Improper Blocking of U.S. Funds by Office of Foreign Assets Control

ID-79-52: Published: Oct 4, 1979. Publicly Released: Oct 4, 1979.

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Before October 1973, the Department of Defense (DOD) supplied petroleum, oil, and lubricants to the Republic of Vietnam directly by open market purchases from major international suppliers out of appropriated funds under Defense Supply Agency contracts. When the Arab oil-producing countries embargoed the United States and other Western nations, a DOD plan for circumventing the embargo was established in conjunction with the three major Vietnam suppliers. Since Vietnam was not an embargoed country, the oil was to be purchased by means of an elaborate subterfuge whereby purchases were ostensibly made in the name of the Vietnam armed forces but were underwritten by U.S. Government funds in the form of prepayments to the oil companies. The Treasury checks were made payable to and endorsed by a Vietnamese bank, but the American bank from which it came never actually credited the money to the Vietnamese bank's account. Thus, the money was never paid to any public or private Vietnamese party. Although the prepayments were made to the oil companies for delivery of the oil, Vietnam fell when only a small percentage of the oil had actually been delivered. DOD requested that the three oil companies return the prepayments and two of the companies did. However the third refused to return $6,054,759.06, stating that it was not required to do so because Treasury had blocked the assets of Vietnam and the prepayments in question were interpreted as being included in the blocking.

The funds being held by the oil company were improperly blocked and were at all times the property of the United States. The facts demonstrated an absence of any Vietnamese interest in the moneys, and therefore, they should be returned to the U.S. government without further delay. No supplies for which the prepayments in question were made were ever delivered to the Vietnam armed forces. The scheme under which the funds came into the hands of the oil company was a mere sham designed to cloak U.S. financing of the transactions. The Vietnamese bank acted as a mere diversionary conduit, providing a means for transferring the funds from the U.S. Treasury to the suppliers. Furthermore, under Vietnamese law, such use of the moneys was legally impermissible.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Defense should: (1) investigate this matter and verify the information provided in the report; (2) request that Treasury unblock or license the release to the United States of the $6,054,759.06, plus accumulated interest; (3) make a formal demand on Esso Eastern for return of the moneys; and (4) refer the matter promptly to the Department of Justice for initiation of legal action to recover the funds for the U.S. Government.

    Agency Affected:

 

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