# Appendix — Upjohn Co. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2171%3A02 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1981 - **Citation:** 449 U.S. 383 ## Text | 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 go [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_2171%3A02. Public record. Not legal advice.