ceedings, the potential unnecessary incursions on personal privacy would be limited; such might not be the case under present S. 3678 and H.R. 15073 language which permits the requiring of reports without any comparable purpose limitation.

Limiting the purpose of the bill is also important because under section 204 the authority of the Secretary of the Treasury to prescribe regulations for the implementation of Title II is limited to those "he may deem appropriate to carry out the purposes of this title" (emphasis supplied).

2. Unnecessary and counter-productive domestic records

Both bills provide that

"(d) Each insured bank shall make, to the extent that the regulations of the Secretary so require—

"(1) a photocopy or other copy of each check, draft, or similar instrument drawn on it and presented to it for payment;"

In addition, H.R. 15073, but not S. 3678, provides:

"(1) Notwithstanding any other provisions of this section the recordkeeping requirements referred to in this section shall not apply to domestic financial transactions involving less than $500."

There seems to be some disagreement as to the meaning of these provisions. Our concern is that the basic provision might be interpreted as requiring the Secretary of the Treasury to issue regulations providing that all banks photocopy all checks drawn on them, or under the House bill all checks except checks of less than $500 used in domestic financial transactions.

We believe that the imposition of an all-encompassing requirement to photograph all checks drawn on U.S. banks (with or without a $500 domestic exclusion) could be impractical, wasteful, and counter-productive.

In excess of 20 billion checks are drawn annually in the United States and flow through the banking system and only a small percentage of these are likely to be of use in criminal, tax or regulatory investigations and proceedings. In designing recordkeeping requirements, a balance has to be struck between the cost to maintain the records (and let us be sure to recognize that this cost will be borne by the American public that uses the banks) and their likely use in investigations and proceedings.

While the Treasury has developed precise recommendations as to the records of foreign transactions which banks and other institutions should be required to maintain, neither Treasury nor any other group has done adequate work so as to determine the records of purely domestic transactions which are likely to have a high degree of usefulness in criminal, tax and regulatory investigations and proceedings. We feel that it is unwise to adopt legislation with such mandatory requirements on the ground that the cost of compliance is not great without some better idea of the use to which such records could be put, how this might be accomplished and the costs involved.

3. Sections 241 and 242

Sections 241 and 242 authorize the Secretary of the Treasury to impose four independent types of requirements in connection with international transactions and relationships: (1) reporting by financial institutions of their clients' international transactions and relationships; (2) reporting of international transactions and relationships by the principals; (3) recordkeeping by financial institutions of their clients' international transactions and relationships; and (4) recordkeeping of international transactions and relationships by the principals.

As I stated in connection with the international transactions records of banks and other financial institutions, legislation for reports of international transactions by such institutions is not desirable. As for the other three types of requirements which sections 241 and 242 would permit, one is inappropriate (reports of foreign transactions by principals) while another is duplicative (required recordkeeping by principals). The only proper use of these sections would be to impose international recordkeeping requirements on banks and other financial institutions. If these sections are to be used for that purpose, they should be amended along the lines that I have indicated above and to delete the inappropriate and duplicative material.

4. Administrative responsibility and authority

The Treasury Department believes that the intent of the bills is to assign to the appropriate Federal agency the responsibility to make sure that banks. brokers and other financial institutions are complying with the requirements

imposed upon them by the bills and the regulations issued thereunder. Such an intent was made specific in H.R. 16444, which states the responsibility of the Secretary of the Treasury to assure that the requirements of the bill are being carried out and to make appropriate delegations to that end. We urge that a similar provision be included in the legislation enacted.

Section 302(g) of H.R. 16444 specifically authorizes the Secretary of the Treasury to prescribe regulations including "the procedures to be followed by the Bureau of Customs, including border and mail checks, to assure compliance with the requirements imposed by this chapter." While it is believed the intent of H.R. 15073 and S. 3678 is to authorize such procedures, it would seem desirable if the bills contained a provision similar to that in H.R. 16444. 5. Inconsistency with S. 30, the Organized Crime Control Act

We endorse the recommendation of Assistant Attorney General Wilson that the immunity provision set forth in section 211 either be deleted or made consistent with the testimonial immunity approach contained in S. 30, the Organized Crime Control Act.

These and other changes which are discussed in Attachment B are needed to make S. 3678 and H.R. 15073 a more effective and efficient tool in criminal, tax, and regualtory investigations and proceedings without undue cost or interference with the other national policies which I referred to at the beginning of this statement.

CONCLUSION

The Treasury has undertaken actively and vigorously to curtail the use of foreign bank accounts and international transactions for tax evasion and other crimes. Our program includes administrative action, new regulations, treaty negotiation, legislative proposals, and cooperation with the private sector. Today I have presented our proposals for legislation and for improvements in the bills before this Committee which legislation we urge the Committee to adopt. We believe that such legislation would contribute to our efforts to curb tax evasion and other crimes by U.S. citizens and residents where foreign accounts and international financial transactions are involved assuming budgetary resources for proper enforcement are obtained. However, past experience indicates that no system is foolproof. We will continue to be alert to new devices developed by those seeking to evade taxes or otherwise violate our criminal laws.

We feel that the measures that we have undertaken and the legislation we have recommended, when fully utilized by the Internal Revenue Service and other Federal law enforcement agencies, will result in improvement in our continuing efforts to curb tax evasion and other white collar crimes as well as to suppress organized crime.

(Attachment A)

INTERNATIONAL TRANSACTIONS RECORDKEEPING BY BANKS AND OTHER FINANCIAL INSTITUTIONS

TREASURY'S PROPOSAL AS TO RECORDS TO BE REQUIRED

(1) Records of foreign remittances transferring funds abroad. In a typical foreign remittance transaction, a U.S. bank or other financial institution such as a currency exchange, pursuant to a request by a customer, will instruct either by airmail or cable a foreign correspondent bank (or its foreign office) to pay either directly or through another institution a specified amount to a designated person located in the area of the foreign bank with reimbursement effected through either the foreign bank's dollar account in the U.S. bank or the foreign currency account of the U.S. bank at the foreign bank. The customer of the U.S. bank will either instruct the U.S. bank to charge the customer's account with the amount of the remittance or furnish funds in that amount. Under our proposal, the U.S. bank would be required to maintain the application for the remittance, or a copy, including the identification of its customer, and a copy of the remittance. Regulations would specify the minimum information to be set forth on this and other applications made a part of the required records.

(2) Records of foreign remittances transferring funds to the United States. This is the converse case to the one just described. U.S. banks instructed by foreign banks to make a payment either directly or through another institution

would, under our proposal, be required to keep records of the instructions and payment including, in the case of the bank actually making the payment, the identification of the payee.

(3) Records of checks negotiated abroad and foreign credit card purchases. Checks drawn on U.S. banks, including cashier's checks issued by U.S. banks, which are sent outside the United States are generally forwarded by foreign banks (or foreign offices of U.S. banks) to their U.S. correspondents banks (or to their head offices) for immediate credit or for collection. The foreign bank transmits the checks with a "cash letter." We recommend that the first bank located in the United States to receive a cash letter from abroad be required to keep a microfilm or other copy of each check of $1,000 or more and the cash letters transmitting such checks. In addition, since credit card charges of foreign purchases have the same effect as checks negotiated abroad, United States institutions whose credit cards can be employed to obtain credit overseas also would be required to maintain records of each foreign charge of $1,000 or more. (4) Records of foreign checks transmitted abroad for collection. A U.S. bank transmitting abroad checks drawn on foreign banks paid to U.S. beneficiaries would be required to keep a microfilm or other copy of the checks.

(5) Records of foreign drafts. A foreign draft (also called a banker's draft) is like a cashier's check in that both involve the obligation of a bank. A cashier's check is payable by the bank from which it is purchased, while a foreign draft is drawn on a foreign correspondent bank of the bank where the draft is purchased. The purchaser sends or carries the check or draft to the foreign country himself. Under the Treasury recommendations, a U.S. bank selling a foreign draft would be required to maintain the application of its customer, and a copy of the draft itself. Conversely, U.S. banks would be required to maintain a copy of foreign drafts sold by foreign banks which are payable in the United States, and maintain records of the identification of the payee.

(6) Records of letters of credit and documentary collections. With respect to letters of credit, including travelers' letters of credit, issued by U.S. banks and by foreign banks, and documentary collections employed in export and import transactions, U.S. banks also would have to maintain records along the lines customarily maintained by most banks which engage in such transactions.

(Attachment B)

TREASURY DEPARTMENT RECOMMENDED AMENDMENTS TO S. 3678 AND H.R. 15073

1. TITLE I-FINANCIAL INSTITUTION RECORDS OF DOMESTIC TRANSACTIONS The Treasury Department took separate approaches to recordkeeping of international and domestic transactions in the statements of Assistant Secretary of the Treasury Rossides before the Subcommittee on Financial Institutions of the Senate Banking and Currency Committee on June 9, 1970 and before the House Banking and Currency Committee on March 2, 1970. With respect to international transactions it listed six specific types of records which it thought should be required, while with respect to domestic transactions it left the specific requirements to future development. The reason for this is simple. The Treasury Task Force on Secret Foreign Bank Accounts concentrated on its assigned problem-evasion aided by international means-and was able to develop recordkeeping requirements responsive to the relevant international transactions. The Treasury Task Force then turned to the question of evasion involving purely domestic transactions, but concluded that insufficient work had been completed to enable it to recommend specific recordkeeping requirements which would have a maximum law enforcement potential with a minimum of interference with commerce and a minimum cost to financial institutions and their customers. The Treasury therefore suggested that the responsibility for developing specific domestic requirements be assigned to the Secretary of the Treasury. As introduced, H.R. 15703 would have required each insured bank to photocopy all checks drawn on it and presented to it for payment. Largely in response to the views expressed by the Treasury, the House Banking and Currency Committee adopted a number of amendments which reduced this inflexibility. Although not recommended by the Treasury, one amendment added to new section 21 of the Federal Deposit Insurance Act, subsection (i) provided: “Notwithstanding any other provisions of this section the recordkeeping require

ments referred to in this section shall not apply to domestic financial transactions involving less than $500.”

The Committee also amended subsection (d) of new section 21 to provide: "Each insured bank shall make, to the extent that the regulations of the Secretary so require, (1) a photocopy or other copy of each check, draft, or similar instrument drawn on it and presented to it for payment." The addition of the words "to the extent that. so require" would appear to be a clear grant of power to the Secretary of the Treasury to provide that the photocopying requirement does not extend to all international transactions and to all domestic transactions involving $500 or more. In oher words, he is given the authority to prescribe the extent of the photocopying requirement. While the Committee Report recognizes this power, it indicated that, in view of the Congressional findings, the Secretary is left with "little choice but to require, upon the effective date of the legislation, that banks photocopy all checks except" those covered by the $500 exemption provision. But the report does recognize that "the Secretary's duty to impose such a requirement is neither absolute nor permanent." In introducing S. 3678 on April 6, 1970, which contains a new section 21 similar to that in H.R. 15073 as passed except that S. 3678 does not contain the less-than-$500 exemption provision, Senator Proxmire explained the authority of the Secretary as follows: "Nonetheless, the expense involved might outweigh the potential benefit and for this reason, the Secretary of the Treasury is given full authority to exempt certain classes of checks from the photocopy requirement.”

The Treasury is concerned that the language of Subsection (d) of the somewhat conflicting statements of legislative intent might lead to an interpretation requiring the Secretary of the Treasury to issue regulations providing that all banks photocopy all checks drawn on them, or, under H.R. 15073, all checks except checks of less than $500 used in domestic financial transactions.

Since, as indicated above, additional work must be done to develop efficient recordkeeping requirements for domestic transactions, Treasury urges that the bill be further amended to eliminate the reference to specific types of domestic records, and to place the responsibility to develop specific requirements on the Secretary of the Treasury. Regulations would be developed to identify the types of documents subject to these requirements, specify the minimum amounts, establish the classification of documents (such as checks paid or checks deposited) and other classifications subject to these requirements.

It would be unwise to adopt legislation with such mandatory requirements without greater knowledge of the use to which such records could be put, and little more than a cursory idea of the costs involved.

It should also be noted that the $500 domestic exemption provision contained in H.R. 15073 most likely would not accomplish its apparent purpose, to eliminate the recordkeeping requirements in connection with relatively small domestic checks. It would be impossible for banks to ascertain with certainty whether a particular small check was negotiated abroad or was a domestic item. One could not tell simply from the name of the endorser whether a check were endorsed abroad. Therefore, in order to be in certain compliance with the international recordkeeping requirement which has no minimum exemption, banks would have to microfilm all checks regardless of amount.

2. TYPE OF RECORDS

Title I of both bills contains language related to recordkeeping requirements in terms of "photocopies" and "a photocopy or other copy" of enumerated instruments. This terminology raises a possible implication that only hard copies rather than microfilm or other film records would be acceptable or could be required by the Secretary in lieu of actual photocopies. Since microfilm is much less expensive than hard copy processes and provides acceptable reproductions of the records in question, it is suggested that the use of the term "photocopies" in section 21 (a) (1) and "photocopy or other copy" in section 21(d) (1) be replaced by "microfilm or other reproductions" and "microfilm or other reproduction" respectively.

3. RECORDS OF IDENTITY OF CUSTOMERS AND SIGNATORIES

Subsection (c) of new section 21 of the Federal Deposit Insurance Act provides: "Each insured bank shall maintain such records and other evidence as the Secretary shall require of the identity of each person having an account with the bank and of each individual authorized to sign checks, make withdrawals, or otherwise act with respect to any such account." The Treasury agrees with the

purpose of this provision, but believes that the Secretary of the Treasury should specifically be given the authority to establish exemptions. For example, it might be decided to limit the requirement for identity records to certain types of accounts involving minimum amounts or to exclude from the identity record requirements employees with authority to sign checks or make deposits where the account owner maintains complete personnel records.

4. ANNUAL REPORT TO CONGRESS

Subsection (h) of new section 21 of the Federal Deposit Insurance Act provides: "The Secretary shall make an annual report to the Congress of his imple mentation of the authority conferred by this section and any similar authority with respect to recordkeeping or reporting requirements conferred by other provisions of law." The Secretary of the Treasury already makes an annual report to Congress and it should be made clear that the information requirement by subsection (h) may be furnished as part of that report.

5. GEOGRAPHICAL SCOPE

In accordance with recommendations made by the Treasury, the geographical scope of Title II of H.R. 15073 has been clarified so that financial institutions are subject to the reporting requirements only to the extent they perform functions within the United States. Thus, a United States branch of a foreign bank would be required to file relevant reports while a foreign branch of a U.S. bank would not be subject to these requirements. However, S. 3678 does not contain this clarification, but rather has retained in Section 203 (f) and (h), the original language of H.R. 15073, which could be construed to require comparable reports from foreign branches of U.S. banks and other financial institutions. Under this language, for example, any bank which has a branch abroad would be both a "domestic financial institution" and a "foreign financial agency" within the meaning of these definitions in S. 3678. It is recommended S. 3678 be amended to conform to Section 203 (g) and (h) of H.R. 15073.

Moreover, it would appear that the Secretary of the Treasury does have authority to similarly confine the applicability of Title I, of both H.R. 15073 and S. 3678 to offices of financial institutions located within the United States. How ever, it would be desirable for this authority to be clarified in both bills.

6. RETENTION PERIODS

The bills presently do not limit the authority of the Secretary to specify retention periods of required records. It is recommended the bills prescribe a general six-year retention period with authority conferred on the Secretary to reduce the period generally or for specific types of records. It should also be provided that any record which has been called for by a Federal agency in connection with an investigation or proceeding must be retained while the investigation of proceeding is pending.

7. TYPES OF INSTITUTIONS TO MAINTAIN RECORDS OR FILE REPORTS

With respect to the persons engaged in various businesses which must maintain records under Title I of the bills, it should be noted that in Section 123, S. 3678 applies to a much narrower group of functions than H.R. 15073. The reason for this is not clear. Since the purpose of this section should be to eliminate potential loopholes which otherwise could permit the international transfer of funds through businesses which would not have to maintain records of such transfers, it is recommended the language of section 123 in S. 3678 be amended to be consistent with and as broad as the lanugage of H.R. 15073.

With respect to the definition of a "financial institution" found in section 203 (e) of Title II of the bills, the New York Clearing House has recommended it be broadened to also include specifically agencies within the United States of foreign banks, travel agencies, licensed transmitters of funds, and telegraph companies. The Treasury believes this recommendation has merit.

8. PURPOSE OF TITLE II

As originally introduced, H.R. 15073 stated a number of purposes, including facilitating the supervision of the business of banking, the establishment of civil liabilities, the regulation of the value of money and the collection of