Both the Senate and the House of Representatives agreed with the assessment of the problem provided by the Department of Justice and other Federal law enforcement officials. The result of that concurrence was Public Law 91-508, a step in removing the shroud of secrecy covering the financial status of Americans with covert foreign bank accounts. The findings in section 101 of the statute clearly reflect this, and that is the quotation concerning the tremendous usefulness and so on. Mr. Chairman, as I described above, S. 3814 and S. 3828 are designed to nullify and void the various recordkeeping and reporting provisions which Congress supplied in Public Law 91-508. If they are enacted, law enforcement will be confronted again by the impenetrable secrecy of foreign bank accounts and will be burdened additionally by a wall of domestic bank account secrecy in that significant transactions will be impossible to resurrect in the absence of written records. That in itself is a critical harm to Federal law enforcement efforts against organized and white collar crime. I must emphasize, however, that an even greater encumbrance of effective law enforcement will accompany the enactment of either of these bills. Both S. 3814 and S. 3828 limit law enforcement access to financial records by imposing requirements of either consent of the account holder or judicial process based upon a showing of probable cause. The concomitant of these bases for disclosure is notice to the account holder that law enforcement authorities are interested in examining his financial affairs. Without hypothesizing all the possible situations that could occur, I wish to present some examples of criminal investigation in which immediate, discreet access to financial records is critical. An individual has been kidnapped and a ransom paid for his return, but the victim has not yet been found. An informant tells the Federal Bureau of Investigation that the ransom money has been deposited in the account of a safe deposit box of a particular individual or, perhaps, that an account or safe deposit box identified only by number contains the ransom. The only reasonable action by the Federal Bureau of Investigation is to immediately ask the bank for a review of its records of recent transactions in that account or for access to the safe deposit box records in an attempt to determine if, indeed, the ransom has passed through it. Obviously, this could lead to tracing the location of the kidnapers and their victim. Consider, however, the effect of having to notify the account holder of the desire to search his bank records or of having to establish probable cause to search the records and then wait 21 days before the search could be affected. It is patent that if the kidnaper could be contacted for purposes of notification, he would flee immediately. It is also quite obvious that any delay in obtaining access to bank records would increase the likelihood of escape by the kidnapers. In addition, examination of the records may show that the lead was false; it may have been of an anonymous type possibly and the informer was wrong. The bank customer will not have to be bothered by agents or appearance before a grand jury. 83-436 0-72- -8 Bank records played an important role in this investigation by helping to establish substantial real-estate investments and large expenditures for luxury items. In addition to the above, during the 5 years covered by the investigation, the subject purchased a boat, five residences, and several luxury automobiles including a Rolls Royce. The bank records played a vital role in reconstructing these transactions and in establishing the taxpayers net worth and expenditures far in excess of the taxpayer's reported income. The additional tax and penalties involved in the proposed criminal charges total more than $150,000. Case 11 Recently, one of the major narcotic distributors in the Mid-Atlantic area was indicted for income tax evasion and for failure to file income tax returns. We are able to document additional taxes and penalties due to the Government in excess of one quarter of a million dollars. The subject claimed that his books and records were either lost or stolen. The lack of records made it necessary to compute his income by the expenditures and net worth method. The investigation by the Internal Revenue Service disclosed that the subject and his wife maintained, during the 5-year period covered by the investigation, safe deposit boxes, 9 checking and 4 savings accounts. The bank records used in the case included signature cards, monthly account statements, loan applications, financial statements, deposit tickets, copies of personal checks, safe deposit box visitation cards, and cashiers checks. The examination of bank records led from one bank to another and resulted in the discovery of undisclosed bank accounts. One of the banks also submitted currency transactions reports which disclosed that the subject during one year exchanged $17,000 in various small bills in exchange for currency of $100.00 denomination. This latter information, when matched with safe deposit box visitations and other account transactions was especially revealing. The availability of bank records made the tax indictment against the narcotics trafficker possible. This law originated in the House on December 3, 1969, when it was introduced as H.R. 15073 by Mr. Patman. The legislation grew initially out of concern over the use by criminal elements and others of secret foreign bank accounts to evade income taxes and hide the fruits of their illegal activities. However, the bill also reflected Congressional concern over the availability of records maintained by domestic financial institutions relating to those engaged in organized and "white collar" crime. As introduced, the bill required U.S. banks to copy checks and certain other instruments, maintain certain records, and permit the Secretary to have access to such records; it required U.S. financial institutions and those dealing with them to report certain U.S. currency transactions to the Treasury; it required persons importing or exporting substantial amounts of U.S. currency to furnish reports to the Treasury; and it required citizens, residents, and persons doing business in this country to report certain transactions with foreign banks. When the Subcommittee on Financial Institutions of the House Committee on Banking and Currency held hearings on this bill we testified that we supported the objectives of preventing the use of foreign bank accounts for illegal purposes, but that we felt that the proposed bill went too far, that additional work was required to determine the best way to achieve its objectives without hampering commerce, injuring the status of the dollar, creating undue administrative burdens, and infringing upon the traditional freedoms of American life. We were particularly critical of the provisions of H. R. 15073 which would have given the Internal Revenue Service unlimited access to private bank records. We opposed any such broad "survey" power. We also were critical of the provisions in the bill which made mandatory the photocopying of all checks. A Treasury task force was studying the international banking transactions area and had developed certain proposals for legislative action similar to those in the House bill. In the domestic area, however, we observed that the bill as drafted provided the Secretary with little or no flexibility with respect to the implementation of its requirements. As a result of our efforts, the provision giving Treasury broad access to bank records was deleted from the bill. However, the Committee disagreed with us that the domestic recordkeeping area required further study. The bill reported out by the Committee contained the following Congressional findings and statement of purpose: "Sec. 21. (a) (1) The Congress finds that "(2) It is the purpose of this section to require The House Report justified these positions as follows: "In recent years a few sizable banks have abolished or limited the practice of photocopying checks, drafts and similar instruments drawn on them and presented to them for payment. This failure to maintain photocopies of checks has frustrated law enforcement personnel in securing evidence necessary to criminal, tax and regulatory investigations and proceedings. Many cases have either been dropped or their conclusion has been long delayed because of the difficulty or impossibility of obtaining photocopies or records of essential checks drafts or similar instruments. (p. 11) "The importance of photocopies of checks to effective law enforcement, especially where whitecollar crimes are concerned, simply cannot be overestimated. The recipient of a direct or indirect bribe, for example, will make no record of his receipt of the money, and the person who wrote the check will take pains to see that it is totally destroyed after cancellation. In many instances, payments by check which are not necessarily illegal in and of themselves may constitute the only way that the prosecution can establish the existence of a relationship or pattern of conduct which may be essential to making its case. Finally, the maintenance of check photocopy records by banks raises no constitutional issues and poses no threat to individual liberty. As has been pointed out, banks have wide experience with maintaining these The House Report also commented: "Read in conjunction with the findings set forth Senate Action Thereafter, Senator Proxmire introduced S. 3678. Title I of that bill contained the same findings, purpose clause, and photocopying requirements as H.R. 15073, with the exception of the exclusion for checks under $500. When this bill was being considered by this Subcommittee we made the following comments concerning governmental access to bank records: "We decided against seeking specific statutory authority extending the rights of the Internal Revenue Service to survey the records of international transactions in banks and other financial institutions. In deciding this, we considered the constitutional prohibition against unreasonable searches and seizures and the need to avoid unnecessary incursions against the right of privacy. While it is clear that obtaining records by established discovery procedures from the banks and other institutions in connection with the examination of a particular taxpayer would not violate these rights, provision for a survey of such records raises a much more serious question. We are also concerned 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. |