Number 3, February 11, 1965

A couple of weeks ago we commented on the financial dealings between Secretary Dillon's banking firm, Dillon, Read & Co., and the government of the Republic of South Africa. Intrigued by that connection, we looked further into the business affairs of Douglas Dillon and his family. We found that Mr. Dillon has not only aided the government of South Africa by floating their bond issues in this country through the family investment banking firm, but that the Dillon family is heavily involved in the economy of South Africa.

The vast fortune of the Dillon family appears to be centered in the investment bank, Dillon, Read & Co., an investment fund (in effect, a holding company), United States and Foreign Securities, Inc., and in various foundations — including the Bertha Dillon-Susan Douglass Foundation, and the Dillon Fund.

One of the larger American operators in South Africa is Charles Engelhard of New Jersey. Engelhard Industries, Inc., controls vast gold and diamond and other metal deposits in South Africa, and a number of metal processing plants in New Jersey. Engelhard Industries, Inc., is owned (80.05%) by Engelhard Hanovia, Inc. We have no information on the ownership of the latter. Charles Engelhard is chairman and president of Engelhard Industries.

One of the ways Engelhard raises capital funds for his operations in South Africa is through an investment firm called American-South Africa is through an investment firm called American-South African Investment Co. Ltd. In 1958 Dillon, Read & Co. sold $33 million [equal to $262,000,000 in 2012] in the shares of the American-South African, the money being used to invest in the properties of Engelhard Industries, Inc., in South Africa.

American-South African is operated by what is called an investment advisory firm, South African Investment Advisor (proprietary) Ltd. The advisory firm "will investigate opportunities for investment and make recommendations as to acquisition and disposition of portfolio assets; furnish office space; provide accounting, statistical and clerical services and pay salaries of officers, etc." for American-South African (Moody's, 1962).

South African Investment Adviser, Ltd., is owned 50% by Engelhard Development Co. (subsidiary of Engelhard Industries, Inc.) and 50% by Dillon, Read & Co. Thus the investment banking firm of the Secretary of Treasury owns one-half interest in the firm which operates one of the principal sources of capital for Engelhard Industries in their South African operations.

On the board of directors of American-South African Investment Co. are to be found: Frederic H. Brandi, who is chairman and a director of Dillon, Read & Co.; Kingman Douglass, who is vice-president of Dillon, Read & Co. and also a director of Engelhard Industries (Secretary Dillon is married to Anne Douglass); J.B. Baldwin, who is vice president of Keswick Corporation, wholly owned subsidiary of the Dillon-controlled United States and Foreign Securities; and J.F. Fowler, Jr., another Dillon, Read vice-president.

New York Counsel for American-South African investment is the law firm of Shearman & Sterling. G. M-P. Murphy, a partner in that firm is also on the board of American-South African. C.C. Parlin, senior partner in Shearman & Sterling is on the board of the Dillon's U.S. and Foreign Securities. Parlin is also secretary of the two Dillon foundations mentioned above, both of which list their addresses as Shearman & Sterling, 20 Exchange Place, New York, N.Y.

When Dillon was appointed Secretary of Treasury by Kennedy in 1961, he selected as his General Counsel for Treasure, Robert H. Knight, then a partner in Shearman & Sterling and since returned to that firm from Treasury.

Thus the Dillon banking house is heavily represented on the American-South African board, as is the Dillon law firm, and the Dillon holding company. Five of the eleven directors of American- South African are clearly Dillon men.

If, at this point, the question arises — what has all this to do with the American civil rights movement? — the answer lies in the fact that the Dillon interests in this country are quite similar to those in South Africa. Which is only to say that American finance and industry are pretty much the same, wherever they're found.

Following is a list of some of the securities owned by the Dillon holding company which involve the racist South of the U.S.:

40,000 shares of the American Cyanamid — plant at Jackson, Miss.
35,000 shares of Hercules Powder — plant at Hattiesburg and Greenville, Miss.
25,000 shares of Olin Mathieson — plant at Gulfport, Miss.
44,000 shares of Middle South Utilities, parent of Mississippi Power & Light
15,000 shares of General Electric — plant at Jackson, Miss.
32,472 shares of International paper — plants at Natchez and Moss Point, Miss.
20,000 shares of Johns-Manville — plant at Natchez, Miss.
25,000 shares of Westinghouse Electric — plant at Vicksburg
18,900 shares of Standard of California. — refinery at Pascagoula
130,000 shares of Louisiana Land and Exploration Company, which has substantial oil holdings in Mississippi

These investments have a minimum total market value of $20,000,000 [equal to $160,000,000 in 2012]. Clearly Mr. Dillon and his family are heavily involved in the economy of the racist South, just as they are in the economy of racist South Africa.

Can we seriously expect Lyndon to act effectively against racism and poverty, when the perpetuation of both is in the interest of his cabinet members, and when the elimination of both requires his cabinet members to act contradictorily to their own material interests? If we can, then we must ignore the whole history of big business and politics.

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Mr. Dillon was in the news this week on another score. He was called upon to testify in secret sessions of the Senate Finance Committee about a special tax decision which, according to newspaper accounts, saved the Dupont family about $100 million in taxes [equal to $752,000,000 in 2012].

The Dupont Corporation was ordered a couple of years ago to get rid of some 23 million shares it owned (effective control) in General Motors. Shortly after the Supreme Court order, the Congress passed what became known as the Dupont bill, which exempted from income tax the distribution of the General Motors stock to Dupont stockholders. Since control of the Dupont Corporation rested in the Dupont family holding company, Christiana Securities, Christiana received from the Dupont Corporation the General Motors shares held by the corporation. But then Christiana had to distribute the shares to the members of the Dupont family who owned the stock of Christiana. This involved another tax liability, the exact nature of which is a mystery because Secretary Dillon will not reveal the details of it.

However, two years ago the matter was decided against the Dupont family by then General Counsel of Treasury, Robert H. Knight. In December, 1964, according to reports, the present General Counsel of Treasury reversed Knight's earlier decision and ruled in favor of the Dupont family. This is all pretty foggy and apparently Mr. Dillon wants to keep it that way, inasmuch as he has refused to discuss the matter with the Senate Finance Committee.

Dillon did admit to the committee that he had suggested that Robert Knight be consulted by the present Treasury Counsel in reversing Knight's earlier decision. Knight says that the reversal is justified, but he won't explain the matter either. The New York Times reports that there is no known connection between Knight and the Duponts, obviously suggesting that venality be ruled out as a reason for Knight's going along with the reversal of his earlier decision, and favoring the Dupont family with a $100 million tax windfall.

However, what the New York Times did not report is that Knight's firm, Shearman & Sterling, is closely associated with the Dillon family interests, and that the senior partner of the firm sits on the board of the Dillon family holding company. Incidentally, the Dillon holding company owns some 17,000 shares of Dupont stock, which made it eligible for a considerable number of General Motors shares in the distribution of the Dupont GM holding. Whether or not the reversal of the treasury decision has any effect on the tax liability of the Dillon company in connection with this distribution, we do not know. But we do know that back in 1928, under what appeared to be similar circumstances with respect to the private holdings of Andrew Mellon, and his public decisions as Secretary of Treasury, Congressman Wright Patman, then a freshman, introduced a resolution in the House to impeach Secretary Mellon. The resolution did not pass, but, as we recall, Secretary Mellon had to resign because of the support the resolution had in the house.

It has been clear for some time that Secretary Dillon plans to resign soon, and go back to shepherding the family finances on a formal basis. The two persons most frequently and authoritatively mentioned to replace him are Donald Cook, President of American Electric Power Co., and David Rockefeller, principal stockholder in Chase Manhattan Bank. If Lyndon appoints either of these honorable men, he will have done as much of a disservice to Americans as he has in retaining Dillon in the position. When Lyndon makes up his mind to let us know who's going to be the next Secretary of Treasury, we'll provide a rundown on him.

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I.F. Stone reports this week that, when the case of U.S. v Mississippi (the suit brought by the Justice Department attacking the whole structure of Mississippi registration laws as unconstitutional) was being argued before the Supreme Court, Solicitor General Archibald Cox, who was arguing for the U.S. told the judges he was not "pressing" for immediate relief. Justices Harlan, Stewart, White, Black and Goldberg had indicated they were ready to rule now whether or not the Mississippi registration system is unconstitutional. Cox, in effect, told them the administration does not want a decision at this time. Delaying the decision now, means that it will not be made for at least two years.

Stone seemed puzzled about why Cox would do this, and suggested that he may have been afraid the judges would rule in favor of Mississippi. Another interpretation might be that the Johnson administration does not want a decision now, because they're afraid it would go against Mississippi. If this happened it would immeasurably strengthen the case for the challenge of the MFDP to the seating of the five congressmen.

[See MFDP Congressional Challenge for background.]

The challenge documents of the MFDP, in effect, made the arguments of the U.S. in the Mississippi case a part of their arguments in the challenge. To have the Supreme Court now uphold the U.S. arguments in the Mississippi case would be tantamount to a judicial decision on the merits of the MFDP challenge. This would be something the U.S. House of Representatives could not ignore in deciding the challenge.

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And so it went this week in the great society.

Jack Minnis
February 11, 1965

Copyright © Jack Minnis, 1965

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