Alleged political pressure to obtain export licenses for crude oil, failure by the Department of Commerce and the Federa...


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Alleged political pressure to obtain export licenses for crude oil, failure by the Department of Commerce and the Federal Energy Administration to implement congressional policies
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United States -- Congress. -- House. -- Committee on Interstate and Foreign Commerce. -- Subcommittee on Oversight and Investigations
U.S. Govt. Print. Off. ( Washington )
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aleph - 025956841
oclc - 02493111
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BY T11






HARLEY O. STAGGERS, West Virginia, Chiarman
TORBERT H. MACDONALD, Massachusetts SAMUEL L. DEVINE, Ohio JOHN E. MOSS, California JAMES T. BROYHILL, North Carolina
JOHN D. DINGELL, Michigan TIM L 'CA RTER, Kentucky
FRED B. ROONEY, Pennsylvania JAMES M. COLLINS, Texas
W. E. WILLIAMSON, Clerk KEN-NETH J. PAINTER, Assistant Clerk


JOHN E. MOSS, California, Chairman RICHARD L. OTTINGER, New York JAMES M. COLLINS, Texas
JAMES I. SCHEUER, New York (ex officio)
HENRY A. WAXMAN, California PHILIP R. SHARP, Indiana ANDREW MAGUIRE, New Jersey HARLEY O. STAGGERS, West Virginia (ex oficio)
MICHAEL R. LEMOV, Chief Counsel CAROL FORTI, Special Assistant BENJAMIN M. SMETHURST, Special Assistant TOM GREENE, Counse to th Chairman BETTY EASTMAN, Staff Assistant EATHER HIGGINBOTHAM, Staff Assitant MARTY GORHAM, Staff A8itant


Wakington, D.C., March 4,197G.
Chara, Committee on Interstate and Foreign Commierce, U.S. House of Representatives, Washington, D.C.
hittingg herewith- a Report of the Subcommittee on Oversihtandh tions regarding the allegations that Governor
C y, while he was a Coman, applied pressure on the Connerc& Department and the Federal Energy Office to approve expot lcenes hatbenfited -his. brother, an oil rfner/distr'ibutor.
Thestar ivesigaionfoud. o evidence to support allegations -of

cocudes that corporate speculation and rumor concerin .g CongressmnCarey's involvement were elevated to fact by their incorporation ingvernment memoranda and that FEA officials compounded the e by repeating the allegations about Carey's involvement to the s established fact.
The export licenses in question were granted te Commerce Department was negligent in failing to develop adequate regulations to implement provisions of the Emergency Petroleumn Allocation Act rto exports of crude oil. By December 7, 193, theD oroe had accepted the responsibility for initiating a system of eprt control ... to fulfill the President's rsoibility under
,Emergency Petroleum Alloction Act, of 1973'.' Although then Secrtaryof Commerce" TDent in -a letter to William Simon dated DeCobr 10, 1973, stated that the regulations "will fulfill in toto the export controls reqired ky~the Eme~rgency Petroleiu Allocation Act," the December 13, 1973 regulations did not address the mandate of Section 4(b) (1) (E) of EPAA; eating to maiximum use of U.S. refiner f ac o Section 4f(b) (1j (1?), relating to equitable prices. In fcreapity s relcth he friandat# of $e4,tion 4 provisins of theEmegeny -Petolem Aloction A'ct were not issued, -until April. 18, 1974-four months -fter the date required by the Act anid after four export licenses had -been granted, resulting in a windfall of about $8
milon for the exporter and higher prices _to American consumers.
Th report concludes that there was a serious lack of coordination betwe PEG and Commrce as to wha policy~ -should be followed w regulations shQJd b devised to ca t the intent of Congres inenacingthe merencyPetoleu Alocation Act. It concludes further that Comec' ayt .-f expr control was deficient
in ailng o dtec an hat Camtrlan'sexprtsof crude oil at 2%/-,
tmsthe cnrleprcwhndmsi eiireweeorangat

TeSubomittee will betrasing this Reotto terlvn

taentoaid such, problems in the future.
Sy E.

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I.~ 1 SUMMARY__T-i investigation was initiatdus a result of press accounts appearing i Jue-ul 1975, reporting that au Alabamna oilmanBr ChamberlainI adnolrfe/isrihutor, Edard Carey, benefitted financially during the Arab) embargo~, alle y through political pres.sue.Th Sbcmmttee's investigto foem soley on the alleged

Invetigaionby th~e Subvounitteer staff found flQ evidence. to suippor alegtinsof political pesre with respect to Congressman Cary-ow G*overnor Carey-~on beaf of. -his brother Edward. Raterthese licne wer grnted because of deficiences in the crude oil epot regulation promulgated by teDepartmuent of CoimrI. Sorlyafter the allgtos of political pressure'appeared in- the
.pres, haiman ohnE. ossof the Oversight and Investigat is
Subcmmiteesouht fom he ommrce Department and the FederilEnegy Administration (FEA) all relevant dociiunts and corresonenc rlatngto this matter uid directed the Subcommittee
staf toconuct a~n investigate. lIn a letter July 24. 19Th1 f rom tbe
Federal nery AminstrtorFranik Zarb and in a letter July3,
197 fomCommereecrtr Roes Morton, M.%r. MoswsatiA
tha al reevat dcumntsandcorespndence on this matter had
beentured ver o te Sbcomittee for purposes of its invesi.t 101
AssstntAttrey General Richar Thornburgh, moreover, in a letter
of uly30 asure Cairan os tht Cmmrce. and FEA hadI
tatd -vr copes of ll the maera which those aggecies hiad tranmitedto the* Jtistice Department~ for purpoe of its investigation.

Thi inI-stiatin eveope n eviece that Congres'smaa Carey exered oliica prssue tobaintl'ese export licenses. The first three
licnse wee seedly pprvedby he omerce Department bcue
inth eesofth, icnsngoficr ndthe reviewing ofcr, they mt

allth tchicl eqirmetsofexstngreultins Te (l1idi

The suggestion that political influence was used appears to have been planted in FEO investigator Robert Gossin's mind by the fragmentary in formation he was given by Charles Owens. Gossin's investigation can. at best, be termed inadequate. It consisted of verifying that the exports had in fact been made, two calls to Robert Wiese, a Gulf Vice President, who transmitted information from a source he no longer remembers that Congressman Carey had arranged the licenses, and a call to Robert Kan. Chief. Petroleum Licensing Unit, Office of Export Administration, Commerce, in which Gossin mistakenly assumed Carev's involvement.
Since the evidence did not support the allegations, the question remains as to who might have been motivated to spread such a story and for what purpose. Wiese said he passed on this information to Gossin because Gulf officials were concerned at the loss of lubricating oil Chamberlain's sales represented, and he felt that FEO might be able to block any future sales.
Neither was Charles Owens a detached observer of these events. VWilliam von Raab. Special Assistant to former Deputy Administrator. John Sawhill, told staff investigators that Owens repeatedly represented the interests of independents-Amerada Hess among themin FEA matters. Leon Hess' refinery in the Virgin Islands is the principal competitor of Edward Carey's Bahamas refinery. BORCO. Fro approximately February 1974, Owens was instriumnental in developing the entitlements program of which Amerada Hess was a principal beneficiary among the independents as a "net seller" of entitlements Owens acknowledged to staff investigators that he has done some work for Hess since leaving FEO and setting up his own consulting firm and that he is interested in obtaining Hess as a client for his firm.
Of the three sources mentioned in Heller's story who alleged political pressure, two have been identified-Charles Owens and Robert Gossin. The third source, who furnished perhaps the most significant information-the person who allegedly personally received a call from Congressman Hugh Carey and wrote a memo for his files about the call-remains unidentified. Heller described this source as an ex-offcial of FEO who has left the Wasington area and is working in private indu-try. During the course of this investigation, the staff interviewed a number of individuals who fit this description. None admitted being the recipient of such a call and preparing a memo. In total, some thirty interviews were conducted by the Subcommittee staff in connection with this investigation. Most of these pers-ons were summoned to appear before the Federal Grand Jury. All denied that they were the source or even having seen such a memo. The memorandurm allegedly written by the source has never been found in FEO or FEA files. It is possible though unlikely. that Heller's source was never intervi ewed by the staff in connection with this investigation. It is also po-ible that the individual refused to repeat his allegations.
v ens and Gossin acknowledged that they were sources for Jean Ifeller, Owens admits that he initially told reporters that Gossin had per~nally received a call from Care which Gossin says flatIv is incorrect Owens later admitted his error. Jean Heller acknowledged sing the Owens and Gossin memoranda to corroborate her original t Ip.
Source : Federal Reg1iser. July 2, 1975, 30746.

are whchwould. eventually in comipetitioni with BORO 4ere
igioe'ide4* oweertha Co Nespaerreporter Jean Heller was

"'Th sped ithwhih te rt treelicense applications were ap'prvedbythe Comnmerce Department sgets that politicalpressure
W 'asunncesar. athrit pparstht tes licenses were granted
bec.%s' f efe'enies in the crude oil expor regulations promulgated
lafins 'eredefiien becuseCommrceoffcials~ at the highest levels
'fal(:i to"rinh-rte rcrlati6ns relik the mandate of congress
~g~ncyXPmt Allocationi Act.
Bohthe Alaska Pipeline Act and the Emergency Petroleuma Allob
Ac Iniedthe -xotof _dometic drd in order to lessen the
-imactf he ra oi ebaro.The Alsk Pipeline Act of 1973 lmted onl~y exports of crude oil hichhad bentransported y pipeocai tof 973hppiedto all domestl ally ~p 'ducecL oil. The
kiieh~greny Ptrleu Aloctin Act requred that exportreuain

b~edveoeidnistent owiih Seton (b) objctve of ithAcb

TiUFG ti erta he President's responsibility to issu, owolepr elts by

control regulations consistent with~ th Emergency Petroleum AllocationAct was delead dto2Connec rn.or about December 7,. 1973.
-On~~ Dw i'e 1, 1973, Cohmmer&e issued exot control regulations
T~lc- ef rncdonily te narrow li'ttio'nsof the Aaka'Ppl
Ad'. x 'ft o'ride oil other than tht 'which had been transpore
bV -,-ipei noQ-r~r aFeerl igt-f-aywere authorized. On the basis

1.Thre was no evidence to support alegratosha ngem

2. FO' ivetiatin f heorgialinformaion wasinadqae

&. EO ffiial copoudedtheerrr b reeatng lleatons


of the allegation against Carey. Had it conducted anything apoc
Adequate investigation, it would have determined h
awas based on rumor-not fact.
5. FEA never explored possible impropriety on the part of Owens as a result of his relationship with Leon Hess wh e, in the Virgin Islands is ill direct competition with Edwar Bahamas refinery.
6. This episode underscores the responsibility of the press to information received from sources who refuse to be id
may have ulterior motives in f urishing information to the r.
7. Commerce's system of export control was deficient in f
detect and halt C 's exports of crude oil at 21/ the,
controlled price and whl domestic refineries were operating at 76 percent capacity.
8. Commerce was negligent in filing to develop adequate tions to implement the provisions of the Emergency PetroleumA cation Act relating to exports of crude oil.
9. There was a serious lack of coordination between FEO an C merce as to what policy should be followed and what should be devised to carry out the intent of ng
Emergency Petroleum~ Allocation Act.
10. Comnmerce did not independently reform its de,'frcient epr
control regulationsbut only acted when prodded by FEO, w have been reacting to insy complaints.
11. Regulations refeting the mandate of EPAA were n until April 18, 1974, 4 months after the date required by th and after 4 export licenses had been granted in
of about $8 million to the exporter and higher prices to American consumers.
The June 22, 1975 issue The Wakhhtton Post carried astray by Jean Heller, Cox Newspapers, reporting that Alabama Bart Chamberlain and Edward Carey. President of Carey En Corporation and brother of New York Governor Hugh Carey, millions in profits in a secret oil deal at the height of the Arae in 1974. Heller reported that then-Congressman Hugh Carerppd pressure on the Commerce Department and the Federal Energy (FEO), predecessor to the Federal Energy Administration, toapprove the arrangement. According to Heller, the allegations were based on statements of three sources then employed by FEO who had personal knowledge of the case.
Between December 1973 and April 1974, the Commerce approved four export licenses for Chamberlain's company, CitroeleMobile Gathering Corporation, ,Mobile Alabama. to *11 nearly one million barrels of crude oil to the Bahamas Oil Refining Company (BORCO), Freeport, Babamas, which is 65 percent owned by Edward Carey, 35 percent by Standard Oil of California. The crude was refined mostly into fuel oil, imported by the New England Petroleum Company( NEPCO) of New York, also owned by Edward Care and retailed to area utilities, This occurred at a time when refineries In the United States were hard-pressed for crude oil, operating at 76 p of capacity, and the price of domestic crude was frozen at
$5.10 a barrel.

Agan, ccodin topres acoutsthe licenses enabled ChamberIM~nti'ruvn h rccn I~io crde FEC ffcold the,11 barels
of rud toCltwo~ reinr form r1,1,25 at anaeapieo

per arrl. TusChamerlinM sirfnoeienft thBRC
mehfr 1In turn tE 4 repoty sode r iid~ fuel oi ind

Is' w 2, 1974 w'egage y notwir~ clobe Federal neg Admins
trai~ (FA) te -ouces&Wko 'olle ht~i th no r niid

that woe itemoamfr of Chmfilein cocrin h ontact
Anohersouce eptely advis bed elrat, whlensoth te


In a follow-up stor-y the next day, Tolchin reported that "a FEO aide confidentially advised that between ecember- 197 March 1974, his office had received six to eight telephone cals fr members of Mr. Carey's Congressional office on behalf of the [application]." The former aide said that he had received two the calls himself, and that the remainder had been received by hjs col leagues. In another piece several days later, Toichin reported t 't~th former aide had revised the figure of six to eight calls to two to four calls.
Meanwhile, during this period, Governor Carey strongly den role in the oil deal. "Any such story is without foundation. It is a fabrication, it is a lie. I just never heard of the guy (Chamberlain). I wasn't involved," Carey told reporters. Carey sent a letter to Attorney General Edward Levi requesting a Justice Depatment invesigation and Levi agreed. The U.S. Attorney's office for the Southern District of New York handled this investigation and summoned-:a number of witnesses before a Federal Grand Jury. On February 25 1976, the Attorney General advised Governor Carey that the Department of Justice after "an extensive investigation ... covered no credible evidence to substantiate the allegations against you.""
Edward Carey also denied in the press that his brother had exerted political pressure to obtain the crude export licenses, terming the three sources of Heller's story as "congenital liars." He also that anyone from his company ever exerted any pressure on any gvernmental agency.
In a story on July 8. 1975, Martin Tolchin reported that Hugh Carey was on the payroll of his brother's company during the 14 yeai.ho served in Congress, receiving an annual salary of $10,000. Ased ,to comment, Governor Carey advised that he received the annual salary, a fact filed with the Clerk of the House of Representatives as a matter of public record as required by House Rules, by family agreement as a supplemental income.
Governor Carey testified before the Federal Grand Jury lastFall. In a press conference following that appearance, he stated that le had not made contacts or exerted any pressure in connection with the oil deal involving his brother, had not authorized anyone on his staf to do so, and did not believe that anyone on his staff would do so without his authorization or knowledge.

Following implementation of the oil embargo by the OPEC na-tions in October 1973, the Government took steps to regulate the export of petroleum and its products. Otherwise, foreign demand would re sult in an excessive drain on already scarce supplies in the Unite States and high-priced imports would have a serious inflationary impact on the domestic economy. To impose a complete embargo on all further exports of such materials, however, was apparently deem ed contrary to our foreign policy aims by the Executive Branch.
Accordingly, the Commerce Department, with the concurrenceof FEO and other agencies, amended the Export Administration Relations, effective December 13, 1973, and revised the Commodity -J ntrol List to require a validated license to export a number of petroleum products, including crude oil. With respect to crude, exports edid


be icesedduring the balance of 197 3 lin accordance with the Alaska Pieln Ac of Noeme 16 17 L935, whcgnral
proib td epotsof doestic produced crude Qil trasotdb ie
lineove Feeral $ights-Qf-way excerpt to the extent thiat such exports
wish the total quantity or quality of petroleum availabeto the United States. Licenses granted under the amended regulatons'Wuld be valid for -a period of 30 days f rom the date of -issuance. T er lations remained in effect until they were amended to re he Emergency Petroeum Allocation Act on April 18, 1974
Department of Commerce records reflect the following information:
(1) itronelle-Mobile Gathering company's initial application for license was field December 20, 1973, with the Commerce Dent's Office of Export Administration, for shipment of 2b s of crude oil to Grand Bahama Ptoleum Company,
ree Bhamas, a wholy-owned subsidiary of NEPCO, at $14
p brel and a total price of t,500,000. Grand Bahama Petroleum
Comanyowns a 6>5 percent partnership iner~ in BORCO,~ a refiner~y S Standard Oil of California owning the remaining
35 percent. he crude wa sold for refining by BORCO, primarily into
reiul fuel oil, for resale to NEPO land ultimate, sale to utilities on the United States Eastern seaboard including Coni Edisoni and LangIsland Lighting Company.
Th plication was approved December 21, 19 73, and validated
x license number C31226-701-1 was issued December 26. At the mquesto hamberlain's company, the application and license were hanledby Comrmerce on~ an expedited ba-sis so that arrangenments coldb made for getting a, -vessel to port on or about I)ocerm1r 29, prior to the preparation and mailing of the license. Ace~rdingIy, when the application was .approved, Commerce notifiedd ChamberThin's
attrne telephone.
On Janary(6 19?4, the applicant shipped 279,213 barrels of crude from Mobile to Fre ort o-the SS 'Lierty' Bell -under aufthority~ ofhe expr license. This was naly >30,000 barrels 'over~ the
quatit spcifedin the export licensee and resiilted~ ini the use of a'nothe ad larger vessel, necsiae by the unavailability of the shp riginally designated for shipment due to an accident. Under
exprt eguatinsa sippng.tolerance of 10 percent is allowed.

addtina qantity which Ws approe y Comrce on Janua 1.


Under the amended application approved January 18, the quantity was increased to 310,000 barrels in order to utilize the full capacity of the SS Liberty Bell. As it turned out, this vessel was not used: to transport the second shipment of crude. Instead, on January 22, 1974, the applicant shipped 254,641 bairels of crude from Mobile to Freport onl the SS Alexdandra Conway.
(3) The third application was filed February 22, 1974, approved February 25, and export license number C40226-70301 was issued February 26. This application called for shipment of 250,000 barrels of crude to the same consignee at $14 per barrel. On February 25, 1974. the applicant shipped 231,443 barrels of crude from Mobile to Freeport on the SS Gen Star.
Chamberlain's Washington counsel, C. Alexander Hewes, Jr., advised that during this period of the third application (late February 1974), he discussed with Robert Kan, Chief, Petroleum Licensiig Unit.. Office of Export Administration, the possibility of obtaining a one-year export license covering numerous shipments of crude oiL. Hewes and Chamberlain felt that since Commerce had been routinely and expeditiously approving the applications without objection, coIsiderable time and expense could be saved by all parties by fixin- the responsibilities and objectives on a long-term basis. No action ever resulted from these discussions.
On March 8. 1974, Robert Kan received a telephone c.ll from Robert Gossin, an FEO Compliance official, concerning a possible price violation against Citronelle-Mobile Gathering, Inc. Gossin requested and was furnished export license information concerning the export of crude reportedly iade by Citronelle-Mobile in Decem.nber 1973 and Janiiuary 1974 only, according to Gossin, since he was unaware of the third shipment in February 1974 at the time of his call to Kan.
Between the third and fourth application, the Arab oil embargo ended on March 17, 1974.
(4) On April 2, 1974, the fourth application was filed with the Office of Export Administration, this time by Citmoco Services, Inc., one of Chamberlain's companies. This application was for the shipment of 250,000 barrels of crude to the same consignee.
The information furnished by Gossin of FEO to Kan on March 8 gave Commerce cause to hold the fourth application. The applications was discussed at the April 3, 1974nmeeting of the Petroleum Products Exceptions Committee, comprised of representatives from Commerce and State Departments and FEO and established in February 1i974, as an adjunct to the Hxardship Committee. The Committee deiied the application on grounds that a "case was not made to the satisfaction of the Committee that this shipnwnt will not diminish the quality [and quantity] of petroleum in the United States."
Kan verbally notified Hewes of the pending rejection on April 3, and on April 4 prepared a formal "Notification of Rejection of Export License Application" advising Citmoco Services, Inc. of the denial for t lhe following reasons: (a) the fact that crude might be salable at higher prices outside the United States, which was the silent concomiant of the application, cannot be a factor in the exercise of adm inistrat ion discretion within an export control program, (b) the accompanying affidavit was not persuasive in demonstrating that the export wold not diminish the total quantity or quality of petroleum available to


wasno sowntht hecrd wa rw rnprted by pipeline over

'Teescomleedhi brefon prl 1, 974, ad thenext day, heawd
Chamerlan dsseth appictin matr with three Commere

recoroftheOficeof xprt dmnisraion, and Richard1 Hull, Gen-Camelan' rop atied t1a&t1 h rftsmnadeon tistransacton oul beploed ackinto develomn work in the. Citronelle
oilfild n laama Tey onened that as a-ulLtfthis increase in
prouctve apcit an i view of th fac -taalo tJhe petroleuwi
proucs efiedf ~m hi tansctonwoud be retredto thelUnited
States aproa ofthppliato woud inceas U.S. Supplyof encrue fromoter .S.copanes.Asa rsiatthey said the cpanv!1y's
stoa ,, tnk wee fllandit oul b neessrvto shut down their
proucn,,rfild arlak of storwe spaoSic the field is a a water
stanialpartL of the crude oil to the US. The storage syseol i

tendd~tat te Aask Piplin Ac,.wa noap i to the liense

.I~nforu d apan i dicateod th eatis hnd50ted brtreso cre wetouled locati fo Atwosucs.600bre~ rvou ucae


On April 12, 1974, Rauer Meyer and Richard Hull discussed this matter with Commerce Under Secretary Tabor. In addition to the above, they discussed the following points: that William Simon, FEO Admiistrator, was consulted about this application by his Assistant Administrator for Operations and Compliance, John Knubel. Simon recommended that it be denied on the grounds that the applicant had failed to demonstrate that the oil could not be refined domestically. This was relayed to Commerce by Knubel. Chamberlain stated that he lhad not sought to offer this oil to domestic refiners because from his peIonal knowledge of the petroleum industry, he was aware that no U.S. refinery could match the price of $14 per barrel offered by the Bahama Petroleum Company. Upon learning that the crude was not subject to the Alaska Pipeline Act restrictions, Meyer and Hull talked with Knubel and William Walker, FEO General Counsel, who agreed that the application might be granted if it were necessary to do so on legal grounds. Commerce was concerned, however, that this application. if granted, not constitute a precedent for further sizeable exports of crude when domestic refineries were operating at 76o of capacity. The point was also made that approval of the first three applications was granted on the basis of complete documrnentation certifying that all of the finished petroleum products were to be returned to the U.S. for use by east coast utilities and that export of this crude would not diminish the total quantity or quality of petroleum available to the United States.
Price was not considered by the Commerce Department in processing the three applications as Commerce Department officials did not believe price was within Commerce's area of responsibility.
Based on the above, Acting Secretary Tabor decided on April 12 that the application to export 250,000 barrels of crude should be approved to the extent of 184,000 barrels (subtracting the 96,000 barrels of Permian oil and adding 30,000 barrels of Miller oil). An approval rider would point out to the applicant that the rules would shortly be changed so that he should not treat this approval or any previous ones as precedents for the handling of future cases. In reaching this decision. Mr. Tabor was influenced by Hull's legal finding that Conmerce did not have the authority, as the rules were currently worded, to deny an application for the export of crude that was not subject to the provisions of the Alaska Pipeline Act.
Thus, the fourth application was approved on April 12, 1974, and export license number C40416-708-1 was issued on April 15. On May 26, 1974, Citmoco shipped 199,813 barrels of crude from Mobile to Freeport on a Liberian flag vessel.
On April 18, 1974, Commerce Department amended the export reguilations relating to crude oil, whether or not it was subject to the restrictions of the Alaska Pipeline Act. Generally, while exports of crude were to be licensed to reflect the policies of the Alaska Pipeline Act and the Emergency Petroleum Allocation Act, the revised regulations were designed to assure that any export of crude would be part of a transaction which would result in either (a) an interchange for an equal or greater quantity of crude, (b) in the case of crude not transported by pipeline over a Federal right-of-way, an exchange for an equivalent quantity of imported petroleum products under conditions which

withut is icuringsubstantial economic hardship.

Thefolowng nfomaionwasobad fromreview of Cmec
and EO/EA.recrds nd taf inerviws ithperonsinvolved in et.

oion, Lloyd Sci during a
telphoe cll in early 197t. Following th call, Owens gve Rbr
1Iiance specialist on his staff, a note containing the folAccrdngto Scweizr,Owens initiated the call to him arud v1974. Owens, eweizer said, asked if he knew crude was
beigepored.Scheizr said he told Owens there were rumors that
it as bt ha h. evr ndcaedthat it was bigdoneor by whom. He aidhe would, have no wa of known if political pressureha a ied. He said he did not -remember discussing BORCO or
Cwith Owens, but if Owens had raised them with him, he
woul hae had to say he did not know. Schweizer said he yeti~ r theames y political
kno unil e sw i inthenewpaprs hatpolitical pressure was suspeced.Scweiersaid he wa o in touch with any otier FEO official
onth mtter exetOwn.He sadhe hernumors that the crude
was ein exortd fomsnothe Gulf Vice President, Crude Oil De, parmet, obrt ieewho was resonibe for crude oil

didcal Wise n~to ocasons Duingth initial call, Wiese made

C~~~~~~ onrss ore.Acodn to ip ies ofdcrude ta


BORCO, but after that he would continue selling to Gulf. Gulfflicla were disturbed at the loss of lubricating oil, but they -only had a verbal agreement with Chamberlain-not a written contract.
Wiese said that someone outside of Gulf-he could not remember whom-mentioned "the possibility" of a New York Congressman playing a role in obtaining the export license and that he told Gossin that hle heard there was pressure from Congressman Carey. Wiese said he never asked the source what evidence there was of Carey's involvement and never has had any proof of it but decided it sounded logical and reasonable since BORCO is owned by Edward Oarey. He said he "could not believe then and cannot believe now that in a period when there was a shortage of oil and there was talk of gasoline rationing that export licenses could be obtained from the Commerce Department without someone questioning them or without someone greasing the skids." Claiming to have told Gossin only that he heard there was pressure from Congressman Carey, Wiese said he passed on this second-hand information because Gulf officials were concerned at the loss of the lubricating oil and thought FEO could help get it back. He acknowledged that he never had information-then or now-on where the alleged political pressure was applied. He advised that he never talked to Commeirce Department officials concerning this matter.
Gossin advised that following his conversations with Wiese, called Robert Kan, the reviewing officer for export license applications at Commerce to check on Chamberlain's export license. Gossin said he was circumspect and did not mention Congressman Carey's nam to Kan. Gossin merely inquired if there had been "congressional interest" in the matter, and Kan indicated there was. Gossin said he assumed Kan was referring to Congressman Carey, although no names were mentioned.
Robert Kan advised that he received a eall from Gossin on March 8, 1974, relating to a possible price Violation against Citronelle-Mobile Gathering, Inc. Gossin desired export license information condemning crude shipments allegedly made by this firm. Kan referred Gossin to the proper section to obtain this data. Kan advised he could not recall any inquiries by Gossin concerning Congressional interest i this matter. Kan stated it is possible Gossin may have made such an intquiry, but he could not recall it, nor does Kan's memorandum for the file, reporting Gossin's call, contain any reference to such an inquiry. Kan advised that to his knowledge neither Congressman Carey nor anyone from his office or on his behalf ever made any contact whatsoever min connection with this matter.
Gossin acknowledged that this was the extent of his investigation before he wrote a memorandum to his supervisor, Charles Owens, on Marich 12 that: "I have verified that the shipments were made under an export license granted by the U.S. Department of Commerce with a certification to the effect that the refined products would be returned to the United States. Additionally,- we have been advised that the crude was sold to Ed Carey of BORCO and that the export license was arranged for by Carey's brother, tRep. Hugh COarey of New York." On April 1, Charles Owens wrote a memorandum to Michael Hunter, Office of Op erations and Regulations, asking him for an IRS investigation. It included the sentence, "Reportedly, subject [Bart Chamber-

in] ryb and whneor licessewnty reussta c tof arey brother,

Jean~~~~~~pat ateneller'stb Coiartrwo rk the stoypiedta r

souce ske fr "wasguaane cnietat Joh Weleberw foner M'san Adnusrosi Regultiown Oprton, ndCom
police FE, ws t adiner par~yadiJedn tHlert t heSrinEO .of~h 194uggclaied hewano hller soulk with saere hdno nal (wh withhersce hat 0ine paWrty. Wraler (Geed hius l)r and

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was asked to, conductg tlan investigation t e fayFOofcaswrs
culpble) ChalesOns, Wia.o Wake (GenrlConsel afnhe
Joh Weebher.a~e~
Goss4 advied that Chae wens told reorters tovato Caie's
received, allfro Cary drecly.Gosi tate nereeied to
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brother, Edward M. Carey. The former aide said that between December 1973 and March 1974, his office had received six to eight telephone calls from members of Mir. Carey's Congressional office on behalf of the licensing. The former aide said that he had received two of the calls himself and that the remainder had been received by his colleagues."
After the article appeared, Venners said he called Tolchin and complained that Tolchin had misrepresented what he had said. Venners said that Tolchin told him that what he wrote was what he understood Venners to say. Tolchin advised Subcommittee investigators that his source was confident that what he described as happening actually happened. After the first article appeared reporting six to eight calls, the source said he was going to check his telephone logs but later told Tolehin he could not find them. Tolchin said he subsequently wrote an article reporting that the number of calls was not six to eight but two to four.
After seeing Tolchin's first article in print, Venners said he decided that things were getting out of hand and requested a meeting with FEA Administrator, Frank Zarb. FEO became FEA on June 27,1974. That meeting was held on June 28, 1975. Present were Zarb, General Counsel Robert Montgomery, and Deputy Counsel Douglas Robinson, who wrote a memorandum for the files on June 30. Venners told them that he remembered a phone call from a staff member in Congressman Carey's office. He said the individual simply asked how one obtained an export license for crude oil. Venners said he assigned one of his employees, probably Abigail Fell, to obtain the necessary information. He believed that Fell may have had a few additional telephone conversations with Congressman Carey's office before it was determined that a Mr. Jack Gaines in the Department of Commerce was the person who should be contacted. Venners said that to his knowledge the only inquiry made to FEO by Congressman Carey's office was the procedure for obtaining an export license.
Venners advised that he could not remember whether the call from Carey's office came from a male or female staff member and could not remember if the Office of Congressional Affairs called Carey's office back with the information or if Carey's office called back.
Mr. Gaines said he never had any contact with Congressman Carey or with anyone representing Congressman Carey.
Abigail Fell advised she had no recollection of an inquiry from Congressman Carey's office concerning how one obtained an export license for crude oil. She said she might well have worked on this and determined that Mr. Gaines in the Commerce Department was the proper person to contact and may have furnished this information to Carey's office, but she simply had no recollection of it. She pointed out that the Office of Congressional Affairs was virtually inundated with calls during the Arab embargo requesting information and any such call would have been handled like the others.
Martha Golden, Governor Carey's secretary, who held the same position when he was Congressman. advised she had no recollection of anyone on the Congressman's staff making an inquiry of FEO or Commierce. regarding how to obtain an export license for crude oil. She said that while it was possible that a staff employee may have made such a call, she doubted such a call was made since, in all probability,


sh would have been aware of it, and there had been no discussion in the ofice, or any pending matter, dealing with exports of crude oil.
a. The embargo period
On October 17, 1973, approximately 11/ months prior to the initial applition by Ctronelle-Mobile Gathering Co., Inc. (CITMOCO) for its first export license, the Arab embargo began. Imports of crude oil necessary tothe energy-intensive American economy fell from 3.7 million barrels per day in October to 3.4 million barrels per day in November. As the amounts of oil already committed to transport began toplunge, the quantity of imports shrank further. Imports in December averaged 2.9 million barrels per day while in January of 1974, after OPEC oil already "in the pipeline" had been largely exhausted, imports totaled 2.3 million barrels per day or a 37.8 percent decrease from October of 1973..
The Report of the Committee on Interstate and Foreign Commerce to accompany the bill H.R. 9861, the Emergency Petroleum Allocation Act of 1973 (P.L. 93-159), details the impact of these shortfalls. (See H. Rep. 93-531) Liquid petroleum gas necessary for crop drying and other agricltural operations was unavailable in many areas and, where it was available, prices had jumped 300 percent. Many school systems cold not obtain supplies of heating fuel. Some 2,000 independent retailers were forced out of business because of a shortage of gasoline to sell to the public. By late December 1973, the press began carryiTng stories on a new phenomenon in American life, the gasoline line. b. Congressional action
An immediate legiative response -was essential. On November 16, 197 the Alaska Pipeline Act (93-153) became law. This Act authorized construction of the Trans-Alaska pipeline necessary to Make available to American consumers Alaska's unportant petroleum .resources. Eleven days later on November 27, 1973, the Emergency Petroleum Allocation .ct of 1973 (P.L. 93-159) became law.
Both Acts addressed an obvious wealaness in Federal regulation of petroleum in a period of -substiantial short. supply-the unnecessary export of domestic crude oil. The, Alaska Pipeline Act amended section 28 of the Mineral Leasing Act of 1920 (30 U.S.C. 185) to prohibit the export of ". .. domestically produced crude oil transported by pipelie oer (Federal) rghts-of-ay . ." (emphasis added). Even this prohibition on exports of a limited class of domestic crude oil was further circumscribed by the-allowance of exemptions. Exports of oil could be authorized if (a) the export was to an adjacent country, (b) the transfor constituted part of an exchange of a similar quantity of crude oil or was exported and reimported into the U.S.. and (c) suchl export did not diminish the quantity or quality of petroleum available to domestic, comlmerce.:The Alaska, Pipeline Act was an important, though limited. first step in the regulation of petroleum exports.
The Emergency Petroleum Allocation Act of 1974 was and is more sweeping in its mandate. Representing the first comprehensive legrislative enactment dealing with the enemy crisis, the Act required in Sec-


tion 4(d) that "crude oil . produced . within the United States shall be totally allocated for use by ultimate users within the Uied States to the extent practicable and necessary to accomplish the objectives of subsection (b)." Section 4(b) mandated that regulations, to the maximum extent practicable, provide for, inter alia:
(A) protection of public health, safety and welfare ..;
(B) the allocation of... crude oil to refineries in the United States to permit such refineries to operate at full capacity (emphasis added);
(C) equitable distribution of crude oil . at eqitable pice (emphasis added) : .
The Administration worked closely with the Congress on the pr ovisions of this Act and Section 4(a) required the President to promulgate regulations, including Section 4 (d) regulations, "(not) later than fifteen days after the date of enactment of the Act" or by December 12, 1973. This was six days prior to Citmoco's initial license application and 14 days prior to approval of Citmoco's first application. c. Commerce Department analysis of the congressional enactments
The provisions of the Emergency Petroleum Allocation Act were. known by the Department of Commerce. In a memorandum dated December 5, 197i, the subject of which was "Authority to Impose Export Controls .. under the EPAA," to Secretary of Commerce Dent from Karl E. Bakke ,the Department's General Counsel, Mr. Bakke wrote: "On the basis of the authority contained in Section 4(d) and its legislative history, I have concluded that the President not only has the authority but is required to establish export control ol, ,rlude oil (emphasis added) .. ." The General Counsel's memo randum further notes in regard to the bill sent to the House by the Committee on Interstate and Foreign Commerce that the provision relating to export controls. a provision identical to section 4(d) of the Act except for the exclusion of lubricating oils. that "the Committee intended for the Pre.sident to have discretion to autlhorize exports. aslong as such exports are consistent with objectives of the Act emphasiss added)." It was also stated that "Section 4(a) of the Emergeny Petroleum Allocation Act of 1973 requires that regulations be pF0miulgated not later than fifteen days from enactment (Deceniber 12) .."
In light of the General Counsel's understanding of the letter and spirit of the Emergency Petroleum Allocation Act, it is surprising that his recommended method of meeting the Executive's obligations under the Act failed to include any consideration of the full use of domestic refinery capacity or maintenance of equitable prices. Rather than address and carry out the objectives of the Act, under Section 4(b), the GFeneral Counsel soveht to find support for the institution of a quota program based on 1972 export levels. Mr. Bakke based his argument in favor of such a program on the language in the Conference Report relating to domestic allocations and the "flexibility" granted the President by the Act. It is interesting to note that Mr. Bakke could not find a similar "flexibility" in the narrower -Aask Pipeline Act upon which to base an apparently preconceived Departmental program. Finally, the Bakke memorandum evinces strong reservations over the administrative procedures mandated by the Allocation Act (the procedures of the Economic Stabilization Act of 1970

-9115j)as the r'edue wvr01 les"fexible" and moebur.d-Pionzulatin f oil expiqt reguqation, by tk1 Department of

Pursuaa toEeutive QOrder 117~487 th Deatet4o Cqjmeee,

Emercy Perolum Alocation c o49 W" Se peni A alete o Scrtay Morton to9(ha na os ppni bi ee
graton as cnfiine by tje issuiance of ptrploun ex ort re gLio i.fl ly~ Cl-meee o Dceniler1,97(Ept Administration1Bulletin~ NT-. 16,EABOQ-IO6, 15 CFU,, 377) and FOregulations- dteieeriii- t Comerc with respect to expot controls oni Deember' 24,

In a. letter f roin then Secretary of Commerce Dent to William, 'Simon, dated D)ecember 10. 19731 thie Seceary stated~ that the regulIs~on'"wllfulfill in toto the export eonts required by the~ EmernevPetolem llocation Act." Ini fact, tbe Comre Depart-~
11mlfs ecmbr~ 13. 1973 rguhiaons effectivee Deceme 14~ 9h)
-vrrOi46dpuriin to the Expr Admnitrtion Act of 1%G49 (P.L.

requred y th EAA and uthotized~ any and allepis fctl
,oil not prohibited by the Alaska Pipeline Act. Thee regulations coiitaiednoreereceiot~Allocation Act'sA4(b) "iei. In paiticiilar.
-te embe-13, 1973 reglti
Set~-4~ (b) ()(),eating to mim u us of .S.refinerycapi
itV.or Scio 4 (b) (1)(F) relatingn rto equitablepr-cs
proisins f te Eergenvy Petrlem AlloainAcbyrn-inf
th t heexorernot olydeontrthtte cruide. was not and ill nk* e Importd ovr a ederl rghtof -way ad that t-he I icnse
willresn in o l ssitspply butita the exporter must first offer the

reiinri~ th tmewere opertig at about 76 pcenAt Capact n

inlaio.Itsh~ql be noted that ti rfon of the regwlatoso
t~wmadate of the~ EPAA Won tit-ts som 20 tineo in h
Codo-of Feer1 Reguilations, 1-5 CFR 377.6(d) (ii).

-that Citmoco was allowed to sell crud oil for 214 times the contrlld price.
However, even these flawed regulations were improperly udmiinisteimd. The first three license applications were approved without hesitation by the Petroleumii Section, Office of Export Admninistrat-ion
becaueaccording to Robert Kan, they met all the technical requirerint then on the books. But Subcomnmittee -analysis. of the first thive license apjplications and supporting documents supplied by the Dep-artinent of Commnerce indicates Commierce had insufficient dlati to deter-


mine whether all "technical" requirements had been met. Specifically, the documents relating to the first three applications contain no specific assertion by the applicant or Conmmnerce officials that the oil to be exported had not been transported by pipeline over Federal rights-ofway. Not until the fourth application (April 2, 1974) did Commerce request or receive an affidavit or other document from the applicant asserting that the oil to be exported was not subject to the provisions of the Alaska Pipeline Act. (This was confirmed by staff interviews. with officials of the Department of Commerce.)
Since such information was essential to a determination of compliance or non-compliance with regulations developed pursuant to the Alaska Pipeline Act. the failure to seek such information and the speed with which the applications were approved, a matter of a few days in each case, reflects superficial administration of even the limited December 13,1973 regulations.
f. Ref orm of Commerce Department oil export regulations
The Department of Commerce never independently initiated reform of its regulations to meet the requirements of the Emergency Petroleumni Allocation Act. Only when Robert Lan received a call from Robert Gossin that FEO was investicating Citmoco for possible violation of FEO price and allocation regulations did Commerce consider denying the fourth application and reconsider the appropriateness of its oil export regulations.
The fourth license application was discussed at two meetings of the Exceptions Committee. Ron Hoffman, who worked for John Knuble, Deputy Assistant Administrator for International Energy Affairs, was the FEO representative on that committee. He remembers twomeetings to discuss the fourth license application. Hoffman checked with Knuble who checked with FEO Administrator, William Simon.
The latter objected to the granting of the fourth license. Meanwhile,. Commerce's Assistant General Counsel for Domestic and International Business, Richard HIull, was also checking with FEO's General Counsel, William Walker, and FEO's legal opinion was that Commerce had no legal basis for denying the fourth application. The reason Commerce had no legal basis to deny the application was because the December 13, 1973 regulations implemented only the Alaska PipelineAct while ignoring the provisions of the Emergency Petroleum Allocation Act.
Ultimately, Commerce was forced to approve the fourth application. It then amended its regulations to reflect the mandate of the Emergency Petroleum Allocation Act of 1973 on April 18. 1974, four months after such regulations were required to be issued by the Act and some
4 months after the Act was signed into law by the President.


1Vsfington, D.C. December 10, 1973.
Hon.WILL~m $imoN,
Depuy Scr etaGry of the Treasury

SThis will confirm your decision of Friday afternoon directing that trtment of Commerce initiate a systeiu of export controls on petroleum pto fulfill the Presidents responsibility under "The Emergency Petroleum A tion Act of 1973."
Tadmiustrative procedures and avoid the necesity of publishing a sof rules for comment, we propose moving under the authority granted us the Export Control Act, but will fulfill in toto the export controls req b e Emergency Petroleum Allocation Act of 1973. In addition, the
Ane Act requires the restriction of domestically produced crude w h n transported by pipeline over Federal Rights of Way. We will
desin or sytemto f ulfill the requirements of this legislJation. also.
A have requested, we are currently developing the procedures under which
wplsh the control program and will review them with John Knubel bor initiating them.
Sneey yous
Secretary o1 Commerce.



~ Ra~ Wt~eeWhingta, D.

DIM I CHAIRMAN: Infurther repnse to your letter of June 23, 1975, re-qa report on the issuance by this Department of i for the export
oto a Bahams I am pl to provide the information set
As ou know, much of the information contained in this report is of a con-, inature, pu to S i 7(C) of the Export Administration Act of
givng heeclsed report confidential treatmet to the maximum extent psibl c i t w the purp for which you have requested this information.
Ro ziRs Motrrox,
Secretary, of Ciommerce.
In December 1973, at the request of, and in cooperation with, the Federal e, the export of crude oil and certain petrolem products from the
tes was placed under strict licensing control by this Departmnt. Athe sort suppy authrity (Secton 3(2) (a)) of the Export .din,Act of 1969, as amended and exeed, was used in initiating the cons t, order to simplify administratie procedures, the purpose of the
Stompet the provisions of the Alaskan Pipelie Act of Novem' 1 9 a e Emergency P troleum Allocation Act of November 27, 1973.
R ions publised on Dcember 13, 1973, iEx prt Administration
Blei N.10, which. provided that the Office of Export Administration would Spications for validated Ucense to export crude oil during 1973 to the
permssibe under the provisions of the Alaskan Pipeline Act, if it were dby the applicant that the proposed export would not dinish the ty or qualiy of petroleum available to the United States. TPis regulaton ascontiued until April 18, 1974, by subsequent Export Administration
Bulein.7he F'ederalReg 4fiecocre iu these .reguatiows.
T licenses were issued late in 1973 and early 1974 to Citronelle Mobile,
nc. ( itnioco) of mobile Alabama, authorizing the export of crude oil t Bahas. Each aplication for a license was supported by an affidavit
that all of the various petroleum products reflued from the crude oil u be returned to the United tates The Ofie of Export Administration was
satsfedthat the export of this crude petroleum would not diminish the total qq petroleum available to the United States.
Aohr apitonwas fled by Citmoco in early April 1974. During discussoswith 0E offiials, the latter noted that icese should not be issued for even th th con involved a return of ed products to the
U.S., s alicant dem ate that he had made every enable
effrt o ispseof the crude oil domestically.
TheappliantWa advised of this fact, whereupon attorneys for the appican sumitedevidence tht the oil wich was to be expre was not subjet to
theexprt estictonsof the Aakan Piplie Act. That Act is applicable to all
crue ol ometiall podiwl(whte or no in Alaska) whieli is tmfnqPr~
through pipelines crossing Federal rights-of-way. The crude oil produced inth


applicant's oil fields at Citronelle was transported some thirty miles to the port of exportation through a pipeline which did not cross any Federal rights-of-way. This highly unusual fact was fully documented by the plats of the pipeline submitted by the attorneys for the applicant. Moreover, the applicant indicated that in reliance on prior approvals of three licenses, it had allowed its storage tanks to fill up and it would be necessary to shutdown production at the Citronelle fields for lack of storage space unless the export under the fourth license application was authorized during the following days. In addition to the financial loss which such a shutdown would cause to the applicant, it was explained that because these fields were operated on a water recovery basis, a shutdown would result in a permanent loss of a substantial amount of crude to the United States.
Following discussions between Commerce and FEO lawyers, it was concluded that our regulations had not been drafted to cover this unique situation, the underlying assumption having been that all crude oil produced in the United States was transported through pipelines crossing some Federal rights-of-way. Most importantly, our regulations did not include a requirement that the applicant must have demonstrated that he had made every reasonable effort to dispose of the oil domestically.
For these reasons- it was decided, with the concurrence of FEO, to issue this fourth license and to amend our regulations so as to preclude the granting of any further licenses on these terms.
The export regulations were amended on April 18, 1975, to provide an additional licensing criterion; namely, that the exporter has made reasonable efforts to dispose of his crude oil domestically and that due to particular circumstances beyond his control, he cannot dispose of such crude oil domestically without incurring substantial economic hardship. A mere showing that there is an opportunity to sell at a higher price in a foreign market is not considered, by itself, to constitute an economic hardship.
No license for the export of crude oil has been issued since the regulations were changed. There are no applications for licenses pending before the Office of Export Administration at this time.
The specific questions raised in your letter of June 23, 1975 are dealt with below.
(a) Question. Were such licenses granted [to Mr. Bart Chamberlain (Citmoco) ] ?
Answer. As noted above, three licenses were issued to Mr. Chamberlain (Citmco) late in 1973 and early 1974, and a fourth license was issued to the same firm in April 1974. Subsequent to the issuance of that fourth license, the Department amended its regulations so as to preclude the issuance of any further licenses on the same terms, and none has been issued since.
(b) Question. What persons contacted the Department of Commerce or the Office of Export Administration in support of granting of the licenses? Answer. A search of the records of this Department revealed that the only persons who contacted this Department in connection with the first three license applications were: David M. Tappen, Vice-President of the applicant firm, Citronelle Mobile Gathering, Inc. (Citmoco) of Mobile, Alabama; C. Alexander HIewes. Jr., of Smith & Hewes, Attorneys-at-Law. Washington, D.C. representing Citmoco; and Wendy K. Mariner of Satterlee & Stephens, New York City.
Mr. Hewes was the principal contact with the Department in connection with these applications. While affidavits signed by Edward 31. Carey, President of New England Petroleum Co. (NEPCO), and Thomas C. Covert, Managing Director of Grand Bahama Petroleum Company Limited (Grand Bahama) are also contained in the file, they were submitted routinely in support of these applications-as required by our regulations-either by Citnoco or its attorneys.
In connection with the fourth license application, submitted by Citmoco in April 1974, the following persons contacted the Department: C. Alexander Hewes, Jr., Lewis H. Odom. Jr., and Hugh H. Smith, all of Odom, Smith & Hewes, Washington, D.C.; Bart Chamberlain, President and Chief Executive Officer of Citmoco.
Again, the person in principal contact with the Department was Mr. Hewes. Routine affidavits signed by David M. Taprpen, Edward M. Carey, and Alan S. Hoskins, Director and Treasurer of Grand Bahama, were also submitted by Citmoco or its attorneys in support of these applications-as required by Department of Commerce export regulations.

2 d 3

No eidecebas been disovred to date in Departmna records or the recollecios o is ffiias t idiatetht tenCo-resmnnow New York GovernCarey, or his staff, at any time interceded with Department of Commin connection with, or inquired about the status of, any of the m license applications. Moreover, the only connection with these applica-i J- Edward Carey, President of NEPCO, of which this Department is aware, was in the preparation of affidavits as to the intended processing in the Bahamas and return to the United States of the petroleum products to be refined from the
-crude-affidavits which were required by our regulations 'nd which were rmW submitted by Citmoco along with its license appcations.
(c) Question. What other licenses permitting the export of domestic crude oil have been granted since June 1, 1973?
Answer. No licenses, other than the four cited above, have been issued by this Dpatment for the export of crude petroleum since June 1, 1973. However, two ,other farms have been issued letter authorizations, in lieu of licenses, to export
-crude petroleum temporarily for convenience of transportation across parts of
-Canada in transit to a domestic United States refinery, all of the crude 1etroleum reentering the United States in the same form.


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