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counts to pay their bills, to buy newspapers, to subscribe to periodicals, buy groceries, whatever it might be; and it seems to me a rather frightening invasion of a person's right to privacy to allow any Federal agency to be able to monitor all his financial dealings without any reason to believe that such a person has in fact, committed a crime, or is evading in some way, tax laws.

Senator PROXMIRE. As I understand, the process for getting the records is the same now as it was before. That the bill did not-the new law does not change that?

Senator TUNNEY. Well, the Treasury Department argues that there is no right to privacy on the part of a depositor or account holder with regard to his bank account; and if that is the law--assuming for the moment that is the law-and the Treasury Department has cited cases, which indicate that is the law-I think the law ought to be changed.

Today, a person's checking account in fact is the single most important factor in the conduct of his financial transactions. If you have the ability to survey a person's checking account, in effect, you have stripped him naked, because you can see exactly what he has done in the past.

I think to allow this sort of governmental activity is very wrong. I just cannot help but believe that a person is entitled to have those banking accounts held private unless there is some indication of criminal activity. Obviously, if there is evidence of criminal activity, appropriate Federal agencies ought to be able to go in and take a complete look at such financial records in the course of any bona fide investigation. But it should be via legal process.

Senator PROXMIRE. Fine, I think you have made your position completely clear.

One final question as a matter of insertion in the record, would you put in the record the questions you wrote to the Secretary of the Treasury, on their regulations and their response, generally, as you said you received that, this morning?

Senator TUNNEY. Yes. I will put those in the record at this point. (The information follows:)

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C., June 7, 1972.

Hon. JOHN B. CONNALLY, Jr.,
Secretary of the Treasury,
Washington, D.C.

DEAR MR. SECRETARY: Since the promulgation on April 5, 1972, of the Regulations on Financial Record Keeping and Reporting of Currency in Foreign Transactions, which are presumably designed to implement Public Law 91-508 and are scheduled to become effective July 1, 1972, I have been besieged by complaints from California citizens who feel that their right to confidential and private banking affairs has been seriously breached by the Department of the Treasury. Although I support the stated purpose of the statute to require the maintenance and creation of records which are highly useful in criminal, tax or regulatory investigations or proceedings, I am very fearful that the new regulations are overbroad and may have the concomitant effect of invidiously invading the privacy of millions of Americans. This effect might be avoidable if the regulations were more narrowly drawn. I am deeply concerned with both the regulations as written as well as current practices in connection with federal access to bank information. It is for these reasons that I write you today.

Within a week following the promulgation of those regulations, an article appeared in the Marin County Independent Journal outlining a story of the FBI's

being allowed access to bank records of a Californian without a court order and without notice to the person whose account was being scrutinized. I enclose a copy of that article herein.

I have outlined below some very specific questions with regard to current practices and the new regulations to which I should greatly appreciate some detailed responses in the order the questions are raised. I should also appreciate your including in your response the steps you intend to take to safeguard the privacy of our citizens from being grossly violated by what appears to be "big brother" government tactics described in that article.

1. (a) The statute authorizes retention and reports of records which are found to have "a high degree of usefulness in criminal tax or regulatory investigations or proceedings." (Emphasis added.) By what criteria did you determine that this test was met in drawing up regulations section 103.34(b) (2), (3), (4), (10), and why did you not distinguish between the amount or size of the transactions involved? Please respond with particularity to each subsection I have mentioned. (b) What are the reasons for the exemptions in section 103.34 (b) (3), and how do the exemptions fulfill the above-stated test?

2. (a) Will reports required under title II Chapter 2 be accepted by the Secretary if both the domestic institutions and at least one party to the transaction have not signed it?

(b) How many parties to the transaction will be required to sign a report? Will the parties and the banks be permitted or required to submit separate reports?

(c) What requirements exist or are contemplated for notifying bank customers of the submission of such reports to the Secretary about his or her account?

(d) If no notification is contemplated or required, (1) what is the reason for such non-notification, and (2) what protection does a bank customer have against errors contained in such reports?

3. With reference to regulation section 103.43:

(a) What do you mean by the words "proceeding" and "investigation"?

(b) What is your understanding of the term "fishing expedition", and how do you distinguish an "investigation" of a person from a "fishing expedition" in connection with such a person?

(c) Do you contemplate notifying any person as to whom a report is requested by a federal agency at the time such a request is complied with? (1) If so, what procedures will be followed? (2) If not, what are your reasons for not doing so? (d) What limits if any, will be placed upon the varying types of information made available to other federal agencies?

(e) What limits, if any, will be placed upon the use made by other agencies of such information?

(f) What limits, if any, will be placed upon subsequent dissemination of such information by such agencies?

(g) Is it contemplated that any non-federal agency or organization will have access to such information? (1) If so, under what circumstances? (2) What safeguards have been established or are contemplated to guarantee against nondissemination?

(h) Under what circumstances, if any, will the existence of the reports themselves be disclosed to other federal agencies in the absence of a specific request? (1) If no such disclosure is contemplated, how is it to be expected that any other federal agency will be aware of the fact that there is information to be requested? 4. With reference to regulation section 103.34:

(a) What is the reason it does not apply to transactions in connection with bank accounts established prior to June 30, 1972, thereby rendering all future transactions immune from regulation with respect to existing bank accounts? (b) (1) What procedure does the Treasury Department use to obtain access to records maintained by financial institutions?

(2) Is the Department contemplating any different procedure for obtaining any information required to be maintained under Section 103.34? If so, how will it differ and for what reason?

(3) What is the present procedure for the issuance of subpoenas by the FBI, the IRS, or any other federal department wishing to obtain copies of records to records currently maintained by financial institutions?

a. Can IRS agents issue their own subpoenas without undergoing a court procedure? Can FBI agents do so?

b. Does there exist or is there contemplated a practice of going before a judge or undergoing a court procedure prior to the issuance of subpoenas?

83-436 0-72- -3

(4) Are you aware of any practice on the part of any federal department or agency of requesting information from banks on specific accounts without use of a subpoena? If so, please give all pertinent details of such practice.

(5) Is there any provision for notice to an affected person whose records are to be scrutinized pursuant to subpoena or otherwise by the Treasury Department or any other federal department or agency under current or prospective procedures?

(6) What is your understanding of bank practices in connection with notifying bank customers prior to divulging any bank information or records to any federal department or agency?

5. With reference to regulation section 103.45:

(a) Does the Secretary contemplate publishing in advance in the Federal Register any proposed exceptions, exemptions, or modifications prior to implementation of same?

(b) What sort of "particular persons" or "classes of persons" are contemplated by the regulation?

(c) Will requests for such singling out made by other federal agencies be honored as a matter of course, or will a procedure be devised for honoring such requests? Please describe the mechanics of any such procedure.

6. With respect to regulation section 103.22 (b) (3), will not a hypothetical criminal who has been conducting large scale banking regularly in the past be able to continue his illegal activities undetected through this exemption?

7. How will prospective and current customers of all affected financial institutions be notified of the impact of the regulations prior to their implementation? 8. Finally would you be kind enough to provide me with a copy of all forms you have prepared for use in implementing the regulations? Thank you very much for your prompt consideration of the questions raised herein.

Very truly yours,

JOHN V. TUNNEY,

U.S. Senator.

(From the Marin Independent Journal, April 10, 1972)

FBI PROBES ACCOUNTS IN SAN ANSELMO BANK

Revelation that the checking account of a Corte Madera man was exposed by his bank to scrutiny by the Federal Bureau of Investigation today brought announcement that starting July 1, all banks will be doing the same thing to clients. Richard Stark, 29, an artist and patron of radical causes discovered recently that his checking account at the San Anselmo branch of the Wells Fargo Bank had been reviewed by FBI agents.

He opened the envelope with his monthly statement and found an inter-department memo wrapped around his checks. The memo, which bank officials said was included in the envelope by mistake read: "This memo is to authorize you to read checks to the FBI before sending the statement to the customer."

Lawrence Hoge, a spokesman for Wells Fargo Bank, explained, "Sometimes if a guy flashes a badge, they'll come right through here. No employee is going to run to those thick memos to see if they can talk with him."

The bank spokesman said that as of July 1, all bank transactions exceeding $10,000 will be recorded on microfilm and forwarded to the Internal Revenue Service, in compliance with recently issued Treasury Department regulations. "I presume these records will be made available to the FBI," Hoge said. The Treasury Department regulations were received at Wells-Fargo Bank last week, according to Hoge, confirming a report published in the IndependentJournal on March 1 that checking account surveillance was underway.

Stark, who lives at 122 Willow Avenue, Corte Madera, is the beneficiary of a trust fund set up years ago by his mother. He has conferred with his lawyer about a possible lawsuit against Wells-Fargo bank for breach of contract and invasion of privacy.

When Stark first discovered the misplaced memo, he was glad to find out, said his roommate, Richard Schwartz: "He was overjoyed. A lot of people, who aren't aware that the FBI does things like this, can now be aware of it."

Stark has been funding radical organizations and causes since 1964. Most recently, he sponsored the White Panther Party in Marin County and gave his home as its headquarters.

As a result, it came as no great surprise to him to learn that he was being watched.

In reaction to the disclosure, Wells-Fargo Bank has circulated a staff memo to all its branches reminding its employees not to release financial information to government agents until July 1 unless there is a court order.

The bank has also notified the FBI, according to Orion A. Hill, chief auditor, that it will not monitor accounts in the future without a subpena or a valid written order.

Hon. JOHN V. TUNNEY,
U.S. Senate,

Washington, D.C.

THE GENERAL COUNSEL OF THE TREASURY,
Washington, D.C., August 11, 1972.

DEAR SENATOR TUNNEY: This is in reply to your letter of June 7, 1972 regarding the Regulations on Financial Recordkeeping and Reporting of Currency and Foreign Transactions.

There has been a great deal of misinformation spread about concerning these regulations. It is important to understand that these regulations do not deal in any way with the subject of governmental access to records maintained or required to be maintained by financial institutions or by any other person. To the extent that the Government had legitimate access to private records prior to the enactment of Public Law 91-508, and the regulations issued thereunder, it will continue to have access to such records.

However, in my statement of March 31, 1972, I pointed out that governmental access to private records is not changed by either the statute or the regulations, but will continue to be subject to pre-existing law regarding subpena and other legal processes. In short, this statute and these regulations do not give governmental access to private records, and any concerns that one may have about such access necessarily relate to other laws and regulations.

In this connection you may be interested in the testimony concerning this enactment, of Assistant Secretary Eugene T. Rossides before the Senate Committee on Banking and Currency on June 9, 1970. In opposing broad Government survey authority, Mr. Rossides pointed out that surveys by the Internal Revenue Service of bank records "would extend the utilization of the records beyond their traditional role as a source of information and evidence in an examination of a particular taxpayer." He pointed out that the Internal Revenue Code authorizes the Internal Revenue Service to obtain and examine records maintained by banks and others in connection with the determination of the tax liability of particular taxpayers, but that the Internal Revenue Service does not make any unreasonable surveys of records. Mr. Rossides advised the Committee that the Administration had decided against seeking specific statutory authority extending the rights of the Internal Revenue Service to survey bank records, that such surveys might raise serious questions involving the constitutional prohibition against unreasonable searches and seizures and the need to avoid unnecessary incursions against the right of privacy. He added that there was also

concern:

"That surveys or information returns could have an adverse effect on legitimate foreign investment in the United States. It has been the tradition overseas to place great emphasis on the privacy of financial transactions and a breach of this tradition could adversely affect the flow of foreign funds to the United States.

"Balancing these factors, we concluded that it would not be appropriate for us to suggest legislation extending the rights of the Internal Revenue Service to survey the records of banks and other institutions."*

As you can see from the above testimony, the Treasury Department neither sought, nor does it assert, the right to make unreasonable surveys of bank records.

*Hearings before the Subcommittee on Financial Institutions of the Senate Committee on Banking and Currency, United States Senate, 91st Congress, Second Session, on S. 3678 and H.R. 15073, June 9, 1970, page 174.

Moreover, this Department continues to be opposed to the granting of any right of unlimited governmental access to bank records, and I can assure you that it does not intend to make unreasonable surveys of private banking transactions of American citizens.

The purpose to be served by the recordkeeping requirements of the new regulations is simply to insure that if a particular person is under investigation for tax evasion or other criminal activity, records of his financial transactions through financial institutions will be available to be subpoenaed for a reasonable period of time. The authority of the Internal Revenue Service and other Government agencies having investigatory authority and responsibility, to subpoena these records is in no way dependent upon Public Law 91-508 or the regulations issued thereunder, and neither that statute nor the regulations give Government agencies any right of access to the records required to be maintained.

As you know, the regulations are designed to assist in the apprehension and conviction of persons engaged in organized crime and in tax evasion. They were required by legislation enacted by the Congress in 1970 after full hearings in both the House of Representatives and the Senate. The legislation grew initially out of concern over the use of secret accounts in foreign banks by criminal elements, but also out of concern over the activities of organized crime and other tax evaders.

The new regulations require the keeping of records, the vast majority of which are already kept by financial institutions. The principal effect is to require the retention of such records for a longer period than they might otherwise be kept. Testimony before Congress by Federal officials noted a high degree of importance to investigations of organized crime of bank records. Thus, these records will be available if they are needed in the course of a tax or criminal investigation. However, the normal banking transactions of private citizens will not be subjected to governmental scrutiny under these regulations.

In addition to the recordkeeping requirements the status and regulations impose some reporting requirements. There are three types of reports required: 1. Every person maintaining an account with a foreign financial agency is required by section 103.24 of the regulations to make a report of that fact on his Federal income tax return. While such reports were already required by Internal Revenue regulations, section 241 of Public Law 91-508 specifically provides that the Secretary of the Treasury shall by regulation require any person in the United States and doing business therein who maintains any relationship with a foreign financial agency to maintain records or to file reports.

2. Section 103.23 provides that every person who transports, mails, or ships currency or bearer instruments (currency substitutes) in an aggregate amount exceeding $5,000 into or out of the United States shall make a report to Customs officials. This reporting requirement was made mandatory by section 231 of Public Law 91-508.

3. Section 103.22 of the regulations provides that, with exceptions, every financial institution shall file a report of each transaction with it which involves a transaction in currency of more than $10,000. This section of the regulations is based on section 221 of Public Law 91-508 which provides that transactions involving any domestic financial institution shall be reported to the Secretary of the Treasury as he may require if they involve United States currency or such other monetary instruments as the Secretary may specify.

This section of the regulations represents a liberalization of existing requirements. Under 31 CFR, Part 102, which was repealed when the new regulations became effective on July 1, 1972, every financial institution has been required since 1959. to file monthly reports of transactions in United States currency involving $2,500 or more in denominations of $100 or higher, or transactions involving $10,000 in any denomination, or transactions involving any amount in any denomination, which in the judgment of the financial institution exceed those commensurate with the customary conduct of business, industry or profession of the person or organization concerned. The new regulations provide that only currency transactions involving more than $10,000 are to be reported; and banks are not required to report such transactions with a depositor which are in amounts which the bank may conclude do not exceed amounts of commensurate with the customary conduct of the business, industry or profession of the customer concerned.

In regard to this requirement it is important to note that transactions which do not involve currency in large amounts do not have to be reported.

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