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U.S. brokers to certify either the name of the person for whom the order is placed (if it is an American) or that the bank is not acting for a U.S. person. This requirement is appropriate where the foreign bank is acting for an individual account holder. The Bill, however, goes much further in a manner that would effectively paralyze important legitimate areas of commerce. A broker could not accept an order from an offshore investment fund unless each order was accompanied by a list of the investment fund's thousands of shareholders or by a certification that no U.S. citizen or resident had a beneficial interest in the funda certification which the fund would be unable to give. Thus, if the Bill were passed in its present form, foreign funds would be unable to invest in U.S. securities through U.S. brokers and, to the extent that such foreign funds had already acquired positions in U.S. securities, they would be unable to sell them.

Under the present draft, furthermore a foreign bank could never place an order for the account of any corporation, including itself, since it would be unable to give either of the required certifications. There is a further difficulty resulting from the delay necessary for a foreign bank to furnish a certificate to the U.S. broker. Foreign investors, like U.S. investors, want their orders promptly executed. As the Bill is presently drafted a European investor could not have his order executed for four or five days until the U.S. broker received the certificate. As drafted, this provision would terminate all foreign investment in the United States.

I appreciate your invitation to testify before this Committee. I hope that you will find these views helpful. Thank you.

Senator ProXMIRE. Thank you very much, Mr. Leval. You did a fine job. You have certainly given us very useful documentation.

Our last witness is Mr. Anatole G. Richman of Newark, N.J. You have a rather concise statement. You can proceed in any way you wish. If you skip any part of your statement, it will be printed in the record in full.

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STATEMENT OF ANATOLE G. RICHMAN, NEWARK, N.J. Mr. RICHMAN. Mr. Chairman, I am pleased to be here to give testimony regarding the use of foreign banking facilities by certain taxpayers to evade taxes based on my experiences with the Internal Revenue Service. During my 11 years employment with the Internal Revenue Service, I encountered certain situations which indicate that the secret numbered account poses a serious threat to our self-assessing system.

A tax evader or a major racketeer who has understated his income is forced to resolve several immediate problems. First, he must carefully cover his tracks to avoid detection. This is not a simple task, as under normal circumstances his attempt to evade taxes would be uncovered by the Internal Revenue Service. Also, if the tax evader or major racketeer is hiding currency, he runs the risk of having the currency decompose.

If he attempts to have the decomposed currency redeemed by the Treasury Department, he will be required to give a full explanation regarding its source to the Internal Revenue Service before the Treasury Department will provide him with new money. Perhaps the most difficult task facing the evader is to determine a method which will enable him to reinvest his untaxed receipts.

Foreign agents who solicit banking business in the United States boast that their secrecy laws solve all of the tax evader's problems. It has been my experience that the foreign secrecy laws severely impede effective enforcement of our tax laws and, when used, make the collection of our revenues impossible. I specifically remember the case of Ingemar Johansson, former world heavyweight champion, who had

his share of the purse and television rights forwarded directly to an account in a Swiss bank. Johansson failed to pay taxes on a substantial amount of income which was subject to U.S. taxes, and the Internal Revenue Service was unable to collect the amount determined to be due. In addition to the loss of revenue, our Government was required to spend a considerable amount of time and money in unsuccessful investigations and litigation.

Requests through the State Department and Interpol for information regarding numbered accounts maintained by U.S. taxpayers at Swiss banks produced negative results. I only know of two cases where information was obtained regarding foreign bank accounts. One case involved a manufacturer who concealed his untaxed receipts in a numbered account in a Swiss bank. He subsequently used these receipts to make very substantial investments throughout the United States. The untaxed funds came back into the United States as fictitious loans which the taxpayer made to himself. In addition to having his corporations repay these loans, the taxpayer had his corporations pay interest on the balance, thus creating an illegal interest deduction. The information developed during the investigation of this case was not obtained from the Swiss bank, as they refused to cooperate, always stating that they were prohibited by Swiss law from cooperating. I mention this case as it is an excellent example as to how a tax evader or major racketeer can invest untaxed receipts through the use of a secret account.

A Swiss bank did provide some information in the Edward Gilbert case. You may recall that Mr. Gilbert received widespread publicity when he fled to Brazil with $1 million. The bank only cooperated after the Internal Revenue placed a lien on a substantial amount of assets which the bank alleged were assets of the bank. In an attempt to prove that the assets in question did not belong to Gilbert, the bank provided the Internal Revenue Service with Gilbert's records.

An examination of Gilbert's records disclosed how an individual could raid and get control of legitimate business in the United States. The bank lent Mr. Gilbert the initial capital to acquire Bruce shares. For the use of this money, Mr. Gilbert was required to pay 9 percent interest, an interest rate that was far greater than the amount charged by the U.S. banks at that time. As needed, the bank provided Mr. Gilbert with additional funds to acquire the shares necessary to gain control. All of the securities acquired by Mr. Gilbert were purchased in the name of the Swiss bank so that no one knew who was raiding the corporation. For this service Mr. Gilbert was required to pay a Swiss as well as a U.S. brokerage fee. He was also required to pay 25 percent of his paper profits to the Swiss bank on a quarterly basis. The amount due on the paper profits was added to Mr. Gilbert's loan, and interest was charged on the additional amount due. It is my understanding that all Mr. Gilbert's financial activity, as you know, was in flagrant violation of our margin requirements.

The investigation of a doctor who claimed to have developed a drug to cure cancer is another example of how the Swiss bank secrecy.

laws impede our tax enforcement efforts. The Food and Drug Administration found that the cure was valueless and stopped the doctor from dispensing the drug in the United States. Investigation disclosed that the huge profits earned by the doctor from his so-called cancer cure were deposited to a numbered account in a Swiss bank. I recall visiting a friend in New York in an attempt to obtain additional informa

tion regarding the doctor's numbered account. My friend was unable to assist us in our efforts and all other investigative procedures failed to develop the desired information. It is my understanding that the Government was unable to successfully prosecute this tax case and the doctor's untaxed receipts were not subject to the Internal Revenue Service's collection procedures.

In the course of my employment with the Internal Revenue Service I met an informant who claimed that he could obtain information concerning Americans who had accounts in Swiss banks. To test the informant's ability to provide reliable information, I decided to open a numbered account in a Swiss bank. I had another reason for opening the account. On many occasions, Swiss bankers visiting the United States, when interviewed, claimed that the use of numbered accounts by U.S. citizens was not widespread.

They also contended that an account could not be opened in the United States; that it required a visit to Switzerland and a meeting with an official of the Swiss bank. They further stated that it would require at least a deposit of $100 or more as an initial deposit to open the account. I wanted to find out whether the statements made by the bankers were correct, and to learn how the system worked.

Using an assumed name I visited New York and entered the New York office of a Swiss bank. When I told the guard that I wanted to open an account, he directed me to an office several floors above street level. There I was required to fill out a card with my name, address, occupation, and business address. Shortly thereafter, I was directed to a private room and spoke with an official of the bank. I told him that I had some money to hide and that I wanted to open a numbered account. The bank official insisted that I could not open such an account in the United States and that I would have to visit Switzerland and contact the bank directly. He maintained this position throughout the interview and by the time I decided to leave I was convinced that I would not be able to open the account in the United States. As I was leaving the bank, the official handed me a brochure which contained information regarding the Swiss bank. He then stated that if I corresponded with the right bank perhaps they could help me. Underlined in red was the address of the Swiss bank.

I wrote to the bank in Switzerland and, shortly thereafter, via airmail, I received an application and the conditions set forth by the bank. It was interesting to note that the bank charged a fee of 114 percent for handling my money. This fee was charged against withdrawals; therefore, as long as I kept my money at the bank, I would not be charged a fee. I opened the account with a deposit of $250 and subsequently effected a series of transactions in an attempt to learn how the system worked. I would purchase money orders in blank from banks in the United States. Then I would make them payable to the Swiss bank, and instruct the Swiss bank to deposit the money orders to my numbered account. I would mail the instructions and the money orders to the bank in Switzerland. It would have been very easy to send large sums of money out of the country each day by using this method.

The bank advised me that I could make withdrawals by having checks made payable to any payee I designated. Also, I could have these checks drawn on any bank I named. I always had the checks

for me

made payable to my alias and would receive a check drawn on the Swiss bank. I would cash these checks at the Swiss bank in New York.

By tracing my transactions, it became apparent that numbered accounts could be used as a vehicle to secretly transfer large sums without difficulty. In addition to their use by tax evaders and persons who desire to take over U.S. corporations, numbered accounts could be used by racketeers to make payoffs and infiltrate into legitimate business.

I hope that my testimony will assist you in making a determination with respect to the legislation under consideration.

Senator PROXMIRE. Thank you very much, Mr. Richman.

What was the name of the Swiss bank in which you opened an account?

Mr. RICHMAN. It was the Swiss Bank Corp., their agency in New York, but it was called Swiss Bank Corp.

Senator PROXMIRE. You indicated you received an application from a bank with conditions on the reverse side. Could you recollect the questions on the application and the conditions on the reverse side?

Mr. RICHMAN. Not specifically. I think the major condition was the fee that they were charging for the withdrawals and the fact that they were not paying interest.

Senator PROXMIRE. You used an assumed name and presumably you used an assumed business address. They obviously couldn't have checked you out; is that correct?

Mr. RICHMAN. That is correct. Actually, I used an assumed name, and all the transactions were handled through a post office box.

Senator PROXMIRE. How did the correspondence from the Swiss bank come to you? Was it postmarked in Switzerland or did it have a U.S. postmark?

Mr. RICHMAN. It was postmarked in Switzerland, but the envelopes had no return address at all. They were the very light type envelope that is used for foreign airmail.

Senator PROXMIRE. Did the bank ever inform you of other services they would perform such as trading in securities? Mr. RICHMAN. I believe in initial papers that I got there may have

got been something to that effect, but, of course, I wasn't interested in that and really didn't follow that up closely.

Senator PROXMIRE. To your knowledge, are the records kept of money orders by the institutions selling them?

Mr. RICHMAN. These money orders came back to the States because I did trace them to see what happened to my transaction. But remember, I purchased the money order in blank and, therefore, when the money order came back all it had was the Swiss bank

Senator PROXMIRE. Where did you purchase the money order? Mr. RICHMAN. Generally in the Philadelphia area, various banks in Philadelphia.

Senator PROXMIRE. But those banks would keep no record ?

Mr. RICHMAN. Well, they would have the money order come back, but they didn't ask any questions.

Senator PROXMIRE. Did you use your real name or assumed name when you bought those ?

Mr. RICHMAN. I used my assumed name. Actually, they didn't ask for my name. I just asked for a money order for $2,000.

Senator PROXMIRE. We have heard that several of the large New York banks have stopped making copies of checks drawn on them. Under these circumstances, wouldn't it be ridiculously easy to transfer money into a secret numbered bank account without fear of detection?

Mr. RICHMAN. Well, the microfilming of checks has always been an aid to the Internal Revenue Service agents who are trying to determine whether there is tax evasion or not. Every case that I ever worked on, I had to refer to the microfilm records. Whether or not this would make it simpler for specific foreign transactions, I couldn't say. I can say that the microfilming of checks is really a vital tool to all Internal Revenue Service where fraud is suspected.

Senator PROXMIRE. Can you recall any instance where copies of checks were instrumental in tracking down tax evaders where foreign bank accounts were not involved ?

Mr. RICHMAN. Yes, I think probably the most outstanding one was the Frank Costello case. That was before I became an agent. My understanding is—this case broke in New York-it was through looking at the microfilm records that they worked the income tax case on Frank Costello.

As I said before, every investigation that I was connected with, I had to go into the bank and review the microfilm records to come up with the evidence that I needed. Under the fifth amendment privilege, we never did get the taxpayers' records, so we had to reconstruct them from the bank records.

Senator PROXMIRE. In your statement, you indicate that racketeers often borrow their own money from their Swiss bank and then deduct the interest payment as an income tax deduction. Who is credited with the interest payment at the Swiss bank? Does the bank get it, or does it go back into the racketeer's account?

Mr. RICHMAN. I was referring to a specific case that I believe is still pending. It is my understanding this money went back to the taxpayer's account. The loan was not a bona fide loan.

Senator PROXMIRE. So he paid himself interest, he got a deduction on the interest that he paid, but he didn't have to report the income that he got for himself!

Mr. RICHMAN. That is right, and the corporation that was operating here in the United States took a deduction for that interest, Senator.

Senator PROXMIRE. Isn't the end result of this transaction that the racketeer enjoys the advantages of the secret foreign bank account, while, in effect, the American taxpayer pays him the interest on it?

Mr. RICHMAN. I would say in a sense because I guess all the legitimate American taxpayers are just paying a little bit more. That is what I would say.

Senator PROXMIRE. Senator Bennett.

Senator BENNETT. I am puzzled by your reference to Ingemar Johansson, particularly in view of your statement of the ease by which you could transfer money to your account in Switzerland.

Isn't the Ingemar Johansson case where he got the money out of the reach of the Federal Government which could no longer make any lien against it?

Mr. RICHMAN. That is correct, Senator.

Senator BENNETT. And not that there was anything crooked about the transaction; he just was able to deposit it in a foreign country?


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