Appendix — Upjohn Co. v. United States
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| APPENDIX
IN THE
Supreme Court of the United States
OcTOBER TERM, 1979
No. 79-886
THE UpsoHN COMPANY, ET AL.,
Petitioners
—)) —
THE UNITED STATES, ET AL.,
Respondents
On Writ of Certiorari to the Court of Appeals
for the Sixth Circuit
$ PETITION FOR WRIT OF CERTIORARI FILED DECEMBER 7, 1979
CERTIORARI GRANTED MARCH 17, 1980
TABLE OF CONTENTS
Page
Docket Entries
eee res eek shee teat eae eae la
SN A Ae ais date ec cd bs oh ee 6s vas 9a
Petition to Enforce Internal Revenue Summons with
Exhibits attached (filed August 31, 1977) ...... 13a
Order to Show Cause (filed August 31, 1977) ....... 22a
Response to Petition to Enforce Internal Revenue
Summons (filed September 16, 1977) .......... 23a
Affidavit of Gerard Thomas with Respondents’ Ex-
hibits one through four attached (filed October
DE ON A ORAM Wha Wie ek eee eRe 26a
Transcript of Proceedings on Petition to Enforce
Internal Revenue Summons held on October 12,
1977, with Petitioners’ Exhibits one through four
attached (filed November 8, 1977) ............. 46a
Report and Recommendation of the Magistrate (filed
I Mi nO ky. hea ee ne besa evnces 17la
Letter dated March 7, 1978, from the Honorable
Stephen W. Karr, United States Magistrate, to
the Honorable Noel P. Fox, District Judge filed
SE Es UE kaki ch ereee eRe ea tease 200a
Letter dated March 13, 1978, from the Honorable
Stephen W. Karr, United States Magistrate, to
the Honorable Noel P. Fox, District Judge (filed
i: ME as wi as dine dwiag ou. 0 be o-¥0 208a
Order dated April 28, 1978 (filed April 28,1978) .... 210a
Order and Final Judgment entered May 15, 1978
Ds ois wine dS 00ks one Oe bear’ 212a
Reference to Appendix to the Petition for Certiorari
Regarding the Opinion of the Court of Appeals . 213a
Order Allowing Certiorari ...................000. 214a
la
UNITED STATES DISTRICT COURT
FOR THE SIXTH CIRCUIT
RECORD ON APPEAL
I, Gerald H. Liefer, Clerk of the United States District
Court for the Western District of Michigan, do hereby
certify that the annexed documents consisting of 1 vol-
ume(s) of pleadings, 1 volume(s) of transcript, and 0 vol-
ume(s) of depositions constitute the Record on Appeal and
Relevant Docket Entries in the below captioned case.
Title of Case
Unitep States or America and Davin E. Nowak,
Special Agent, Internal Revenue Service, Appellee
VS
Ursoun Company and Gerarp THOoMas,
Vice President & Secretary, Appellant
Counsel for Appellant—(See Docket Sheet for additional
Attorneys)
Name—Wallson G. Knack
Firm Name—Warner, Norcross & Judd
Address—900 Old Kent Bldg., Grand Rapids, Mich. 49503
Tele. No.—(616) 459-6121
SSN—
Counsel for Appellee
Name—James 8. Brady
Firm Name—United States Attorney
Address—544 Federal Building, Grand Rapids, Michigan
49503
Tele. No.—(616) 456-2404
SSN—
2a
District Judge: Hon. Noel P. Fox, Chief Judge
District Court Docket No. K77-7 Mise.
Date of entry of Judgment: May 15, 1978
Evidentiary Hearing Held: Yes No &
Transcript Included? Yes K} NoQO
Exhibits Included? Yes) No &
Plaintiff Exhibits Nos. :
Defendant Exhibits Nos.:
If Habeas Corpus, was Certificate of Probable Cause
granted (1)
denied (
Nature of the Case: Petition to enforce IRS summons
Notices of Appeal:
Name of Party Filing Notice—Upjohn Company
Date Filed—5-25-78
IF P—YesO No
Docket Fee Attached—Yes NoO
Last Name of Counsel—Knack
Was Counsel Rtn’d Appt’d 0
In Testimony Wuenreor, I have hereunto subscribed my
name and affixed the seal of this Court at Grand Rapids,
Mich. and have transmitted the above record to the Court
of Appeals, this 27th day of June, 1978.
/s/ Geratp H. Lierer
Gerald H. Liefer
Clerk
3a
Dist/Office—646 1
Docket Yr.—77
Docket Number—0007
Filing Date—Mo. Day Year—08 31 77
J N/S O R—Miscellaneous
Judge Number—4604
Docket Yr. Number—K77 Misc. 0007
Plaintiffs
Unitep States or America and Davin BE. Nowak
Defendants
Ursonn Company and Gerarp THomas,
Vice President and Secretary
Cause
June 29 1978
Petition to Enforce Internal Revenue Service Summons
mh
Attorneys
For the United States
James 8S. Brady
United States Attorney
044 Federal Building
Grand Rapids, Michigan 49503
(616) 372-2404
Jerome Fink, Attorney #6
Tax Division
Department of Justice
Washington, D. C. 20530
4a
For Defts.
Wallson G. Knack
Warner, Norcross & Judd
900 Old Kent Bldg.
Grand Rapids, MI 49503
459-6121
Richard M. Roberts
Hamel, Park, McCabe & Saunders
1776 “F” Street, N.W.
Washington D.C. 20006
202-785-1234
Charles MeNelis
Welch & Morgan
300 Farragut Bldg.
900 Seventeenth Street, N.W.
Washington D.C. 20006
202-296-5151
Filing Fees Paid
Date—5-30-78
Receipt Number—Warner, Norcross (Appeal) $255.00
C.D. Number—#33220
33218
U.S.A. & Daviw E. Nowak
Vv.
Upsonn Company and Gerarp THomas, Vice P
Proceedings
1977 — Nr.
Aug 31—1—Filed petition to Enforce Internal Revenue
Service Summons with exhibit 1 and affidavit of David
E. Nowak attached
a
5a
Aug 31—2—Filed Order to Show Cause hearing 9-26-77
before Stephen W. Karr at 1:30 p.m.; written response
required w/in 15 days after service
Aug 31—Summons issued and delivered to U.S. Marshal
Sep 14—3—Filed Appearance of Atty. Wallson G. Knack,
R. Roberts & C. MeNelis on behalf of defts.
Sep 16—4—Filed Response by respondents to petition to
enforce Internal Revenue Service Summons w/certifi-
cate of service
Sep 15—5—Filed Marshal’s return showing service upon
Gerard Thomas as UNEXECUTED; (on vacation)
showing service upon Upjohn Co. via Mary R. Welch,
Ass’t Corp. Sect. on 9-01-77
Oct 5—6—Filed pltfs’ opposition to respondents’ motion to
expedite discovery and accompanying interrogatories
and motion to produce with cert. of service
Oct 6—7—Filed defts motion to expedite discovery and
cert of service
Oct 6—8—Filed defts motion to produce with cert of service
Oct 6—9—Filed notice of hearing on motion to expedite
discovery
Oct 6—10—Filed defts interrogatories to U.S. with cert of
service
Oct 6—11—Filed affidavit of service for pleadings 7 and 9
Oct 7—12—Filed Defts’ Opposition and Motion to Dismiss
Petition to Enforce Internal Revenue Summons with
certificate of service
Oct 7—13—Filed BRIEF in Support of Opposition and
Motion to Dismiss (pldg #12) with certificate of serv-
ice
6a
Oct 7—14—Filed Affidavit of Gerard Thomas w/exhibits 1,
2,3 & 4 attached
Oct 11—15—Filed petitioners’ brief in support of their
petition to enforce an internal revenue service sum-
mons w/cert. of service
Oct 11—16—Filed Respondent’s response to Government’s
opposition to motion to expedite discovery w/cert. of
service
Dee 5—17—Filed respondent’s brief in support of opposi-
tion and motion to dismiss petition to enforce internal
revenue summons w/certificate of service
Dec 5—18—Filed Respondents’ proposed findings of fact
w/certificate of service
Dec 5—19—Filed petitioners’ Post Hearing Brief in sup-
port of their Petition to enforce an Internal Revenue
Summons w/certificate of service
Dec 13—20—Filed Petitioners’ Reply Brief w/certificate of
service
Dee 15—21—Filed Reply of Respondents to Petitioners’
Post Hearing Brief with certificate of service
Nov 8—21la—Filed proceedings held 10-12-77 at G.R. before
Mag. Karr with exhibits
1978
Feb 23—22—Filed Report and Recommendation of Magis-
trate that order be entered compelling respondents to
comply
Feb 24—23—Filed letter of Mag. showing proof of mailing
of report & recommendation to attys Brady, Fink,
Knack, Roberts & McNelis
7a
Mar 3—24—Filed respondents’ motion for extension of time
to file Objections to Recommendation of the U.S. Magis-
trate w/ORDER extending time to file to on or before
March 10, 1978 |
Mar 6—Copies mailed to W. Knack, U.S. Atty., J. Fink,
R. Robers, & C. MeNeils
Mar 8—25—Filed respondents’ motion for reconsideration
and objection to Report and Recommendation of Magis-
trate
Mar 8—26—Filed Brief in support of respondents’ motion
for Reconsideration and Objection to Report & Recom-
mendation of Magistrate w/attachment
Mar 23—-27—Filed Petitioners’ Response to the Respond-
ents’ Objection to report and Recommendation of Mag-
istrate w/certificate of service
Mar 23—28—Filed letter from Magistrate Karr addressed
to Judge Fox which is extending the time for filing
objections to the Report & Recommendation to 3-17-78
(copies were mailed to all counsel via Magistrate
Karr’s Office)
Mar 23—29—Filed letter from Magistrate Karr addressed
to Judge Fox in response to Respondents’ motion for
Reconsideration & Objection to Report and Recom-
mendation (copies mailed by Magistrate Karr’s Office)
Mar 28—30—Filed ORDER Accepting Magistrate’s Report
and Recommendation entered 2-28-78
Mar 28—30—Copies of order (pldg #30) mailed to attys
Fink, Knack, Roberts, McNelis and given to U.S. atty
May 16—31—Filed ORDER and Final Judgment that
respondents to obey summons serv 11-23-77 by testi-
fying and producing documents on 5-30-78 at 9:00 a.m.
in Kalamazoo, MI
8a
May 25—32—Filed Respondents’ Motion for Stay Pending
Appeal, with attached Certificate of Service
May 25—33—Filed ORDER staying Order and Final Judg-
ment entered 5-15-78 pending Mandate of Court of
Appeals
May 25—Copy of Order mailed to Attys. Roberts, McNelis,
Fink & Brady 4j
May 25—34—Filed Respondent Upjohn Company’s Notice
of Appeal from Order of May 15, 1978, with attached
Certificate of Service
May 25—Copy of Notice of Appeal given to Attys. Roberts,
MeNelis, Fink & Brady
May 25—35—Filed Respondents Designation of Contents
of Record and Statement of Points, with attached Cer-
tificate of Service
June 1—Copy of Notice of Appeal given to Judge & Ct.
Reporters
June 1—Copy of Notice of Appeal and copy of docket sheet
mailed to Ct. of Ap.
June 27—Mailed record on appeal (circled pleadings) to
Court of Appeals with certificate of record on appeal
and copy of docket entries
June 27—Mailed copy of certificate of record on appeal
and docket entries to Attys. Brady, Fink, Knack,
Roberts & MeNelis
9a
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
Appeal From Western District of Michigan, $.D.
at Grand Rapids
GENERAL DOCKET
Case No. 78-1277
Title of Case
Unrtep States or America and Davip E. Nowak, IRS,
Petitioners-A ppellees,
VS.
Tue Urpzsoun Company and GeraLp TxHomas in his official
capacity, Respondents-A ppellants.
(Fed. Ques.) Internal Revenue Code/summons
No. below: K77-7 Mise CA
Judge below: Fox
Date of Judgment: May 16, 1978
Notice of appeal filed: May 25, 1978
Attorneys for Appellant
Wallson G. Knack (Upjohn)
Warner, Norcross & Judd
900 Old Kent Building
One Vandenberg Center
Grand Rapids, Michigan 49503
616/459-6121
Charles A. MeNelis (Upjohn)
Welch and Morgan
300 Farragut Building
900 17th Street, N.W.
Washington, D. C. 20006
' 202/296-5151
10a
Richard M. Roberts (Thomas)
Lawrence J. Whalen
Hamel, Park, McCabe and Saunders
1776 F. Street, N.W.
Washington, D.C. 20006
202/785-1234
Attorneys for Appellee
James S. Brady
U.S. Attorney
544 Federal Building
Grand Rapids, Michigan 49503
M. Carr Ferguson, Jerome Fink
Assistant Attorney General
Tax Division, Dept. of Justice
Washington, D. C. 20530
Gilbert E. Andrews
202-739-5193
Crombie Garrett, R. Bruce Johnson
Date—Account of Appellant
6/30/78—Warner, Norcross & Judd #17241 74-5/724
Received 50.00
Remarks—Certified record returned to District Court
9/17/79
June 30, 1978—Treasurer of U.S.—Acc’t Fees Earned
Disbursed 50.00
lla
Date
1978
5/30—Copy of Notice of Appeal
6/30—Certified Record (1 vol. pleadings and 1 vol. tran-
script) filed and cause docketed
7/10—A ppearance of ©. MecNelis for appellant
7/10—Appearance of W. Knack for appellant
7/17—Appearance of M. Ferguson and G. Andrews for
appellees
8/11—Appearance of R. Roberts for appellant, Gerald
Thomas
8/11—Brief (25) of appellant (m-8/9)
8/11—Joint appendix (10) (m-8/9)
8/18—Appearance of W. Knack for appellant
8/18--Appearance of C. MeNelis for appellant
9/5—Motion: appellee’s brief to 10/8/78 (m-9/1) (Ext. to
10/8/78 granted JPH 9/6)
10/12—Appearance of C. Garrett and R. Johnson for
appellee
10/12—-Brief (25) of appellees (m-10/10)
10/26—-Reply brief (25) of appellant (m-10/24) Substituted
by brief of 10/30
10/30—Reply brief (25) of appellant (m-10/26) Replace-
ment copies of brief for brief filed 10/26
11/30—-Motion of appellee to expedite appeal (m-11/24)
12/6—Reply of appellant to motion of appellees to expedite
(m-12/5)
12a
1979
1/10—Order granting appellee’s motion and directing that
this case be set for oral argument at the earliest prac-
ticable date (Peck, J.)
2/21—Cause argued by R. M. Roberts for Appellant, by
J. Fink for Appellee and case submitted to the Court
(Before: Celebrezze, Keith and Merritt, JJ.)
3/7—Additional citations of appellee (m-3/2)
5/24—Additional citations of appellant (m-5/23)
6/13—Additional citations of appellant (m-6/11)
6/28—Judgment of the District Court affirmed in part,
reversed in part and case remanded for further pro-
ceedings
6/28—Opinion by Merritt, J.
7/12—Petition (15) for rehearing en banc (m-7/12)
9/10—Order denying petition for rehearing (Celebrezze,
Keith and Merritt, JJ.)
9/17—Mandate issued (No costs taxed)
9/17—Opinion with mandate
12/14—Notice of filing petition for certiorari 12/7/79 (Sup.
Ct.No. 79-886)
1980
3/20—Certified copy of order of Supreme Court granting
certiorari 3/17/80
13a
[Filed: August 31, 1977]
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Civm Action No.
Unitep States oF America and Davin E. Nowak,
Special Agent, Internal Revenue Service,
Petitioners
¥.
Upsoun Company and Gerarp THoMaAs,
Vice President and Secretary,
Respondents
PETITION TO ENFORCE INTERNAL REVENUE SERVICE
SUMMONS
Now come the United States of America and Special
Agent David E. Nowak, Interna] Revenue Service, by their
attorney, Frank S. Spies, United States Attorney for the
Western District of Michigan, and show unto this Court
as follows:
I
This is a proceeding brought under the authority of Sec-
tions 7402(b) and 7604(a) of the Internal Revenue Code of
1954, 26 U.S.C. $$ 7402(b) and 7604(a), to judicially en-
force an Internal Revenue Service summons,
II
The petitioner, David E. Nowak, is a special agent of
the Internal Revenue Service employed in Detroit, Michi-
gan, as is Special Agent James M. Rogowski. Special agents
of the Intelligence Division are authorized to utilize In-
l4a
ternal Revenue Service summonses issued under the au-
thority of Section 7602 of the Internal Revenue Code of
1954, 26 U.S.C. § 7602, and Treasury Regulations § 301.7602-
1, 26 C.F.R. § 301.7602-1.
III
The respondent, Upjohn Company, is a Delaware corpo-
ration with offices at 7000 Portage Road, Kalamazoo, Mich-
igan 49001, and doing business within the jurisdiction of
this Court. The respondent, Gerard Thomas, is Vice Presi-
dent and Secretary of the respondent, Upjohn Company,
also with offices at 7000 Portage Road, Kalamazoo, Michi-
gan 49001.
IV
The petitioner, Special Agent David E. Nowak, is con-
ducting an investigation of the federal income tax liabilities
of Upjohn Company and its subsidiaries for the calendar
years 1972, 1973 and 1974. This investigation was previ-
ously assigned to Special Agent James M. Rogowski.
V
The taxpayer, Upjohn Company, assigned its Vice Presi-
dent and Secretary, Gerard Thomas, to conduct an internal
investigation of payments made by or on behalf of officials
of the company and its subsidiaries to foreign officials.
In conducting this internal investigation on behalf of Up-
john Company the respondent, Gerard Thomas acquired
books, records, papers and other data and created investi-
gative files, all of which relate to the tax liabilities under
investigation by Special Agent David E. Nowak as de-
scribed in paragraph IV, above.
15a
VI
On November 23, 1976, a summons was issued by Special
Agent James M. Rogowski directing the respondents, Up-
john Company and Gerard Thomas, Vice President and
Secretary, to appear before Special Agent James M. Ro-
gowski, on December 7, 1976, at 11:30 a.m., to testify and
to produce for examination certain books, records and
papers, all as set forth in the attached affidavit and sum-
mons. An attested copy of the summons was personally
served upon the respondents, Upjohn Company and Gerard
Thomas, Vice President and Secretary, by Special Agent
Richard Vervisch on November 23, 1976, by handing it to
Gerard Thomas. The summons issued to the respondents,
Upjohn Company and Gerard Thomas, Vice President and
Secretary, is attached hereto and incorporated herein as
Exhibit 1.
Vil
The respondents, Upjohn Company and Gerard Thomas,
Vice President and Secretary, appeared before the peti-
tioner, Special Agent David E. Nowak, and Special Agents
James M. Rogowski and Joseph R. Lubbe, but refused to
testify or to produce the books, records and papers re-
quired by the summons issued to them and described in
paragraph VI, above, and such refusal has continued to
the date of this petition.
Vill
The testimony and records sought by the summons issued
to the respondents, Upjohn Company and Gerard Thomas,
Vice President and Secretary, are not already in the pos-
session of the Internal Revenue Service and no recommen-
dation for prosecution of the taxpayer has been made to
the United States Department of Justice.
16a
IX
It was and now is essential to the determination of the
federal tax liabilities of the taxpayers, Upjohn Company
and its subsidiaries, for the years 1972, 1973 and 1974, that
the respondents, Upjohn Company and Gerard Thomas,
Vice President and Secretary, be required to testify and
to produce the records demanded, as is evidenced by the
affidavit of the petitioner, Special Agent David E. Nowak,
attached hereto and incorporated herein as part of this
application.
Wuererore, the petitioners respectfully pray:
1. That this Court enter an order directing the respon-
dents, Upjohn Company and Gerard Thomas, Vice Presi-
dent and Secretary, to show cause, if any they have, why
they should not comply with and obey the aforementioned
summons and each and every requirement thereof.
2. That the Court enter an order directing the respon-
dents, Upjohn Company and Gerard Thomas, Vice Presi-
dent and Secretary, to obey the aforementioned summons
and each and every requirement thereof, and ordering their
attendance and testimony and the production of the books,
records and papers as required and called for by the terms
of the summons before Special Agent David E. Nowak, or
any proper officer of the Internal Revenue Service, at such
time as may hereafter be fixed by Special Agent David E.
Nowak, or any proper officer of the Internal Revenue
Service.
3. That the United States recover its costs in maintaining
this action.
4. That the Court render such other and further relief
as is just and proper.
Frank S. Spies
United States Attorney
17a
“Exuisit 1”
SUMMONS
DEPARTMENT OF THE T'REASURY
INTERNAL REVENUE SERVICE
In the matter of the tax liability of
THe Upsoun Company
7000 Portage Road
Kalamazoo, Michigan 49001
Internal Revenue District of Detroit
Period(s) 1972, 1973, 1974
The Commissioner of Internal Revenue
To Gerard Thomas, Vice President and Secretary
The Upjohn Company |
At 7000 Portage Road, Kalamazoo, Michigan 49001
Greetings: You are hereby summoned and required to ap-
pear before James M. Rogowski, an officer of the
Internal Revenue Service, to give testimony relating to
the tax liability or the collection of the tax liability of
the above named person for the period(s) designated
and to bring with you and produce for examination the
following books, records, and papers at the place and
time hereinafter set forth.
The following records of the Upjohn Company:
All files relative to the investigation conducted under the
supervision of Gerard Thomas to identify payments to
employees of foreign governments and any political con-
tributions made by the Upjohn Company or any of its
affiliates since January 1, 1971 and to determine whether
any funds of the Upjohn Company had been improperly
accounted for on the corporate books during the same
period.
18a
The records should include but not be limited to written
questionnaires sent to managers of the Upjohn Company’s
foreign affiliates, and memorandums or notes of the inter-
views conducted in the United States and abroad with off-
cers and employees of the Upjohn Company and its sub-
sidiaries.
Place and time for appearance:
at Federal Building, 410 W. Michigan Avenue, Kalamazoo,
MI 49005, Rm. B-41 on the 7th day of December, 1976 at
11:30 o’clock A.M.
Failure to comply with this summons will render you liable
to proceedings in the district court of the United States or
before a United States commissioner or magistrate to en-
force obedience to the requirements of this summons, and
to punish default or disobedience.
Issued under authority of the Internal Revenue Code this
23rd day of November, 1976.
Original
James Rocowskt, Special Agent
Signature, Title Form 2039 (Rev. 2-74)
Authorized By: JosepH R. Guppz, Group Manager
Signature, Title
Prior Authorization Received From:
Name, Title
On
Date Signature Issuing Officer
19a
“EXHIBIT 1”
CERTIFICATE OF SERVICE OF SUMMONS
(Pursuant to Section 7603, Internal Revenue Code)
I certify that I served the summons shown on the front of
this form on:
Date—November 23, 1976. Time—11:45 a.m.
How Summons Was Served:
I handed an attested copy of the summons to the person
to whom it was directed.
GERARD THOMAS
C1) I left an attested copy of the summons with the follow-
ing person at the last and usual place of abode of the
person to whom it was directed.
Ricuarp ©. Verviscu, Special Agent
Signature, Title
Sec. 7603—Service of Summons
A summons issued under section 6420(e)(2), 6421(f) (2),
6424(d) (2), 6427(e) (2), or 7602 shall be served by the Sec-
retary or his delegate, by an attested copy delivered in
hand to the person to whom it is directed, or left at his last
and usual place of abode; and the certificate of service
signed by the person serving the summons shall be evidence
of the facts it states on the hearing of an application for
the enforcement of the summons. When the summons re-
quires the production of books, papers, records, or other
data, it shall be sufficient if such books, papers, records, or
other data are described with reasonable certainty.
20a
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Crvm. Action No.
Unitep States or America and Davin E. Nowak,
Special Agent, Internal Revenue Service,
Petitioners
v.
Upsoun Company and Gerarp THomas,
Vice President and Secretary,
Respondents
AFFIDAVIT
Davip E. Nowak, a petitioner herein, being first duly
sworn, deposes and says:
1. Ivam a duly commissioned special agent of the Intelli-
gence Division of the Internal Revenue Service with post
of duty in Detroit, Michigan, and performing my duties
under the District Director of Internal Revenue, Detroit,
Michigan.
2. In my capacity as a special agent I was assigned to
investigate the federal tax liabilities of Upjohn Company,
7000 Portage Road, Kalamazoo, Michigan 49001, and its
subsidiaries, for the calendar years 1972, 1973 and 1974.
The investigation was previously assigned to Special Agent
James M. Rogowski.
3. The taxpayer, Upjohn Company, assigned its Vice
President and Secretary, Gerard Thomas, to conduct an
internal investigation of payments made by or on behalf
of officials of the company and its subsidiaries to foreign
officials. In conducting this investigation on behalf of Up-
john Company, Gerard Thomas acquired books, records
and papers and other data, and created investigative files,
all of which relate to the investigation of the federal tax
liabilities of Upjohn Company and its subsidiaries.
4. Pursuant to such investigation and in accordance with
Sections 7602 and 7603 of the Internal Revenue Code of
2la \
1954, 26 U.S.C. §§ 7602 and 7603, a summons, Treasury
Form 2039, was served upon Upjohn Company and Gerard
Thomas, Vice President and Secretary on November 23,
1976, by Special Agent Richard Vervisch personally hand-
ing an attested copy to Gerard Thomas. That summons,
which is attached hereto as Exhibit 1 to this application and
made a part hereof, directed Upjohn Company and Gerard
Thomas, Vice President and Secretary, to appear before
Special Agent James M. Rogowski on December 7, 1976, at
11:30 a.m., at Room B-41, Federal Building, 410 West
Michigan Avenue, Kalamazoo, Michigan 49005, then and
there to give testimony and to produce books, records and
papers relating to the federal tax liabilities of Upjohn
Company for the years 1972, 1973 and 1974.
5. The respondents, Upjohn Company and Gerard
Thomas, Vice President and Secretary, appeared but re-
fused to testify or produce the books, records and papers
required by the summons issued to them, and such refusal
has continued to the date of this affidavit.
6. The testimony and books, records and papers sought
by the summons issued to Upjohn Company and Gerard
Thomas, Vice President and Secretary, are not already in
the possession of the Internal Revenue Service, and no
recommendation for prosecution of the taxpayer has been
made to the United States Department of Justice.
7. The testimony and books, records and papers de-
manded by the summons served upon Upjohn Company
and Gerard Thomas, Vice President and Secretary, are
necessary for the determination of the federal tax liabilities
of Upjohn Company and its subsidiaries for the years
1972, 1973 and 1974.
Davip E. Nowak, Special Agent
Intelligence Division
Internal Revenue Service
Subscribed and sworn to before me this .... day of
Notary Public
ee ee er ar ree
22a
[Filed: August 31, 1977]
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Civiz Action No.
Unitep States or America and Davin BE. Nowak,
Special Agent, Internal Revenue Service,
Petitioners
v.
Upsonun Company and Gerarp Tomas,
Vice President and Secretary,
Respondents
ORDER TO SHOW CAUSE
Upon the petition, the exhibit attached thereto, the aff-
davit of Special Agent David E. Nowak, Internal Revenue
Service, and upon the motion of Frank S. Spies, United
States Attorney for the Western District of Michigan, it is
Orverep that Upjohn Company and Gerard Thomas, Vice
President and Secretary, appear before the United States
District Court for the Western District of Michigan,
Southern Division, in that branch thereof presided over by
the undersigned on the ...... _ 2 geen fees , 1977,
OF. Saas bx vis to show cause why they should not be com-
pelled to obey the Internal Revenue Service summons
served upon them on November 23, 1976. It is further
OrvEreD that a copy of this Order, together with the
petition and exhibit thereto, be personally served upon
Upjohn Company and Gerard Thomas, Vice President and
Secretary, on or before .............. , 1977. It is further
Orperep that Upjohn Company and Gerard Thomas, Vice
President and Secretary, shall file a written response to
the petition within five (5) days after service of the petition
upon -them.
J Fee eee eer , Michigan, this ...... day of
United States District Judge
23a
[Filed: September 16, 1977]
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Civil Action No. K77-5 Mise.
Unitep States or America and Davin BE. Nowak,
Special Agent, Internal Revenue Service,
Petitioners
v.
Upsoun Company and Gerarp THOomas,
Vice President and Secretary,
Respondents
RESPONSE TO PETITION TO ENFORCE
INTERNAL REVENUE SERVICE SUMMONS
Respondents, the Upjohn Company and Gerard Thomas,
by their respective attorneys, pursuant to the Order issued
by this Court on August 31, 1977, answer the Petition of
Special Agent David E. Nowak as follows:
Answer
Any allegations not specifically responded to herein are
denied. Respondents further respond to the petition as
follows:
1. Respondents admit the allegations contained in para-
graph I;
2. Respondents admit the allegations contained in the
first sentence of paragraph II and state that the second
sentence of paragraph II sets out a legal conclusion to
which no response is necessary ;
3. Respondents admit the allegations contained in para-
graph III and state that Gerard Thomas is a licensed at-
torney and is General Counsel to the Upjohn Company;
4. Respondents state that they do not have sufficient
knowledge or information to form an opinion or belief
24a
concerning the truth of the allegations contained in para-
graph IV;
5. Respondents deny the allegations contained in para-
graph V but state that Gerard Thomas, as General Counsel
of the Upjohn Company, was asked to advise the Company
about the legal consequences of payments which may have
been made to employees of foreign governments or to third
parties believed to be acting as intermediaries for such
employees by the Company or by one or more of its affili-
ates. In his capacity as General Counsel, Mr. Thomas
undertook an inquiry of the nature and extent of such
payments ;
6. Respondents admit the allegations contained in the
first and second sentences of paragraph: VI and admit that
a copy of the summons issued to the respondents is attached
to the petition but deny any allegations which may be
incorporated in the petition by reference to the summons
and not expressly set out in the petition;
7. Respondents admit the allegations contained in para-
graph VII;
8. Respondents deny the allegations contained in para-
graph VIII;
9. Respondents deny the allegations contained in para-
graph IX;
Defenses
Respondents, in further response to the petition, here-
inafter set forth the following defenses to compliance with
the summons:
1. The documents demanded by the summons referred
to in paragraph VI of the petition are privileged by reason
of the Attorney-Client privilege and therefore are not law-
fully subject to involuntary disclosure by the enforcement
of a summons;
2. The documents demanded by the summons referred to
in paragraph VI of the petition constitute the work product
25a
of Gerard Thomas acting as attorney for the Upjohn Com-
pany and therefore are not lawfully subject to involuntary
disclosure by enforcement of a summons;
3. The summons referred to in paragraph VI of the
petition was not issued in good faith nor for any valid
purpose within the scope of Section 7602 of the Internal
Revenue Code of 1954, 26 U.S.C., and therefore compliance
with the summons should not be enforced;
4. The summons referred to in paragraph VI of the
petition is vague, overly broad, and requests documents
which are already in the possession of the United States
and which do not relate to the tax liability of the Upjohn
Company.
Respectfully submitted,
Wallson G. Knack
900 Old Kent Building
One Vandenberg Center
Grand Rapids, Michigan 49502
Attorney for the Upjohn Company
Charles A. MeNelis,
Attorney for the Upjohn Company
Richard M. Roberts,
Attorney for Gerard Thomas
CERTIFICATE OF SERVICE
The undersigned attorney states that a copy of the fore-
going Response to Petition to Enforce Internal Revenue
Service Summons was duly served on the United States by
mailing, postage prepaid, to Frank 8S. Spies, United States
Attorney for the Western District of Michigan, 544 Federal
Building, Grand Rapids, Michigan 49503, on the 9th day of
September, 1977.
Richard M. Roberts,
Attorney for Gerard Thomas
26a
[Filed: October 7, 1977]
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Civil Action No. K77-5 Misc.
Unitrep States or America and Davin E. Nowak,
Special Agent, Internal Revenue Service, |
Petitioner,
v.
Tue Upzyoun Company and Grerarp THOMas,
Vice President and Secretary,
Respondents,
AFFIDAVIT OF GERARD THOMAS
Gerarp THomas, a respondent, being first duly sworn,
deposes and says:
1. I am a duly licensed attorney in the States of Michi-
gan and New York and, am employed as General Counsei
by The Upjohn Company and its affiliated companies.
2. In January 1976, in my capacity as General Counsel,
it came to my attention that certain payments might have
been made by The Upjohn Company or its affiliates to em-
ployees of foreign governments or to third parties who
may have been acting as agents for employees of foreign
governments. My advice was requested concerning the legal
effect which such payments would have.
3. I immediately conferred with attorneys in private
practice who are experienced in tax matters and the re-
quirements of the Securities and Exchange Commission,
outside tax counsel and outside SEC counsel.
4. It was recognized that, in the event questionable pay-
ments had been made, there was a possibility that litigation
°
27a
would be initiated by the shareholders or the SEC against
the company or its officers and directors. It was also recog-
nized that there was a possibility that criminal charges
could be brought against the company or its officers or
directors.
5. As a preliminary step to giving legal advice concern-
ing such payments, it was recommended by outside counsel
that I should conduct an inquiry into the nature and extent
of such payments. This recommendation was made to R. T.
Parfet, Jr., Chairman of the Board, and he directed me to
conduct the inquiry.
6. My investigation was conducted for the following
purposes :
a. To ascertain if any laws had been violated and, if
so, the extent of any such violations;
b. To advise the corporation how business could be con-
ducted to avoid the possibility of any questionable pay-
ments the future;
c. To advise the corporation on what disclosures, if any,
should be made to governmental agencies and the manner
and nature of any such disclosures;
d. To obtain information necessary for defense of any
lawsuits or legal proceedings which might involve the Com-
pany or employees as a result of such disclosures.
7. The inquiry which I conducted with the assistance of
outside counsel included interviews with 86 top level man-
agement officials of the Company and its affiliates. Inter-
views were conducted only with individuals who had over-
all supervisory responsibility for the expenditures of a
particular branch, subsidiary, division or other operating
unit of the Company or with individuals who were substan-
tially concerned with such expenditures.
8. I made notes during these interviews. In some in-
stances, there were follow-up interviews and telephone
28a
conversations with some of the employees and notes were
made of these. These notes and memoranda contain my
mental impressions, conclusions and opinions.
9. A list of each of the persons interviewed is attached
hereto as Exhibit 1.
10. Each of the persons interviewed was given a letter
from R. T. Parfet, Jr., Chairman of the Board of The
Upjohn Company, directing him to respond to me and
advising him of the confidential nature of the inquiry. A
copy of that letter is attached hereto as Exhibit 2.
11. As a part of my inquiry I also prepared a question-
naire with the assistance of outside counsel which was sent
to the managers of the Company’s 53 foreign affiliates.
The questionnaire directed that each of the recipients treat
my investigation and the information which it developed
as “highly confidential.” A copy of that questionnaire is
attached hereto as Exhibit 3.
12. My notes of interviews and the questionnaire re-
sponses have been used exclusively by counsel of The Up-
john Company and have not been otherwise disclosed.
13. The objective of my inquiry was to identify pay-
ments which were considered “questionable”, that is, pay-
ments which could have been made to officials or employees
of foreign governments or to persons who might have
been acting on behalf of such persons either directly or
indirectly. Officials of the Company who were contacted
were advised to interpret the inquiry broadly and to re-
solve any doubts in favor of including an item, even to the
point of including an item where no Company records
reflected the payment. In effect, my inquiry was not limited
to uncovering payments which would be illegal or improper
under the laws of a particular country or under the laws
of the United States. There was also no attempt to limit
the inquiry to payments which would constitute illegal
bribes, kickbacks or other nondeductible payments under
Section 162(c) of the Internal Revenue Code of 1954.
29a
14. After it was determined that questionable payments
had been made, the Company, in March of 1976, made a
preliminary report to the Securities and Exchange Com-
mission according to its Form 8-K which disclosed such
questionable payments.
15. Contemporaneously, the same information was volun-
tarily disclosed to the Internal Revenue Service by send-
ing to that organization a copy of the Form 8-K.
16. At the time that this disclosure was made, the In-
ternal Revenue Service had concluded its regular audit of
the 1972 and 1973 income tax returns of the Company. The
civil tax liability of the Company had been finally deter-
mined and an IRS Form 870-C which reflected that liability
for both years was executed by the Company and filed with
the Internal Revenue Service. A copy of that form is
attached hereto as Exhibit 4.
17. Subsequently, the Internal Revenue Service com-
menced a criminal investigation of the 1972, 1973 and 1974
income tax returns of the Company and Special Agents of
the Intelligence Division contacted Company officials. Addi-
tionally, the Company was advised on February 23, 1977,
that the Internal Revenue Service was opening up an in-
vestigation of the 1974 and 1975 Federal income tax returns
and that Special Agents would supervise that investiga-
tion as well.
18. In July 1976, after more complete information was
obtained, the Company filed with the S.E.C. an amendment
to its Form 8-K for March, 1976, which disclosed additional
questionable payments. It was also disclosed that some of
these payments had been included in the U.S. consogdated
income tax returns filed by the Company.
19. Contemporaneously, the same information was volun-
tarily disclosed to the Internal Revenue Service by sending
to that organization a copy of the amendments to the
Company’s Form 8-K for March, 1976.
30a
20. During the course of their investigation, the Special
Agents were advised of the nature and extent of the investi-
gation which I was conducting. They were provided with
copies of invoices, vouchers, advices, cancelled checks and
any other such documents which had been turned up by
the Company during my investigation relating to all of the
questionable payments made by foreign branches of United
States subsidiaries of The Upjohn Company. Except in
one instance, the Company did not attempt to obtain such
information from foreign subsidiaries because the pay-
ments made by these corporations are not reflected on the
U.S. income tax returns of the Company. In the only in-
stance in which such information was obtained from a
foreign subsidiary, that information was also turned over
to the Special Agents. The books and records of the Com-
pany were made available to the Agents and on various
occasions Company personnel worked with them to show
the Agents the manner in which questionable payments
were traced to the Company’s U.S. tax returns. The Agents
were provided with a list of persons interviewed by me or
by outside counsel (Exhibit 1) and were advised that all
persons still employed by the Company would be made
available at his duty station for an interview by the In-
ternal Revenue Service. The agents were also advised
that, if any foreign-based officials came to the United
States they would be made available for an interview at
that time. The Agents were also provided with a copy of
Mr. Parfet’s letter regarding the confidential nature of
my inquiry (Exhibit 2) and a copy of the questionnaire
which was sent to the managers of the foreign affiliates
of the Company. (Exhibit 3).
21. As of this date, Special Agents of the Internal Rev-
enue Service have actually interviewed twenty of the in-
dividuals who were contacted either by me or by outside
counsel during my investigation and they have expressed
interest in interviewing another twenty-five of those in-
3la
dividuals many of whom are in the United States and all of
whom will be made available for an interview.
22. The Special Agents insisted that they be provided
with my notes of interviews and the responses to the ques-
tionnaire. This demand was refused on the grounds that
these documents were privileged communications of a client
to an attorney, that they were the work product of an
attorney, that they included material related to payments
which did not affect the United States income tax returns
of the Company and were otherwise irrelevant.
23. On November 23, 1976, Special Agent Rogowski
issued the summons involved herein. On December 7, 1976,
after consultation with outside counsel, I appeared before
the Special Agents and again refused to produce my notes
and the questionnaire responses on the grounds that such
disclosures would violate the attorney-client privilege, the
attorney work product rule and on the grounds that the
documents requested included material relating to payments
which do not affect the United States tax returns of the
Company and which are otherwise irrelevant to the investi-
gation of the 1972 through 1974 income tax returns of the
Company.
Further, affiant saith not.
Gerard Thomas
Notary Public
Se POND HERIETOOS oo. cess cece ccenecccecess
32a
Exuisit 1
[Filed with Affidavit of Gerard Thomas: October 7, 1977]
MEMO
To: D. E. Nowak
From: O. Thomas
Subject: Questionable Payments
Date: January 21, 1977
Copies To:
At our meeting in Detroit, you requested a list of the
names and positions of the persons interviewed in the in-
vestigation of questionable payments. Attached is a list of
the persons interviewed by me or by outside counsel during
this investigation. If the employment of the person has
terminated for any reason, the date of the termination is
shown.
je
att.
33a
FOREIGN PAYMENTS INTERVIEW LIST
Name
James E. Beadle
Michael G. Beck
Ray Bennett
Roberto Brenes
R. R. Casler
Moacyr Castagna
Ronald J. Chambers
Robert W. Collins
Kenneth R. Crawley
David S. Creamer
Bernard Daum
Carl H. Duisberg
Keith H. Edmondson
Brian Ellis
Willi Ewald
Position*
Manager, International Accounting
and Financial Reports
Director, Commercial Division, In-
ternational
Manager, Tax and Governmental
Regulation Services, International
(10/18/74)
General Manager of Guatamala
General Manager of Hong Kong
¥inancial Controller of Brazil
Group Vice Pres. Pacific Division
Resources Planning Director
Medical Director, International
Medical Planning
Manager, Corporate Tax Planning
Ag. Vet. Div. Mgr. South Africa
Vice Pres. Central European Divi-
sion
Vice Pres. & General Mgr. for
Chemical Division
General Manager, Near East Dis-
trict (stationed in Brussels, Bel-
gium, N.V.)
General Manager & Vice Pres. of
Japan
* Where employment has terminated, the termination date is
indicated.
Name
Josue L. Faustino
Donald J. Fortman
Ce’sar Garza
Jack Gauntlet
Jacques Gauthier
Jorge Gonzalez
Harold Goodwin
Nabil A. Habra
Ki. T. E. Hansen
David J. Harmelink
Federico G. Hawkins
Sheldon Hedges
A. G. Holland
W. N. Hubbard
Mario Iseppi
Wolf gang Jacobi
Position*
General Manager of Philippines
Vice Pres., Business Development
General Manager, Asgrow Mexi-
cana S.A.
Vice Pres. Corporate Development
(4/14/70)
Vice Pres., France, Belgium & Hol-
land Division
General Manager of Spain
Vice Pres. & Div. Mgr., Pacific
South Division (stationed in
Australia)
General Manager, Middle East Dis-
trict (stationed in Brussels)
Manager, Market Development,
Asgrow
Manager, Marketing Research,
International
Manager of Panama
Product Manager, International
Manager, Financial Services,
Polymer
President
Presently in management training
in Canada, previously General Man-
ager in Hong Kong
General Manager in Germany
* Where employment has terminated, the termination date is
indicated.
Name
Patrick Kennedy
Vitaliano Kettlitz
John O. Korsten
Otto A. Kreuzer
Edward J. Lee
A. R. Lincoln
Gerald V. Littig
Lewis R. Long
C. H. Ludlow
John F. McIntyre
35a
Position*
Marketing Analyst II, Marketing
Research, International
Vice Pres. European South Div.
(stationed in Italy)
General Manager, South Africa
Manager, International Health
Regulatory Affairs
Manager International Bid &
Tender Negotiations
Group Manager, Corporate Taxes
Supervisory Unclassified
General Manager in Mexico
Vice Pres. & Treasurer
Secretary & International Counse-
lor, UII
William P. McLauchlan General Manager of Korea
John D. Martin
Donald C. Meitz
Jorge A. Merigo
Warren Miller
Harold E. Mill
Denzil K. Minkley
General Manager of The Upjohn
Manufacturing Company
Director, Corporate Auditing &
Office Methods & Procedures
Vice Pres. Latin America, North
Div., (stationed in Mexico)
Executive Unclassified (5/31/76)
Manager, Hast Africa Districts
Office & Finance Manager, South
Africa
* Where employment has terminated, the termination date is
indicated.
Name
Jonas Mutashubilwa
Willem C. Nolte
Anthony Obregon
Fernando Olazarri
Roberto Ortega
Jacques Ory
David E. Osmun
P. S. Parish
Pier Paolo Partiseti
David A. Phillipson
Neville Pritchard
Ray T. Parfet, Jr.
Richard Rakow
Henry Roberts
John Rogstad
Carlos A. Salvagni
Francis Santiago
36a
Position*
District Sales Manager, East Africa
District I
Sales Manager, South Africa
Assistant Secretary, Upjohn S.A.
de C.V.
General Manager of Brazil (1/77)
Ag. Vet. Latin America, Area Man-
ager, International
Administrative Manager, N.V. (sta-
tioned in Brussels)
Product Manager, International
Vice Chairman of the Board
Area Manager for Italy, Yugo-
slavia, Greece
Vice Pres. & General Manager for
Ag. Div.
General Manager of Thailand
Chairman of the Board
Supervisor, Pharmaceutical Pack-
aging
Vice Pres. & Sr. Training Consult-
ant, UIT (11/30/69)
Vice Pres. Latin America South
(stationed in Brazil)
General Manager in Argentina
Vice Pres., Latin America Div. II
(stationed in Venezuela) (5/31/73)
* Where employment has terminated, the termination date is
indicated.
Name
Thomas G. Schalk
Lee F. Seguin
Eugene S. Shepherd
Alistar A. Smith
Kimon G. Softas
Theo Stiftl
Henry Suarez
W. FE. Sykes
Richard D. Tedrow
Joao Teixeira
Donald D. Threlkeld
Ronald Tobin
Harry J. Tomlinson
Paolo B. Trambusti
John VanLiere, Jr.
W. J. Vander Walt
R. R. Vermillion
37a
Position*
Vice Pres. Ag. Vet. Div., Interna-
tional
Controller, International Financial
Services
Vice Pres. & Treasurer, Interna-
tional
Vice Pres. Africa, Mid. East Div.
General Manager of Greece
General Manager of Taiwan
General Manager of Colombia
Group Vice Pres., Upjohn Interna-
tional
Vice Pres. for International
General Manager of Peru (7/31/76)
Director, Polymer Chemicals Mar-
keting
Group Vice Pres. Western Hemis-
phere
Supervisory Unclassified
General Manager, International
Development, Asgrow
Manager, Administrative, Chemical
Div.
Manager, South African Breeding
Station
Executive Vice President, Asgrow
* Where employment has terminated, the termination date is
indicated.
38a
Name Position*
Selvi Vescovi Group Vice Pres. European Div.
John B. Wilkinson Attorney III, International
Daniel D. Witcher Pres. Upjohn International, Inc.
Bryan O. Wright Vice Pres. & Div. Manager, Pacific
North Division (stationed in
Japan)
CT :jec
1/21/77
* Where employment has terminated, the termination date is
indicated.
( 39a
Exuipit 2
[Filed with Affidavit of Gerard Thomas:
October 7, 1977]
THE UPJOHN COMPANY
Katamazoo, Micuican 49001
R. T. Parret, Jr.
Chairman of the Board
January 16, 1976
Dear
I have asked Gerard Thomas to investigate certain matters
of particular concern to Corporate Management and to the
Board of Directors. As chairman of the board and chief
executive officer, I feel the subject must be thoroughly re-
viewed and bave charged Gerard Thomas with that re-
sponsibility.
The subject matter must be treated as highly confidential
and is not to be discussed with or disclosed to anyone other
than Gerard Thomas or individuals he shall designate.
It is imperative that you be completely candid and co-
operate fully in responding to questions and requests for
information.
I appreciate your understanding of the importance of this
matter and reemphasize the need for candid cooperation
and confidentiality.
Very truly yours,
/s/ R. T. Parrer, Jr.
R. T. Parfet, Jr.
RTP :jc
Resp. Exhibit No. 2—Date 10/12/77. Dep. Clk. L. G. R.
40a
Exuisit 3
[Filed with Affidavit of Gerard Thomas:
October 7, 1977]
THE UPJOHN COMPANY
Karamazoo, Micuican 49001
R. T. Parret, Jr.
Chairman of the Board
March 8, 1976
To All Foreign General and Area Managers:
In recent months, as you may be aware, it has been dis-
closed that several American companies, including some in
the pharmaceutical industry, have made possibly illegal or
improper payments to officials or employees of foreign
governments and to others in connecton with foreign busi-
ness. It has also been disclosed that, in order to conceal
such payments, some companies have maintained “off the
books” accounts or have entered such payments in accounts
which inaccurately or inadequately describe the purpose
for which a payment was made. I have decided that it is
imperative that the management of this company has full
knowledge of any payments such as those described above
made by The Upjohn Company or any of its subsidiaries.
To gather this information I am seeking your help.
I have asked Gerard Thomas, the company’s General Coun-
sel, to conduct an investigation for the purpose of deter-
mining the nature and magnitude of any payments made
by The Upjohn Company or any of its subsidiaries to any
employee or official of a foreign government from Janu-
ary 1, 1971 to the present. As an initial step in this investi-
gation, I am asking that you and all other general man-
agers of foreign subsidiaries provide us with full and com-
plete responses to the following inquiries:
(1)
(2)
(3)
4la
Please provide any information which may be avail-
able within the subsidiary relating to the direct or
indirect payment of funds under the Company’s con-
trol to or for the benefit of any official or employee
of a government agency or facility, including a hos-
pital owned or operated by the government, during
the period under investigation. Please schedule all
such payments and describe in as much detail as you
believe necessary the reasons for which each sched-
uled payment was made.
If a payment is less than $500 it is not necessary to
schedule and describe it unless there are a series of
payments to the same person which exceed $500 in
one year. However, you should estimate the amount
of money expended in each year for these lesser
payments.
If you cannot absolutely establish that any payments
of the types described above have been made, please
provide also whatever information may be available
within the subsidiary indicating that such payments
might well have been made.
Please provide any information that may be avail-
able within the subsidiary relating to any direct or
indirect payment of funds under the Company’s
control to or for the benefit of any candidate for
political office or any political party during the pe-
riod under investigation. Please schedule all such
payments and describe in as much detail as you be-
lieve necessary the reasons for which each such pay-
ment was made. If you cannot establish that any
such payments were made, please provide whatever
information may be available within the subsidiary
indicating that such payments might have been
made.
Have any payments of funds under the Company’s
control been made by the subsidiary or any of its
42a
employees which are not reflected on the subsidiary’s
official company financial and accounting books and
records? If so, please provide all pertinent details.
If you cannot establish that any such payments were
made, please provide all information available with-
in the subsidiary indicating that such payments
might have been made.
(4) Have any third party payments been recorded on
the official company financial and accounting books
and records in accounts the purposes and descrip-
tions of which do not accurately reflect the trans-
actions? If so, please provide all pertinent details.
If you cannot establish that any such entries have
been made in your books, please provide all infor-
mation available within the subsidiary indicating
that such entries might have been made.
In considering your answers to each of these questions,
you should interpret broadly any terms which you find
ambiguous. For example: the term “payments” would in-
clude money payments, gifts or the payment of expenses
such as those incurred for a weekend holiday or a vacation;
an “indirect payment” would include payments to distribu-
tors or sales representatives all or part of which were or
might well have been passed on to government officials or
employees; and, as noted above, “official or employee” of
a foreign government would include a person working at a
hospital owned or operated by the government. As a gen-
eral rule, any doubts you may have about providing par-
ticular information in response to any of the questions set
forth above should be resolved in favor of providing the
information.
I encourage you to discuss these questions with anyone in
your subsidiary who you believe would be able to provide
useful information. I also expect that you will have your
files and accounting records reviewed to whatever extent
you believe necessary in ord_r to be reasonably certain that
all relevant information has been provided. If you have
48a
any questions regarding this matter, you should feel free
to communicate directly with your management and with
Gerard Thomas who has general responsibility for this
investigation. In particular, if you will have diffieulty in
completing your response within one month you should
cable Mr. Thomas.
This investigation and the information which it develops
should be treated as highly confidential and not discussed
with any persons other than those Upjohn-employees who
might be of assistance to you in providing the information
requested. This matter should not be discussed with any-
one not employed by the Company except our regularly
retained public accounting firms and such persons as are
specifically designated by Mr. Thomas. You should send
your response to Gerard Thomas, Vice President and Gen-
eral Counsel, The Upjohn Company, 7000 Portage Road,
Kalamazoo, Michigan 49001.
I recognize that in the past some employees may have
engaged in practices which they believed were in the best
interests of The Upjohn Company. However, in order that
there be no uncertainty in the future as to the policy with
respect to the practices which are the subject of this investi-
gation, I have issued a detailed “Statement of Policy on
Political Contributions, Payments to Government Person-
nel and Proper Accounting Practices.” This statement is
being disseminated to Upjohn employees worldwide. It
will be your continuing responsibility to insure that all
Upjohn employees under your supervision are aware of
and comply with the rules set forth in this Statement.
I appreciate your understanding of the importance of this
matter and reemphasize the need for candid cooperation
and confidentiality. Thank you for your assistance.
Very truly yours,
/s/ R. T. Parret, Jr.
R. T. Parfet, Jr.
RTP :je
Resp. Exhibit No. 3—Date 10/12/77. Dep. Clk. L.G.R.
44a
Exursit 4
[Filed with Affidavit of Gerard Thomas:
October 7, 1977]
Department of the Treasury * Internal Revenue Service
Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax and Acceptance of Overassessment
Form 370-C Data received by Internal
(Rev. May 1974) Revenue Service
I consent to the immediate assessment and collection of
any deficiencies (increase in tax and penalties) and accept
any overassessment (decrease in tax and penalties) shown
below, plus any interest provided by law. I understand that
by my signing this waiver, the corporation will not be able
to contest these years in the United States Tax Court, un-
less additional deficiencies are determined for these years.
Increase in Tax and Penalties
Taxable year ended Amount of tax Penalty
1972 146,546.
1973 1,865,055. oe
Name and address of corporation—Number, street, city or
town, State, ZIP code
The Upjohn Company and Subsidiaries
Kalamazoo, Michigan 49001
Signature Title Date
C. H. Ludlow Vice President & Treasurer 3-4-76
45a
The Internal Revenue Service does not require a seal on
this form, but if one is used, please place it here.
Nore: If you consent to the assessment of the deficiencies
shown in this waiver, please sign and return the form in
order to limit the interest charge and expedite our bill to
you. Your consent will not prevent the corporation from
filing a claim for refund (after it has paid the tax) if you
later believe it is so entitled; nor prevent us from later de-
termining, if necessary, that the corporation owes addi-
tional tax; nor extend the time provided by law for either
action.
If the corporation later files a claim and the Service dis-
allows it, the corporation may file suit for refund in a Dis-
trict Court or in the U.S. Court of Claims, but it may not
file a petition with the United States Tax Court.
We will consider this waiver a valid claim for refund
or credit of any overpayment due the corporation result-
ing from any decrease in tax and penalties determined by
the Internal Revenue Service, shown above, provided this
waiver is signed and filed within the period established by
law for making such a claim.
Who Must Sign
The waived should be signed with the corporation name,
followed by the signatures and titles of the corporate of-
ficers authorized to sign. An attorney or agent may sign
this waiver provided his action is specifically authorized
by a power of attorney which, if not previously filed, must
accompany this form.
Form 870-C (Nov. 5-74)
46a
[Filed: November 8, 1977]
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
No. K 77-7 Mise. CA
Unitrep States or America and Davin E. Nowak,
Special Agent, Internal Revenue Service,
Petitioners,
vs.
Upzsoun Company and Grerarp THoMaAs,
Vice President and Secretary,
Respondents.
Before THe Honorasie STEPHEN W. Karr, U.S. Magistrate.
PROCEEDINGS ON PETITION TO ENFORCE
INTERNAL REVENUE SERVICE SUMMONS
Time: Wednesday, October 12, 1977
Priace: Grand Rapids, Michigan
APPEARANCES:
Mr. JEROME Fink, and
Mr. Rosertr G. Natu
Tax Division
Department of Justice
Washington, D.C. 20530
and
Frank S. Spies, U.S. Attorney, by
Hucu W. Brenneman, Jr., Asst. U.S. Attorney
Federal Building
Grand Rapids, Michigan 49503
On behalf of the Petitioners;
47a
Hame., Park, McCase & Saunpers, by
Mr. Ricwarp M. Roserts
1776 F Street, N.W.
Washington, D.C. 20006
On behalf of Gerard Thomas;
Wetcu & Morgan, by
Mr. Cuarues A. McNE Is
300 Farragut Building
Washington, D.C. 20006
and
Warner, Norcross & Jupp, by
Mr. Watison G. Knack
900 Old Kent Building
Grand Rapids, Michigan 49503
On behalf of Upjohn Company.
INDEX
WITNESSES:
Called by Petitioners Direct Cross Redirect Recross
David EK. Nowak 7 16 27,46,51 39,48
James M. Rogowski 53 56 -- “=
Called by Respondents
Gerard Thomas 58 73 122 122
David S. Creamer 129 140 — =
EXHIBITS:
Petitioners’ Idd. Offr’d. Rec'd.
1. Letter ro Roy Little from C.H.
Ludlow dated March 26, 1976, 86 86 86
2. Summons 144
3. Original 8K 149
4. Amended 8K *149
(*To be sent to Magistrate by Mr. Roberts)
Respondents’ Id’d. Offr’d. Rec'd.
1. Foreign payments interview list 120
2. Letter from Mr. Parfet dated
January 16 120
3. Letter 120
Withdrawn as marked
exhibits and retained
by Mr. Roberts (P. 122)
Affidavit of Gerard Thomas
with Exhibits attached, 121 121
4. List of items provided to investigator
by Upjohn allegedly having items
with impact on tax return, *151
5. List of items that allegedly do not
have impact on tax return, *151
(* Exhibits 4 and 5 to be sent to Magistrate by Mr. Knack
and marked upon receipt and held under seal.)
Grand Rapids, Michigan
Wednesday, October 12, 1977
1:30 p.m.
Magistrate’s Courtroom
49a
PROCEEDINGS
The Magistrate: Do you want to tell me who is here, Mr.
Brenneman?
Mr. Brenneman: Yes, your Honor, I would like to in-
troduce two gentlemen who will be handling this case for
the Department of Justice: Mr. Jerome Fink, on my far
left; and assisting him will be Mr. Robert Nath.
The Magistrate: Fine. Thank you.
Mr. Knack: Your Honor, I would like to introduce Mr.
Richard Roberts on my far right from the law firm of
Hamel, Park, McCabe and Saunders in Washington. And
seated next to me is Charles A. MeNelis of the firm of
Welch & Morgan. I would like to move their admission.
They are both members of the Detroit Bar and members
of the Supreme Court of the United States. They are here
on behalf of Defendants Gerard Thomas and Upjohn Com-
pany.
The Magistrate: All right. The motion is granted. Wel-
come, gentlemen.
Mr. Fink: Thank you, your Honor.
The Magistrate: Let’s see. That is Mr. Fink?
Mr. Fink: Yes.
The Magistrate: And Mr. Nath?
Mr. Nath: Yes, your Honor.
The Magistrate: Okay. I will keep everybody straight
here. All right.
I guess this is an Order to Show Cause.
Mr. Fink: And we are the petitioners, your Honor.
The Magistrate: Do you want to start?
Mr. Fink: It would appear to me to be appropriate.
50a
The Magistrate: All right. Go ahead.
Mr. Fink: I would like to start very briefly perhaps by
reading into the record, although presumably it is already a
part of the record, the admissions that have been made to
our petition, so that we at least have a preliminary frame-
work with which to begin.
I will read into the record, your Honor, only those alle-
gations which have been definitely admitted by the Re-
spondents.
The Magistrate: Very well.
Mr. Fink: This is a proceeding brought under the au-
thority of Section 7402(b) and 7604(a) of the Internal
Revenue Code of 1954, 26 U.S.C. and those sections there-
after, to judicially enforce an Internal Revenue Service
summons.
The Petitioner, David E. Nowak, is a Special Agent of
the Internal Revenue Service employed in Detroit, Michi-
gan, as is Special Agent James M. Rogowski.
‘‘The Respondent, Upjohn Company, is a Delaware Cor-
poration with offices at 7000 Portage Road, Kalamazoo,
Michigan, 49001, and doing business within the jurisdiction
of this Court.
‘‘The Respondent, Gerard Thomas, is Vice President and
Secretary of the Respondent, Upjohn Company, also with
offices at 7000 Portage Road, Kalamazoo, Michigan, 49001.’’
I might add that was admitted, your Honor. And they
added: ‘‘And Gerard Thomas is a licensed attorney and
is general counsel of Upjohn,’’ something I will expect
them to prove.
The Magistrate: Is there any dispute about that?
Mr. Fink: He has several offices, your Honor.
Mr. MeNelis: Not from over at this side.
5la
Mr. Fink: We will decide which hat he is wearing at the
appropriate time.
The Magistrate: All right.
Mr. Fink: ‘‘On November 23, 1976, a summons was is-
sued by Special Agent James M. Rogowski directing the
Respondents, Upjohn Company and Gerard Thomas, Vice
President and Secretary, to appear before Special Agent
James M. Rogowski, on December 7, 1976, at 11:30 a.m.,
to testify and to produce for examination certain books,
records, and papers, all as set forth in the attached affi-
davit and summons,’’ a reference to the items which are
attached to our petition, your Honor.
‘*An attested copy of the Summons was personally
served upon the Respondents, Upjohn Company and Ge-
rard Thomas, Vice President and Secretary, by Special
Agent Richard Vervisch, V-e-r-v-i-s-c-h, on November 23,
1976, by handing it to Gerard Thomas.’’
The summons is attached, your Honor, to the Petition
as Exhibit 1.
‘‘The Respondents, Upjohn Company and Gerard
Thomas, Vice President and Secretary, appeared before the
Petitioner, Special Agent David E. Nowak and Special
Agents James M. Rogowski and Joseph R. Lubbe, but re-
fused to testify or to produce the books, records and pa-
pers required by the summons issued to them and de-
scribed,’’ says the Petitioner, ‘‘in paragraph VI above,’’
which has been admitted, ‘‘and such refusal has continued
to the date of this petition.
So, your Honor, I believe we have before us the fact that
a petition—or, a summons was issued, duly served, no com-
plaint as to the procedural aspect of the summons, but—
in the sense of service, et cetera, but a complaint or a fail-
ure to respect to the summons as issued.
52a
And I would like to call to the stand now Special Agent
David E. Nowak, who is a petitioner in the cause.
The Magistrate: Mr. Nowak, would you come up here,
please.
David E. Nowak,
a Petitioner herein, called as a witness on his own behalf,
testified as follows:
Mr. Fink: Your Honor, is it your practice that we re-
main seated while we question?
The Magistrate: As you know, I have no preference.
Mr. Fink: No preference one way or the other. I guess
at this time we are not wired for sound.
Direct ExAMINATION
By Mr. Fink:
Q. Mr. Nowak, you have stated your name, I believe, but
for the record, would you state it in full, please?
A. David E. Nowak.
Q. Where are you employed, Mr. Nowak?
A. I am employed by the Internal Revenue Service in
Detroit.
Q. And in what capacity?
A. I am a Special Agent with the Intelligence Division.
Q. And you work out of Detroit, is that correct?
A. That’s correct.
Q. Briefly, sir, what was your education?
A. I have a Bachelor’s Degree from Michigan State Uni-
versity. I majored in accounting, and I attended Wayne
State University Law Schol for a year.
Q. What was the year of your graduation from Michigan
State?
A. 1966.
53a
Q. How long have you been employed as a Special Agent
by the Internal Revenue Service?
A. Ten years.
Q. When were you assigned to the matter which is be-
fore us, the Upjohn Company investigation?
A. In December of 1976.
Q. In December of 1976?
A. Yes, sir.
Q. Have you been engaged in that investigation since
that assignment?
A. Yes, sir.
Q. Down to date?
A. Yes, sir.
Q. Is it your sole assignment at this time?
A. It is.
Q. Have you been assisted in the course of this investi-
gation by any revenue agents?
A. Yes, sir, I have.
Q. Throughout the course of the investigation, you have
been assisted by revenue agents?
A. Yes, sir.
Q. Would you name the Revenue agents who have been
assisting you?
A. Lewis Maurer, M-a-u-r-e-r; Frank Sherrod, S-h-e-r-
r-o-d; Joseph Nemedi, N-e-m-e-d-i; Ed Ravesz—Edward
Ravesz, R-a-v-e-s-z. There has been other agents assigned
that specialize in employment taxes and some other areas.
I don’t recall their names. They assisted briefly.
Q. What years are being covered by your—were being
covered by your investigation when you were first as-
signed?
A. The years under investigation were 1972, 1973, and
1974.
Q. Were you the Agent who issued the summons in
question?
A. No, I was not.
e 54a
Q. What was the name of the Agent who issued the Sum-
mons in question?
A. James Rogowski.
Q. Is he here in the courtroom?
A. Yes, he is.
(Q. Did you learn on taking over this investigation, or
subsequently, that the Upjohn Company is resisting pro-
ducing the documents and other datum or data summoned
by that Summons or called for by that Sommons?
A. Yes, sir.
Q. Did you learn that the Upjohn Company had dis-
closed to the Securities and Exchange Commission certain
illegal bribes, kickbacks, et cetera, and other questionable
payments that have been made, either by branches of the
Upjohn Company or by their wholly owned or partially
owned subsidiaries?
A. Yes, sir.
Q. Offhand, do you have in mind the amount of those
questionable payments which the Upjohn Company has
conceded to the Securities and Exchange Commission it
did in fact or its affiliates did in fact pay?
A. I believe the total dollar amount that was finally ar-
rived at was approximately 4.2 million dollars.
Q. Did you learn after taking over the investigation that
the Upjohn Company agrees that at least some of these
illegal payments or questionable payments have an impact
on their domestic or federal income tax return?
A. Yes, sir.
Q. Incidentally, they file what type of income tax return
for the years ’72, ’73, ’74?
A. Well, they file many different types. Among those,
they file a consolidated Federal Income Tax Return.
Q. And by consolidated return, we mean——
A. That consolidates the parent corporation and many
of its subsidiary operations.
55a
Q. But not all of its subsidiary operations?
A. Correct. And they file what is called a DISC Return.
T believe it stands for ‘‘Domestic International Sales Cor-
poration.’’
Q. Now you did learn that they concede that at least
some of those questionable payments, including the illegal
ones, affected their Federal Consolidated Income Tax Re-
turn, is that correct?
A. Yes, sir.
Q. Did you also learn that the Upjohn Company takes
the position that some of those payments are not or will
not affect their Federal Consolidated Income Tax Return?
A. Yes.
Q. Do you remember, offhand, what portion of the four-
million odd dollars you have testified to that they concede
were questionable payments, they concede have an impact
on the Federal Consolidated Income Tax Return?
A. Approximately 314 million dollars.
Q. On the Federal Income Tax Return?
A. I am sorry. The part that affects the Federal Income
Tax Return is approximately $700,000.
Q. The part that they admit
A. That they admit.
Q. Yes. And the part that tid dispute is the remainder,
is that correct?
A. Yes, sir.
Q. Did you learn after taking over this investigation
that Mr. Gerard Thomas, an official of the Upjohn Com-
pany, had conducted an investigation of the amount and
the nature and the extent of the illegal payments?
A. Yes, I did.
Q. Did you learn that among his methods of investiga-
tion was sending questionnaires to various individuals?
A. Yes.
Q. And requesting a response thereto?
A. Yes.
56a
Q. Do you understand that the Summons we are seeking
to enforce today, at least in part, demands that there
should be a production to us of—and I am now quoting
from the Summons: ‘‘written questionaires sent to man-
agers up the Upjohn Company’s foreign affiliates, and
memorandums or notes of the interviews conducted in the
United States and abroad with officers and employees of
the Upjohn Company and its subsidiaries’’?
A. Yes.
Q. You have not been furnished, have you, with the items
that that portion of the Summons seeks to obtain?
A. No, I have not.
Q. Is it necessary to your investigation that you obtain
those summons?
Mr. Roberts: Objection, your Honor. That is a conclu-
sion the Court will have to draw. I think he can lay out
the basis of why he needs the information, but not why it
is necessary.
The Magistrate: Why don’t you inquire along that line.
By Mr. Fink:
Q. Do you feel it necessary for your investigation——-
Mr. Roberts: Objection again, your Honor. It’s how you
view these, and not how he does.
Mr. Fink: Well, let’s find out first-——
The Magistrate: I think the answer is going to be yes,
obviously. Let’s ask him why he feels that way.
Mr. Fink: All right. The next question, then——-
Q. Why do you feel that you should have these docu-
ments, if I may add, rather than take the Upjohn Com-
pany’s assurance as to what the relevance of those docu-
ments?
57a
A. Well, I feel that those files may contain evidence that
would indicate that there is in fact a tax implication in-
volved in payments which the Company has alleged have
no U.S. tax implication. These files may provide leads or
other evidence that would have a relationship to those pay-
ments that the Company does admit have a U.S. tax im-
plication.
I believe that it would—if it served no other purpose, it
would help me corroborate the Company’s position that
there is no tax impact, if that is what the facts would show
upon my investigation of the files.
Q. So while it may be a conclusion that the Court has to
draw, in your view the summoned documents were, at the
time summoned and are today, necessary to your continu-
ins investigation, is that correct.
A. Yes, sir.
Q. Mr. Nowak, at this time there has been no recommen-
dation for prosecution made to the Department of Justice,
has there been?
A. No, sir.
Q. At this time have you yourself made a recommenda-
tion for prosecution to anyone?
A. No, sir.
Q. Have you reached in your own mind any fixed deter-
mination as to whether or not the Company or anyone else
should be prosecuted?
A. No, sir.
(). When you conclude your investigation, outline for us
the possible recommendations that a Special Agent con-
ducting an investigation might make?
A. I could recommend that the investigation be discon-
tinued without prosecution of the Company or any em-
ployees, and there may or may not be a tax liability due
and owing as result of the tax I uncover. I could recom-
mend the institution of the civil fraud penalty upon a por-
tion or all of the understatement that resulted from the
facts that are being investigated, or a recommendation of
58a
criminal prosecution could be made involving either the
Company and/or some of its employees or officers, includ-
ing—or, perhaps not including as well, the recommenda-
tion involving tax liabilties or civil fraud penalties.
Q. But so far no recommendation of any type has been
made by you?
A. No.
Q. Nor by your predecessor, Mr. Rogowski?
A. No, sir.
Mr. Fink. I have nothing further of the witness at this
time, your Honor.
The Magistrate: Ail right. Mr. MeNelis.
Mr. Roberts: Mr. Roberts.
Cross-EXAMINATION OF Davin E. Nowak
By Mr. Roserts:
Q. Mr. Nowak, at the time you came into the investi-
gation——
The Magistrate: I mean, Mr. Roberts. Go ahead. I am
sorry.
Q. Mr. Nowak, at the time you came into the investiga-
tion, the summons had already been issued, is that correct?
A. That’s correct.
Q. And it was issued by Mr. Rogowski?
A. Correct.
Q. Do you know the status of the ’72-73 civil investiga-
tion?
A. I believe I do.
Q. At that time?
A. Yes.
(). And what was that status?
A. At the time that Summons was issued, it was still
open administatively.
“a
59a
Q. But had not there been an 870-C presented to the
(Company by the Revenue Service?
A. I am not sure what you mean by an 870-C.
Q. This is a waiver of the restrictions on assessment
that is provided for in the Code, which, by a taxpayer sign-
ing it, he waives his right to a 90-day letter, which entitles
him to go to the Tax Court, and he agrees to accept the
assessment immediately as opposed to the delay that is
provided in the Code, if he doesn’t sign the agreement to
the assessment?
A. Well, I have never seen that document, but my un-
derstanding is it had been signed.
Q. It had been signed?
A. By the Company.
Q. And had been prepared by the Service, is that cor-
rect, for their signature?
A. Right.
Q. And the effect of this was to incorporate the agreed
adjustments that the Company agreed to in its ’72-73 Re-
turn and any other adjustments that the Service wanted
to make, is that correct?
Mr. Fink: Well, I will object to that, your Honor. The
document, if they wish to produce it, would speak for itself.
The Magistrate: Well, it is here. It is Exhibit 4 to Mr.
Thomas’ affidavit, apparently.
May I show it to the witness, counsel?
Mr. Roberts: Yes.
Q. Have you seen that—after you look at it, Mr. Nowak?
The Magistrate: Is Mr. Thomas here today?
Mr. MeNelis: Yes, he is, your Honor.
The Magistrate: Okay. Thank you.
A. To answer that question, I have never seen this be-
fore right now. ;
60a
\
Q. You have never seen the document before?
A. No.
Q. Now, as to the year 1974, at the time you came into
the examination in December, the year 1974 was not and
had not been under examination, is that not correct?
A. That’s correct.
Q. And it was not open for examination until sometime
the following year, early in the year?
A. I am not sure if I understand what you mean. My.
understanding is that it was open at the time we advised
the Company that we were conducting an investigation,
that the Intelligence Division had opened an investigation,
and it included the year 1974.
Q. Intelligence Division, but I am talking about the civil
audit that is now going on the ’74-75 tax return was not
open and the Company was not informed, was it, until
January, 1977?
A. That’s correct.
Q. Now you have said that the Company has resisted
producing the documents called for in the Summons; is it
not true that it is only two classes of documents called for
in the Summons, and the third the Company contends did
not relate to the Federal Tax Return that are not being
produced?
Mr. Fink: Well, I would like counsel to lay—instead of
talking about three classes of documents, to specify what
class of documents he is talking about as provided for by
the Summons. I am not sure. Perhaps the witness and
counsel know what they are talking about, but I don’t at
this juncture.
Mr. Roberts: All right. I will redraft the question, your
Honor.
The Magistrate: All right.
Q. As to—as the summons calls for all the files in the
possession of Mr. Thomas—is that correct?
A. I assume you are stating it correctly, yes.
6la
Q. You are not sure what the Summons calls for?
A. Well, I don’t have it right in front of me.
The Magistrate: I will show the witness the Summons
that I have attached to the Petition.
A. Yes. I says, ‘‘All files relative to the investigation
conducted under the supervision of Gerard Thomas.”’
Q. And the Company has turned over to you as a result,
has it not, the files that are associated with the branch
operations of the Upjohn Company as they have been de-
fined to you?
A. I know that the Company has turned over some docu-
ments relating to the branch operations, and those docu-
ments, I would assume are part of the files that he would
have assembled in his investigation.
Q. And they are the documentation showing the amounts
of the identified questionable payments, the back-up docu-
ments, the checks, et cetera, so that you can total them and
see whether they do or do not compare with the amount
that the Company has said were made in those countries,
is that correct?
A. Yes, sir.
Q. And have you compared those amounts?
A. Compared them with what?
Q. The amounts that the Company says it made in those
countries?
A. You mean compared the source documentation and
the schedule?
Q. Yes.
A. That they supplied?
Q. Yes.
A. Yes.
Q. And they totaled together to your satisfaction, do
they not?
A. The schedule they supplied me agrees with the source
documentation.
Q. And the source documentation includes cancelled
62a
checks, vouchers, advices, et cetera, is that correct?
A. Yes.
Q. And the items that to your knowledge are not being
furnished to you are, one, Mr. Thomas’ notes of interviews
of officers of the Corporation, is that correct?
A. Yes, sir.
Q. And questionnaires that were sent to officers of the
Corporation, is that correct?
A. Yes.
Q. And the back-up material similar to what you have,
vouchers, checks, et cetera, of entities that it is the Com-
pany’s position do not affect the U.S. Tax Return, with
one exception that I will come to in a minute, is that cor-
rect?
A. That’s correct.
Q. As to the——
The Magistrate: There is our fire drill. We do not use
the elevators. There is a stairway right outside the court-
room, and it is six flights down. Take a short recess.
(A recess was had due to a fire drill.)
The Magistrate: We are in session. Mr. Roberts, you
may proceed.
By Mr. Roserts:
Q. You know, Mr. Nowak, the years you said were cov-
ered by your investigation, I believe you said were ’72, ’73,
and ’74, is that correct?
A. Yes, sir. >
Q. And covered by the summons, or is the summons
really broader than the years covered by your investiga-
tion? I would ask you to look at the Summons.
A. The Summons indicates at the top that the years
under investigation are 1972, 1973, and 1974, and the body
of the Summons requests the investigative files covering
the period January 1, 1971, and—it doesn’t have an ending
date in the body of the Summons.
63a
Q. Now as you realize and know from your examination
of the documents that had been furnished you, the 8-K
that was furnished to the SEC, copies of it, the payments
that the Company identified and that you stated amounted
to slightly over $4,000,000 cover the years ’71 through ’75,
isn’t that correct?
A. Yes, sir; possibly a couple months in 1976, as well.
Q. And is it not true that for the taxable year “75, of
which I believe you have seen the return, that the Com-
pany’s Schedule M, which is an adjustment, the question-
able payments, do eliminate those from deduction on the
Federal Tax Return, is that not correct?
A. They did schedule——
Mr. Fink: Well, I am going to object only to this extent:
The document would obviously speak for itself. I don’t
have it here. If counsel would tell how much was excluded
from the ’75 return, I would withdraw my otherwise I be-
lieve valid objection.
Mr. Roberts: What I am trying to show, your Honor, is
that the Summons is broader than they conceivably could
be inquiring about, and I don’t believe the amount of the
adjustment is pertinent. I think what is pertinent is the
fact—and I think this witness can answer the question—
that they did Schedule M the questionable payments that
affected the U.S. tax return for 1975.
The Magistrate: I will take the answer.
A. The revenue agents have told me that some schedule
or some questionable payments have been Scheduled M’d,
adjusted out.
Q. And those would have been included in the $4,200,000
or .2 figure that you used, is that correct?
A. Yes.
Q. So that for the years that you are interested in, even
the total figure is not really 4.2 million, is it?
A. Well, it is, because I was interested, and still am in-
terested in, all those years.
64a
Q. Well, relevant to the tax return for ’72, ’73, and ’74,
you may be interested. Maybe I used the wrong term. But
the years you are examining and which you are entitled
to relevant material, is it not, are ’72, ’73, and ’74?
Mr. Fink: Well, I will object to the assumption that he
is entitled only to those years. I am not sure—if counsel
is trying to get across the fact that the four million dollar
figure that the witness testified to on my direct has admit-
ted questionable payments on the part of Upjohn, go over
to the year ’75 and possibly into two months of ’76, he has
that statement.
Mr. Roberts: And back into ’71?
Mr. Fink: And back into ’71.
So the picture would not be unclear. I was perfectly
willing to drop the best evidence objections and others, if
he would simply tell us the amounts involved.
The Magistrate: Is that your point, counsel?
Mr. Roberts: My point is that the figure that he has
used is much broader than the ’72-73-74 figure.
Mr. Fink: I am not going to accept your characteriza-
tion that the figure is much broader. I am going to accept
the characterization—I would be willing to stipulate to
the characterization.
Mr. Roberts: I have a witness I will call.
Mr. Fink: All right.
The Magistrate: All right. Let’s go ahead.
By Mr. Roserts:
Q. Now as a Special Agent, Mr. Nowak, your function
is to investigate for criminal purposes, is it not?
A. That is one of my functions, sir.
65a
Q. And what is the function that is identified in the
manual as your function?
A. I don’t know, because I don’t know exactly what the
manual says. I haven’t looked at it.
Q. You are not sure that the manual encompasses every-
thing that you say you do in the examinations, is that
correct?
A. What I am saying is that I don’t know what the
manual specifically—how the manual specifically describes
the functions of a Special Agent. I know that....
Q. Once you conclude there is no fraud, you get out of
the case, is that not correct?
A. Not always. Sometimes a special agent will stay in.
If you are talking about any fraud, I think that would
be a correct statement. We will stay in a case to assist in
establishing the civil fraud penalty, even after we have
determined that there are no criminal violations in the case.
Q. Do you know, Mr. Nowak, whether prior to the issu-
ance of a Summons, the Summons and the papers recom-
mending it were forwarded to Washington?
A. I don’t know if they were or not.
The Magistrate: What do you mean ‘‘Washington’’?
That is a big city. Do you mean Justice?
Mr. Roberts: The Commissioner. Sent to Washington
for approval, your Honor.
Mr. Fink: For the issuance of the Summons?
Mr. Roberts: Yes.
A. I have no knowledge as to whether or not that
happened.
Mr. Roberts: I have no further questions, your Honor.
The Magistrate: Thank you, Mr. Roberts.
Anything else of this witness?
66a
Mr. Fink: May I see that Summons?
The Witness: Yes, sir.
Repirect EXAMINATION OF Davi EK. Nowak
By Mr. Fink:
Q. Are you acquainted, Mr. Nowak, with the circum-
stances of the reason the 870-C, which has been referred to,
was not signed on behalf of the Commissioner of Internal
Revenue?
A. Yes, sir.
Q. 870-C is, I gather, if not an Exhibit, is attached to
Mr. Thomas’ affidavit, I believe. Yes, it is attached to Mr.
Thomas’ affidavit, which is on file with the Court, and bears
the date when signed on behalf of the Company.
The Magistrate: It is the last page.
Mr. Fink: Yes. Thank you, your Honor.
Q. Of March 4, 1976. Are you familiar with when Up-
john Company made its disclosure to the securities and
Exchange Commission as to these questionable payments,
both by domestic and by foreign companies?
A. I know approximately when they made the disclo-
sures.
Q. Do you know approximately when they did—go
ahead.
A. It was approximately the end of March, 1976.
Q. So before this document could be signed on behalf of
the Commissioner of Internal Revenue, the Company dis-
closed that its return was not accurate, did it not?
A. They disclosed that it may not be accurate.
Q. Was it as a result of that, that the 870-C was not
signed on behalf of the Commission?
Mr. Roberts: If this witness knows, otherwise I would——
The Magistrate: Yes.
67a
Do you know, Witness?
The Witness: I have obtained an understanding as to
why it wasn’t. To say that I don’t know, I would have to
ask the person that refused to sign it, I suppose.
The Magistrate: Refused to sign it for whom?
The Witness: For the audit case manager and the reve-
nue agent that was involved in the audit and wrote the
referral report.
By Mr. Fink:
Q. When you say ‘‘referral report,’’ you mean referral
from the revenue agents to the Intelligence Division, is
that correct?
A. Yes, that’s correct.
The Magistrate: I will take the answer.
A. I have lost track of the question now.
The Magistrate: What was your understanding that you
obtained as to why the Commissioner did not sign the
870-C, whatever it is?
The Witness: My understanding was that while it was
being considered in the administrative review process, the
disclosure by the Upjohn Company was made. It was ap-
parent that there may be some U.S. tax implications, that
the return may not be correct, and that the—therefore the
civil audit was retained or re-obtained, obtained from the
administrative process to determine whether there was any
other civil or criminal implications relating to those years.
Q. Now actually, Mr. Roberts has asked you about ma-
terial furnished to you in connection with your investiga-
tion. He indicated that you had been furnished with what
I believe he called an 8-K or that you had in your posses-
sion an 8-K ; do you remember that?
A. I do have that document in my possession now.
68a
Q. Yes. The 8-K is what, a document filed with whom?
A. It was a document that was filed with the Securities
and Exchange Commission.
(). And a copy of it was forwarded over to the Internal
Revenue Service, is that correct?
A. Yes.
Q. You have also been furnished with certain schedules,
is that correct?
A. Yes.
(). What do those schedules show as to the so-called
questionable payments?
A. You mean how are they set up, the format?
Q. How are they set up?
Mr. Roberts: We submit, your Honor, that the schedules
would speak for themselves.
The Magistrate: Are they present? Should they be part
of the evidence in this case, or not?
Mr. Fink: If counsel wishes them.
The Magistrate: Well, then why don’t we identify them
and introduce them.
Mr. Roberts: May I inquire?
(Mr. Roberts conferred with Mr. Fink off the record
and out of the Reporter’s hearing.)
Mr. Fink: Counsel does not desire these disclosed at this
time. Perhaps we could get somewhere over——
The Magistrate: Well, I can’t decide this in a vacuum.
You keep talking about these things that I have never seen
before. I would be helpful if at least I could see them.
Why don’t you go ahead and we will see what we can do.
Mr. Fink: All right.
Q. 1 will hand you something that we will not at this
time mark for identification, so that it might refresh. And
if I may approach——
69a
The Magistrate: Any objection, counsel, to my looking
at this?
Mr. Roberts: No objection, your Honor.
(A document was handed to the Magistrate.)
The Magistrate: All right. Do you want the witness to
have this?
Mr. Fink: Yes.
Q. And the witness has before him the document, which
we have not marked but which, with permission of counsel
also, the Court has been permitted to look at.
These are the schedules referred to?
A. These are, yes, the schedules you have been referring
to.
Q. Since the record will not be complete without some
description of the schedules, the schedules consist of years,
amounts, and companies or countries, is that correct? Give
us a brief description of what is before you.
Q. Well, it is an accounting spread sheet type of analysis
showing the years in which various payments were made,
possible questionable payments, the company that made the
payment, and the branch or the geographical location of
the operation within the Company that was making the
payment. And then it is cross-footed and totaled at the
bottom.
The Magistrate: And what are the years covered?
The Witness: The schedule covers the years 1971
through 1976.
The Magistrate: All right.
By Mr. Fink:
Q. Now the first page of that schedule is—has a sum-
mary of Company payments by year ‘‘(Companies listed
are those Companies with U.S. tax implications only)’’;
70a
is that true of all the attachments, too? You have only been
given the....
A. The attachments to this particular schedule are a
breakout in greater detail what is summarized on the title
which you just read.
Q. Is that correct, then, this schedule deals only with
Company—with contributions, payments, illegal bribes
made by the Upjohn Company, which they are prepared to
concede affect their domestic tax return, is that correct?
A. Well, I don’t know if they are prepared to concede
that. It may——
Q. No, they have conceded it.
Mr. Roberts: We concede they affect the tax return. We
do not concede that they are illegal or not deductible, your
Honor.
Mr. Fink: But this schedule, voluminous as it may be,
does not include the payments, which are $4,000,000 minus
approximately $700,000 for the total period we are talking
about?
Mr. Roberts: That is correct.
By Mr. Fink:
Q. Well, then, so far you have been given the schedule
of the admitted deductible or non-deductible payments, is
that correct?
A. I have been given that schedule.
Q. Yes. So far, have you been given any schedule similar
to this, covering the amounts of so-called, what Upjohn
calls ‘‘non-tax impact questionable payments’’?
A. Yes, I have.
Q. You have been. Similar in character to this, or even
more schedules?
A. It is similar in character to this but not quite as
detailed.
7la
Q. I have it——
A. I believe.
Q. showing amounts, is that correct?
A. It shows amounts, and—I would have to see it again
before I would say for sure what it shows.
Q. And you have been given at least some cancelled
checks, invoices, et cetera, underlying this schedule?
A. Yes, I have
Q. All right. And you did say on cross-examination that
you had compared the amounts here with the back-up docu-
ments, is that correct?
A. Yes, sir.
Q. Is there any way you can tell from those back-up
documents who the ultimate recipient of any bribes, kick-
backs, or illegal payments was?
A. No, sir.
[ would like to clarify that: I think it is possible that
some of the documentation may indicate who the ultimate
recipient was, but I have no way of knowing that that per-
son was the ultimate recipient at this time.
Q. Some of the documents may indicate but you have no
way of checking, is that right?
A. That’s right.
Q. Do you have any way of checking whether there are
—were more payments than this made, in perhaps fashions
which would not be recorded on the financial records of the
Company?
A. I have no documentary evidence available that would
allow me to assure myself that this is a complete statement.
Q. Nor has any such been furnished to you?
A. That’s correct. |
Q. In fact, the schedule and the so-called back-up docu-
mentation given to you, consisting mostly of cancelled
checks and so forth——
A. Yes, sir.
72a
Q. ——asked you to take at face value Upjohn’s only
internal investigation, is that correct?
A. It asked me to take at face value the summary of
Upjohn’s investigation.
Q. Allright. You were hopeful to obtain more by our
Summons, is that correct?
A. Yes, sir.
Q. I did notice you testified to Mr. Roberts’ question
that investigation for criminal purposes was one of your
functions.
A. Yes.
Q. Does every investigation you conduct prove a crimi-
nal—come out that there was in fact a violation of the
criminal tax laws?
A. No, sir.
Q. So when you say you are conducting a criminal in-
vestigation, what do you mean?
A. T am conducting an investigation to determine if
there has possibly been a violation of the Internal Revenue
laws or related laws.
Q. I won’t go into detail, but have you conducted a num-
ber of investigations in your career, ten-year career as &
Special Agent?
A. Yes, sir.
Q. What percentage of them, would you say, that re-
sulted in a criminal prosecution?
A. I would say 20 to 25 percent.
Q. Is determination of civil liability an important ele-
ment in a criminal investigation?
A. Yes, sir.
Q. Explain why.
A. Well, one of the laws that I would normally be in-
vestigating would be income tax evasion, which would re-
quire the proof of a tax liability along with other things
for there to be an evasion, and in some instances, even
though thatax liability may not be an item of proof in a
criminal case, it goes to the materiality of a potential vio-
73a
lation or prosecution and whether or not the Government
or the Internal Revenue Service would consider a possible
violation with really criminal material worthy of prosecu-
tion.
Q. When the matter—when you entered the investiga-
tion—I think we have already more or less established that
your ’72 and ’73 had not been closed because of the dis-
closure made by Upjohn itself to the SEC—and, incident-
ally, to the Revenue Service—that then the matter was re-
ferred to Intelligence, and the investigation was expanded
to cover the year ’74, is that correct?
A. Yes, sir.
Q. I believe you testified in response to——
Mr. Roberts: May I have that question and answer
again, please.
The Magistrate: Would the Reporter read it back.
(Last question read.)
Q. You understood the question?
A. Yes, I did.
Q. But I think you also agreed with Mr. Roberts, or per-
haps agreed with him, that the civil audit of the 1974
return did not commence until January of ’74; did I under-
stand you to agree to that?
A. I believe he said that the date January was an ap-
proximate. It may have been a couple of months later.
Q. But what did you mean the civil audit of the ’74 re-
turn at that juncture, what were you talking about?
A. Well, there is a—most large corporations are audited
for every tax year, and the strictly civil audit is—Mr.
Roberts used the term ‘‘covers all issues that the service
might be interested in that are on the return being audited.
That audit commenced with agents at the Company prem-
ises sometime in the end of March, 1976. And before that
audit commenced, we held a meeting in Detroit with sev-
eral representatives of the Upjohn Company and repre-
74a
sentatives of the Service to lay down the groundrules and
reach understandings as to the audit that was about to
commence and the relationship of the criminal investiga-
tion that was still open, to make sure that all parties
clearly understood the situation. I don’t recall the date of
that meeting.
Q. But when you took over the matter in December of
1976, and the tax year 1974 was part of the then investiga-
tion going on, that investigation was going on with respect
to what aspect of the ’74 return?
A. The questionable payments.
Q. Did you have the assistance of a revenue agent in
that aspect of the audit of the 1974——
A. Yes, sir.
Q. ——return? So from the very beginning, the 1974 re-
turn was under investigation by a revenue agent and a
Special Agent, but only with respect to the item of ques-
tionable payments, is that correct?
A. Yes.
Mr. Fink: I have nothing further.
Recross-EXAMINATION OF Davin E. Nowak
By Mr. Roserts:
Q. Mr. Nowak, you say the only documentation fur-
nished has been that which the Company has furnished
you, re the sensitive payments, is that correct?
A. Yes.
Q. You have filed, I believe in connection with your in-
vestigation, some 36 IDR’s, which, for purposes of the
record, are ‘‘Information Document Requests’’ that are
normally served by an agent in the course of his investiga-
tion asking for documents, et cetera; is that right?
A. Yes, sir.
Q. And you have been furnished documents that you
have requested by IDR’s, have you not?
A. Yes.
75a
Q. And with the exception of some recent IDR’s that are
still being worked on to get the back-up material, has the
Company refused to respond to any IDR’s?
A. No, except with those exceptions that you have just
stated exist.
Q. Well, we have not complied because we are still get-
ting the information together. I mean, you understand——
A. No, [ am sorry. I understand that some of them may
not be complied with.
Q. May not be complied with?
A. Yes.
Q. There are two, I believe—or, one, that asks for the
same type of back-up material for Mexico and Brazil, is
that not correct?
A. Yes, sir.
Q. Now, the Company has made available to you for in-
terview, has it not, people who you have asked to inter-
view?
A. Yes, sir.
Q. Has it refused to produce anyone for interview who
you have asked to interview? :
A. No, sir.
Q. And it has said that it would make available to you
for interview any of the officers or employees that you
asked for, is that correct?
A. Yes, sir.
Q. And it is true, is it not, that you do plan to go to
some of the foreign areas to interview the people who are
there, is that correct?
A. That is a possibility, yes.
Q. And you have interviewed approximately how many
—strike that. The people who Mr. Thomas interviewed
have been identified to you, have they not, either Mr.
Thomas or outside counsel working with Mr. Thomas in
interrogating and inquiring into this problem? The list of
people has been furnished to you, has it not?
A. I have received a list, yes.
76a
Q. And of those he has talked to, you have talked to
already, if not exactly, 25, is that not correct?
A. I would be willing to accept your count.
Q. And the others that he interviewed or that were in-
terviewed in conjunction with his injuiry are on your list
also, are they not?
A. Yes.
Q. So that everyone who he has interviewed or were
interviewed in conjunction with his inquiry that admittedly
affected the U. S. Tax Return are in the process of being
made available to you at your demand, it that not right?
A. Yes, sir.
Q. Now, did the Company not agree that rather than
comply with the summons as to the countries that it con-
tends does not affect the U.S. Tax Return, that they in-
vited the Service to inquire and maybe visit those, take
one, two, or more of those countries to satisfy itself that
the payments did not affect the U.S. Tax Return?
A. That’s not clear. Mr. MeNelis and I—may I explain?
The Magistrate: Yes, please do.
A. Mr. MeNelis and I had a meeting last week, and he
indicated himself he was unclear as to whether such a
commitment had been made, because we were discussing
IDR’s that hadn’t been filled. And I don’t know what the
Company’s position is at this time.
Q. We will let you go anywhere, will we not, and inquire,
and this is what we have said we would do. The question
is—whether I believe that you have with Mr. McNelis—is
whether we will bring back here the back-up materials, is
it not; it is not whether we will let you go to Brazil and
Mexico and talk to our people?
Mr. Fink: The question is whether the Governments of
Brazil, Mexico, Switzerland, Philippines, et cetera, would
permit it, even assuming the budget of the Revenue Service
could bear such a——
77a
The Magistrate: Let me clarify something at this point,
and [ think it is pertinent: Do I understand that you re-
fused to release the questionnaires with the answers that
Mr. Thomas sent out to the Service? Do you not want to
release those questionnaires?
Mr. Roberts: We are producing the questionnaires.
The Magistrate: Do I understand, though, that if they
went to a particular employee who filled out the question-
naire, and asked for his copy of it, you would not object
to that?
Mr. Roberts: I am not sure ke has a copy and I assume
that’s if they interrogated him and wanted the copy, that
he might have to produce it, your Honor. We have not been
faced with this situation-——
The Magistrate: Do you know whether these people do
have copies of the questionnaries that they completed and
submitted to defense counsel?
Mr. Gerard Thomas: I do not.
The Magistrate: Okay.
By Mr. Roserts:
Q. The people who you have interrogated, the 25 al-
ready, did you ask any of them for copies of the question-
naires or their answers thereto?
A. Indirectly, for sure.
Q. In the questions that you asked them, did you ask
them, either Dr. Partisetti, who is the Chief Executive
Officer of Italy who was in this country and was made
available to you for examination, did you ask him for
copies of the questionnaire?
Mr. Fink: Well, I am going to object to that, because——
The Magistrate: Well, I would like to hear the answer
to that. I think I want to see where we are going here.
78a
State your objection for the record. I am sorry.
Mr. Fink: Well, my objection for the record, your Honor,
is there was a transcript made of that particular interview
recorded just as it is here. It was a question and answer
under oath. Mr. Roberts was present.
The Magistrate: Well, all right.
Mr. Fink: And the transcript itself will speak best for
what Mr. Nowak was permitted to ask.
The Magistrate: If Mr. Nowak knows the answer to the
question, I would like to have it.
A. I did not specifically ask him for the questionnaire.
Q. And, Mr. Bob Casler, the Manager in Hong Kong,
was here and made available to you for questioning, was
he not?
A. Yes, he was.
Q. And did you ask him for a copy or whether he had a
copy of the questionnaire?
A. No, I didn’t.
Mr. Roberts: I have no further questions.
The Magistrate: Mr. Roberts, if he had a copy, would
the Company object to releasing it through the particular
officer?
Mr. Roberts: If the individual had no objection, I don’t
believe we would.
The Magistrate: Why would he have an objection?
Mr. Roberts: Well, I assume that he probably would not.
I don’t know whether he would or not. I am not confident
at all—and I don’t know—the Company cannot make the
individuals testify. I am not even sure that some of them
will testify.
The Magistrate: Okay.
79a
Mr. Roberts: They are being made available for what-
ever questions, and we are not going to advise them—I
will say this: We will not advise them not to cooperate,
but I think this is a question that they have to answer in
view of their own laws as to whether or not they want to
answer certain type questions.
The Magistrate: They could possibly incriminate them-
selves under the local laws in that country?
Mr. Roberts: Yes.
The Magistrate: I see. Counsel, do you have some more
questions?
Repirect ExAMINATION OF Davin E. Nowak
By Mr. Fink:
Q. Mr. Nowak, at any point in this deposition or inter-
view of the Italian gentleman, Mr. ——
A. Partisetti?
Q. Partisetti.
Q. Partisetti. Did Mr. Roberts stop you from any lines
of inquiry?
A. Yes, sir, he did.
Q. Do you recall what lines of inquiry he asked you not
to go into?
A. Into the specific area of the questionable payments
made by the controlled foreign corporations that Mr. Par-
tisetti was responsible for.
Q. So if Dr. Partisetti or Mr. Partisetti had been more
candid in his office or in his questionnaire response to Mr.
Thomas, that is information you were not permitted to get
at his deposition, isn’t that correct?
A. Yes, sir.
Q. Would the same thing be true of your deposition or
your inquiries into—with Mr. Casler, the other gentleman
named?
A. Yes, sir.
80a
When you say would the same thing be true, you mean
do I believe I would have been stopped?
Q. First of all, did you endeavor to go into that line of
inquiry?
A. No, I didn’t.
Q. Why did you not go into that line of inquiry?
A. After the interview with Mr. Partisetti, Mr. Roberts,
Mr. MeNelis, and myself had a meeting, and they indicated
that their position was at this time that they were not go-
ing to allow me to interview these witnesses, specifically,
for details of the transactions involved in those situations
where they say there is no U. S. tax impact, until this sum-
mons’ situation was solved. So there was no point in me
interviewing any other witnesses in this regard, because
I knew he would object. He indicated he would.
Q. You understood the ground rules under which you
were then being permitted to operate, is that correct?
A. Yes.
Q. All right. Mr. Roberts asked you on his recross if
the Company had offered to make available to you all the
individuals listed on that interview sheet who were—with
respect to the questionable payments, which they admitted
affected their income tax return, is that correct, is that
what he asked you and what you answered? That is what
I understood.
A. I am not sure that I understand what you are just
asking.
Q. All right. I understood him to have asked you, and
you responded yes, whether they had not agreed to make
available to you all the individuals on the questionnaire,
to the extent that those individuals might have informa-
tion with respect to those payments which the Company
admitted affected their domestic tax—Federal income tax
returns, is that correct?
A. Could you read that back?
8la
Q. All right. Did they offer to make everyone available
to you, is what I am asking? I did not get the import of
your question—or, I understood him to limit it.
A. Yes. My understanding was they would make every-
one available to me, but they won’t allow me to ask every
question [ want.
Q. Okay. I guess we have that straight.
Mr. Fink: May I have just a moment, your Honor?
I have nothing further.
Mr. Roberts: The only thing—I would like to clarify
one point.
Recross-ExAMINATION OF Davin E. Nowak
By Mr. Roserts:
Q. Mr. Nowak, you do concede, I believe, or state—
maybe a better way of putting it rather than ‘‘concede’’—
that you are not limited to inquiring into any entity that
affects the U.S. Tax Return?
Mr. Fink: Well——
Q. Or that the Company says affects the U.S. Tax Re-
turn?
Mr. Fink: All right. ‘‘That the Company says affects.’’
A. I have not as of this date encountered any limitations
being placed on that.
Q. And have we not stated that if you can show us or
if the Service can show us, and told this to the Interna-
tional man, I think in your presence, that if the Service
would show us how these payments, made by a non part of
the consolidated return, would affect the tax return, we
would make them available?
A. I don’t believe you have ever told me that, and I
believe that the position you took when you interviewed
Mr. Partisetti was that you had already made that deter-
mination and wouldn’t listen to my arguments.
82a
Q. Now, Mr. Nowak, you have reviewed each of the
IDR’s issued by the other agents in this case, have you
not?
A. No.
Q. Your name is on them. You have not reviewed them,
though?
A. No, I don’t review all the IDR’s that are submitted.
Q. You are not aware, or are you aware, of an IDR that
was issued by the International Specialist asking for the
Company’s statement as to why or, one, what it based its
position that these payments by entities not within the
consolidated return or not within a U.S. Tax Return af-
fected, would not affect the tax return?
A. I know he made such a request, yes.
Q. And you know the Company answered that, do you
not?
A. Yes, sir.
Q. And do you know whether or not he accepted that?
A. I think he still has an IDR that hasn’t been filled that
he is waiting for a response on before he makes a final
determination.
Q. But he has not indicated to the Company otherwise,
is that right? You say he has another IDR?
A. I think he, in effect, has, because he still has an IDR
that hasn’t been filled.
Mr. Roberts: I have no further questions.
Mr. Fink: Nothing further.
The Magistrate: Okay. You may step down. Thank you.
How about a short recess at this point?
Mr. loberts: Sure.
The Magistrate: About ten minutes.
(A recess was taken at 3:05 p.m.)
83a
Mr. Fink: Your Honor, I trust that I may recall Mr.
Nowak to the stand for what will be no more than two or
three omitted questions.
The Magistrate: We will see if it is two or three, or not.
All right. Mr. Nowak.
(David E. Nowak resumed the stand and testified fur-
ther as follows:)
FurtHer Reprrect EXAMINATION OF Davin E. Nowak
By Mr. Fink:
Q. Mr. Nowak, you have been sworn, of course.
Some comment has been made about the years ’71 and ’75
with respect to this Summons. Would you briefly explain
the relevance and necessity for those documents and the
other information sought with respect to your investiga-
tion, which is currently for ’72 through ’74?
A. Well, in relation to 1975, the fact that there has been
a Schedule M adjustment indicates that there is an item
that the Internal Revenue Service ought to check to make
sure the adjustment has been treated properly. And, in
addition, the Government’s position, the Internal Revenue
Service’s position has always been clearly stated that while
the investigation covered the years 1972 through 1974 we
were not precluded in opening up going into the 1975 were
we to find indications of possible criminal or civil ramifi-
cations in these payments.
And in regard—we could also have the option of going
back to 1971, if we wanted to.
Another possible relevancy for that material, especially
1971, is the possibility of transactions occurring in one
year and not being recorded on the books and records of
the Company in that year, but for various reasons, through
error or otherwise being recorded in another year, so we
would have to make sure that transactions were properly
reflected in the year that they occurred.
84a
Q. Insofar as you know, the Summons was drawn by
someone else, is that correct?
A. Yes, sir.
Q. Not by you. And it was drawn, was it not, with the
knowledge that Upjohn Company had made revelations to
the SEC which covered the period ’71 through ’75?
Mr. Roberts: If your Honor please, as the agent who
issued the Summons is in the Courtroom, I believe he is
the better person to answer these questions.
Mr. Fink: It is Mr. Rogowski.
The Magistrate: He is here?
Mr. Fink: He is here.
The Magistrate: Why don’t we pursue it with him, then,
counsel.
Mr. Fink: Well, I hadn’t proposed to put him on, but,
if necessary.
The Magistrate: All right.
Mr. Fink: All right. I have nothing further.
Mr. Roberts: I have no further questions.
The Magistrate : Okay.
Mr. Fink: Nothing further. You may step down.
I will put Mr. Rogowski on for that limited purpose,
your Honor.
James M. Rogowski,
called as a witness by the Petitioners, being first duly
sworn, testified as follows:
85a
Direct EXAMINATION
By Mr. Fink:
Q. State your full name, please?
A. James Rogowski.
Q. What is your employment, Mr. Rogowski?
A. I am a Special Agent with the Intelligence Division
of the Internal Revenue Service.
Q. Where are you stationed?
A. Detroit, Michigan.
Q. What is your education?
A. I have a Bachelor’s Degree from the University of
Michigan.
Q. How long have you served as a special agent?
A. Probably eight years.
Q. You were the special agent who issued the Summons
which we are dealing with in this proceeding?
A. I am.
Q. The language of the Summons is yours; you drafted
it?
A. I drafted the Summons.
Q. Alone or in consultation with someone else?
A. The
Q. I will hand you a copy of the Summons, with permis-
sion of the Court.
The Magistrate: Yes.
A. I drafted the Summons subject to the approval of
my group manager.
Q. At the time you drafted this Summons, were you
aware of an investigation that had been conducted by the
Upjohn Company, the results of which—or, at least the
summary results of which had been turned over to them
by the Securities and Exchange Commission?
A. Yes, I was.
”
86a
Q. Were you aware at the time you drafted that Sum-
mons of the years covered by their report of that inves-
tigation?
A. Yes, I was.
Q. What are those years?
A. January 1, 1971, through the first two or three months
of 1976.
Q. Had you been advised by Upjohn Company that they
would not furnish you with various questionnaires and
other items which had, presumably, gone into that report,
without your taking legal action?
A. I was.
Q. Did you draft that Summons in the light of that
knowledge?
A. Yes, I did.
Q. Where did you get the language that you used, as
best you now recollect?
A. The language I used came from either the 8-K or an
amended 8-K, or possibly some other correspondence that
Upjohn submitted to the Securities and Exchange Com-
mission. And this is the language that Upjohn Company
used in describing Mr. Thomas’ investigation.
Q. And your Summons was designed to get Mr. Thomas’
investigation, is that correct?
A. Yes, it was.
Q. In its entirety?
A. Yes, sir.
Mr. Fink: I have nothing further.
Cross-EXXAMINATION OF JAMES M. RocowskI
By Mr. Roserts:
Q. Mr. Rogowski, you said, I believe, that the Summons
was approved by your group supervisor, is that correct?
A. Yes, sir.
87a
Q. Was it approved by anyone above your group super-
visor?
A. I consulted with our regional counsel before I issued
the Summons.
Q. Do you know whether or not approval was obtained
from the Chief Counsel or Chief of Audit in Washington,
D.C., of the Service?
A. Our Regional Counsel may have consulted with some-
body in Washington. I don’t have any direct knowledge of
this.
Q. Do you know whether he did or not?
A. It is possible.
Q. Possible, but you do not know one way or the other,
is that correct?
Mr. Fink: The witness has so testified.
Mr. Roberts: That is right.
I have no further questions.
The Magistrate: You may step down. Thank you.
Mr. Fink: Your Honor, in our view we have established
a prima facie case for enforcement of the Summons, hav-
ing met the requirements of, I guess it is Donaldson, one,
the procedural regularity of the Summons was admitted
before we came to Court; two, the information we seek is
necessary to the investigation, relevant to the investiga-
tion; and the information that we seek, the data we seek
is not—and the various documentation we seek by the
Summons is not in the possession of the Special Agent
at this time.
My understanding is that Respondents now propose to
take on what we would call their heavy burden of estab-
lishing affirmative deefnses to the Summons.
So on the assumption that we have made a prima facie
case, your Honor, I rest.
(The Petitioners rested.)
88a
The Magistrate: All right. Mr. Roberts, whatever your
burden is, do you want to assume it?
Mr. Roberts: I beg your pardon?
The Magistrate: Whatever your burden is, do you want
to assume it, and we will proceed.
Mr. Roberts: Yes.
Mr. Thomas.
Gerard Thomas,
a Respondent herein, called as a witness on his own behalf,
being first duly sworn, testified as follows:
Direct HxAMINATION
By Mr. Roserts:
Q. Will you state your name and address for the record,
please, Mr. Thomas?
A. I am Gerard Thomas, G-e-r-a-r-d, Thomas. I reside
at 1558 Spruce Drive in Kalamazoo, Michigan.
Q. And are you an attorney, sir?
A. Yes.
Q. And what Bars are you a member of?
A. I am admitted in New York State and Michigan.
Q. And how long have you been general counsel of the
Upjohn Company?
A. 1961.
Q. And when did you first become eniployed as an attor-
ney for the Upjohn Company?
A. In October 1956.
Q. And as General Counsel of the Company, are you
called upon to give legal advice to subsidiaries of the Com-
pany as well as just to the parent company?
A. Yes.
89a
Q. Mr. Thomas, when did you first become aware that
the Upjohn Company might be involved in what has been
referred to as ‘‘questionable payments’’?
A. In January 1976.
Q. And prior to this time did you have any knowledge
or belief that the Company might be involved in making
what has been referred to as ‘‘questionable payments’’?
A. No.
Q. Now, will you identify or define for the Court and
for the record what you intended and what you included
in the term ‘‘questionable payments’’?
Mr. Fink: So that we will be clear, ‘‘included’’ at what
time in his answer to your quetsion just now, or on some
other occasion?
Mr. Roberts: In his filing with the SEC.
Mr. Fink: All right.
Mr. Roberts: And what has been described as question-
able payments by him consistently, by him since he first
became aware that there might be questionable payments.
I am trying to get the definition, the framework——
A. Right.
The Magistrate: All right. You may answer.
A. Yes. ‘‘Questionable payments’’ are payments made
by or on behalf of the Company or its subsidiaries, which
were made to third parties or to Government employees
under circumstances indicating that they might be for
improper purposes.
Q. And under circumstances, what do you mean by that,
Mr. Thomas?
A. Let me comment on this a little bit, because it is a
difficult question as you get into it.
In many foreign countries, payments are made to various
agents, commission men, influence people, to obtain busi-
ness, to obtain Government permission, sometimes permis-
90a
sions which you are completely entitled to, no question
about. These people represent that they can get you this
business or this kind of treatment, and as you investigate
and dig into them, there are circumstances around some
of these payments which create the suspicion that all or
part of this money went on to Government people. In fact,
most of these payments, the vast majority of them were
made not to Government employees, but to third parties,
to citizens. And it is a difficult subject.
Q. Now as a result of being informed that the Company
was possibly involved in the making of questionable pay-
ments, what did you, as General Counsel of the Company,
do?
A. Well, as soon as we got information in one country
that suggested this possibility, it became obvious that we
had to—or, I had to determine what the true facts were.
They’re difficult to get hold of, and without these facts, it
was impossible for me to give legal advice to the Company,
to counsel as its attorney. So I had to get the information
upon which I could base my legal opinion and legal advice
and get it as accurately, completely, and promptly as I
could.
Mr. Fink: Your Honor, since Mr. Thomas wears several
hats, I am certainly not going to interrupt the flow of the
conversation, but obviously it may become important at
some time for your Honor to decide whether Mr. Thomas
was acting in his capacity as General Counsel for the
purpose of giving legal advice, or in some other capacity.
The fact that I don’t object at various times during the
direct examination or the responses to their own charac-
terization of his position, I trust will net be held against us.
The Magistrate: It won’t. Why don’t you just make
your point on your cross, of course.
Mr. Fink: Sure. I just didn’t want to make the assump-
tion that it was permitted without our objection on direct
to bother things.
The Magistrate: Ali right.
9la
By Mr. RoBerts:
(). Mr. Thomas, before we go on, will you, for the record,
state your full title in the Company?
A. I am Vice President, Secretary, and General Counsel,
and also a member of the Board of Directors of the Upjohn
Company, which is the parent company. Obviously Upjohn
is an affiliation of literally dozens of U.S. and foreign
companies.
Q. Now, in this inquiry that you were conducting, what
was the purpose of the inquiry?
A. As I stated before, to gather accurately the informa-
tion on which I, as general counsel, could give my opinion
and my advice and guidance to the Company.
Q. Aml did you consult with outside counsel prior to
undertaking any inquiry?
A. Yes, I did.
Q. And what course of action did outside counsel recom-
mend to you, Mr. Thomas?
A. They really recommended two things: First, that it
was necessary to gather this information to get as complete
factual basis as we could. And we also discussed whether
this investigation or this gathering of information was
better conducted by me or by the outside counsel, and
they recommended that it be—the information be gathered
by me with their assistance.
Q. And what recommendations did you make to the
Chairman of the Board of the Upjohn Company? |
A. Essentially the same recommendation.
Q. And did he approve this recommendation or did the
Board approve it?
A. Both did.
Q. Did outside counsel assist you in the inquiry that you
conducted?
A. Yes.
Q. Did they assist you in formulating your recommended
course of legal action?
A. Yes, they did.
92a
Q. And did you recommend courses of legal action to the
Company?
A. Yes.
Q. What type of legal entities does the Company have
overseas?
A. Well, let’s start with the Upjohn Company, which is
the parent company. That in turn owns U.S. subsidiaries
and foreign subsidiaries, and there are subsidiaries of
subsidiaries. So there are these first and second level of
subsidiaries overseas, and also some of the subsidiaries
have branches overseas. Most of these organizations are
completely owned by the Upjohn Company one hundred
percent, although in some instances there are affiliated
companies of which we are not one hundred percent owners.
Q. Directing your attention to the first notes you made
of conversations with the officers that you contacted, what
was the position in the organization outside the United
States of the officer or officers who you contacted?
A. Well, in our foreign operations, the Chief Officer or
the head man has different titles: Managing Director some-
where, General Manager somewhere, but in each instance
I went to our chief—the chief official in that subsidiary or
that legal entity.
Q. And it is these notes of these conversations with the
Chief Executive Officer of the subsidiary that we are
talking about that have not been turned over to the Service,
is that correct?
A. Yes.
Q. And in these interviews, were they conducted by
telephone, or personally, or both?
A. Both.
Q. And which country or which areas did you personally
visit as opposed to contact by telephone?
A. The foreign countries in which I conducted interviews
were Brazil, South Africa, Kenya, Japan, Korea, Hong
Kong, Indonesia, and Australia.
93a
Q. And where outside counsel did the interviewing, do
you know whether it was done by visits or by telephone?
A. I think it was done on a face-to-face basis. There
may have been phone conversations, but I cannot recall.
Q. Are the written notes that you made or that the out-
side counsel made, to your knowledge, verbatim transcripts
of the conversation that you had?
A. They are not. In no ease did we have a recorder or
a reporter recording device, and obviously it would be
impossible for me or for outside counsel to have made
verbatim notes of those interviews.
Q. And what do your notes contain, basically, without
going into the details of any particular one, but in general,
what do they contain?
A. My notes would contain what I considered to be the
important questions, the substance of the responses to
them, my beliefs as to the importance of these, my beliefs
as to how they related to the inquiry, my thoughts as to
how they related to other questions. In some instances they
might even suggest other questions that I would have to
ask or things that I needed to find elsewhere. They were
more than just a verbatim report of my conversation with
the—a report of my conversation in the interviews.
Q. Have your notes of your interviews or the answers
to the questionnaires been furnished to other persons,
other than counsel, either yourself or people within your
organization, as counsel or outside counsel?
A. They have been provided to outside counsel. They
have been provided to no one else within the Upjohn
Company or any of its affiliated people. In fact, the only
people, except myself, that have seen them are some out-
side counsel.
Q. Now who prepared the questionnaire that was sent
out, Mr. Thomas?
A. It was prepared by me and by attorneys with the law
firm of Covington and Burling. We worked together.
94a
Q. Was a questionnaire sent to all persons whom you
interviewed, either by person or by telephone?
A. I believe that I interviewed all the people who re-
ceived questionnaires. I interviewed some other people, in
addition.
Q. After the interviewing and the results and the an-
swers to the questionnaires came back, did you consult
with outside counsel as to the proper legal steps for the
Company to take?
A. Yes.
Q. And did you arrive at legal steps that the Company
should take?
A. Yes.
Q. And are you aware of whether or not the Company
has agreed to make these chief operating officers or chief
executive officers available for questioning to the IRS as
it pertains to entities that do affect the U.S. Tax Return?
_A. Yes, we have and will.
Q. Now, the Petitioner has used the phrase ‘‘slush
funds,’’ questionable payments in connection with slush
funds and off Company—I think it is ‘‘off record’’——
A. **Off book,’’ is it?
Q. I have got it right here. It refers to off the books in
quotes, ‘‘slush funds.’’ In your investigation, inquiry or
questionnaire, did you find any off the book accounts
reviewed?
A. No.
Q. Would you explain what your understanding is in
your conversation with people what is a slush fund?
A. Let me——
Mr. Fink: Well, I am going to object. I am not sure
what his conversations with other people, unidentified, are.
Are we getting at the skill with which he conducted his
investigation?
Mr. Roberts: I am getting at what his knowledge. The
enforcement in—the brief in support of the enforcement
95a
says that ‘‘Upjohn’s investigation revealed that its foreign
and domestic subsidiaries had made over $4,000,000 in
illegal bribes, kickbacks and other payments to foreign
Government employees and foreign nationals in thirty
countries through ‘off the books’ slush funds.’’ I don’t
think that is a correct statement by any means of what the
Upjohn Company’s investigation disclosed.
The Magistrate: Whose brief are you reading from; the
Government’s brief?
Mr. Roberts: I am reading from the Petitioners’ Brief
in Support of their Petition to enforce an Internal Revenue
Service Summons.
The Magistrate: Let’s see what he considers ‘‘slush
funds.’’
He may answer.
A. Yes, I think that is a good question.
I consider a slush fund to be a fund of money, usually
in cash, usually off the books, that a company generates
for improper or illegal purposes. And I think it attained
much notariety and probably is best known as the device
by which corporations generated funds by which they could
make illegal political contributions in the U.S. And I think
slush funds to most of us has that kind of connotation. In
fact, Upjohn made no U.S. political contributions, and I
suppose that is why we object or are bothered by this
characterization.
Q. In your inquiry, Mr. Thomas, and interviews and
questionnaires, did you find any slush funds available to
any officers of the Corporation?
A. Within the definition that I gave in my understanding
of slush funds—and I am not being cautious. It is just that
it is a difficult term—lI did not.
96a
Q. Now, was this inquiry that you undertook, as a result
of an inquiry that the SEC had made to the Company?
A. Not at all. The SEC had not contacted us, had made
no inquiry. The undertaking was entirely voluntary and
started by us at our instigation.
Q. Now is a company that has registered securities and
offers, stock, required by SEC law to make disclosures of
this type, if it finds out there are such payments?
A. Yes.
(). And is that the reason, that you were legally required
to make the disclosure that you did to the SEC, that you
made it?
A. Yes.
(). And at the same time you made the disclosure to the
SEC, you sent a copy thereof to the IRS, is that correct,
or
A. Very close.
Q. Maybe not the same time, but contemporaneous with?
A. Yes. It might have been the same day. I just don’t
remember.
Q. Were any of the interview notes or questionnaires
submitted to the SEC?
- A. No.
Q. What standard did you use in determining what
amounts you would include in the disclosure to the SEC,
Mr. Thomas?
A. Well, as I stated earlier, it is very difficult to deter-
mine whether a particular payment is a perfectly proper
commission to a third party or it is really a payment to a
third party that is going to go to a Government official.
We felt that in the interest of fairness and protecting the
Company interest and complying with the law, it was
desirable to err in the direction of including payments,
some of which I am sure did not go to Government officials,
I am sure were perfectly proper payments but there was
something in the background that troubled us.
97a
Q. I believe you may have answered this, and I will take
an objection to repetition if it is so, but is it not—is it
your function, as General Counsel of the Upjohn Company,
to also serve as General Counsel to the subsidiaries?
A. As I have stated earlier, Upjohn is a group of prob-
ably fifty corporations, and I am in fact the Chief Lawyer
for all of those organizations.
Mr. Roberts: I have no further questions of Mr. Thomas.
The Magistrate: Just a moment. I think—he may have
one more.
Mr. Roberts: Pardon me.
Mr. MeNelis: May we have a minute, your Honor?
The Magistrate: Yes.
Mr. MeNelis: Thank you.
By Mr. Roserts: (Continuing)
Q. Mr. Thomas, one question, and I will ask it in the
framework: Are you sufficiently familiar with the tax laws
to know which companies would affect the U.S. Tax Return,
or is that more the function of your Tax Department?
Mr. Fink: Well, I am going to object to that, in any
event, unless we have a large number of premises estab-
lished as to what the facts are, all of which was the pur-
pose of our Summons.
The Magistrate: I will take the answer to that. If he
thinks he is smart enough to answer it, we will let him
answer. ..
A. Certainly in this instance after conferring with both
inside and outside tax experts, I feel that I am qualified
to know that.
(. And based on your conversations, have you made a
determination as to whether or not what type of organiza-
tions would affect the U.S. Tax Return?
A. Yes, I have.
98a
Q. In your opinion?
A. In my opinion.
Q. And do any of the controlled foreign corporations,
the subsidiaries that are known as ‘‘controlled foreign
corporations,’’ affect the U.S. Tax Return?
A. No.
Mr. Fink: I am going to object to that, just on the
general principle that here Mr. Thomas has recently
equipped himself as an expert in the tax laws, by two
experts, allegedly, who are not here, by a large number
of unsupportable, unproved factual premises as to the
nature of this. I would be perfectly prepared to, quote,
‘‘let it in for what it is worth,’’ if anyone in the world
thought that that was an admissible answer.
The Magistrate: Mr. Fink, he is only expressing his
opinion, which may be right or wrong——
Mr. Fink: I hate to have to be in the trouble of cross
examining him on the subject, your Honor.
The Magistrate: I will let the answer stand. It is his
opinion.
Mr. Roberts: I have no iurther questions.
Mr. Fink: I trust he has not, however, been accepted
as a qualified expert in this regard? I understand under
the new Federal Rules all they have to do is state an
opinion, and then I am going to waste the rest of the
afternoon cross-examining him.
The Magistrate: I think that is true. Go ahead.
Mr. Fink: But he is not being accepted or proffered as
an expert——
The Magistrate: No, I don’t accept his testimony as an
expert.
Mr. Fink: All right.
99a
Cross-HxXAMINATION OF GERARD THOMAS
By Mr. Fink:
Q. Mr. Thomas, when did you become a vice president
of the Upjohn Company?
A. T was elected Secretary and General Counsel before
I became Vice President. I am not sure of the exact date.
A year or two later I became a vice president.
Q. Well, let me straighten this out. You went to work
for the Upjohn Company as a lawyer in the Legal Depart-
ment, is that correct?
A. In 1956, yes.
Q. In 1956. At a subsequent time, ’61, I believe you said,
you were made General Counsel of the Company?
A. I believe I was elected Secretary and General Counsel
in ’61.
Q. At the same time?
A. Yes.
Q. Are the two jobs thought of as synonymous, Secretary
and General Counsel?
A. No, they are two different jobs.
Q. They are two different functions. Briefly, what is the
function of the Secretary of the Corporation?
A. Well, I think the duties of the Secretary of any
corporation are defined in the corporate law.
Q. Have you read your job description lately?
A. Tl am afraid not.
Q. Okay. That seems to be a failing of all specialists.
So you don’t quite know what the duties are accorded
to you in the charter and bylaws, but they are somewhat
different from those of being a General Counsel, is that
correct?
A. Yes.
Q. You are not engaged in giving legal advice when you
are recording minutes and signing the appropriate docu-
ments as Secretary, are you?
A. I think it is interesting that most major corporations,
the secretary is also an attorney now.
100a
Q. Do you feel when he is functioning as a secretary,
though he is functioning, in the large sense, Secretary of
a Major Corporation, he is necessarily engaging in his
functions as a lawyer?
A. I think sometimes he is.
Q. And sometimes not?
A. Certainly.
Q. As a matter of fact, Mr. Thomas, sometimes we law-
yers, when acting, are not acting as lawyers, isn’t that
correct?
A. Of course.
Q. Even though we have been approached in our pro-
fessional capacity, we are not acting in the true sense of
professionals, isn’t that so?
A. I don’t understand the question.
Q. Well, not every dealing you have with a client is a—
even if a large corporate client—is what we would neces-
sarily call part of the practice of professional responsi-
bility, is it? You might be giving business advice, for
example——
A. You might have to pick up a son up at the airport,
certainly.
Q. Very frequently we are called upon for such func-
tions, I know.
Now Vice President, when did you become Vice Presi-
dent; very shortly after you were made General Counsel?
A. A couple of years, I think.
Q. Well, did that entail merely a recognition of a greater
position for you in the Corporation as General Counsel, or
did that entail separate duties?
A. My duties did not change significantly. I think it was
some recognition.
Q. Were you put on the Board at that time?
A. Yes.
Q. Though you had not previously been on the Board as
General Counsel, is that correct?
A. I had sat at Board meetings as Secretary, so I was
a member of the Board.
10la
Q. And how large is your legal staff directly under you
as General Counsel in the Upjohn Company?
A. Perhaps 25 persons, perhaps 25 attorneys.
Q. You are now referring to those who would be based
here in Kalamazoo?
A. Yes.
(). Are those 25 all under your immediate supervision
as General Counsel?
A. Yes.
Q. Do you have a patent, a group of patent lawyers, for
example?
A. I am ineluding in my 25 our Patent Department, most
of whom are attorneys. There may be three or four that
aren’t patent attorneys.
Q. So your count of 25 includes the patent——
A. The Patent Department.
Q. The Patent Department. How about those who are
non-patent, how many do you have?
A. My numbers aren’t going to quite match. About 8 of
them.
Q. Okay. Are yow an officer or a secertary, which in-
cludes officer, or general counsel by election or appoint-
ment of any of the subsidiaries?
A. I am an officer of some—of a few of the subsidiaries.
Q. The domestically based, or the foreign subsidiaries?
A. Both.
Q. Do you draw your salary solely from the parent
Company here, or do you draw a salary from some of the
subsidiaries?
A. My paycheck comes from the parent Company. I am
not sure how the allocations are made within the affiliated
company.
Q. Or whether there are allocations?
A. Or whether there are allocations, of course.
Q. Do any of the foreign subsidiaries have lawyers on
their staff? :
A. I think it is important that none of our subsidiaries
have a General Counsel.
102a
Q. Do any of them have lawyers on their staff?
A. None of our foreign subsidiaries would have lawyers.
One of our U.S. Corporations does have lawyers, one of
our U.S. subsidiaries does have lawyers on its staff.
Q. Which U.S. subsidiary is that?
A. Upjohn International, Inc., I believe.
Q. Upjohn International, Inc. I have seen references also
to the International Division of Upjohn; is that the same
thing?
A. International Division is not a precise term, and
International, Inc., would be a part of the International
Division, but so would lots of other things.
Q. But International, Inc., has lawyers on its staff, is
that correct?
A. Yes.
Q. Though none of them have been titled ‘‘General
Counsel,’’ is that correct?
A. That’s correct.
Q. Actually it was out of the International, Inc., wasn’t
it, that you got the first inclination of these or the first
indication of these questionable payments?
A. Yes.
Q. How did you first get notice of the questionable
payments? Who brought it to your attention?
A. Our outside accounting firm.
Q. Which had been engaged in an audit in a foreign
country?
A. Yes.
Q. Did they bring it directly to your attention, or did
they bring it to the attention of someone else within
Upjohn Company?
A. They brought it to my estentinn as well as some
other individuals in Upjohn.
Q. In Upjohn International first, and then to you?
If you don’t remember, that is fine.
A. I am not sure. It all happened within a few days.
103a
Q. Within a few days. And this was sometime in January
of ’76?
A. 776.
Q). That you first got word of this, is that right?
A. Yes.
Q. What immediate step did you take when you first got
word of this?
A. I consulted with outside counsel. I discussed the prob-
lem with the Chairman of our Board.
Q. You discussed the problem first with the Chairman
of the Board, and then with outside counsel, or vice versa?
A. Almost simultaneously.
Q. You can’t remember the sequence?
A. No.
Q. Is that correct?
A. Yes.
Q. What outside counsel did you go to?
A. Initially I went to Temko of Covington and Burling.
Q. Why did you go to Mr. Temko of Covington and
Burling, what was his particular specialty?
He was an SEC lawyer, wasn’t he?
A. No, he really isn’t. He is an attorney in a very good
firm, whom I have known for a long time and have a high
regard for his general good judgment. And I think I sus-
pected that even though he himself was not a specialist in
these areas, that his partners would be.
And these areas, you meant the area of SEC?
Yes.
Was that on your mind when you went to him?
SEC was one of the things, of course.
What else was on your mind?
Tax problems, a possible problem in foreign coun-
tries, evasion of foreign laws, possible currency restrictions
—there were really a whole string of legal problems that
flow out of these——
POPOPO
104a
Q. But the one that you had paramount in your mind
was SEC when you went to see Mr. Temko?
A. No, I think the primary thing in my mind was the
whole problem growing out of a company doing these kind
of things, and I think I continued to think of it in terms
of that kind of a problem.
Q. All right. But when you went to see Mr. Temko, what
suggestions were there then of the SEC problems that were
entailed by this discovery?
A. Well, I think in talking with him and his partners,
and in view of the publicity about other companies, it ap-
peared that in order of time the SEC problem might be
first, because we obviously have an obligation to disclose
to the SEC and our stockholders anything that is impor-
tant.
Q. The publicity in the newspapers and elsewhere and
talk about other companies dealt with what aspect of the
SEC and its program with respect to these items?
A. The disclosure the companies were making to the
SEC, and hence to the public.
Q. And they were making them, were they not, under
some sort of assurance or suggestion from the SEC that
if you came clean, while you wouldn’t get immunity, you
might be well treated?
A. That’s correct.
Q. So when you started this investigation, in a sense,
and went to see Mr. Temko, it was with the understanding,
was it not, that there was going to be a disclosure to the
SEC?
A. Oh, not at all. I had no idea at this time that the
problem was great enough to require an SEC disclosure.
Q. Well, you had enough of an inclination or enough of
an indication to know that if you ascertained a larger prob-
lem you were going to have to disclose it to the SEC;
didn’t you know enough at that time to know it?
A. At that time I certainly did not know enough to know
that an SEC disclosure would be required. And I think
105a
to be quite candid, we were hopeful that we would not
have to make a disclosure.
Q. Why were you hopeful that you would not have to—
you were hopeful what, that one episode would not be
enough to justify a disclosure?
A. Yes. It was an isolated uncontrolled incident.
Q. But you were certainly going to say if you found out
a large series of questionable payments, some of which you
have candidly suggested might well be illegal, you were
going to have to make a disclosure, weren’t you? You in-
tended to make a disclosure, you wanted to come clean,
didn’t you, with the SEC?
_ A. Well, no; we wanted to get the information on which
‘I would make the decision whether there would be a dis-
closure, what kind there would, how it would be made—all
those things.
Q. All right. In January, early January of 1976, you
ascertained, you learned of this for the first time, and in
March of 1976 you had completed enough of your investi-
gation to have made a disclosure to the SEC, is that
correct?
A. Could I just expand on that a little bit?
Q. Well, answer it first. You had completed your investi-
gation sufficiently to enable you to make a disclosure to
the SEC; you did make a disclosure, didn’t you, in March
of ’76?
A. Is that the question?
Q. Yes.
A. Did I make a disclosure?
Q. Well, did the Company make a disclosure?
A. Yes, we did. It is a matter of record.
Q. Okay.
A. I guess that is why I don’t follow your question.
Q. Well, possibly the question was a little broad.
In January you started your investigation, correct?
A. Yes.
106a
Q. And in March you had made your disclosure to the
SEC?
A. In March we made a disclosure to the SEC.
Q. Are you suggesting also you had to make a subse-
quent disclosure to the SEC, is that why you were hesi-
tating when you answered my question?
A. Well, there are a couple of parts and reasons for my
hesitation: One is that shortly before we made the dis-
closure, we had enough information so that on the basis
of that information we, I, together with outside counsel,
determined that that information, under the SEC law,
required a disclosure.
The second reason for my hesitancy is that we were very
careful in that February—or, that March disclosure to tell
the public and the SEC that we were continuing to gather
information, and that this was not to be read as the final—
we didn’t want people to think this was the end when we
knew it wasn’t.
Q. And so you filed an 8-K in March of ’76, correct?
A. That’s right.
Q. And in July of ’76 you filed an amendment to the
8-K, is that correct?
A. That’s correct.
Q. And in March—and the July 8-K actually increased
the amount of the questionable payments over those which
had been reported in March of ’76, correct?
A. Correct. The March one implied there would be a
later one, but it wasn’t coming through.
Q. And you carried through with your disclosure prom-
ise in July of 76, is that correct?
A. Yes, sir.
Q. All right. And at—and almost simultaneously in
March, you forwarded a copy of that disclosure, 8-K, to
the Internal Revenue Service, or at least the Company did,
did it not?
A. That’s right.
107a
Q. Actually you didn’t send that information as General
Counsel of the Company, did you? Who did?
A. I certainly approved sending it. I can’t remember
who actually mailed it.
Didn’t I mail it?
Mr. Fink: Did he, Mr. Nath?
I think I did. It is a detail.
Yes, it is a detail. I am not sure Mr. Ludlow didn’t.
He may have.
Yes.
I may have instructed him.
Yes.
Mr. Fink: You have seen this letter. I might as well put
it in the record.
(Mr. Fink handed Mr. Roberts a letter.)
Mr. Fink: I am not sure that we have marked anything,
really, your Honor, as an Exhibit, though we have referred
to various things, which I am assuming——
OPOor>o>
The Magistrate: You haven’t, but I have got a note here
when this is all over to determine what you want in as Exhi-
bits on both sides.
Mr. Fink: All right. Well, I had assumed, though, we
made reference to the Summons which was attached to the
Petition, that that certainly should be an Exhibit. It is an
Exhibit in the sense of being in the pleadings.
I also assumed that the items attached to Mr. Thomas’
affidavit that we made reference to, if we have it all, would
be—suppose I just give this a number, Petitioner’s 1.
Should we——
The Magistrate: Hand it to the Reporter. He will mark
it for you.
Mr. Fink: Should we mark it as Petitioner’s 1, your
Honor, and then add some of the others later?
108a
The Magistrate: All right.
Mr. Fink: I had, frankly, assumed, and perhaps before
I rested, offered some of the evidence.
The Magistrate: We are not going to be that technical
about it. If we stop talking, the Reporter can mark it as
an Exhibit.
(Petitioners’ Exhibit Number 1 was marked for
identification. )
Mr. Roberts: No objection.
Mr. Fink: We offer, then, Petitioners’ Exhibit Number
1, then——
Mr. Roberts: No objection.
The Magistrate: It is admitted.
(Petitioners’ Exhibit Number 1 was offered and
received in evidence. )
Mr. Fink: —at this time, solely for the purpose of show-
ing that Mr. Ludlow forwarded on to the Internal Revenue
Service——
Q. Who is Mr. Ludlow?
A. He is the Treasurer of the Company.
Q. Treasurer of the Company. All right.
Now this investigation that you conducted, between learn-
ing of this episode in January of ’76 and making your
initial report to the Securities and Exchange Commission,
was conducted by you, is that correct?
A. Under my direction.
Q. All right. Who actually assisted you in that investi-
gation? You have said yourself and outside counsel. Let’s
start with internal people. Yourself and who else, between
those two guys?
A. I am just—I get confused because it’s been going so
long.
109a
Q. I see.
A. My impression is that in the first two months, no one
else inside the Company, no other employee assisted me
except perhaps my secretary may have done some things
like that.
Q. I understand. And when you said outside counsel
aided you, are you referring to Mr. Temko’s firm, Coving-
ton and Burling?
A. Yes. And, in fact, they assisted me a great deal, and
some of the interviews were conducted by Mr. Temko, a
partner in that firm, and Mr. Johnson, an associate in that
firm.
Q. Those were the two individuals within that firm who
assisted you, is that correct?
A. I also consulted with other members of the firm, but
in terms of gathering information, they were the two men
who assisted me.
Q. I am now concentrating solely on the factual gather-
ing.
A. Yes.
(. And you indicate some uncertainty as to whether or
not they had conducted any face-to-face interviews or tele-
phone interviews?
A. Oh, they certainly interviewed some of the—when I
say I interviewed 85 people, some of those people were
interviewed by them rather than by me. I was only hesi-
tating because I can’t remember whether they did any by
phone. I think not. I think they did it all on a face-to-face
basis.
Q. Did they go abroad with you, or on their own?
A. They did not go abroad. However, I think another
attorney did make a trip to one foreign country.
Q. Another attorney from Covington and Burling?
A. No. From Lee, Toomey and Kent, our tax counsel.
"Ox,
110a
Q. When did you get Lee, Toomey and Kent involved
in this investigation?
A. They are our general tax counsel, and of course they
are advised at the very—as soon as we realized this had
tax implications.
Q. Yes, but my original recollection of your testimony,
Mr. Thomas, is when you approached Mr. Temko, you had
numerous ideas in mind, one of which was taxes; you didn’t
go see your tax counsel at that time, did you?
A. I am sure we did within a day or hours of the same
time. )
Q. A day or hours of that approach of yours to Mr.
Temko?
A. Please give me the question again. I guess I am trying
to anticipate it, and I am confused.
Q. All right. In January of ’76 you learned that an
episode had taken place which suggested to you the possi-
bility of questionable payments by the Upjohn Company’s
subsidiary, is that correct?
A. Yes.
Q. You said your immediate action after consultation
with the Chairman or perhaps simultaneously with con-
sultation with the Chairman of the Board was to go to see
Mr. Temko of Covington and Burling?
A. That’s right.
Q. Did you go to see him in Washington, D.C.?
A. I talked to him on the phone and I visited him in
4 Washington. Both.
Q. Did you on that same trip to Washington go to Lee,
Toomey and Kent, or do you really remember?
A. I am quite certain we contacted Lee, Toomey and
Kent within a matter of days. I think on the first trip to
Covington and Burling, we visited only at Covington and
Burling.
Q. And you turned over or you turned for assistance in
this factual investigation to Temko, Mr. Temko and his
firm only, is that correct?
A. I am hesitating because I tend to consult with several
outside counsel. In this case it is true that for assistance
llla
in gathering the information I turned primarily to them.
Hlowever, I don’t want to leave the impression with you
that I consulted only with them. Specifically we consulted
with Lee, Toomey and Kent, who are our tax lawyers.
And, in faet, Covington and Burling are not generally our
SEC lawyers, but Mr. Larry Koerber of McDermott, Will
and Emery is our tax lawyer—I mean, our SEC lawyer,
and we consulted with him pretty early on, although I don’t
remember the date.
Q. All right. So as best we are able to recollect now, the
factual investigation leading down to the disclosure in
March of ’76 was conducted by you, Mr. Temko, and one
associate from his law firm, is that correct?
A. That is correct.
Q. They did not, however, travel abroad; only you did,
is that right?
A. That’s correct.
Q. So the interviews they conducted were of people here,
is that it, in this country?
A. They were of people in this country, but I think it’s
important to put on the record that during this period
between January and July, many of our foreign-based
employees were in Kalamazoo, and as they came to Kala-
mazoo, we interviewed them. We were anxious to get all
the information we could.
Q). And you sent out the questionnaire which is attached
to the affdavit that has been filed with the Court as a
pleading on your behalf, that is Exhibit 3 to your affidavit,
which is on file with the Court, is that correct; do you
know the document I am referring to?
A. Yes, I do.
Q. That is the questionnaire we have referred to, to
which you received the answers?
A. Yes.
Q. That letter went out over the signature of the Chair-
man of the Board, Mr. Parfet, is that correct?
A. Yes.
1l2a
Q. And you got responses to that from the people you
had selected?
A. Yes.
Q. How good were the responses coming in, how fast
were they responding?
A. Very promptly, considering these people were over-
seas. This was tough information to gather, by and large.
In view of a letter from the Chairman, they responded
quickly.
Q. And you followed up some of those questionnaire
responses with telephone interviews, is that correct? Were
they complete when they came in, most of them?
A. Most of them.
Q. Did you have to call some of them up and say you
have left something out or you haven’t covered this ade-
quately or what is this all about?
A. Yes.
Q. And of those, the so-called notes you were taking, is
that what you were doing?
A. Well, no. Some of my interviews were really unre-
lated to the questionnaire. Some of my interviews were to
round out the questionnaire, or the man is a Philippino
and I don’t understand, he doesn’t write English very
well. And, so, for instance—I don’t like to refer to specific
countries. I shouldn’t do that—but, for instance, if the
man who sent the questionnaire was in in a month, I would
sit down and talk to him about it.
_ And so the interviews were both to round out the ques-
tionnaire, but some of the interviews were unconnected
with the questionnaire.
Q. Now without pinpointing any given country, did any
of the responses indicate that the individual responding
had himself been a participant in one of these questionable
payments?
A. Certainly by inference, and in most cases—in many
cases the man had either been a participant or was imme-
diately associated with the participant, perhaps as his boss.
So, the answer is yes.
1l3a
Q. He might have approved of the action, et cetera?
A. And he might even have done it, yes.
Q. In other instances they were merely reporting what
they had learned as a result of their own investigation
prompted by your questionnaire, is that right or wrong?
A. That would have been more apt to have happened in
the larger subsidiaries.
Q. Do you think it did happen in your perusal of ques-
tionnaires?
A. Some of the information and some of the replies was
based on—were based on conversations—was information
from people other than the one person to whom the ques-
tionnaire was directed.
Q. You said at an earlier point in this proceeding while
you were a spectator rather than a witness that you don’t
know whether the people responding kept copies of what
they sent in.
A. That’s right.
Q. Were they instructed not to keep copies in any way?
A. I believe they received no instructions on this one
way or the other.
Q. So they may well have copies or it is conceivable they
do not, is that correct?
A. Exactly.
Q. Was anyone to whom you sent a questionnaire not
even an employee of the Corporation at the time you sent
the questionnaire to them?
A. No.
Q. I hand you a document which has not been marked
for identification but is a foreign payments interview list,
attached to the affidavit of Gerard Thomas, which is on
file in this matter.
Mr. Fink: May I approach the witness, your Honor?
The Magistrate: Sure.
ll4a
Q. Which says on page 5 at the asterisk: ‘‘Where em-
ployment has terminated, the termination date is indi-
cated.”’
Now is this a list of the questionnaire people?
A. No.
Mr. Roberts
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