How do they separate molasses from sugar down there? You buy only raw molasses?
Mr. PAIEWONSKY. We only buy raw molasses. I can assure you that the molasses we got from Virgin Islands Corporation during the last year was almost unfit to be used in a distillery.
I have an audit of the Virgin Islands Corporation in which the auditors say that this claim was made that it had a sugar content, it had to have a sugar content of not less than 52 percent and that the molasses he received was not of that quality. The auditors say
Laboratory analysis of samples of molasses taken from the 1959 crop production indicated the molasses was of high quality and had a sugar content in excess of 52 percent. The corporation has taken the matter to court and the case is pending at the conclusion of our fieldwork in 1960.
I understand it has since been settled. You are going to testify to that point, are you, as to the molasses he bought.
Mr. BRAUER. If he got 52 sugar points he got a little better than 1 gallon of alcohol, of 100 proof alcohol from every gallon of molasses that he bought. So he was not bad off at all.
The CHAIRMAN. Does that answer your question?
Senator MILLER. If the board of arbitrators had not been misled as a result of which they gave this decision, if they had not been misled by Mr. Paiewonsky I don't believe you could criticize him for following that arbitration award, could you?
Mr. BRAUER. Beg your pardon?
Senator MILLER. I don't believe you could criticize the nominee for taking the price that the arbitration panel had given him, could you, if he had not misled.
Mr. BRAUER. I don't know how they got this arbitration figure or why there was an arbitration. All I am telling you is a matter of fact, if he got 52 sugar points on a gallon of molasses he got 1 proof gallon of rum. He needed no arbitration of any kind. He was doing all right. That meant that his raw material cost was 7 cents.
Senator MILLER. The point I am trying to make is that if he did not mislead this arbitration group and if he thought that there was something wrong in this molasses and if the arbitration group set this price, I don't believe you could criticize him for this, could you?
Mr. BRAUER. I don't know who is responsible for that. I don't want to accept responsibility for making a statement that I know nothing about.
Mr. DICKSTEIN. This being a legal question may I address myself to your question?
Senator MILLER. Certainly. · Mr. DICKSTEIN. I have not seen the contract between the Paiewonsky Distilleries and VICORP. However, as a matter of law, an arbitrator or arbitration panel is limited in their award by nature of a submis
wining that the their decisionary to suggeserated in a
sion agreement which is normally incorporated in a contract. So I don't think that it is necessary to suggest that the arbitrators were misled or that their decision was faulty. Their decision in determining that the appropriate price should have been 7 cents may very well have been preconceived or predicted by the terms of the contract, not in terms of the specific amount but in terms of the standards which they were to employ. Mr. Paiewonsky testified that the reason they came up with the 7-cent price is that the price which he had had outside molasses derived to the Virgin Islands was 9 cents; apparently there was a 2-cent differential factor and this may have been the basis upon which the arbitrator was compelled to render this award.
Senator MILLER. Then you could equally criticize the people representing VICORP in negotiating this contract as criticizing the nominee, could you not ?
Mr. DíCKSTEIN. You could indeed, Senator. Mr. BRAUER. These formulas are supposed to be kept secret and disclosure is a criminal offense but Paiewonsky, when he becomes Governor, will have ready access to every trade secret of his competi
Another example of conflict arises from the fact that substantial sums of money were used to pave the road on the Island of St. Thomas
The CHAIRMAN. You have public money in one text. You left out the word public. Should it be left out? Mr. BRAUER. Yes. The CHAIRMAN. Just substantial sums of money. Mr. BRAUER. Public money was used to pave a road on the Island of St. Thomas called Skyline Drive. The road has had very little use as compared to the main arteries on the island which are very badly in need of repair but the Paiewonsky family owns considerable acreage fronting on the Skyline Drive and was able to sell this property at enormous profit to themselves. These are a few of the elements of conflict of interests. Paiewonsky, his family, and his associates have such control over the economic life of the islands that any divessment by Ralph Paiewonsky of his personal interests cannot possibly remove these conflicts.
I turn now to the facts which I believe demonstrate that Ralph Paiewonsky is totally unfit to be Governor of the Virgin Islands or to hold any office of public trust. Before doing so I wish to state that I have always abided by the philosophy of live and let live.
I cannot say this of Mr. Paiewonsky; but I do believe that when a man is candidate for an office of public trust the public is entitled to know how he has conducted himself as a private citizen. I have already mentioned that Paiewonsky owned A. H. Riise Chemical & Distillery Corp., the largest distiller of rum in the Virgin Islands.
The nominee is, or until a very short while ago was, president of A. H. Riise. Appalled by the nomination and with good reason to believe that A. H. Riise had been in substance and continuing violation of liquor tax laws of the United States, I have personally sought out individuals who have firsthand knowledge of these violations.
I place the following facts before you. During and immediately after World War II, A. H. Riise bought and imported into the Virgin Islands substantial quantities of rum produced in Cuba and other places. At that time Cuban rum imported in the United States was subject to a duty of at least $1.25 per proof gallon.
The Paiewonsky distillery, however, took the Cuban rum, put it in their own barrels, labeled it as having been produced in their own distillery in the Virgin Islands, transshipped it to the United States, fraudulently avoiding the payment of import duties. I have specific information that a large quantity of this Cuban rum was purchased from Schenley's and delivered from Cuba to A. H. Riise in paraffin lined barrels.
A. H. Riise repacked it and shipped it to the United States as their own distillation. During part of this time the Paiewonsky distillery was not even in operation and therefore could not have produced any of its own rum. I would estimate that this wartime operation of the Paiewonsky family cost the United States close to $1 million in unpaid taxes.
And I call the committee's attention to the fact that during World War II alcoholic beverages were in such short supply in the United States that every drop of rum shipped to the United States for consumption found a ready market. Since the war years A. H. Riise has changed its pattern of tax cheating.
Section 5021 of the Internal Revenue Code imposes a special additional tax of 30 cents a proof-gallon on all rectified spirits. The addition of flavoring to distilled spirits after distillation is rectification. Not only is rum made with artificial flavor subject to a special additional tax, it is not considered to be a genuine product and is supposed to be identified as imitation rum.
A. H. Riise consistently produced or purchased cane alcohol to which they have added artificial rum flavoring and represented the final product to be genuine, wholly distilled rum.
Senator DWORSHAK. Where do you think they purchased that alcohol?
Mr. BRAUER. Publicker Distilleries, Philadelphia, shipped to St. Thomas Island or St. Croix. Not only have they failed to label the product as rectification of rum but in one particular instance which has come to my attention they label their product as 8-year-old rum.
At the time of the shipment of this mislabeled rum to the United States, A. H. Riise had no warehouse capable of aging rum in any quantity. I am also aware of the fact that the artificial rum flavoring which A. H. Riise used to rectify cane alcohol was purchased from Fritzche Brothers, New York, one of the larger producers of the socalled rum ether.
Not only has the Paiewonsky's distillery defrauded the purchasers of this rum by selling them inferior products but also defrauded the Government of the United States of a rectification tax of $21 a barrel. I estimate that A. H. Riise's failure to identify his product as rectified rum has cost the United States approximately $100,000 a year.
One might ask where was the Internal Revenue Service while all this was going on. In fairness to them I would like to state they have one inspector in the Virgin Islands and he is situated on the island of St. Thomas. Paiewonsky distillery operates on St. Croix island.
The facts which I have placed before you, and additional details including the names of people who had supplied me with some of this information, was reported to the alcohol and tobacco tax unit of the Internal Revenue Service this past Wednesday.