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STATEMENT OF EUGENE T. ROSSIDES, ASSISTANT SECRETARY
(ENFORCEMENT, TARIFF AND TRADE AFFAIRS, AND OPERA-
Let me say, Senator Mathias asked if you jogged. I said you might point out he was the best back the University of Columbia ever had, and you may sneer at the Ivy League--you were in the Rose Bowl and you won it.
Mr. Rossides. You were right, but it was the East-West game. Our most notable game was the defeat of West Point.
Senator ProxMIRE. By the way, if you would like to abbreviate your statement in any way, the entire statement will be printed in the record.
Mr. Rossides. Thank you. On my left is Deputy Assistant Secretary William L. Dickey. On my far right, Deputy General Counsel, Roy Englert; and on my immediate right, Richard Hinds, our Operations Officer.
Mr. Chairman, I would be pleased to abbreviate the statement. In preparing it, we made quite a few attachments to it which we think abbreviated it somewhat, but we will try to abbreviate it more (see p. 70).
It is a pleasure to be here, Mr. Chairman, to testify. Some of the newspaper articles that have occurred are such that we would like to respond to them and we thank you for holding these hearings so timely.
I would like to make five points that I think my testimony establishes.
Mr. Chairman, in your remarks, and in your questions of the distinguished Senators Tunney and Mathias, they have gone to the heart of the matter and the problem.
No. 1, neither the act, nor our regulations expand governmental access to records. As you, Mr. Chairman, know because you played such a major part in passage of the existing law, the legislative history bears that out.
Comments that either the act or the regulations authorize increased access to bank records or authorize an invasion of privacy are inaccurate.
Indeed, Treasury takes pride in the fact that the broad right of access provision in the bill, Mr. Patman's bill, was knocked out as a result of our objections and we take pride in that fact. Although the history of the statute, the legislative history is clear, frankly, I think in hindsight, we should have put in our regulations a declaratory statement that in no way do these regulations change or add to the existing right of access by subpena or other lawful means.
We should have put that in, and we are going to do that. I say we would be happy to do it in my statement; we are going to do that. We will have a proposed regulation clarifying that because in your opening remarks, Mr. Chairman, when you mentioned clarifying this by
Under Section 221, where a similar finding of “usefulness" is made by the Secretary, he is given power to require reports to him of transactions "involving any domestic financial institution ... at such time, in such manner, and in such detail" as he may require if they involve the payment, receipt, or transfer of U.S. currency, or such other monetary instruments as he may specify, in such amounts or under such circumstances as he shall prescribe by regulation.
Would you cite the reports, findings and statistics supporting the Department's decision, first, that such reporting of financial transactions would have the required "high degree of usefulness," and second, the decision that reports on the particular amounts specified by the new rules would have such "usefulness" at this time in criminal, tax, regulatory investigations or proceedings.
Would you also specify (1) which particular federal agencies, to your knowl. edge, have this need at the present time for such records, and (2) what restrictions now prevent them from obtaining this information from banks and individuals.
While I am aware of the purpose for which the bank secrecy statute was enacted, that of combatting organized crime and tax evasion, it is clear that the Administration has not educated the public to whatever need there may be for such a program or to the contents of the new law and its intended scope.
Many law-abiding people, particularly individuals who have expressed criticism of governmental policy on the Vietnam war or other issues, are fearful that under the reporting feature of the new law, their checking accounts will be monitored by government and that the extent of their contributions to various causes and organizations will become part of government dossiers. Others worry that embarrassing expenditures will become matters of public dossiers.
The fact is that these people, as well as those others whose records might be legitimately solicited by courts or government, have relied on the good faith of government and on the confidentiality rules of many banks for protection of their rights under the first, fourth and fifth amendments of the Constitution. A large number of banks have apparently required court orders, subpoenas, or proof of governmental purpose and need before relinquishing bank account records. With some notable exceptions, government agencies and others have, by and la rge, felt it incumbent upon them as a matter of practice to follow certain fourth amendment procedures in obtaining these records.
Under the terms of the new law, it is feared that this rule obviously will not prevail since law enforcement agencies may automatically be given access, to use, or copies, of the reported information. Complaints cite the broad requirements in Section 212 that the Secretary shall, upon such conditions and pursuant to such procedures as he may by regulation prescribe, “make any information in the filed reports available for a purpose consistent with provisions of the act to any other Federal department or agency on the request of the head of such agency.”
In this connection, would you describe the particular federal and state agencies with which you have established liaison or with which you have agreements for receipt of such reports and records, and the degree of specificity you will require for their requests.
In addition, I should like to know what specific statutory provisions and what regulations would protect the confidentiality of these records while in your custody and after transfer to other agencies.
Your assistance is appreciated. In view of the hearings scheduled to beginn before the Senate Banking Committee on August 11, a response at your earliest convenience will be most helpful to me. Sincerely yours,
SAM J. ERVIN, Jr.,
THE GENERAL COUNSEL OF THE TREASURY,
Washington, D.C., August 7, 1972. Hon. Sam J. ERVIN Jr., Chairman, Committee on the Judiciary, Subcommittee on Constitutional Rights,
U.S. Senate, Washington, D.C. DEAR SENATOR ERVIN: This is in response to your letter of July 26, 1972, in which you raise a number of questions concerning Public Law 91-508 and the regulations issued thereunder, 31 C.F.R., Part 103.
There has been a great deal of misinformation spread about concerning these regulations. This has stemmed in part from a number of erroneous newspaper articles primarily in the State of California. Many citizens have gained the impression that in some manner transactions in all bank accounts will be brought to the attention of the Government, and that their accounts and transactions are going to be scrutinized by the Government. Nothing could be further from the truth.
What these regulations are designed to do is to require financial institutions to keep certain records for a specified period of time. They 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. The regulations require the maintenance of specified records by financial institutions for a fiveyear period, so that the records will be available for legitimate investigatory purposes. They will be available to the Government, however, only pursuant to pre-existing law regarding subpena and other legal processes. Thus, for example if an individual citizen were under investigation for tax fraud or other alleged criminal activities, records of his banking transactions would be available, and the Government could secure access to them in accordance with applicable laws and procedures.
In this connection you should know that the Treasury Department did not seek, and indeed would be opposed to unlimited Government access to the banking records of persons not suspected of involvement in criminal activity. In his testimony on S. 3678 before the Subcommittee on Financial Institutions of the Senate Committee on Banking and Currency (Hearings, page 174), Assistant Secretary Rossides called the attention of the Committee to the fact that such surveys might raise serious questions involving unreasonable searches and seizures and the need to avoid unnecessary incursions against the right of privacy. In accordance with this testimony the Congress did not grant any broad survey authority in the enactment of Public Law 91-508, and in fact made no change in applicable laws relating to Government access to financial records.
Of particular concern to some citizens appears to be the requirement that microfilm copies of personal checks be retained by their banks. It is a standard practice of banks to microfilm for their records checks drawn on them and to return the original check to the drawer. The majority of banks, although not all, followed this practice prior to the effective date of the regulations. The exent that they did so, the regulations merely make mandatory what was standard banking practice. There is no expectation or intention that the Government will review these microfilms of personal checks on a routine basis or in any volume. Indeed, the Treasury Department opposed and continues to oppose such authority, and it is quite clear that Public Law 91-508 does not grant any such authority to the Government.
As to the usefulness of these records for criminal, tax, and regulatory investigations and proceedings, the Congress itself made the finding that microfilms of checks have a high degree of usefulness for these purposes. In section 21 of the Federal Deposit Insurance Act, as added by Public Law 91-508, the Congress stated it to be the purpose of that section to require the maintenance of appropriate types of records by insured banks where such records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings; the Congress found “that adequate records maintained by insured banks have a higl: degree of usefulness in criminal, tax, and regulatory investigations and proceedings”; and the Congress further found “that microfilm or other reproductions and other records made by banks or checks, as well as records kept by banks of the identity of persons maintaining or authorized to act with respect to accounts therein, have been of particular value in this respect.”
The other aspect of these regulations which has been of particular concern is the requirement that every financial institution file a report of each transaction with it which involves a transaction in currency of more than $10,000. Here too the misapprehensions of many people are based on erroneous information as to the nature of the requirement. Many people seem to have the impression that all their banking transactions must be reported; and others have the impression that all their transactions over $10,000 must be reported. Neither is correct.
It is entirely clear in the regulations that reports are not required with respect to personal checking or other paper transactions which do not involve the physical transfer of more than $10,000 in currency, but that only transaction in currency must be reported. A transaction which is a transfer of funds by means of bank check, bank draft, wire transfer, or other written order, and which does not include the physical transfer of currency is not a transaction in currency and does not have to be reported.
As you know, the vast bulk of the financial and commercial transactions in this country take place by means of check or other written order or document and do not take place in currency. No such transactions are required to be reported no matter how large. Only transactions involving the physical transfer from one person or institution to another, of more than $10,000 in currency must be reported. Such transactions are unsual and relatively very few. Not many people who withdraw or otherwise receive money from banks or other financial institutions in amounts of more than $10,000 are likely to take that money in currency. Neither do very many people bring into a financial institution currency in amounts of more than $10,000. If there are excluded such usual currency transactions as retail deposits, cash payrolls, etc., persons who deal in large sums of money normally do so through checks or other types of monetary instruments rather than in currency. As indicated above, transactions in such instruments are not required to be reported no matter how large the sum.
Moreover, the requirement that large transactions in currency be reported is not a new one, but in fact represents a liberalization of pre-existing requirements which had been in effect for many years. Under 31 C.F.R., 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 exceeded 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 commensurate with the customary conduct of the business, industry or profession of the customer concerned.
You have asked on page 2 of your letter that we cite the reports, findings and statistics supporting the decision that "reporting of personal checks” would have the high degree of usefulness As indicated above there is no requirement for the reporting of personal checks but only currency transactions are required to be reported. The Department's finding that the reporting of currency transactions in amounts of more than $10,000 would have a high degree of usefulness was based primarily upon the experience of the Internal Revenue Service with the reports required to be made under 31 C.F.R., Part 102. The $10,000 amount represents a compromise between the conflicting considerations of usefulness which exists in the case of smaller amounts, and the burden which would be placed on financial institutions and others by requiring the reporting of smaller currency transactions. In this respect we cannot speak for other Federal agencies.
We have not established liaison with any other Federal or State agency regarding the availability of the reports required to be filed under the regulations. It is not anticipated that these reports will be made available to any other agency on any general basis. In the event that we have information that a currency transaction is connected to a violation of a law under the jurisdiction of another Federal agency, a copy of the pertinent report may be furnished by the Secretary to the hoenov involved. Otherwise, reports will be made available to other agencies only upon the receipt of a request identifying a specific person and specifying the official need for the report requested. It is assumed that another agency requesting a copy of a report will have a specific person under investigation or have other reason to believe there may be reports by or concerning a specific person whose activities are of official concern to it.
In response to your question as to what specific statutory provisions and what regulations protect the confidentiality of reports required to be made, you are advised that these reports are specifically exempted from the Freedom of Information Act by section 203(j) of the statute and section 103.44 of the regulations. The general statute protecting the confidentiality of Government records is section 1905 of Title 18 of the United States Code. Reports required to be made by these regulations will, of course, be available for official use in criminal, tax, oi regulatory proceedings. This is the purpose and intent of the statute which the Congress enacted.
Law abiding citizens need have no fear that under the provisions of this statute or the regulations issued thereunder, their checking accounts will be monitored by the Government or that the extent of their contributions to various causes and organizations will become part of Government dossiers. Neither do
they have any cause to fear that any expenditures made through personal checks will become matters of public dossiers. Neither this statute nor the regulations issued thereunder grant, or purport to grant, any authority to monitor personal checking or other accounts or to secure any information concerning them. To the extent that there is any authority to secure information about the banking records of private citizens, that authority existed prior to the enactment of Public Law 91-508, and is not changed in any respect thereby. Also, in most cases the records required to be kept would have been kept by the banks in any event for some period of time although perhaps not for the full five years that will now be required.
We regret very much that there has been so much apprehension, confusion, and concern over regulations which we believe should be of no concern to any private citizen who is not engaged in illegal activity. There is no significance to the average individual of the bank recordkeeping requirements. Banks now keep records and they will continue to do so. These records will be available to be used in criminal cases. However, there will be no general scrutiny of the records of the banking transactions of law abiding citizens as a result of these new regulations.
It is particularly regrettable that the bulk of the concern which has come to our attention is based upon erroneous newspaper reporting as to the purpose and effect of these regulations. Very sincerely yours,
SAMUEL R. PIERCE, Jr.
Senator PROXMIRE. Senator Tunney, we would be glad to have you join us up here, and you may ask questions of the other witnesses.
Senator TUNNEY. Thank you very much. I would like to ask some questions.
Senator PROXMIRE. The next witness is a distinguished friend from Maryland, our good friend, Senator Mac Mathias.
STATEMENT OF CHARLES McC. MATHIAS, JR., U.S. SENATOR FROM
THE STATE OF MARYLAND
Senator MATHIAS. Thank you, Mr. Chairman. I have a statement. In the interest of conserving time I might offer it and request that it be included in the record.
Senator PROXMIRE. All right. It will be included in the record in full.
(The statement of Senator Mathias may be found at p. 39.,
Senator MATHIAS. First of all, I want to thank you, Mr. Chairman, for holding this hearing so promptly. I think it is a very useful thing that we attack this problem before this practice of recordkeeping becomes embedded in the system of the Treasury and of the banking community and I think this is the time to do it.
I think it is also a useful hearing because it is not only ordinary congressional oversight and our responsibility also to supervise the laws we have enacted, but I think in this case we are under some duty to go back and look at our handiwork because I think we share with the Treasury some responsibility for a degree of overkill.
As I look back over the history of this law and some of the legislative record I would suggest that when we started out we had a request for a small-gage shotgun. Probably we should have responded to that request with giving them a rifle but I am afraid what we actually gave them was a bazooka and, as a result, we have some responsibility for this.
Our good friend and very distinguished colleague in the other body, Mr. Patman, had very decided ideas on this subject when we started