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Mr. RICHMAN. That is what I wanted to convey with my explanation, that with the ease that he could get it out, unfortunately, once it did get out and the U.S. Government felt that there was tax due, we weren't in a position to get it back.

Senator BENNETT. That is true of any taxpayer who puts his assets beyond the reach of the lien of the U.S. Government, isn't that right?

Mr. RICHMAN. That is correct. Senator BENNETT. So this bill has nothing to do with that particular phase of it?

Mr. RICHMAN. That is correct.
Senator BENNETT. You intrigue us greatly when you


us you were going to test an informant's ability to provide you with reliable information about Swiss number bank accounts, and then you tell us about your experience, but was the informant ever able to give you reliable information?

Mr. RICHMAN. No, sir. Senator BENNETT. So, he was not in a position to break the system? Mr. RICHMAN. Well, Senator, I was confronted with a lot of people who thought they would do a lot of things. This was part of the problem. This man looked particularly good in that he had the use and the command of many languages and he traveled throughout Europe, and we certainly felt that it was worth looking into. As I say, the only thing we spent was a little time with him, and we felt it was well worth the effort. But like many other investigative techniques that I applied, most of them came up rather meager, and he was one of them.

Senator BENNETT. You went in some detail, and I appreciate it, to tell us your own experience in transferring money to a Swiss bank.

If this bill were passed, of course, presumably you would have to make a report of your transactions. But couldn't you put an accomplice between you and the Swiss bank and transfer the money to Istanbul or London or somewhere else?

Mr. RICHMAN. This is true. I would imagine that all the laws that we pass, there are probably people sitting around trying to figure out ways to get around them if it is that type of individual. But I agree with Mr. Morgenthau wholeheartedly when he says that if we enact legislation that will make this just a little bit tougher, I think we will discourage certain taxpayers who may now be evaders from violating this law. I think this will have some deterrent effect, I also feel that this law will provide tools in certain cases to come up with prosecution

Senator BENNETT. By putting such an accomplice between you and the Swiss bank and then having the Swiss bank buy securities for you in the name of the accomplice, the Swiss bank then would be certifying that there was no American involved in the stock transaction which would be a false certification.

Mr. RICHMAN. That is my understanding, and I believe that is correct. I think we ran into this trouble in enforcing the interest equalization law. However, I know that we did make some successful cases in that area, even though they took place after I left the Service, and, therefore, I feel that the law itself served its purposes. It wasn't a 100-percent cure-all, but it certainly made good strides in good tax enforcement.

Senator BENNETT. In other words, it scared a few more who might not have been scared without it?


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Mr. RICHMAN. We prosecuted a few more, and I am sure in the tax enforcement field, the enforcement agency is really for the deterrent effect that it has on other taxpayers who may or may not be honest taxpayers.

Senator BENNETT. No further questions.
Senator PROXMIRE. Just one other question.

In the absence of this legislation requiring records to be kept on money orders, it is apparently quite easy to transfer money into a Swiss account without detection. Isn't that right?

Mr. RICHMAN. That is correct.

Senator PROXMIRE. Thank you very much for your most helpful and enlightening information. You have had some fascinating experiences that are useful for the record.

The committee will stand in recess until tomorrow morning at 10 o'clock, when we reconvene in this room to hear Mr. Robert Haack, president of the New York Stock Exchange, and other witnesses.

(Whereupon, at 11:50 a.m., the hearing was adjourned, to reconvene at 10 a.m., Thursday, June 11, 1970.)




Washington, D.C. The subcommittee met, pursuant to adjournment, at 10:01 a.m., in room 5302, New Senate Office Building, Senator William Proxmire (chairman of the subcommittee) presiding.

Present: Senators Proxmire and Bennett.
Senator PROXMIRE. The subcommittee will come to order.

Our first witness this morning is the distinguished president of the New York Stock Exchange, Mr. Robert Haack.

Mr. Haack, we are delighted to see you. You are a graduate of a celebrated class at the Harvard Graduate School of Business Administration. That is the principal reason why I am happy to see you and congratulate you on the grand job you are doing as president of the New York Stock Exchange.

I might explain that Mr. Haack and I were fellow graduates in the class of 1940 at Harvard Business School, and it reminds me of the depressing fact that we go back to our 30th reunion of graduate school this year. So with that unhappy thought, go right ahead.



Mr. HAACK. I might also remind you, sir, that I am a former constituent of yours from the sovereign State of Wisconsin.

Senator PROXMIRE. That's right, you were one of my former bosses.

Mr. Haack. Mr. Chairman, my name is Robert W. Haack, president of the New York Stock Exchange. Donald L. Calvin, a vice president of the New York Stock Exchange, is with me.

We recognize the need for legislation to prevent the use of foreign banking facilities for illegal purposes by U.S. citizens and residents.

While reasonable men may differ as to the best method to deal with persons who channel funds abroad to escape detection, there should be no disagreement that the evasion of U.S. laws, by whatever means, should be brought to a halt. We are pleased to lend our support to legislation which seeks to do so. Accordingly, we support the objectives of S. 3678.

Some of the provisions of the bill touch upon the very delicate area of international commerce in securities. In these areas we must not be unmindful of the need to act with discretion lest we disturb existing legitimate relationships to the detriment of both ourselves and our foreign business associates.

In this connection, we have reviewed titles III, IV, and chapter 3 and 4 of title II with the objectives of the bill in mind while focusing on these provisions from the standpoint of legitimate securities transactions.


Our specific comments are limited to those provisions in these three titles of the bill which relate to securities transactions:

First, title IV proposes to add a new subsection 31 (a) to the Securities Exchange Act of 1934. U.S. broker-dealers and banks will be prohibited from effecting any transactions in any domestic securities initiated by a foreign financial agency unless the foreign firm discloses the identity of the person for whom it is acting or certifies that it is not acting for a U.S. citizen or resident.

The adoption of this proposal will, in our opinion, inevitably lead to a decline in foreign transactions in U.S. domestic securities and encourage the development of markets abroad in U.S. domestic securities.

Rather than requiring the certification or identification in all transactions, it is our suggestion that consideration be given to a more flexible approach by authorizing the Securities and Exchange Commission to require the certification or identification on a selective basis in specific situations.

Second, new section 31 (b)(1) would require that U.S. citizens or residents who place orders to buy or sell domestic securities from or through a foreign financial agency give written authorization to the foreign firm to disclose the U.S. person's identity to the U.S. brokerdealer or others with whom the securities transaction is effected. New section 31 (b) (2) would require the U.S. person to file periodic reports of his securities transactions with the Securities and Exchange Commission.

We support fully new section 31(b) which, in our opinion, should discourage some U.S. persons who are considering transacting business in domestic securities abroad.

Third, title III amends section 7(a) of the Securities Exchange Act of 1934 so that margin or security credit requirements which presently apply only to lenders would be extended to all borrowers—whether a loan is made by a foreign or domestic organization.

We recognize the need to attempt to extend regulation of security credit to loans from foreign financial agencies to U.S. citizens and residents and support applying the regulation of security credit to these borrowers. We do not think, however, that is is necesary to extend these requirements to loans made by U.S. institutions which are presently adequately covered under existing section 7(a). We suggest that the proposed amendment of the section be so revised.

Fourth, under chapter 4, title II, the Secretary of the Treasury is authorized to require U.S. citizens and residents to maintain records and file reports on any transaction or relationship with a foreign fi

The broad statutory authority under this chapter and chapter 3 of title II may be viewed by foreigners as a potential for U.S. Government intrusion into legitimate transactions.

In our opinion, the scope of the administrative authority in chapter 3 should be severely limited and chapter 4 eliminated. Proposed new section 31 (b) and the disclosure of any interest in a foreign account in conjunction with a Federal income tax return should be adequate from a disclosure standpoint.

We have, as I stated at the outset, reviewed these proposals from a business standpoint to assess the impact that these requirements might have on legitimate transactions both at home and abroad.

It is in this context that we are particularly concerned about the new section 31(a) which would be added to the Securities Exchange Act

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of 1934. Foreign financial agencies would be required to either certify prior to any transaction in domestic securities with a U.S. brokerdealer or bank that they are not acting for a U.S. citizen or resident or identify the person for whom they are acting.

To require this in every transaction carries with it an unfavorablealbeit unintended—implication that the foreign institution is suspected of being a party to a violation of U.S. laws. The certification requirement will, in our opinion, dissuade foreign institutions from dealing in U.S. domestic securities with U.S. firms.

A reduction in foreign transactions in domestic securities by foreign residents will have an adverse impact on the Nation's balance-of-payments position. Similarly, a diminution of trading in U.S. domestic securities by foreign residents through C.S. broker-dealers may lead to a decline of securities markets in the United States vis-a-vis the rest of the world.

Further, we do not think it is necessary, from an enforcement standpoint, to require certification or identification prior to every transaction.

Foreign purchases of U.S. domestic securities have been on the increase. As a result, there has been a favorable impact on the U.S. balance of payments.

In 1969, a net capital inflow of almost $1.5 billion resulted from international securities transactions.

In part, foreign investment in U.S. domestic securities has been stimulated by the enactment of the Foreign Investors Tax Act in 1966. This act originated with the Fowler Task Force, appointed by President John F. Kennedy, and headed by then Under Secretary of the Treasury Henry Fowler, which was assigned the task of "examining ways and means of promoting increased foreign investment in securities of U.S. private companies."

We are concerned that foreign institutions will view the certification or identification requirements with disdain and as a result will seek investments away from U.S. domestic securities through non-U.S. firms.

In recent years, the major stock exchanges in Europe have commenced active trading in securities of U.S. companies. Further, the past several years have seen the development of a Eurobond market in debt securities of U.S. companies. Currently, there is considerable interest in Europe in expanding the local markets in equity securities of U.S. companies. Serious consideration is also being given to the development of a “Euroshare” market in Europe.

The greater depth and liquidity of the markets in securities traded on the New York Stock Exchange will, we are confident, continue to make our exchange the primary market for listed securities. However, restraints on foreign investment in the United States are not a desirable development as foreign investment is becoming an increasingly more important source of volume in our markets. Total direct purchases by foreigners of stocks in U.S. companies amounted to more than $12 billion in 1969.

If, on the other hand, markets of greater depth in shares of U.S. companies are encouraged to develop in Europe, not only will our balance of payments and our securities markets be adversely affected, but the law enforcement reasoning behind the certification and identification requirements will cease to be applicable. Foreigners and U.S.

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