We also indicated our concern that the Senate bill could be interpreted as requiring the Secretary of the Treasury to issue regulations providing that all banks photocopy all checks drawn on them, or under the House bill, all checks of less than $500 used in domestic financial transactions. The Senate Committee Report makes no mention of this issue but simply discusses the domestic recordkeeping requirements as follows: "Many of these records are already kept by financial institutions and it is not the committee's intent to encumber these institutions with a substantial volume of additional paperwork. The committee has, however, received testimony from law enforcement officials on the high degree of importance of having access to copies of checks drawn on commercial banks. Mr. Will Wilson, Assistant Attorney General, has testified that copies of bank checks are 'very important' to law enforcement activities and 'very helpful' in the collection of income taxes. The U.S. attorney for the southern district of New York has said that the availability of copies of bank checks is 'an indispensable tool of law enforcement.' A former IRS agent testified that the microfilming of checks 'is really a vital tool'. According to Assistant Attorney General Wilson, microfilm copies of checks are important because they are frequently the direct evidence of a financial transaction which would otherwise be difficult to prove. Copies of checks are valuable in investigating domestic crimes as well as those involving secret foreign bank accounts. For example, a single microfilmed check in the amount of $5.20 helped in the conviction of Frank Costello. While most commercial banks maintain copies of checks as a normal business practice, some of the larger banks have stopped microfilming in recent years. This has placed a burden on law enforcement officials and has made it more difficult to obtain evidence of financial transactions. The cost of microfilming has been estimated to range between one-half of a mill and 1 1/2 mills per check, a cost that does not appear to be unduly onerous compared to the normal service charge of 10 cents per check." Mr. Bennett, joined by Messrs. Tower and Packwood submitted supplemental views objecting to this part of the report because they felt that an amendment to the purpose clause in the Senate bill should be construed as authorizing the Secretary to study the matter further and then determine which domestic records should be maintained. Conference Committee Action The Conference Committee report notes that the Housepassed bill required the microfilming of checks, and that the Senate bill amended this congressional purpose by requiring the maintenance of such records only where the Secretary determined their usefulness in the various proceedings. This difference in views was resolved in conference by preserving the House purpose clause (new sec. 21(a) (2) of the Federal Deposit Insurance Act) and relegating the 'Secretary's authority to a subordinate clause (new sec. 21(b)). The Conference Committee also deleted the $500 exclusion from the recordkeeping requirements in the House bill and amended sec. 21 (c) to require that any exemptions granted by the Secretary from the recordkeeping requirement must be "consistent with the purpose of this section". This conference committee bill was approved by both Houses and enacted into law. Treasury Interpretation Upon the enactment of P.L. 91-508, we were confronted with Section 21 (a) (2) of the Act which compels maintenance of records that have a high degree of usefulness in criminal, tax and regulatory investigations and proceedings and Section 21(a) (1) which is a clear-cut Congressional finding that microfilm or other reproductions made by banks of checks have been of particular value in this respect. In light of these congressional findings and purposes in Section 21 (a) and the conference committee's action subordinating the Secretary's determinations to that section, we construed the statute as compelling us to require the microfilming of all checks unless we established by a careful study that copies of certain checks did not meet the "high degree of usefulness" test and thus could be exempted from the copying requirements of the Act. The Treasury task force which drafted the regulations conducted a study to determine which records should be exempted from the domestic recordkeeping requirement and the regulations that became effective July 1, 1972 contain exemptions for several classes of checks as well as an exemption for all domestic items received by a bank for collection. Customs received information that August Ricord was a central figure in a large narcotic smuggling ring. A Treasury Agent of Customs located a bank account in New York' maintained by Ricord. Using an administrative subpoena issued under 21 U.S.C. 198a, he examined the bank's records. The bank was requested not to notify Ricord of the inspection because it was believed such notice would seriously prejudice the investigation. Information garnered from the bank records enabled the Government to identify two Swiss bank accounts used by Ricord and eventually to seize approximately $75,000 in New York. Subsequent intellignece developed from these leads led to the arrest of Ricord in Paraguay by Paraguayan authorities. Case 2 Owners of a domestic wax candle company imported candles from relatives in Germany. The German firm supplied two sets of invoices covering each shipment. One invoice reflected 25% of the value of the shipment, the other 75% of the value. Payment to the German firm by the domestic candle company was made through bank transfers. Invoices submitted for each importation showed only 25% of the true value. By examining the firm's bank records, the Government was able to obtain evidence that the firm was undervaluing its Customs invoices by 75% and had defrauded the United States of over $400,000 in duty. Advance notice to the importer that the bank records were to be examined might have given him time to prepare false documents to reconcile the withdrawals from the bank with the documents presented to Customs. Senator WILLIAM PROXMIRE, THE DEPARTMENT OF THE TREASURY, Chairman, Subcommittee on Financial Institutions, Committee on Banking, Housing and Urban Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: At the time of the hearings which your Committee held on August 11 and 14, 1972, I stated that we were reviewing and expected to revise in certain respects the regulations issued under Public Law 91-508. We have now made tentative drafts of certain amendments which we believe would be appropriate and desirable. We expect to publish these amendments in the Federal Register in the near future assuming that they are consistent with the decision of the three-judge District Court which is expected shortly in the case of Stark v. Connally. The purposes of the amendments are (1) to make clear that the Treasury regulations do not give any Government agency any right of access to the records required to be maintained, (2) to make explicit the requirement that any other Federal departments or agency which may receive information from the Secretary of the Treasury under these regulations must maintain its confidentiality, and (3) to eliminate any requirement that there be maintained records of domestic transactions involving amounts of $100 or less. We appreciate the interest of your Committee in this matter, and we hope that the proposed amendments will help allay some of the concerns that have been expressed concerning the Treasury regulations. Sincerely yours, EUGENE T. ROSSIDES. PROPOSED AMENDMENTS TO CURRENCY AND FOREIGN TRANSACTIONS REGULATIONS TITLE 31, CODE OF FEDERAL REGULATIONS, PART 103 Section 103.34(b) (3), (4), and (10) will be amended to read as follows (new matter italicized): § 103.34 (b) (3) Each check, clean draft, or money order drawn on the bank or issued and payable by it, except those drawn for $100 or less or those drawn on accounts which can be expected to have drawn on them an average of at least 100 checks per month over the calendar year or on each occasion on which such checks are issued, and which are (i) dividend checks, (ii) payroll checks, (iii) employee benefit checks, (iv) insurance claim checks, (v) medical benefit checks, (vi) checks drawn on governmental agency accounts, (vii) checks drawn by brokers or dealers in securities, (viii) checks drawn on fiduciary accounts, (ix) checks drawn on other financial institutions, or (x) pension or annuity checks; (4) Each item in excess of $100 (other than bank charges or periodic charges made pursuant to agreement with the customer), comprising a debit to a customer's deposit or share account, not required to be kept, and not specifically exempted, under subparagraph (3) of this paragraph; (10) Records prepared or received by a bank in the ordinary course of business, which would be needed to reconstruct a demand deposit account and to trace a check in excess of $100 deposited in such account through its domestic processing system or to supply a description of a deposited check in excess of $100. This subparagraph shall be applicable only with respect to demand deposits. Section 103.43 will be amended to read as follows (new matter italicized): § 103.43 Availability of information The Secretary may make any information set forth in any reports received pursuant to this part available to any other department or agency of the United States upon the request of the head of such department or agency, made in writing and stating the particular information desired, the criminal, tax, or regulatory investigation or proceeding in connection with which the information is sought, and the official need therefor. Reports made available under this section to other departments or agencies of the United States shall be received by them in confidence, and shall not be disclosed to any person except for official purposes relating to the investigation or proceeding in connection with which the information is sought. Section 103.51 will be added: § 103.51 Access to records This part does not authorize the Secretary or any other person to inspect or review the records required to be maintained by Subpart C hereof. Inspection or review or other access to such records is governed by other applicable Federal or State law. Senator PROXMIRE. Our last witness is William S. Lynch, Chief, Organized Crime and Racketeering Section, Criminal Division, U.S. Department of Justice. We would appreciate very much if you could abbreviate your statement. STATEMENT OF WILLIAM S. LYNCH, CHIEF, ORGANIZED CRIME AND RACKETEERING SECTION, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE Mr. LYNCH. I will abbreviate it, Mr. Chairman. Senator PROXMIRE. Your entire statement will be printed in full in the record. (The complete statement of Mr. Lynch is printed at p. 117.) Mr. LYNCH. Mr. Chairman, I would like to introduce Edward Joyce, Deputy Chief, and Mr. Robert McBrien, attorney in the section. Mr. Chairman, I will eliminate our analysis of S. 3814 and S. 3828 contained in the early part of my statement. I would like to say, Mr. Chairman, that I am greatly honored to be here. As the subcommittee knows, when the Senate bill (S. 3678) which evolved into Public Law 91-508 was being considered by this body, the views of the Department of Justice were presented by Will Wilson, then Assistant Attorney General of the Criminal Division, and Whitney North Seymour, Jr., U.S. attorney, southern district of New York. I will not repeat their very informative testimony in support of the enactment of Public Law 91-508. However, the gravity of these proposed amendments to Public Law 91-508 compels a brief recapitulation of their sentiments. Particularly in the last decade, Federal law enforcement authorities have come to recognize that criminal abuses and misuses of our financial system equal, if not exceed, the growth of our financial institutions. Members of organized crime and white collar criminals engage in a wide range of sophisticated, complex, and illegal financial maneuvers, designed in part to mask the criminal origin of the moneys. The funds that are concealed and cleansed in these operations derive from crimes such as narcotics trafficking, public corruption, tax evasion, stock fraud and manipulation, other business frauds, illegal gambling, loansharking, black-market profiteering, and other rackets. The "sanitized" moneys can be returned clandestinely to finance more of the crimes from which they derived and to facilitate expanded inflation and acquisition of legitimate businesses. Messrs. Wilson and Seymour testified that an effective fight against organized crime and white collar crime depends in large measure on the maintenance of adequate and appropriate records by financial institutions. Their statements showed that only through required reports of financial transactions can law enforcement authorities pierce the refuges of secret foreign bank accounts and inadequate domestic financial records which provide the hidden conduits for transmission of illegal profits. |