From: Burton I. Kaufman, The Oil Cartel Case: A Documentary Study of Antitrust Activity in the Cold War Era (Westport, CT: Greenwood Press, 1978), pp. 185-89.
SOURCE: Department of Justice File, 60-57-140.
The following is a brief review of the Oil Cartel case in which you have expressed particular interest. An accompanying classified memorandum discusses national defense considerations involved in the case, and the "Plaintiff's Statement of Claims" recently sent to the State and Defense Departments, for clearance prior to filing in Court, reviews the Government's cage against the three remaining defendants.
On November 14, 1960 consent judgments were entered in the case against Standard Oil Company (N.J.) (Jersey) and Gulf Oil Corporation (Gulf) as a result of negotiations which had been begun in 1957. These judgments enjoin the defendants from carrying on defined cartel activities abroad affecting United States foreign commerce (with a presumption of such effect if cartels should exist in three or more foreign countries at or about the same time), and enjoin joint marketing by defendants among themselves or with the two co-conspirators, British Petroleum Company Limited and Royal Dutch Shell, subject to particular exceptions. Further, the Jersey judgment orders a separation of the assets of the giant Far Eastern joint marketing company, Standard Vacuum Oil Company (Stan Vac), between the two defendant partners, Jersey and Socony Mobil Oil Company, Inc. (Socony), and the judgment against Gulf provides that Gulf shall set aside 100,000 barrels a day of its Kuwait oil for the benefit of independent oil companies. The judgments specifically do not prohibit joint production, joint refining and joint transportation arrangements solely within one or more foreign countries.
The relief in this case as to these defendants, although very substantial, was limited by national defense considerations which are set out in the accompanying classified memorandum. It has been the view of the staff that from a purely antitrust standpoint, there should have been some divestiture of the maze of joint production, refining and transportation companies abroad among defendants and co-conspirators who control 85% of world oil reserves and production outside of the United States and the U.S.S.R. One such venture, Aramco in Saudi Arabia which has reserves in excess of the total in the United States, is owned by four of our five defendants.
The International Oil Cartel case involves the foreign activities for a 25-year period, of the so-called "International Oil Companies," including the five defendants, Jersey, Socony, Gulf, Texaco Inc. (Texaco) and Standard Oil Company of California (Socal) and the two foreign co-conspirators, British Petroleum Company Limited (BP), and the British-Dutch partnership of Royal Dutch Shell Group (Shell). The case, instituted in 1953, has had a stormy history. It has had periods of intensive activity and periods of relative inaction. Approximately 20 attorneys have been on the staff at one time or another. Congress has taken a great interest in the case and it has been considered many times by the National Security Council.
A grand jury investigation was begun in 1952 and was discontinued in 1953 because of national security considerations, the Justice Department press release at the time indicating that such action, together with the substitute action of filing a civil suit, had the approval of both the then incoming and outgoing Administrations. From the beginning, questions of national security concerning the maintenance of free world oil supplies have affected the progress of this case-to the extent even that a special Screening Committee composed of representatives of the Departments of State, Defense and Justice, and the Central Intelligence Agency screen all documents for national security aspects prior to filing with the Court or introduction into evidence. All documents produced in the case have been treated as classified under an informal understanding entered into prior to my connection with the case.
Discovery in the civil case has been a long, involved process since no documents were produced in the grand jury investigation. Voluntary arrangements as to document production by the defendants, which were in effect up to 1956, resulted in a flood of documents--over 100,000--covering all phases of the defendants' foreign oil business. The defendants resisted all along the way efforts of the Government to obtain discovery from the files of their foreign subsidiaries, but after extensive argument, the Court in 1958 required the defendants to furnish answers to the Government's interrogatories, including information from their foreign files, and in 1959 required the defendants to furnish documents from tneir foreign files. Discovery was further complicated by representations from foreign governments with respect to the case and to discovery therein, both on jurisdictional and national security grounds. Finally, compliance with these orders was obtained with the principal exceptions of England, France and the Netherlands. Unfortunately, our present documents indicate that very significant evidence is probably located in those countries.
After the retirement of Judge Leibell, to whom the case was first assigned, we had great difficulty in obtaining another Judge to hear the case for all purposes. We applied informally to Judge Clark, Chief Judge of the Second Circuit, for an Expediting Court to hear the case but there was so much opposition to this from the Chief Judge of the Southern District that the idea was dropped. The case was finally assigned to Judge Cashin in January, 1958. Although the case has not yet reached the stage of actual trial, the pre-trial proceedings have been long and extensive and the record is already voluminous. The defendants have put on distinguished experts on foreign law. While we ultimately prevailed as to foreign discovery, we were checkmated by the action of the British, French and Dutch Governments in refusing to allow documents to be taken out of those countries.
The case, for all practical purposes, was suspended for two periods of a year or more each time for national emergency reasons. The Iranian crisis was resolved after a Consortium for production and refining in Iran was formed by the same oil companies involved in the case together with CFP, a large French company, and a minority interest which was given to a number of smaller American companies at our instance. The Consortium was sponsored by the State Department, and Attorney General Brownell gave a qualified opinion as to its legality. While the opinion reserved all rights to prosecute this case, it obviously had an effect upon possible relief in the case with respect to joint production, refining and transportation companies abroad. In the Suez crisis, the Middle East Emergency Committee, a Subcommittee of the Foreign Petroleum Supply Committee, was set up under a Plan of Action requested by the President of the member oil companies (including principally the defendants and co-conspirators in this case) pursuant to the Defense Production Act which provides for antitrust immunity as to such programs. The emergency plan resulting in the Middle East Emergency Committee was approved by the Attorney General also pursuant to the Defense Production Act.
Judge Cashin has pressed for settlement of this case since the time the case was assigned to him. He has repeatedly mentioned the possible repercussions of a trial on our relations with foreign governments, particularly in the Middle East and Venezuela. He has attempted to shift this burden to the State Department but has been rather unsuccessful in this. For example, that Department in a letter for the Court stated that the foreign relations impact of our foreign discovery was speculative. State, however, has pressed us to settle the case. At the present time, none of the remaining defendants has made any move to settle despite Judge Cashin's urging them to do so.
We may be limited as a practical matter by the Jersey and Gulf judgments to similar relief against the other defendants since Jersey was the principal American party in the conspiracy. Similar relief would involve breaking up the world-wide Texaco-Socal joint marketing company, Caltex. In a complete reversal of its position since the case started, Texaco General Counsel, John Dorwin, last December indicated that Texaco was ready to agree to this, but that Socal would not agree. Socony having already agreed to the breakup of StanVac, and contending that it is now abiding by the standards of action in the other judgments, apparently would have little to lose by going along with the same relief contained in the Jersey judgment.
The defendants have argued that the Oil Import Controls imposed in 1959 have rendered the case moot since imports of oil are now entirely controlled by the Government. The controls certainly make our case more difficult from a practical standpoint, but legally this position is, I believe, without merit. Controls imposed by the Governments are quite different from controls exercised by private parties. Moreover, the Import Controls do not purport to regulate price and we charge price fixing. The conspiracy also relates to foreign markets as well as United States imports. It should be pointed out that five defendants and Shell, a coconspirator in the case, have a preponderant share of the quotas under the import controls, which to a large extent are based on historical position. The same companies are prominent in the Government's Foreign Petroleum Supply Committee and in the Military Petroleum Advisory Board.
In our proposed Statement of Claims, we refer to a good deal of our best evidence.
The Statement will undoubtedly be of great interest to Congressional Committees
and to a treble damage plaintiff in an action in New York (Waldron v. Anglo-Iranian
Oil Company et al.) unless it should be sealed at the insistence of the
defendants or perhaps of the State Department.
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