Mr. ROSSIDES. Senator, I would be happy to. Even in the rewording of the question about the dispute there is a slight change from what was alleged by certain persons as to what happened. They alleged that the Treasury drafted the H.R. 15073. I think now they are alleging it might have been Justice.

Senator, I will answer it very briefly because I do not want to get into a controversy about past recriminations of who struck John. I think far more important is that we can agree on the obejctive and figure out the best way to get there. But in fairness to distinguished and hard-working Treasury staff who are here today, who were more annoyed at the accusation that they helped draft the original House bill, not because they did not agree with the objectives of the bill but they said they did not want to be associated with the kind of draftsmanship that was involved-it was that bad.

We testified originally on December 4 and said the original bill in the House needed a lot more study, that it not only needed study, it needed more work.

On March 2 when I presented our testimony after several months of hard work, I was very pleased that the chairman of the House Banking Committee congratulated us, congratulated us on our efforts, and agreed to incorporate our suggestions, and then unfortunately they did not agree to accept all of the amendments we suggested.

We improved that original bill considerably. There were so many loopholes, bad draftsmanship. Finally, when we were not able to work it out between the two staffs cooperatively, we felt we had to come in with our own bill. That is why I am saying, Senator, I am not concerned with pride of authorship in H.R. 16444.

Senator PROXMIRE. In your view it was a matter of changing the poor draftsmanship and the loopholes and making corrections of this kind, it was in very large part technical corrections perhaps that were in error, it was not in your view a softening action?

Mr. ROSSIDES. Not only not a softening action, Senator, our amendments that we came in with on March 2 strengthened the bill.

Regarding the softening nonsense, this idiocy of trying to write legislation by leaks and rumors and so on and so forth, frankly, I don't like to quote newspapers, but when I gave a recent talk I decided to do that because of what I felt were the unfair charges regarding accusations about bank pressure and so on.

I have got a thick skin so I don't mind about false accusations that I gave in to pressure. But the proper way to write legislation is if you are dealing with a particular industry or group, you work with them. The Washington Post pointed out that after 13 or 14 drafts, allegedly 13 or 14 drafts of the original House bill there had not been to that date one consultation by the House staff with the banking or brokerage community. The quote is the following and it was in a December 27, 1969, Washington Post editorial referring to the original Patman bill: "This is a subject, of course, on which bankers ought to have their say. The strange thing is that they had not been consulted while the bill was being drafted. Though it is of great importance to curb the misuse of hidden bank accounts abroad, it is equally vital to protect the free flow of international commerce and to avoid the imposition of unnecessary burden upon the banks."

This came up in the House, Senator. Congressman Reuss asked me, and he quoted from a magazine about pressure, and I said no, there was not. There was reverse pressure. The bankers came in and I was

in a meeting for a few minutes. The staff was there. I gave the policy position: the Treasury was determined to do something, we had moved ahead in the treaty area, we had moved ahead administratively to see what procedures could be changed, we were now looking for legislation. We wanted this assistance, and they pledged their assistance and I walked out of the meeting.

My point is, without this help we would not have been able to come up with these substantial amendments that we made in the bill. So, again I want to keep away, if possible, from, as I say, who struck John, because I think that this legislation can be helpful and, really, Senator, what we are trying to do is to get the best possible language.

Senator PROXMIRE. I am concerned over your opposition to title IV which requires fuller disclosure on foreign stock transactions. Yesterday SEC said this provision would strengthen their ability to enforce our securities laws. I should think it would also enable IRS to reduce tax evasion. Why do you think it would reduce the flow of foreign investment in this country.

Mr. ROSSIDES. Senator, I think on the question of strengthening enforcement, it possibly could help. I would have to analyze it a little more from that point of view.

Our concern was with the impact on the mobility of funds and the question of whether or not we are trying to regulate foreign businesses. Our feeling is that we should not be doing this, that it would not be that helpful.

I think the chairman of the Securities and Exchange Commission did defer on the question of the impact of this on the mobility of capital.

Senator PROXMIRE. He did that indeed, but he also indicated that it would help him in enforcing the securities laws.

Mr. ROSSIDES. It is a very difficult provision to enforce and to use to obtain reliable information; so, I am not so sure. I spoke with the chairman this morning very briefly. I just mentioned that I noted some of his testimony yesterday and that I would be testifying that we would want this provision deleted.

I guess when you say if we can get additional information as to who is doing what that that would be helpful. On that basis, SenatorI am not trying to duck the question, I am just trying to say it is a very difficult provision to enforce, and that clearly the problem of interference with the international flow of moneys into the United States, and the international mobility of moneys and business, generally so far outweigh the potential increase in law enforcement benefit that we just don't feel it is that close a question.

Senator PROXMIRE. I wonder how this would inhibit the flow of money into the country. Isn't it true that any reduction in so-called foreign investment might be due to U.S. citizens transferring their money out of secret foreign accounts because of the disclosure provisions, and would not most of their money come back in legitimate form?

Mr. ROSSIDES. No. We don't believe that most foreign investment in the United States represents investments of U.S. citizens.

Senator PROXMIRE. Where do you think this $9 billion of funds. invested from Switzerland into our markets is coming from? Does not that come primarily from U.S. citizens?

Mr. ROSSIDES. We do not know, but it could come from innumerable foreign sources.

Senator PROXMIRE. It does not come from the Swiss.

Mr. ROSSIDES. Well, it actually could come in large part from the Swiss, or other foreigners using Swiss banking facilities.

Senator PROXMIRE. $9 billion?

Mr. ROSSIDES. We just do not know. But the $9 billion was approximately the gross purchases and sales of U.S. stocks and bonds in 1969. The total purchases from Switzerland in that year were $4.9 billion. The actual net inflow was $658.7 million. This is a small sum compared with the funds available for investment in Europe. The relatively small size of U.S. funds in Switzerland is also indicated by the fact that total short-term liabilities of Swiss commercial banks in dollars to U.S. residents in December 1969 were $440 million out of a total of $4.46 billion. Senator PRÒXMIRE. Of course the whole purpose of title IV is so that we would know.

Mr. ROSSIDES. The comments on the statistics, Senator, which my staff gives me as estimates, is that actually only a small percentage is estimated to be from U.S. citizens.

Senator PROXMIRE. How can you make any estimate if you do not know?

Mr. ROSSIDES. That is why I said an estimate.

Senator PROXMIRE. What is the estimate based on?

Mr. ROSSIDES. It is based on the fact that the Swiss are world bankers. They are not the bankers for the United States. There are moneys there from all over the world. I would say the probability is clear that it is a small rather than a large percentage of the $659 million net investment in 1969. But I will discuss this within the Treasury and get estimates of other figures.

(A table showing Swiss purchases and sales of U.S. corporate bonds during the period 1954-69 follows:)

SWITZERLAND

TRANSACTIONS IN U.S. CORPORATE BONDS AND STOCKS REPORTED BY BANKS AND BROKERS IN THE UNITED STATES, 1954-69

Note: Classified as transactions with Switzerland on the basis of whether the address of the person giving the buy or sell order is a Swiss address. Gross purchase figures may include purchases of U.S. securities from other foreigners; the same with gross sales figures. However, the net purchase and sales figures tend to cancel out these transactions between foreigners, but probably do not do so completely for any single country breakdown.

Mr. ROSSIDES. Let me add one other comment about title IV. I anticipated that this would be a bone of contention, and my key point is again it gets away from what is a helpful thrust of the legislation on recordkeeping and reporting requirements.

Let me say that this title IV just exhibits throughout, Senator, with all due respect, a hostile attitude toward foreign investment. It indicates in a way financial isolationism. The way we handle problems such as this should be with international cooperation, not an attempt by the United States unilaterally to start building up a wall against foreign investment. This section would not help us, Senator; it would harm us.

Senator PROXMIRE. Senator Bennett.

Senator BENNETT. We have an interesting situation in the Middle East. We are lined up on one side more or less of a conflict. On the other side there are men of immense wealth who presumably use the Swiss banks to a great extent. I wonder if this is not the device by which the wealth of the Middle East, the oil rich countries, can come into the United States without their getting involved in the patriotic problem in the war that is going on, and whether that might not be a substantial source of these billions of dollars that are generated.

Mr. ROSSIDES. Excuse me for a moment, Senator. Let me confer with the staff. That may well be true. There are vast sums available for investment in that area; however, I do not want to speculate on the size of such flows.

Senator PROXMIRE. Under title IV all the bank would have to say it is not coming from a U.S. citizen, and if it is coming from a U.S. citizen disclose who it is. It would not reflect if it is coming from somebody in Egypt or some other country.

Mr. ROSSIDES. It is extremely difficult for them to know. They talk about certification of non-U.S. origin. How can they certify when they are not sure? You are talking about a heavy paperwork burden and you are talking about telling a foreign business how to operate. Senator PROXMIRE. Why would any legitimate U.S. investor object to having his identity disclosed if he trades through a foreign bank account?

Mr. ROSSIDES. Senator, he would not object, in my judgment. But the point on this title is that it goes to all foreigners as well. In other words, they have to certify that they are not dealing for Americans or give the name of their American customer. They have no accurate way of determining the true character of the funds entrusted to them.

We have been building up since World War II an international system aimed at the goal of lowering barriers to the international flow of goods and capital. This is putting up one of those barriers and we feel we should aim more at cooperation working with the other nations.

Senator PROXMIRE. Isn't it true that if U.S. brokers execute stock orders on behalf of a U.S. principal, law enforcement agencies can now ascertain the identity of the principal through subpena or other legal process?

Mr. ROSSIDES. Certainly, against U.S. brokerage houses, and I have issued some of those subpenas myself, Senator.

Senator PROXMIRE. If foreign brokers and investors wish to enjoy the benefits of participating in our capital markets should not they be required to play by the same rules imposed on domestic brokers?

Mr. ROSSIDES. No, sir, this is not an area in which we can appropriately impose our rules on others.

Senator PROXMIRE. Why not?

Mr. ROSSIDES. It is a question of how you deal with foreign countries. We are not trying to tell the Swiss how to run their business or the French how to run their brokerage businesses. When we put on requirements we are not trying to run the internal affairs of other countries, particularly in the monetary field which is a very, very ticklish area. This factor should also be considered in the light of the impossibility of enforcing the rules proposed in title IV.

Senator PROXMIRE. We are not trying to run the internal affairs of another country. They are taking part in our market and we are just stating the rules under which they may take part.

Mr. ROSSIDES. Senator, if you want to cut down on the flow of investment funds into the United States, this particular title could help do that.

In your preparatory remarks in the introduction of your legislation you suggested that one of the tests was not to cut down on the mobility of capital. We are saying, as a Treasury position, that this does. We have not investigated the degree to which it should help law enforcement, but because of the difficulties of enforcement we are skeptical.

Senator PROXMIRE. You say you estimated that it may, you just don't know, this is your best guess, and you are very well qualified to make a guess, I would not deny that. But on the basis of all the information you have and what you do not have now, you really cannot tell.

Aren't you really saying our balance of payments position is enhanced by those who wish to avoid disclosure because they might be breaking the law? Doesn't this put us somewhat in the position of an international fence who knowingly accepts illegal merchandise because of the profit? As a spokesman for an administration concerned with law and order, how can you defend the morality of this provision?

Mr. ROSSIDES. I just disagree with your premises completely, Senator. The information that would be obtained by this title would be very little. You could not depend on the reliability of it. The import of title IV will be an administrative nightmare; it is financial nationalism and parochialism, it would deter the flow of international investment into the United States.

Senator PROXMIRE. Well, the rhetoric is fine. The substance comes through that you think it would deter the flow of investment into this country. You may or may not be right about that, and we just do not know and you say you do not know whether or not these bank accounts in Switzerland represent 5 or 10 percent of American holdings or they may represent a great deal more than that. Mr. ROSSIDES. We will check on the statistics.

Senator PROXMIRE. I should say American deposits in Switzerland. Mr. ROSSIDES. Senator, my point is that we have a good idea in this bill on the question of recordkeeping and reporting requirements. It is part of a total program of administrative action, legislative action, international cooperation. We are trying to move ahead and not just slowly. We are saying that this provision does not help.