ments from a place within the United States to a place outside the United States every working day of the year, and, if he carried an average of $50, he could easily exceed the $10,000 aggregate in a calendar year.

Concern about the possibility of infringement of the right of privacy in financial transactions is one of the factors which led the Senate to pass Senator Proxmire's bill, S. 823, the "Consumer Credit Reporting Act," in November 1969. That bill is designed to limit not only private access to the files of credit information agencies, including banks, but also access by governmental agencies. Considering S. 823, the Senate presumably weighed the conflicting claims of individuals to privacy and of the agencies as to the need for information and decided that the balance should be tipped more in favor of individual privacy than was the case under existing law. We suggest that the present bill, if enacted without some further safeguards, tips the balance too far in the other direction, and would be tantamount to a declaration that a person's bank account is no longer private in that it must be revealed to the Federal Government acting without consent or proper legal compulsion.

In our earlier testimony we supported an expanded system of mandatory reports in connection with large and unusual "cash and near cash" transactions. However, we know of no reason for including in such a reporting system any instruments other than cash or the practical equivalent of cash. We, therefore, urge that the term "monetary instruments" be defined to include only coin or currency of the United States, and, in addition, such foreign coin or currencies and such types or classifications of travelers' checks, bearer negotiable instruments and bearer investment securities as the Secretary may by regulation specify for the purpose of the provisions of this title to which the regulation relates.

We also urge a revision of the purpose of title II so that it relates, as in the case of title I, only to reports of transactions which have a high degree of usefulness in criminal, tax or regulatory investigations or proceedings. Moreover, as I will discuss later, regulations should be authorized only if they have general applicability and are objectively appropriate to carry out such purpose.

We have suggested changes which would minimize some of the burdens on the public in filing these reports. It would seem appropriate to limit domestic transaction reports to amounts in excess of a stated minimum, say, $2,500. The problems with respect to the reporting of monetary instruments taken outside the country could be eased if each person removing monetary instruments from the country was required to report that fact on his departure and upon his return was required to report his major expenditures within limits specified by the Secretary by regulation, including a broad exception for personal expenditures.

We are gravely concerned by the possible impact of the bill on the international position of the dollar. One of the reasons for our suggestion to limit reports of currency carried by travelers for their individual use was to ease the fear that the legislation now before you is the beginning of a system of American exchange controls. Even more important, the complete elimination of chapter 4 of title II would be necessary to reassure the foreigners who hold billions of dollars in liquid or semiliquid form that we are not plunging toward exchange controls.

Chapter 4, title II would direct the Secretary to require from any resident or citizen of the United States or person in the United States doing business therein who engages in any transaction or maintains any relationship with a foreign financial agency to maintain records or file reports, or both, in such form and detail as the Secretary may require as to the identities of the parties and the nature of the transaction. The scope of the authority granted to the Secretary to prescribe regulations is so great that the Secretary may, in effect, institute surveillance of any foreign financial agency.

Under section 241 a foreigner in the United States doing business in the United States could be required to report to the Secretary the details of his checking account and brokerage account at home. Similarly, a U.S. citizen residing abroad could be required to report all his transactions with his local foreign bank. U.S. corporations doing business abroad could be required to report on all transactions with foreign financial institutions.

Assistant Secretary Rossides, in his testimony before the House committee, indicated that one of the fundamental concerns of the Treasury was that the legislation not affect the dollar as the principal reserve and trading currency of the world. He stated that foreign holdings of U.S. dollars are huge, amounting to some $43 billion in liquid form. The Assistant Secretary attributed this to our system of "progressively fewer restrictions to the flow of goods and capital." The Treasury Department urged the elimination of chapter 4 and suggested instead a requirement that persons disclose any direct or indirect interest in a foreign bank account or other account in a foreign financial institution in conjunction with the filing of annual income tax returns. Recent announcements in the press indicate that the Treasury has implemented this proposal without legislation.

The pattern of regulatory authorization to the Secretary of the Treasury in titles I and II of S. 3678 is another troublesome aspect of the proposed legislation. The authority given to the Secretary under some sections is almost limitless. He is permitted to adopt regulations directed at some but not all persons engaged in the same or a related activity. The bill, as well as its counterpart passed by the House, also contains provisions which would authorize regulations unrelated to the purposes of the legislation.

We recognize full well that a busy Congress cannot draw up the very detailed regulatory provisions which will be needed to assure that the bill now before you will accomplish its purposes and at the same time not unduly abridge personal privacy or unduly burden trade and commerce. Quite obviously, therefore, any legislation which you pass will vest broad discretionary authority in the Secretary of the Treasury. We submit, however, that some controls on that authority can and should be prescribed, and we urge the adoption of provisions which would:

1. As suggested earlier, permit the requirement of reports under title II only if such reports have "a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings," the same language which now appears in title I;

2. Make it clear that interested parties could participate in the Secretary's rulemaking procedures and could challenge regulations in court without the necessity of first having to violate them; and

3. Require that regulations and exemptions therefrom should be applicable to prescribed classes of persons, not particular persons, and that such classes must be reasonably defined in the light of the purposes of the legislation.

Some additional points which I would like to make relate primarily to implementation of the proposed legislation.

While it was indicated in certain of the testimony before the House committee that the provisions of titles I and II would apply only to domestic offices and to functions performed within the United States, we believe this point should be made clear. The foreign branches of American banks are quite properly subject to the laws of the country in which they are located. Any legislation which could be interpreted to require the production of records in violation of such laws must be avoided if banks are to continue in business abroad. Foreign branches have contributed importantly to our overseas trade and balance of payments position. To legislate them out of existence would delight our foreign competitors, be adverse to our national interest and be a hardship to the individual banks involved.

The provisions in title I requiring banks to identify individuals authorized "to make withdrawals, or otherwise act" with respect to an account continue to be a problem. In its report, the House committee points out that this provision would require banks to identify their customers. If that is the intent we urge that the provisions be so limited. Without such modification, the language proposed would authorize the Secretary to impose impossible requirements as to the identification of employees or agents such as messengers and persons making night deposits or mail deposits, all physical impossibilities. Another difficulty with chapter 3 of title II is that its aggregation concept as applied to financial institutions simply will not work, and we urge its elimination as to financial instructions acting as intermediaries. At the time of the first import or export of a monetary instrument, a financial institution would have to determine the aggregate amount which such customer would import or export through all its facilities during the year. How, for example, can Western Union possibly be expected to file a report, even after the fact, as to an individual who sends 11 $1,000 money orders to a foreign destination but who sends them from 11 different Western Union offices scattered all across the country?

We would suggest clarification of the term "photocopy" as used in title I. The word implies hard copy and not microfilm or other filmed records. The cost of photocopying the over 20 billion checks which are expected to be handled by the banking system this year would aggregate many millions of dollars while the cost of microfilming would, of course, be far less expensive.

Under the reporting provisions contained in section 223, a Secretary could designate certain domestic financial institutions as agents of the United States to continually receive and indefinitely hold reports on domestic financial transactions. This could result in a financial agency acquiring confidential information relating to the business of its competitors and their customers. We believe these reports should be filed directly with the Treasury.

There is one additional point of substance which I desire to make on the record retention requirements of title I. The bill would require the retention of a copy of each check paid and a record of each collec

tion item. Testimony given before the House committee indicated a trend in banks toward fewer records. This is clearly not the case with our Clearing House banks. However, it is hard to see what purpose would be served, for example, by requiring that the more than 3 million dividend drafts issued each quarter by A. T. & T. be microfilmed by the bank on which they are drawn. We still feel that the record retention provisions should be restricted to international transactions. As we indicated to the House committee we believe it entirely appropriate to maintain for a period of 6 years specific categories of records relating to international transactions, which Mr. Rossides testified would be useful, including records of: Remittances transferring funds abroad; remittances transferring funds to the United States; checks negotiated abroad and foreign credit card purchases; foreign checks transmitted abroad for collection; foreign drafts and letters of credit and documentary collections.

It should also be pointed out that none of the expert witnesses who testified before the House committee made clear how the requirement for domestic recordkeeping would have helped in detection or prosecution of the crimes which were described. Moreover, next to no attention was given to the vastly complex question of retrieval. The retrieval problem would not be insignificant if title I were limited to international transactions, but a workable system for the retrieval of billions of domestic records called for by title I simply would not be compatible with the functioning of today's banking system.

I should now like to turn briefly to titles III and IV, both of which affect the securities industry as well as the banking industry. We understand that representatives of the securities industry will be appearing before you, and we do not wish to go over ground which those witnesses will cover.

Title III, however, perhaps represents an overreaction to a suggestion we made to the House Banking Committee and I should therefore like to say something about it. In our earlier testimony, we noted that margin requirements do not currently apply to loans made abroad, despite the contrary inferences which the committee might have drawn from the testimony of some of those who appeared before it, and we suggested that the Securities Exchange Act "might be amended to forbid resident American citizens from borrowing on margin abroad to purchase regulated U.S. securities on more favorable terms than they could borrow here." The language which now appears in title III could, however, authorize the Federal Reserve Board to regulate borrowings by foreign citizens from foreign banks, transactions which no principle of international law would permit Congress to regulate. In our memorandum we suggest language which would carry out our original, and properly limited, recommendation.

Title IV will in all probability significantly reduce the volume of U.S. securities held by foreigners. Domestic banks perform many agency services for foreign banks, the most important of which is acting as custodian of U.S. securities. Based on past experience, we believe it is highly unlikely that foreign banks will be willing, or in some cases legally permitted to make the certification required by title IV. If this title is enacted, it is almost certain that a substantial part of the funds now invested by foreign financial agencies would be withdrawn from U.S. securities markets and some shares now held abroad would

be traded only on foreign exchanges, thus reducing the liquidity of the American market.

In concluding my remarks I would like to reemphasize our desire to be cooperative in this legislative effort. I am sure that this subcommittee is at least as concerned as we are over the invasion of privacy and foreign trade aspects. The regulation and implementation problems are not as serious but nevertheless do present problems which should be solved. The adverse effect of title IV, as presently drafted, on our securities markets would be most unfortunate, particularly at the present time. As I stated at the outset, a paper with suggested language changes is attached to my written statement and I hope you will find it helpful, and it will be made a matter of record.

Senator PROXMIRE. That indicates the amendments that you would like to have written in the bill, and it is helpful. Without objection that bill as highlighted with your amendments will be printed in the record at this point.

(The bill follows:)