A senior Treasury Department official acknowledged yesterday that for seven years, Saudi Arabia has reimbursed the U.S. government for the salaries of a number of department employes.
This led a House subcommittee chairman to question whether the Treasury employes may have divided loyalties and constitute "a potential Fifth Column" in the department.
Rep. Benjamin S. Rosenthal (D-N.Y.) raised the questions in a dramatic exchange with Marc E. Leland, Treasury's assistant secretary for international affairs, at the closing session of a two-day hearing on the adequacy of the government's monitoring of the multibillion-dollar investments being made in the United States by members of the Organization of Petroleum Exporting Countries.
Leland listed 38 Treasury employes whose salaries, starting as early as June 1974, have been reimbursed by the Saudis and who provide procurement, technical and other help here and in Saudi Arabia.
Rosenthal said he believes the reimbursements violate a 1978 law, which, the General Accounting Office has said, requires the employes to be paid out of appropriated funds. A Treasury Department spokesman disagreed, telling a reporter that the Foreign Assistance Act of 1961 "specifically authorizes" federal agencies to be reimbursed for technical assistance to foreign governments.
Under this and similar authorizations, numerous agencies including the Corps of Engineers have openly provided reimbursed services to many countries, Iran and Saudi Arabia among them; but the sensitive Saudi Arabian reimbursement of Treasury employes had drawn little if any public notice.
An objection more fundamental than Rosenthal's came from Laurence H. Tribe, a professor of constitutional law at Harvard who cited the Constitution's requirement that "without the consent of Congress," a federal employe cannot accept a financial benefit "from any king, prince, or foreign state."
Even if Congress hadn't enacted the 1978 law, Tribe said in a telephone interview, "I would have grave doubt that the Constitution would permit the practice." Rejecting Treasury's defense, he said it is "clear that Congress has not given its 'consent.' The Constitution needs consent. Plainly, we don't have it here."
At the hearing of his commerce, consumer and monetary affairs subcommittee, Rosenthal asked if the arrangement was an "apparent almost shocking conflict of interest?" "No," Leland replied.
"To whom do these people owe their loyalty?" the legislator asked.
Leland said they work for the United States-Saudi Arabia Joint Commission on Economic Cooperation, set up seven years ago by Secretary of State Henry A. Kissinger and Crown Prince Fahd to aid the Saudis in investing their huge new inflow of oil revenues. "They are U.S. nationals," he said. "They owe their loyalty to the Joint Commission."
"And their salary is being paid reimbursably by a foreign government," Rosenthal said. "To whom do these people owe their loyalty?"
"I don't know," Leland said.
"Think about it," the congressman said. "You're a lawyer . . . . "
"I don't think the issue arises," the Treasury official answered. "They are U.S. citizens, and therefore owe their loyalty to the United States."
Pressing harder, Rosenthal said, "In your building you have American nationals who are being paid by a foreign government."
"No," said Leland. "They are being paid by the U.S. government. . . the United States is being reimbursed . . . . "
The following exchange, here slightly abbreviated, followed:
Rosenthal: "Whose interests are they working on behalf of?"
Leland: "On behalf of the U.S. government."
Rosenthal: "Then why don't we pay them directly?"
Leland: "Well, because the Saudi Arabians have offered what is a reimbursable detail, and the benefit is to us."
Rosenthal: "We could get that deal from any government in the world, to put people in the Department of the Treasury or the Department of Defense . . . . "
Leland: "Not that would bring us a billion dollars worth of business."
Rosenthal: "I think the Soviets would go for that."
A key area of dispute is Treasury's practice of lumping all Middle Eastern OPEC members' investments in the United States while listing the investments of other countries separately. Treasury policy is never to identify individual investors, Leland said, emphasizing that in the OPEC countries the government is often the exclusive investor. Rosenthal suggested that Treasury, with its Saudi-paid employes, is not "motivated to report to the American people the totality of OPEC investment" in the United States.
"In my view," Rosenthal said, "you have a potential Fifth Column in the Department of Treasury, and you have reasons for not reporting the totality of Saudi Arabian investment in the United States." The phrase "Fifth Column," attributed to a Spanish nationalist general in 1936, is, in a dictionary definition, "any group of people who aid the enemy from within their own country."
In the three fiscal years starting in 1979, Leland said, the 38 Treasury employes at issue received $3,581,500 in Saudi-reimbursed salaries.
Four of the employes work for the Saudi Arabian Procurement Support Staff, which, subcommittee sources have been told, contracts with U.S. businesses to assist the Saudis