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As a result of the previous approach just described, it has been possible for associations generally to obtain social security or taxpayer identification numbers for approximately 85 to 90 percent of their savings accounts.

The Treasury, prior to June 30, 1972, was satisfied with the 85 to 90 percent success of institutions in supplying social security or taxpayer identification numbers on 1099 interest reports to IRS. Thus, it would appear that there is no justification for these new instructions, which may well stop some persons from opening accounts.

In referring to the harm to the S. & L. industry, it is important that you note that this harm is threefold in nature. It involves the loss of new customers and some loss of existing customers. Also, there are additional processing costs for all accounts which do not have a preexisting social security or taxpayer identification number which might be used.

For example, S. & L.’s will lose joint accounts where the individual opening the account may not sign the authorization for acquisition of a number or may not return the signature card. In addition, deceder estate accounts often have no number because the trustee opening these accounts is often a lawyer for the executor or administrator of the estate. Such individuals when opening these trust accounts are unwilling to furnish their social security or taxpayer identification number and unwilling to authorize the obtaining of such a number for the particular trust account.

Second, some existing customers who have not furnished a social security number prior to June 30, when attempting to open up another account or change the terms of an old account, will be unwilling to furnish a number or sign an authorization. In such cases, this customer will close the old account and not open a new account, and the institution has been unsuccessful in securing the number because of the threat of the closing of the account. Under the instructions, old and new accounts of such a customer will be lost.

And, finally, real measurable costs will be experienced by associations in opening new accounts under the Treasury instructions. These costs will be in the form of additional processing time, especially with respect to any small accounts where the account holder is a minor or a widow or housewife who has no social security number which might be used.

With respect to minor accounts, the Treasury instructions also require that the authorization form be signed by an adult parent or guardian. Some associations in promoting thrift among schoolchildren have never required adult signatures because it is not required by law, and this requirement of the signature of an adult will be another hindrance to promoting minor accounts.

In addition to processing costs, there will be administrative costs resulting from the followthrough required to make certain that the numbers are eventually furnished by IRS or the Social Security Administration.

For small accounts of $100 or less, such additional costs will not justify the opening of such accounts, and this will tend to discourage thrift among the younger generations.

Let me reiterate that the S. & L. industry does not oppose the intent of the 1970 act and the regulations and instructions adopted there



under. These aims were the restricting of the illegal use of secret foreign bank accounts and the maintenance of records which have a high degree of usefulness in criminal and tax investigations. However, in no way can these most recent Treasury instructions be considered as furthering those aims. Such aims will not be achieved by requiring that a minor, 12 years old, have a social security number.

We should like to suggest that in lieu of the flat prohibition against the opening of accounts in the event that savers do not furnish social security numbers and refuse to authorize the Social Security Administration to furnish such numbers, that the Treasury Department should permit financial institutions to accept all accounts offered and require such institutions to maintain a list of the accounts opened without social security numbers or requests to the Social Security Administration for such a number. This separate listing would enable the Treasury Department to trace back to all such accounts, if need be.

As a result of such an approach, there would be some records in the financial institutions on all persons opening accounts. With the Treasury's newer approach, the refusal by the institution to open an account where the number is not furnished or an authorization is not signed would result in the absence of any record to expose a suspected wrongdoing.

In the alternative, we recommend that rejection of savings accounts of savers who refuse to furnish their social security number or to authorize the Social Security Administration to furnish such a number, be limited to those involving deposits whose balance is more than $10,000. The reasons which have been persuasive in exempting all transactions of $10,000 or less from "currency transaction reporting apply equally to the requiring of social security or taxpayer identification numbers.

As I indicated earlier, we do not believe that the approach taken by the Treasury Department in its instructions of June 30 is authorized by this legislation. Likewise, nowhere in the legislative history is there any clear indication that this strict approach to the acquiring of identification numbers was contemplated. It would appear that the Treasury Department ought to revise these instructions along the lines suggested above. If not, the proposed legislation being considered by this subcommittee ought to deal with this area.

This is a matter of great importance to the savings and loan industry as well as to other financial institutions. Thank you for giving me the opportunity to express our position in regard to the Treasury Regulations and Instructions implementing the Bank Secrecy Act.

I am here to answer any questions that you may have, Senator.

Senator TUNNEY. Thank you very much. I appreciate your testimony. I think that this testimony will be of interest to the members of the Banking Committee, even though it was not precisely on the legislation that is before the committee at this time. However, it does relate to the regulations, and I know your remarks will be of interest.

The hearing is now adjourned.

(Whereupon, at 1:43 p.m., the hearing was adjourned, subject to the call of the Chair.)


Additional Statements and Data

[Decision of 3-Judge Court Filed September 11, 1972]


No. 72 1015, No. 72 1157











Before: Hamlin circuit judge, East and Sweigert, district judges

Plaintiffs in No. 72 1045 include several named individuals who are bank customers, also the American Civil Liberties Association, suing on behalf of itself as a bank customer and also on behalf of such of its numerous members as are also bank customers; also a bank—the Security National Bank. The only plaintiff in No. 72 1157 is the California Bankers Association, suing on behalf of its membership, which comprises all California banks.

These plaintiffs seek to enjoin the Secretary of the Treasury from enforcing the provisions of the so-called Bank Secrecy Act, enacted by the Congress on October 26, 1970, to be effective May 1, 1971, and the Regulations issued thereunder on March 31, 1972 (but by their own terms not effective until July 1, 1972) upon the grounds that such enforcement poses grave and irreparable injury to their constitutional rights—their right to freedom from unreasonable search ; their constitutional right of privacy; their privilege against self-incrimination ; their right to due process as it may affect banks and bank customers, and also the right of private association protection by the First Amendment.

The Bank Secrecy Act (12 U.S.C. Sec. 1829b; 31 U.S.C. Secs. 1051-1122) requires banks and similar financial institutions to keep certain records and authorizes the Secretary of the Treasury to require such institutions and persons participating in transactions with such institutions to report financial transactions to the Secretary for the stated reason (Sec. 1051) that such records and reports have a high degree of usefulness in criminal, tax and other regulatory investigations.

The record-keeping provision of the Act is 12 U.S.C. Sec. 1829b-implemented by Treasury Regulation 31 C.F.R. sub-part C, Secs. 103.31-103.37. Section 1829b (b) (c) (d) broadly requires financial institutions to maintain, not only customary ledger card records for commercial and savings accounts, but also to maintain microfilm of all checks, drafts or similar instruments drawn on or

1 Judge Hamlin dissents in part.

presented for payment or received for deposit or collection-an authorization which the Secretary has implemented (Regulation 103.31-103.37) with exceptions only for large accounts involving dividend, payroll or employee and medical benefit checks.

The temporary restraining order heretofore issued in this case has not been directed to the record-keeping provisions of the Act, and since we find no constitutional violation in these record-keeping provisions, as such, we reject plaintiffs' contentions insofar as those portions of the Act are concerned.

Turning, however, to the reporting provisions of the Act, those provisions are contained in Title 31 U.S.C. Secs. 1081, 1082, 1083, 1101 and 1121 and have been implemented by Treasury Regulations 31 C.F.R. Part 103 sub-part B, Secs. 103.21103.26. These reporting provisions fall into two categories : (1) Those relating to foreign financial transactions (Secs. 1101 and 1121), and (2) those relating to domestic financial transactions (Sec. 1081).

Since, in our opinion, the reporting provisions relating to foreign transactions present no great problem we will first dispose of plaintiffs' challenges to those provisions. Reporting of foreign financial transactions

31 U.S.C. Sec. 1101 (Reports of Exports and Imports of Monetary Instruments) provides in substance that whoever knowingly transports monetary instruments from the United States or into the United States or receives such at the termination of the transportation to the United States in an amount exceeding $5,000 shall file a report in such form and detail as the Secretary may require setting forth certain specified (sub. b) information-with certain qualifications (sub. c) as to common carriers.

Regulation 103.23 (Reports of Transportation of Currency or Monetary Instruments), implementing Section 1101, excepts transfers through normal banking procedures and makes some other exceptions (sub. c).

31 U.S.C. Sec. 1121 (Foreign Transactions) provides in substance that the Secretary of the Treasury, having due regard for the need for controlling export and import of currency and also due regard to avoidance of unreasonably burdening legitimate transactions with foreign financial agencies, shall by regulation require residents of the United States, who engage in any transactions with a foreign financial agency, to maintain records or file reports, or both, setting forth such of the certain stated information as the Secretary may require. (See also, Sec. 1122).

Regulation 103.24, implementing Section 1121, provides in substance that each person subject to the jurisdiction of the United States, having a fiancial interest in a bank, securities or other financial account in a foreign country, shall report such relationship as required on his federal income tax return.

We are of the opinion that these portions of the Act, dealing with export and import of monetary instruments and with foreign monetary interests or accounts, do not violate any constitutional provision.

First of all, there is the general rule (which must always be the point of departure in cases calling for judicial review of legislation enacted by the Congress), that the wisdom of legislation and the need for it are matters for the Congress to decide and the Courts should not substitute their judgment for that of the Congress. (See, Justice Stewart dissent in Griswold v. Connecticut, 381 U.S. 479 (1965) at 526. The foregoing reporting provisions of the Act are limited to a narrowly described area of international financial transactions and the Congressional decision falls within the general rule.

The Supreme Court, when dealing with matters of reporting to a surveillance by the executive, has traditionally recognized a distinction between domestic surveillance, on the one hand, and surveillance where foreign nations are involved, pointing out that what might be impermissible in domestic cases may be constitutional where foreign powers are involved. See, United States v. United States District Court,


(6/19/72) (slip opinion pp. 1012; p. 23).

Furthermore, the Act contains procedural protections applicable to its provisions for reporting these foreign transactions. For example, with respect to enforcement of Section 1101, the Act (Section 1105) provides that, if the Secretary has reason to believe that monetary instruments are being transported without reporting or with false reports, he may apply to the Court for a search

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