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statistics necessary for the formulation of monetary and economic policy. The Treasury argued that the only proper purpose of the bill is to assist criminal, tax and regulatory investigations and proceedings. The House accepted this view in part and amended Title I in conformity therewith. For example, new section 21 of the Federal Deposit Insurance Act was amended by the House to provide :
"It is the purpose of this section to require the maintenance of appropriate types of records by insured banks where such records may have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.” (Section 21 (a) (2)).
However, the stated purposes of Title II, set forth in Section 202 of H.R. 15073 and S. 3678 have not been changed. Section 202 still provides, "The purposes of this title are (1) to facilitate the supervision of financial institutions properly subject to Federal supervision, (2) to aid duly constituted authorities in lawful investigations, and (3) to provide for the collection of statistics necessary for the formulation of monetary and economic policy.” The Treasury urges that Section 202 be amended to make it clear that the only purpose of Title II is to assist criminal, tax and regulatory investigations and proceedings. This is especially important to avoid unnecessary incursions on the right of privacy. Also, under Section 204 of the bills 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.”
9. DEFINITION OF MONETARY INSTRUMENTS
Originally the reporting requirements of H.R. 15073 were limited to specified transactions in U.S. currency. The Treasury recommended that this be enlarged to include items equivalent to U.S. currency. The purpose of this change was to close a potential loophole through which reporting requirements could be avoided by not using U.S. currency but rather its equivalent. The House Banking and Currency Committee responded by extending the reporting requirements to specified transactions in monetary instruments and Section 203 defined "monetary instruments” to include "coin and currencies of the United States, and in addition such foreign coin and currencies and such types of checks, bills, notes, bonds, or other obligation or instruments as the Secretary may by regulation specify
" The Committee Report on H.R. 15073 clearly indicates this definition is intended to be no broader than to include "bearer instruments which may substitute for currency.” (page 22). In order to more restrictively define the types of non-currency items included within the term “monetary instruments" within the statute itself, it is suggested the definition of “monetary instruments" be amended to include "coin and currency of the United States, and in addition such foreign coin and currencies, and such types of travelers' checks, bearer negotiable instruments, bearer investment securities, or their equivalent, as the Secretary may by regulation specify.” The term “or their equivalent” is necessary to permit the Secretary of the Treasury the necessary discretion to include other types of instruments which are easily transferable which may not be bearer in form. For example, a non-bearer security accompanied by a power of attorney could be negotiated by a series of individuals without leaving a record of the chain of ownership. The Secretary should be empowered to include such instruments within the definition of "monetary instruments.” Otherwise, serious loopholes in the legislation could develop.
10. INCONSISTENCY WITH S. 30, THE ORGANIZED CRIME CONTROL ACT
The immunity provision in S. 3678 and H.R. 15073 is inconsistent with S. 30, the pending Organized Crime Control Act. The immunity granted by Section 211 of S. 3678 and H.R. 15073 would apply to the transaction with respect to which the witness is compelled to testify. On the other hand, the policy of the Administration reflected in s. 30 and as expressed in the testimony of Assistant Attorney General Wilson, is that the appropriate scope of immunity is with respect to the testimony and that the immunity should not bar prosecution with respect to the transactions testified to if other evidence is obtained with respect to that transaction as long as the other evidence is obtained independently of the testimony with respect to which the immunity applies. Therefore, the Treasury endorses the recommendation of Assistant Attorney General Wilson that Section 211 either be deleted or made to conform to the immunity provision now appearing in S. 30.
11. FILING TREASURY CURRENCY REPORTS
Section 223 of the bills provides for a reporting procedure under which domestic financial institutions could be designated to receive Treasury Currency Reports to which they were not a party, and then transmit them to the Treasury Department. Since the Treasury believes all Treasury Currency Reports should be filed directly with the Treasury Department, Section 223 is superfluous and should be deleted.
12. CUMULATIVE EXPORTS AND IMPORTS OF MONETARY INSTRUMENTS
Section 231 of H.R. 15073 and S. 3678 requires that any person who participates in the transportation of monetary instruments in an amount exceeding $5,000 on any one occasion or $10,000 in any calendar year to report such activity if it involves a place outside the United States. The reporting requirements applicable to cumulative transportation of monetary instruments in excess of $10,000 would be extremely difficult, if not impossible, to implement from an administrative standpoint. For example, if an individual failing to file a report were found to be transporting less than $5,000 worth of monetary instruments in his possession, it would not be ascertainable whether he had transported an additional amount during the calendar year to reach a cumulative figure in excess of $10,000.
Therefore, the Treasury recommends the deletion of the $10,000 cumulative reporting requirement.
13. REPORTS OF EXPORTS AND IMPORTS OF MONETARY INSTRUMENTS Section 231 (b) of the bills sets forth the information that can be required by the Secretary of the Treasury in reports of exports and imports of monetary instruments. As presently drafted, this provision does not provide sufficient authority to the Secretary to require additional information which he may deem necessary for these reports to be effectively utilized. For example, it would not presently permit the Secretary to require individuals filing these reports to ļļr)vide their Social Security numbers which are necessary to relate the information contained in the reports to taxpayers' general tax records. This section should be redrafted to broaden the Secretary's authority to require relevant information in reports of exports and imports of monetary instruments.
14. SECTION 241
Section 241 authorizes the Secretary of the Treausry to impose four independent requirements in connection with international transactions and relationships: (1) require reporting by financial institutions of their clients' international transactions and relationships; (2) require reporting of these transactions and relationships by the clients (U.S. citizens, residents, and persons in the U.S. doing business therein) themselves; (3) require recordkeeping by financial institutions of their clients' international transactions and relationships; and (4) require recordkeeping of these transactions and relationships by the clients, themselves.
With respect to the first requirement, reporting by financial institutions, for the reasons set forth in the June 9, 1970 testimony of Assistant Secretary Rossides, the Treasury Department has concluded it would be inappropriate to support legislation requiring reports by financial institutions of information obtained from the records of international transactions.
With respect to the second requirement, reporting by clients, the Treasury already has announced that taxpayers will be required under existing statutory authority to report the existence of interests in foreign bank, brokerage, and similar accounts on their tax returns. Since the Internal Revenue Service already is empowered to issue a summons for records of any specific taxpayer involving his transactions with a foreign bank account, a burdensome reporting requirement on taxpayers involving individual transactions with these accounts would not be justifiable. In any instance in which the disclosure of the existence of an account or other information raises questions of tax liability for which the Internal Revenue Service would need additional information of individual transactions, the IRS can obtain such records through the issuance of a summons. Therefore, the authority in Section 241 to require reports by individuals of transactions with foreign accounts is unnecessary.
With respect to the third requirement provided in Section 241, recordkeeping by financial institutions, the Treasury has indicated the need for such records. However, Treasury has suggested that these requirements be implemented in a more straightforward approach, under which international recordkeeping requirements would be limited to banks and other listed financial institutions in the United States, specified types of records would be listed, and the Secretary would be empowered to substitute for, eliminate from or add to the requirements by regulation. This could be accomplished by amending sections 241 and 242 or by amending Title I.
With respect to the fourth requirement of Section 241, recordkeeping of foreign transactions by individuals, the Treasury has stated that it is considering the issuance of regulations pursuant to existing statutory authority requiring taxpayers with interests in foreign bank, brokerage and similar accounts to maintain specified records of transactions they have with these accounts. In view of the existing authority to implement such a proposal, the corresponding authority provided in Section 241 is superfluous.
Based upon the foregoing, Treasury recommends the deletion of Sections 241 and 242 of the bills, or its amendment along the lines suggested.
15. ADMINISTRATIVE RESPONSIBILITY TO ASSURE COMPLIANCE BY FINANCIAL
The Treasury Department believes that the intent of the bill 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 introduced by Representative Widnall on March 12, 1970. Section 405 of that bill provides-
“SEC. 405. RESPONSIBILITY OF SECRETARY
“The Secretary shall have the responsibility to assure compliance with the requirements of this Act and to the greatest extent possible delegate such responsibility to the appropriate bank supervisory agency, or other
supervisory agency." H.R. 15073 and S. 3678 impose recordkeeping requirments for insured banks and for insured savings institutions in Title I in the form of amendments to existing statutes the enforcement of which has already been assigned to various federal regulatory agencies. In addition, the bills elsewhere impose recordkeeping and reporting requirements on uninsured bank and savings institutions and on certain other businesses which perform financial functions, as well as reporting requirements on insured entities. With respect to these recordkeeping and reporting requirements, it would be desirable for the bills to specify the responsibility of the Secretary of the Treasury to make sure that the requirements are being carried out and to make appropriate delegations of responsibility. The Treasury urges that the bills be amended accordingly.
16. ENFORCEMENT AUTHORITY WITH RESPECT TO REPORTS OF EXPORTS AND IMPORTS OF
Section 302 (ş) 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 that the bills contain a provision comparable to Section 302(g), H.R. 16444.
17. SHARING INFORMATION CONTAINED IN REPORTS WITH OTHER FEDERAL AGENCIES
The reports required to be filed under Title II of H.R. 15073 and S. 3678 are to be filed with the Treasury Department. In order for full use to be made of these reports in accordance with their intended purpose, it will be necessary for other agencies to have access to them. While the Federal Reports Act of 1942 (44 U.S.C. 3507) provides for the sharing of information between Federal agencies, it does not apply to the release of information by the Internal Revenue Service. Release of information by the Internal Revenue Service is governed by Section 6103 of the Internal Revenue Code which provides that returns made with respect to income and certain other taxes “shall be open to inspection only upon order of the President and under rules and regulations prescribed by the Secretary or his delegate and approved by the President.” While it would appear
that the quoted language would give the President authority to provide for the sharing of the information obtained from reports filed under Title II by the Internal Revenue Service with other agencies, it would be useful to clarify this authority.
18. MARGIN REQUIREMENTS
Section 301 of the bills would give the Federal Reserve Board clear authority to apply margin requirements not only to lenders but also to borrowers. This is an entirely new concept in the regulation of credit as margin rules have been only applied in the past to lenders.
The Administration supports the extension of the margin requirements to borrowers provided it is made clear that there is no intent to regulate the availability of credit abroad to foreigners. Therefore, Section 301 should be amended to provide that only borrowers who are American citizens or residents and foreign persons controlled by or acting for them are subject to these requirements. In addition, it should be made clear that the requirements are applicable only with respect to the purchase of United States securities, or of foreign securities where the transaction is executed in the United States.
Moreover, as a technical matter the Treasury recommends these substantive changes in the margin requirement law be accomplished through the enactment of a new section rather than by amendment of Section 7(a) of the 1934 Act.
19. RESTRICTIONS ON DEALING WITH FOREIGN FINANCIAL AGENCIES
For the reasons stated in the statement of Assistant Secretary Rossides on June 9, 1970, the Treasury recommends the deletion of this provision.
20. ADMINISTRATIVE PROCEDURE ACT
In promulgating regulations under this legislation, the Administrative Procedure Act would be applicable. This would require that the notice and public procedure provisions provided in 5 U.S.C. 553 be followed.
Senator PROXMIRE. Our next witness is Mr. Carl Desch, senior vice president of the First National City Bank of New York, representing the New York Clearing House.
Mr. Desch, I want to apologize. It is a very late hour and I feel very badly that we have delayed you.
STATEMENT OF CARL W. DESCH, SENIOR VICE PRESIDENT, FIRST
NATIONAL CITY BANK, REPRESENTING THE NEW YORK CLEARING HOUSE; ACCOMPANIED BY ROY HABERKERN, PARTNER, MILLBANK, TWEED, HADLEY & MCCLOY, NEW YORK CITY, AND JOHN F. LEE, EXECUTIVE VICE PRESIDENT, NEW YORK CLEARING HOUSE ASSOCIATION
Mr. Desch. I should like to introduce two gentlemen with me, Mr. Roy Haberkern, a partner of Millbank, Tweed, Hadley & McCloy, a New York City law firm, and on my left, Mr. Lee, who is executive head of the New York Clearing House.
My name is Carl W. Desch, senior vice president and cashier of First National City Bank, and I appear here today on behalf of the New York Clearing House Association and its 10 member banks to present the views of the Clearing House on S. 3678. Since the introduction of similar legislation in the House, we have spent a good deal of time and effort considering legislation which would assist Federal authorities in the apprehension of tax evaders and other law violators who use international banking facilities to hide their activities.
I should perhaps begin by reiterating that Clearing House banks do not oppose carefully drawn legislation relating to recordkeeping and reporting of financial transactions. We do, however, perceive at least five areas of concern in connection with the bill now before
1. The unmistakable potential for invasion of privacy. 2. The existence of provisions which we believe could adversely affect the strength of the dollar.
3. The almost unprecedented breadth of the regulatory discretion entrusted to the Secretary of the Treasury.
4. The operational difficulties, and even impossibilities, which could be created by some of the bill's provisions.
5. The possible adverse effects of the bill on the trading in, and the market for, American securities.
We believe workable solutions can be developed to alleviate the problems which we consider are presented by S. 3678 as presently drafted, and there is appended to my statement a paper suggesting certain changes in the language of the bill. Most of the recommended changes are discussed in the balance of my statement.
In testifying before the House committee we stressed the point that the proposed legislation should be consistent with basic concepts of individual privacy. As the members of this subcommittee are well aware, privacy in connection with one's financial transactions is an important part of the system of values which we Americans cherish and a condition which is protected by our system of law.
In this bill the potential for invasion of privacy arises primarily as a result of the broad definition of the term “monetary instruments" used in title II and the scope of regulatory authority granted to the Secretary of the Treasury. Title II as presently constituted would permit the Secretary, on a selective basis, to require a report on almost any transaction involving the banking system.
For example, under title II, chapter 2, some future Secretary could require the banks and brokerage houses of candidates of opposition parties to report to the Secretary in detail all of the candidates' financial transactions.
The possibilities for unwarranted invasion of privacy under title II, chapter 3 are equally great. Section 231 would require the filing of reports on the export or import of currency or monetary instruments which exceed $5,000 on one occasion or an aggregate of $10,000 in any calendar year. The effect of section 232 would be to require the filing of these reports in advance.
As an illustration, newspapers and television networks which give a total of more than $10,000 in 1 year in cash and checks to all reporters to defray overseas expenses could be required to file advance reports indicating, and I quote, “The origin, destination and route of the transportation” and “the identities of the person from whom the monetary instruments are received, or to whom they are to be delivered.” This could require naming all the reporters' overseas contacts, and even the restaurants where they expect to have lunch.
Consider the burden of regulations which could require detailed accountings from all employees of any organization-religious, charitable, commercial or relief agencies which sends out of the country any monetary instruments in an aggregate amount exceeding $10,000 in any one calendar year.
A person who works in Windsor, Ontario, and lives in a suburb of Detroit, for example, would transport currency and monetary instru