"Sec. 21. (a) (1) The Congress finds that adequate records maintained by insured banks have a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings. The Congress further finds that microfilm or other reproductions and other records made by banks of 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. "(2) It is the purpose of this section to require the maintenance of appropriate types of records by insured banks in the United States where such records have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.

"(b) Where the Secretary of the Treasury (referred to in this section as the 'Secretary') determines that the maintenance of appropriate types of records and other evidence by insured banks has a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, he shall prescribe regulations to carry out the purposes of this section."

Section 121 of the Act established the same "high degree of usefulness test" for records to be made and retained by "Other Financial Institutions."

Treasury attempted in the drafting process to minimize to the extent possible burdens upon the affected financial institutions while maximizing law enforcement effectiveness.

RECORD MAINTENANCE

Among the initial questions the Treasury study team addressed was the extent to which banks should be required to maintain copies of checks and other financial records.

Usefulness. If they are to be effective, law enforcement and regulatory agencies must be able to reconstruct details of important financial transactions. This requires that copies of individual checks be made and retained for a reasonabl amount of time by financial institutions.

Treasury determined that law enforcement and regulatory agencies depend heavily on banks' records in their investigations and proceedings and that it is often necessary for them to reconstruct financial transactions relevant to a particular investigation. The foundation of such an investigation must be the individual checks that have been issued. Only these checks or copies of them, can be used to prove who signed a check, who endorsed it, and which banks processed it. However, a trend was developing among financial institutions either not to make records or to retain them only for a very short time period.

Treasury found many domestic banks were destroying records at the earliest possible date. Many banks would return original deposit slips or tickets to their customers. In some instances, a microfilm record of the deposit slip was not made, and in other cases the microfilm record was retained for a much shorter period than is necessary for law enforcement purposes.

Some banks would microfilm all checks drawn on accounts of their customers as well as all checks on other banks cleared as transit items. Other banks had discontinued microfilming checks cleared locally and would microfilm only transit items. Retention periods varied from less than one year to more than six years. With the introduction of data processing, the maintenance of individual account ledgers was being discontinued by some banks. Abbreviated retention periods adopted by banks for teller's proof tapes, bookkeeper journals, daily trial balance printouts, and microfilm records of customers statements made it difficult to trace and identify deposit or withdrawal items. Some banks disposed of installment loan ledgers and loan applications and financial statements as soon as the account was paid in full. Others disposed of those records whenever the account became inactive or within one or two years after it became inactive.

The absence of copies of checks and other pertinent records forced the abandonment of many serious criminal and civil tax investigations. Law enforcement agencies urged the mandatory maintenance of copies of all checks both deposited in and drawn on banks on the basis that such records are useful in criminal and civil investigations. It was also established that it would be useful to require the maintenance of copies of checks relating to purely domestic as well as to foreign matters.

The questions presented were (i) whether all such checks had a "high degree of usefulness" and (ii) whether the burdens imposed upon the public outweighed enforcement benefits.

Checks. After review of the provisions of Public Law 91-508 and its legislative history we concluded that it compelled us to require the microfilming of all

checks unless we established by careful study that copies of certain checks did not have a high degree of usefulness in criminal, tax, and regulatory investigations or proceedings. Thus, we were obliged to make a negative finding that checks did not have a high degree of usefulness before excluding them from the application of the law.

After lengthy study we concluded that there were grounds for making significant exemptions from this copying or microfilming requirement. First, we decided that by requiring each bank to copy those checks drawn upon it, which checks are commonly referred to as "on us" checks, we could exempt all domestic items deposited with banks or in transit, thus eliminating the necessity for such checks to be copied a second or third time by each bank through which they might be processed. Requiring banks to maintain copies of these collection items would seriously delay the process of clearing checks through the American banking system. Slowing the velocity of bank clearings would result in the annual loss of millions of dollars to financial institutions because of interest losses attributable to delay in availability of money. Further, we determined that if records are maintained by financial institutions to reconstruct an account, which is done in the normal course of business, law enforcement agencies could retrieve copies of deposited checks by tracing such deposited items through to the bank upon which it was drawn. We concluded that copies of such deposit and transit items did not meet the "high degree of usefulness" criteria and that if we were to require banks to maintain copies of deposited or transit items the resulting burdens would outweigh any benefits.

In addition, we isolated several categories of checks which did not meet the "high degree of usefulness" test. Specifically, we exempted entirely all "on us" checks drawn on an account that can be expected to have an average of a hundred checks per month drawn on it and which are:

(1) dividend checks

(2) payroll checks

(3) employee benefit checks (4) insurance claim checks

(5) medical benefit checks

(6) checks drawn on governmental agency accounts (7) checks drawn by brokers or dealers in securities

(8) checks drawn on fiduciary accounts

(9) checks drawn on other financial institutions

(10) pension or annuity checks

These checks constitute a substantial percentage of all "on us" checks. Retention Period.-Another difficult question presented was the length of time that records should be required to be maintained. Law enforcement officials wanted records retained at least as long as the statute of limitations on the offense with which they were concerned, in most cases a period of six years. Some financial institutions expressed serious concern over the expense of meeting such lengthy record retention requirements in view of the great volume of records and high storage costs.

We found that most banks in the normal course retain for a period of from six months to a year records necessary to trace checks through the check processing system. Because of the high cost involved, we limited the retention period to what we considered to be the minimum reasonable duration. We required that financial institutions retain copies of checks for a period of five years and the records necessary to reconstruct an account for a period of two years. We concluded that requirement would provide us with some initial experience from which we could determine whether that retention period was sufficiently long. Our objective was to minimize the retention period initially, and to lengthen the time period only after a clear showing that a longer retention period was necessary for enforcement purposes.

Records Necessary to Reconstruct Accounts.-Treasury studied at length the subject of what records are needed to reconstruct a demand deposit account and determined that it would suffice if the bank could trace a check deposited in an account through its domestic processing system or supply a description of a deposited check. Microfilming of all checks processed by the bank is not necessary if adequate techniques are available for tracing all items through the proof and transit tapes and journals to the microfilm records of the drawee bank. In addition, because these records are exceedingly bulky and do not lend themselves to microfilming, the retention period of such records was reduced from the general five-year period to two years.

THE IDENTIFICATION REQUIREMENT

Congress made a specific finding in the Act that records kept by banks of the identity of persons opening accounts have a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings. The Act also instructs the Secretary to issue regulations requiring banks to maintain appropriate records of the identity of each person having an account in the United States with a bank, and authorizes him to impose the same requirements on other financial institutions. The legislative history clearly indicates that this provision was intended to ensure that banks and other financial institutions verify the identity of their customers.

We determined that obtaining the customer's taxpayer identification number (social security number for individuals; employer identification number for companies and other entities) should be an integral part of the identification process and that it was a logical minimum requirement.

Moreover, the taxpayer identification number (TIN) has been very useful in tax investigations. With the TIN the data on the application for the number can be obtained and the holder's Federal tax returns, which are a valuable source of information, can be easily located. In addition, an employed person can usually be located if his social security number is known. Finally, for many years financial institutions have been required to request all customers who open accounts that earn interest or dividends to provide their taxpayer identification numbers.

REPORTING REQUIREMENTS

The statute and regulations require three types of reports:

'(1) all persons maintaining foreign bank or security accounts must disclose that fact on their federal income tax returns, and maintain adequate records of such accounts (Section 241 of the Act makes this requirement mandatory); (2) all persons transporting, mailing, or shipping from the United States to a foreign country, or receiving from without the United States, currency or bearer instruments in amounts in excess of $5,000, must report such transactions to Customs (Section 231 of the Act makes this requirement mandatory);

(3) financial institutions must report transactions of more than $10,000 in which currency is involved. This requirement is based on Section 221 of P.L. 91-508 which provides that currency transactions involving domestic financial institutions shall be reported to the Secretary of the Treasury under such circumstances as the Secretary shall prescribe. This section of the regulations represents a liberalization of requirements which have been in existence since 1959. This new regulation replaces a previous requirement to report currency transactions of $2,500 or more with a requirement to report only those of $10,000 or more. Moreover, banks are not required to report transactions which the bank concludes are commensurate with a customer's normal conduct of business.

Treasury strongly supported these three reporting requirements because they place IRS in a position to identify instances of tax evasion by U.S. taxpayers involving foreign accounts and international transactions. Reports of international transportation of currency or bearer instruments are particularly valuable not only because of the information they provide when filed, but because criminal proceedings can be brought against drug smugglers and organized crime figures who fail to file that report. The currency transactions reports are a valuable source of leads to persons engaged in narcotics distribution and organized crime because they often deal in large amounts of currency. These reports have also proved useful in the past in identifying people engaged in tax evasion schemes and in locating their assets.

EXEMPTIONS AND EXCEPTIONS

A procedure was needed for granting exemptions and exceptions from the recordkeeping and reporting provisions on a uniform basis and to establish a means of adequately disseminating information of exceptions or exemptions having general applicabilities. Accordingly, Treasury centralized the granting of exemptions in the Office of the Secretary. Copies of letters granting individual exemptions and published notices of exemptions applicable to a class of persons are to be published in the Federal Register and arrangements have been made for the various trade journals and financial reporting services to pick up and disseminate the information.

Exempting Checks Under $100.-On April 4, 1972, when the first effective regulations were published, Treasury required banks to maintain copies of all "on us" checks except for several exempted categories. (See page 5.) Subsequent to April 4, 1972, and on the basis of further study Treasury has determined that while the maintenance of copies of all checks would be useful, law enforcement would not be greatly impaired if the requirements included only checks drawn for amounts of $100 or more. Such a dollar limitation together with other exemptions for certain high volume accounts should reduce substantially the impact of the cost of microfilming checks.

On August 11, 1972, Assistant Secretary Eugent T. Rossides testified : Although our study of this entire matter is still proceeding, in view of the Congressional mandate, we decided we could delay no longer the issuance of implementing regulations. However, as I stated earlier, we are presently considering a number of additional exemptions including an exemption for all checks drawn for $100 or less. While such small checks have been helpful in certain cases in the past, our review suggests there may be good cause to find that the microfilming of such checks does not have a high degree of usefulness. We estimate that approximately 90% of all personal checks would be covered by such an exemption.

ANSWERS TO QUESTIONS OF SENATOR MATHIAS

Question. Which Federal agencies, bureaus, and offices, within or outside the Treasury Department, have access to the microfilms and other records retained by financial institutions pursuant to this Act? At what administrative level— division head, individual investigative agent, etc.-may an inspection of any such records be initiated?

Answer. The implementing regulations do not deal in any way with the subject of governmental access to records maintained or required to be maintained by financial institutions, but such access is governed by pre-existing law. The regulations will be amended to state this explicitly.

We cannot speak for other federal and state agencies, which have statutory authority to obtain access to financial records, concerning the manner in which such an inspection is initiated. The Comptroller of the Currency now has access to all records of national banks and banks in the District of Columbia for bank examination purposes. Secret Service agents, Customs agents, and Internal Revenue agents having official need to inspect records currently maintained by financial institutions will generally seek to secure access to such records on the basis of their general investigatory authority. If the records sought are not voluntarily produced, a subpoena or administrative summons as authorized by law may be served upon the institution as evidence of its legal duty to furnish the information. If the records sought are not produced, application must be made to a Federal district court to compel compliance. Of course, Treasury agents are permitted to seek information only in connection with an investigation initiated pursuant to the statutory responsibilities of this Department.

Question. On what grounds or according to what criteria may an inspection be initiated?

Answer. We cannot answer authoritatively with respect to the practices of other Federal departments or agencies. Internal Revenue agents are authorized 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 of any person in respect to any Internal Revenue tax, or collecting any such liability. As indicated above, if the person summoned does not comply, application may be made to a Federal district court for enforcement under Section 7604 of the Internal Revenue Code.

Question. What if any, warrant, subpoena or other judicial order is required before the records of an individual's account or transactions may be inspected? copied? used in a grand jury proceeding or introduced as evidence? How do present procedures on these points differ from those in effect prior to the enactment of P.L. 91-508?

Answer. As indicated above, present procedures differ in no way from those in effect prior to the Act. The records required to be kept under the regulations are the property of the financial institution and are subject to disclosure by it pursuant to law.

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. Rule 123 of the Rules of Court of the Court of Claims, and Rule 44 of the Rules of Practice Before the Tax Court, also authorize subpoenas. In addition, Section 556 of Title 5, United States Code, authorizes administrative hearing officers to issue subpoenas authorized by law. Question. What is the authority of the officers, bureaus or agents with access to these financial records to transmit copies of such records or the information they contain to other Federal or non-Federal law enforcement officers or bureaus which do not have direct access to the records? If records or information may be transmitted, to whom and in accord with law, regulations or other criteria? Answer. Section 1905 of Title 18, United States Code, and Section 7213 of Title 26, United States Code, and Section 3508 of Title 44, United States Code, prohibit the unauthorized disclosure of information and provide penalties therefor. Regulations contained in Part 1 of Title 31, Code of Federal Regulations, Part 103 of Title 19, Code of Federal Regulations, and Part 301 of Title 26, Code of Federal Regulations, prescribe the restrictions upon the disclosure of records of the Treasury Department. Title 26, Code of Federal Regulations, Section 301.6103 (a), et seq., particularly provides for inspection of returns upon order of the President and sets forth rules and regulations prescribed by the Secretary of the Treasury and approved by the President pursuant to which State and Federal government inspection of returns may be made. Treasury Department Order 7162, dated February 16, 1972, defines "returns". Since the legislative history of P.L. 91-508 shows that governmental access to private records is not changed in any way, but will be subject to the provisions of existing law, the above statutes and regulations fully apply.

The only additional information which may be made available to other departments or agencies of the Federal Government is that contained in reports filed pursuant to Title II of the Act, as expressly provided in Section 212 of the Act and Section 103.43 of the regulations. Section 103.43 provides as follows:

"The Secretary may make information contained in 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."

Question. What controls or oversight does your Department maintain to insure that the contents of such financial records will not be improperly used or disclosed? What are the penalties for unauthorized use or disclosure?

Answer. The statutes and regulations cited above contain the controls which prevent the information contained in financial records from improper disclosure. Section 1905 of Title 18, United States Code, provides that an officer or employee of the United States, or any agency thereof, who unlawfully discloses confidential information shall be fined not more than $1,000, or imprisoned not more than one year, or both; and shall be dismissed from his office or employment. The same punishment is provided in Section 7213 of Title 26, United States Code, for the unauthorized disclosure of information relating to the liability of any person for federal income taxes. Section 103.43, quoted above, and Section 2124 of P.L. 92-508 of the Regulations provides for appropriate control of the dissemination of information contained in reports by requiring the Secretary of Treasury to determine that the information requested is to be used for purposes consistent with the intent of P.L. 91-508. It is believed that these statutes provide adequate protection to the public against the possibility of improper disclosure. However, the regulations will be amended to make explicit the requirement that information furnished to other agencies must be treated confidentially.

[Reprinted from Federal Rules of Criminal Procedure]

RULE 17, SUBPOENA

(a) For attendance of witnesses; form; issuance.

A subpoena shall be issued by the clerk under the seal of the court. It shall state the name of the court and the title, if any, of the proceeding, and shall command each person to whom it is directed to attend and give testimony at