You have adequate authority to enforce this through regulations. What additional legislation do you require? Mr. ROSSIDES. We do not believe that additional legislation would be required. Frankly, we think that it is working well. We have had very few Senator PROXMIRE. But I understood you to say, you do not have authority prohibiting the banks releasing it without subpena? Mr. ROSSIDES. Right, we do not want it. Senator PROXMIRE. Why not? Why not give that protection? Mr. ROSSIDES. Because many agencies do not have subpena power, enforcement agencies. Senator PROXMIRE. Then, they can go to the Justice Department? Mr. ROSSIDES. In effect, this would make it a very cumbersome procedure. Senator PROXMIRE. You are saying they are getting these records without court process, without showing a due cause? Mr. ROSSIDES. I cannot speak for all the agencies, Senator. Senator PROXMIRE. That is the clear implication of your response, is it not? Mr. ROSSIDES. No. What happens if an agent goes in who does not have subpena power, and the bank says no, which they have a right to do, the agent would go to the Department of Justice and get a grand jury subpena. Senator PROXMIRE. I do not believe it ought to be up to the bank. The depositor ought to have a right to protection of the courts. It should not be the banker who maybe does not care about his rights or does not like the depositor to give access. The depositor should be protected by the court of law, should he not? Mr. ROSSIDES. He can; he can refuse and it is up to the Senator PROXMIRE. The banker can refuse but not the individual who is being investigated. Mr. ROSSIDES. Oh, no. Senator PROXMIRE. He has no protection which he should have. Mr. ROSSIDES. The individual is protected because if you are saying that you are going to have to get the consent of the individual Senator PROXMIRE. No; I am saying the consent of the court. Bankers have many fine characteristics but one is not necessarily that they act as a court. We should not require that they do exercise a judicial function. I think it is unfair to them. Mr. ROSSIDES. If every invesigation, Mr. Chairman, is going to be required to go to court in order to proceed in the investigation you are now in my judgment literally crippling an enforcement. Maybe "crippling" is too strong a word, but it is close. The normal investigative function would be damaged. I do not see where there have been examples of abuse of what has been built up over 50 or more years in the Federal courts, State courts, et cetera, the techniques and rules of access to banking records, to corporate records. You would have to do in my judgment a very careful study of existing practice on the Federal level and State and local level. Senator PROXMIRE. Let me ask you this: Can you spell out the various ways in which access to bank records can be obtained by law enforce ment agencies? Who has the power to issue administrative subpenaes; who must go to court; what must be shown to obtain a court order; lastly, because I was not prepared for your responses, the cases under which an action can go to court without going to the bank without a subpena. up. Mr. ROSSIDES. The last case? Senator PROXMIRE. Why don't you give me the first and I will follow Mr. ROSSIDES. It is always backed up. An agent seeking records, he always has to back it up-if there is a refusal he can go to the Department of Justice for a grand jury subpena. We can submit for the record a more detailed analysis, Senator. Various methods, stemming from the administrative summons, sometimes called a subpena but in effect it is an administrative summons; on the basis of that summons the bank or other institution will then feel that there is sufficient authority to turn over records. Now, the person can contest that summons, the bank, or importer under customs investigation, and that goes into court. Then you have the whole broad area of the grand jury subpena. That is issued and requires the records and if they want to contest the grand jury subpena, they go to court. And I remember the first case that I was involved in as a young lawyer. It went 5 years on the right of access to documents in a major antitrust case. Third, a practical matter, and the witness following, Mr. Lynch, he can go into more detail with his experience in the Justice Department; an agent can go into a bank to look at certain records explaining the need for it. Now, the institution can say, "No, I am sorry; I want a subpena." Then the agent would go to the Department of Justice or local U.S. attorney and get a grand jury subpena. Senator PROXMIRE. I think you answered the last part of my question. My question was under what circumstances can an agency secure records without a subpena. They are saying they can ask for them and if they are refused they have to get a subpena in that case. But it is up to the bank Mr. ROSSIDES. It is up to the bank whether they force them to do it. Let me give another example based upon my experince in private practice: day-in and day-out people are seeking information or records from corporations, say hotels and others of that nature, totally unrelated to governmental action. It would impede commerce if we make our procedures on access to what are considered routine documents too cumbersome. I think the body of law that has been built up over the years on access is very good. I know of no egregious situation that has developed. But because of this bill, concerning the proper keeping of records which have been most valuable all along the line from organized crime to white collar crime suddenly this issue developed peripherally because there was confusion as to whether or not your bill and the congressional bills had given greater access and they had not. Senator PROXMIRE. My time is up. I wish you would elaborate your response to my question as you indicated you would. (The following information was received from the Treasury Department :) Senator PROX MIRE, THE DEPARTMENT OF THE TREASURY, Committee on Banking, Housing and Urban Affairs. DEAR MR. CHAIRMAN: At the hearing held by your Subcommittee on August 11, 1972, on the implementation of Titles I and II of Public Law 91-508, you requested that information be provided concerning access to bank records by law enforcement agencies. You specifically asked: 1. Who has the power to issue administrative subpoenas? 2. Who must go to court before obtaining access to bank records? 3. What must be shown to obtain a court order granting access to bank records? and 4. Instances in which an action can go to court other than by going to the bank without a subpoena? Our discussion of the methods and procedures of access to bank records must necessarily be limited to those which relate to agencies of the Treasury Department. Question. Who has the power to issue administrative subpoenas? INTERNAL REVENUE SERVICE Answer.-Internal Revenue Service agents are authorized by the Internal Revenue Code to issue an administrative summons for the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or inequity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability. 26 U.S.C. 7602, 26 U.S.C. 6333. BUREAU OF CUSTOMS The Bureau of Customs is also authorized to seek information through administrative procedure. Section 509 of the Tariff Act of 1930, as amended (19 U.S.C. 1509), authorizes appropriate Customs officers to "cite to appear before them" and "to examine upon oath" any owner, importer, consignee, agent or other person upon any matter or thing which they deem material respecting imported merchandise "then under consideration or previously imported within one year" in ascertaining the classification or value or rate of duty; and they may require the production of any letters, accounts, contracts, invoices, or other documents relating to the merchandise. The authority contained in section 509 has been delegated to district directors, regional commissioners, SAC's,1 deputy SAC's, and assistant SAC's. In actual practice, the "citation" is served by a Customs special agent on Customs Form 3115 although it may be served by any authorized Customs officer or by registered mail. Any person refusing to appear or to produce the documents or to subscribe his name to a deposition or refusing to answer interrogatories is subject to a penalty of not less than $20, nor more than $500 in accordance with section 510 or the Tariff Act of 1930, as amended (19 U.S.C. 1510) and further, the last appraisal is made final and conclusive. Section 510 also provides that a person falsely swearing on an examination shall be guilty of perjury, and if the owner, importer or consignee, the merchandise or the value thereof shall be forfeited. Section 511 of the Tariff Act of 1930, as amended (19 U.S.C. 1511) provides that if any person importing merchandise or dealing in imported merchandise fails to permit a duly accredited officer of the United States to inspect his books, papers, records, accounts, documents, or correspondence pertaining to the value or classification of such merchandise, the Secretary of the Treasury pursuant to regulations may prohibit the importation of merchandise and instruct appropriate Customs officers to withhold delivery of merchandise imported by or for the account of such persons. The prohibition shall continue until the records are produced and if the failure continues for a period of 1 year, the merchandise shall be sold at public auction unless sooner exported. In practice. the request to inspect records is also made on Customs Form 3115. The appropriate regulations for sections 509 and 511 are contained in 23.28 and 23.29, 19 CFR. 1 SAC refers to Special Agent in Charge. Section 641 (d) of the Tariff Act of 1930, as amended, permits the Secretary of the Treasury to prescribe regulations governing recordkeeping by customhouse brokers, and the inspection of these records, or the furnishing by brokers of any information relating to their business to appropriate officers of Customs. Regulations pursuant too this statute appear in 19 CFR, Part 111. 19 CFR 111.23 and 111.25 provide that books and papers shall be available for examination by Customs field auditors or special agents for a period of 6 years after the date of entry of the merchandise and section 111.26 provides that a broker shall not refuse access to, conceal, remove or destroy any book or paper relating to his transactions as a broker which are being sought, or which the broker has reasonable grounds to believe may be sought by the Treasury Department or any representative thereof, Section 111.27 provides, in part, that the Director, Field Audit, and/ or the Special Agent in Charge may inspect broker's books and papers. Customs may issue administrative subpoenas for the production of records or other documents, including financial records, relevant to investigations of controlled substances, 21 U.S.C. 198a. With respect to investigations of smuggling any controlled substance (narcotics and other dangerous drugs) 21 U.S.C. 198a, 198b, and 198c authorizes the Secretary of the Treasury to administer oaths, subpoena witnesses, take evidence, and require the production of records relevant or material to the investigation. Section 198b provides the methods of service and section 198c provides the machinery for contempt proceedings. The authority to issue subpoenas under section 198a has been delegated to Special Agents in Charge, Subpoenas under section 198a may be served by any special agent. Any agency or department enforcing the provisions of the Export Control laws may make investigations, require records to be kept, inspect books and records, and subpoena persons to testify and produce books and records. 50 Appendix U.S.C. 2406. In practice, applications for subpoenas under the export control laws are sent by special agents to the Investigations Division, Office of Export Control, Bureau of International Commerce. If the application is approved, a subpoena is prepared and service is effected by a Customs special agent. In addition to the foregoing, there are numerous provisions of the Tariff Act of 1930, as amended, which provide that importers or masters of vessels shall make records and documents available to Customs officers. For example, section 581 (19 U.S.C. 1581) permits Customs officers to board vessels and vehicles, examine the manifest and other documents and papers and use all necessary force to require compliance. Question.-Who must go to court before obtaining access to bank records? Answer. If records sought are not produced upon the issuance of a subpoena or administrative summons, application must be made to a Federal district court to compel compliance. If records are sought by a grand jury subpoena, a motion to quash can be made before the Federal district court by the person refusing to produce the records, otherwise he would be in contempt of court. Question. What must be shown to obtain a court order granting access to bankrecords? Answer.-Existing statutory authority governing the use of administrative summonses requires the Internal Revenue Service to show that the investigation is authorized and the records sought are relevant or material to the tax investigation. Rule 17, Federal Rules of Criminal Procedure, and Rule 45, Federal Rules of Civil Procedure, set forth the manner in which documents may be obtained for use in evidence before a court or grand jury. Under Rule 45 of the Federal Rules of Civil Procedures the criteria for enforcement of a bank records subpoena are relevancy and materiality of the evidence sought. United States v. National City Bank of New York, 2 FRD 46, 48 (S.D. N.Y. 1941). Under Rule 17 of the Federal Rules of Criminal Procedure, the criteria for enforcing the production of any documentary evidence before a grand jury or a court are reasonableness [In Re Grand Jury Investigation, 174 Fed. Supp. 393, 395 (S.D. N.Y.)],, and "good cause," which was defined in United States v. Iozia, 13 F.R.D. 335, 338 (S.D. N.Y. 1952), as follows: (1) That the documents are evidentiary and relevant; (2) That they are not otherwise procurable . . . reasonably in advance of trial by the exercise of due diligence; (3) That the defendant cannot properly prepare for trial without such production and inspection in advance of trial and the failure to obtain such inspection may tend unreasonably to delay the trial; (4) That the application is made in good faith and is not intended as a general fishing expedition. The Supreme Court has noted in U.S. v. Morton Salt Co. 338 U.S. 632, 642-43 (1950): [T]he Grand Jury . . . does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. When investigative and accusatory duties are delegated by statute to an administrative body, it, too, may take steps to inform itself as to whether there is probable violation of the law. The Internal Revenue Service thus must show that the records requested of a third party do not create an unreasonably onerous burden and that they are relevant to the investigation. U.S. v. Harrington, 338 F.2d 520, 523 (2d Cir. 1968); Foster v. United States, 265 F.2d 183, 186-187 (2d Cir. 1959), cert. denied, 360 U.S. 912 (1959). These standards were set out in greater detail by the Supreme Court in United States v. Powell, 379 U.S. 48, 57-58 (1964): [T]he Commissioner need not meet any standard of probable cause to obtain enforcement of his summons, either before or after the three-year statute of limitations on ordinary tax liabilities has expired. He must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner's possession, and that the administrative steps required by the Code have been followed. Question.-Instances in which an action can go to court other than by going to the bank without a subpoena? Answer. There are three ways of obtaining bank records : 1. IRS administrative summons. 2. Grand jury subpoena issued pursuant to an investigation conducted by a grand jury. 3. Use of a court subpoena as part of discovery in a court case or to obtain evidence for a trial. If I can be of further assistance please let me know. Sincerely yours, EUGENE T. ROSSIDES Senator BENNETT. I would be glad to yield my time so he could finish answering your question. Mr. ROSSIDES. I think that we can submit, if the chairman would like, for the record a more detailed analysis of steps taken in this area. But basically the question of access which we knocked out of the bill in the House and strengthened in the Senate through the efforts as I mentioned of Senator Bennett and Senator Percy with your concurrence in part of the provisions, has not been a problem for the average citizen. It has not been a problem for the average citizen. It has not been as if there has been an outcry by the average citizen that. something is happening to them that should not be. These records are there. Most banks kept them as you pointed out in your opening statement, Mr. Chairman, and the problem is now that maybe they are not keeping them long enough now. The provision that if you don't do something in 6 months, the records can not be used would seriously harm law enforcement. Maybe there needs to be improvement in this area of access, but after careful study on the State, Federal and local level-maybe the bar association should get into this. They are in it to some degree. They did study IRS procedures. |