A federal grand jury in Cleveland has handed up the first indictments in a wide-ranging investigation into allegedly illegal payments made by U.S. shipping companies to attract business.
Seatrain Lines, Inc. and Ocean Equipment Corp., successor to Seatrain Lines of California, were indicted yesterday on two counts: conspiring to defraud the Federal Maritime Commission, and violating federal currency control laws by secretly bringing more than $200,000 in bearer bonds into this country from the Netherlands to fund the illegal rebates.
The indictment charges that the two firms circumvented the schedule of shipping rates approved by the FMC through the rebates, which effectively lowered the official rates.
Cleveland-based U.S. Attorney Herb Berkowitz also filed conspiracy charges against Harvey A. Ludwig, former chairman of the board of Tenna Corp., an Ohio firm that imports automotive sound equipment and radios, for allegedly accepting the illegal rebates.
Ludwig resigned from Tenna in 1976, when his involvement first came to light; since then, he has been cooperating with investigators. But, according to Berkowitz, "There is no agreement as to the dispositon of his case." He faces a maximum fine of $10,000 and/or five years in prison on the charges.
The two corporation face fines of up to $510,000.
The shipping industry rebate practices have been under investigation for at least two years, with grand juries convened in Cleveland and Newark, N.J. Federal investigators estimate that more than $100 million of questionable payments are involved.
Late last year, Sen. Daniel Inouye, (D-Hawaii), triggered a controversy by asking the Justice Department to delay the indictments until he and other congressmen could shepherd through Congress legislation exempting U.S. flag carriers from prosecution for the alleged payoffs.
The congressmen contended that rebates are a general practice internationally in that industry; they said American carriers were at a disadvantage if they faced penalties for matching their competitors' activities.
After a two-month delay, Attorney General Griffin Bell refused Inouye's request, permitting the investigation to continue.
The indictment reveals a complex system of laundering the payoff money.
According to attorneys working on the case, Tenna Corp. gave Seatrain more than $1 million worth of shipping business between Japan and the U.S. in exchange for kickbacks in excess of $200,000. The total payments, Berkowitz said amounted to 28 percent of the business generated.
According to the filings, Seatrain of California (later Ocean Equipment Corp.) transferred the money for the rebates through a Hong Kong Bank to another bank in Rotterdam, Holland.
An official of Seatrain Europe, who is named as an unindicted co-conspirator withdrew the money from the Rotterdam account and purchased bearer bonds. He sent the bonds to Seatrain offices in Weehawken, N.J. for delivery to Ludwig. In the end, however, the aid in Europe mailed some of the bonds directly to Ludwig's Ohio home.
Ludwig reportedly redeemed only about $11,500 worth of the more than $200,000 in bonds he was given. He kept the remainder in a personal safe deposit box.
The indictment charges that Ludwig set up the rebates in negotiations that began in 1972 with Seatrain Marketing Vice President William Gohlke. The indictment also alleged that Gohlke acted with the approval of Arthur Novacek, president of the firm's container division in Weehawken.