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CONFIDENTIAL

Off-Shore Procurement

BRITISH EMBASSY,

WASHINGTON, D.U.

18 July, 1967

RECEIVED IN

ARCHIVES Nɔ. 63

24 JUL1967

HWB 2/1

9/126

I am ashamed to see that your letter F1192 of 3 June 1966, about allegations that the United States Navy have been buying electronic and other equipment in Hong Kong to the benefit of

the Communists, has still not been answered.

2.

The main reason is that I had been watching the Congressional proceedings to get the first wind of further developments with the "investigation". There have been none, and I failed to

notice the passage of time.

3. I have now checked with the State Department, who confirm that there has been no public outcome of the investigation. The main firm then in question apparently had known communists among its shareholders, and was buying transistor radios from Japan and selling them to the U.3. Navy for PX stores and similar outlets. Another case which has also been much investigated over the past months involved the procurement of barges for use in Vietnam, the order for which was placed with a firm in Hong Kong which had communist links and was supported by a communist bank.

4. The outcome of the various stories and investigations has been a general tightening of the procedures for off-shore procurement, and in particular the institution of a procedure whereby the U.S. Consulate-General in Hong Kong has to vet all contracts proposed to be placed with Hong Kong suppliers. But, as you know, the issue of specifically military procure- ment in Hong Kong ought not to arise, since it is ruled out by the "Hong Kong Guidelines".

5. There has, incidentally, been a further round of the se allegations in the Washington presa recently, with the emphasis on the story that Chinese steel and North Vietnamese cement

I am had been bought, via Singapore, to build Cam Ranh Bay. told, on the Singapore side of the State Department, that the Singapore Goverment were most anxious to give the Americans every possible facility to investigate this allegation. State Department admit that there are always likely to be loose ends in this sort of matter: raw materials can easily

/1080

E. Bolland, Esq.,

Far Eastern Department,

FOREIGN OFFICE.

The

CONFI DEN TI AL

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