Memorandum to Elting Arnold from S. Chafkin

September 10, 1951 Mr. Arnold S. Chafkin Commerce International China, Inc. In accordance with your oral request made September 5, 1951, the following is the information I am able to recall acquiring on Formosa last year about Commerce International China, Inc. (C.I.C.). I was on Formosa from e arly August to early October 1950 on temporary assignment to the ECA China Mission. Mr. A1 Swing, then administrative officer of the ECA mission told me that he had heard that C.E.C "was cloaking assets in the U.S. for the Chinese". A source I do not r ecall told me that Admiral Cooke, USN, retired, a military adviser to the Generalissimo, was also a consultant for C.I.C. An American businessman in Formosa trying to buy certain surplus goods from the Chinese Army told me on a confidential basis that C.I.C. proposed an arrangement involving a lower price for the goods than the businessman had quoted in direct dealings with the Chinese and a "kick- back" to C.I.C. The deal would be "fixed up" by C.D.C. with Chinese officials who were in a position to swing it. The businessman told me he rejected the C.I.C proposal on the grounds that he felt it to be highly improper and that he did not want to risk damaging his elations with the Chinese. In late September 1950, the State Department instructed the Embassy to investigate C.I.C in connection with its activities in rehabilitating surplus military equipment acquired by China from the U.S. under the Surplus Property Agreement of 1946. Under the Agreement, two accounts were established in the U.S. Treasury - one to financethe transportation of the surplus and the other to finance the rehabilitation of the surplus equipment. C.I.C at the time had the contract to repair the equipment and was paid by the funds in the second account mentioned above. The State Department had been advised that C.I.C. was repairing the equipment for its own purpose and profit rather than for China. This prompted the investigation. Mr. Dawson of the U.S. Embassy conducted the investigation and asked me to assist him informally when my other duties permitted. I was present at one interview between Mr. Dawson and Messrs. Cates and Gray of C.I.C. I also accompanied Mr. Dawson on an inspection of the rehabilitation yard in Kaohsuing where C.I.C. technicians were engaged in repairing a large amount of heavy equipment (earthmoving machinery, generators, etc.). C.I.C. according to my recollection of Mr. Cates' remarks, was paid out of a joint C.I.C.-B.0.S.E.Y. (Board of Supplies, Executive Yuan) account in the Bank of America, Los Angeles. This account was replenished