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TITLE III-MARGIN REQUIREMENTS

2 Sec. 301. Amendment of section 7(a) of the Securities Ex

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change Act of 1934

(a) Section 7 (a) of the Securities Exchange Act of 5 1934 (15 U.S.C. 78g (a)) is amended by striking the first 6 sentence and inserting in lieu thereof the following: "For the

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purpose of preventing the excessive use of credit for the pur8 chase or carrying of securities, the Board of Governors of 9 the Federal Reserve System shall from time to time prescribe 10 rules and regulations in accordance with this section. The 11 Board shall prescribe rules and regulations with respect to 12 the amount of credit (regardless of who or where the lender 13 may be) that any person may initially obtain and subsequently retain on any security (other than an exempted

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security). The Board shall prescribe rules and regulations 16 with respect to the amount of credit (regardless of who or 17 where the borrower may be) that any person may initially 18 extend and subsequently maintain on any security (other 19 than an exempted security). It shall be unlawful for any

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person to obtain or retain credit in willful and knowing 21 violation of any rule or regulation under this section. It shall

22 be unlawful for any person to obtain or retain credit in

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violation, whether or not willful or knowing, of any rule

or regulation under this section either on the basis of a

material misrepresentation made or participated in by him

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1 of the purpose for which the credit is to be used, or in an

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aggregate amount exceeding $1,000,000 at any one time." 3 (b) The amendment made by subsection (a) of this 4 section does not affect the continuing validity of any rule or 5 regulation under section 7 of the Securities Exchange Act of 6 1934 in effect prior to the effective date of the amendment. TITLE IV-EFFECTIVE DATES

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Sec. 401. Effective dates

(a) Except as otherwise provided in this section, this 10 Act and the amendments made thereby take effect on the 11 first day of the seventh calendar month which begins after 12 the date of enactment.

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(b) The Secretary of the Treasury may by regulation provide that any provision of title I or II or any amendment 15 made thereby shall be effective on any date not earlier than 16 the publication of the regulation in the Federal Register 17 and not later than the first day of the thirteenth calendar 18 month which begins after the date of enactment.

19 (c) The Board of Covernors of the Federal Reserve

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1 by title III shall be effective on any date not earlier than the 2 publication of the regulation in the Federal Register and

3 not later than the first day of the thirteenth calendar month 4 which begins after the date of enactment.

Passed the House of Representatives May 25, 1970.

Attest:

W. PAT JENNINGS,

Clerk.

Senator PROXMIRE. We are honored to have as our first witness this morning Hon. Will Wilson, the Assistant Attorney General, Department of Justice.

Mr. Wilson, will you come forward.

STATEMENT OF WILL WILSON, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF JUSTICE; ACCOMPANIED BY WHITNEY NORTH SEYMOUR, JR., U.S. ATTORNEY, SOUTHERN DISTRICT OF NEW YORK, AND ROBERT ROSTHAL, DEPUTY CHIEF, GOVERNMENT OPERATIONS SECTION, CRIMINAL DIVISION

Mr. WILSON. Mr. Chairman, I am accompanied by Mr. Seymour, the U.S. attorney for the southern district of New York, and Mr. Rosthal, who is the staff man working on this matter in our department.

I have a prepared statement which I would like to give if it is agreeable with the Chairman.

Senator PROXMIRE. Yes, indeed, and any part of your statement that you skip will be printed in the record as if read, and I will say the same for Mr. Seymour.

Mr. WILSON. Mr. Chairman and members of the Subcommittee on Financial Institutions, I appreciate the opportunity to consider with you Senate bill 3678, which is primarily designed to prevent the use of foreign banking facilities by American citizens to evade and defeat American laws and security regulations. S. 3678 also provides for certain recordkeeping by domestic banks as an aid to law enforcement.

On May 25, the House of Representatives unanimously passed H.R. 15073, which the Department finds is similar in language and purpose to the legislation before us today. I would therefore, itemize what I believe are the major provisions of these bills and then note two significant additions appearing in S. 3678.

Both H.R. 15073 and S. 3678 contain the following provisions:

1. Domestic financial institutions could be required to retain records of checks and other financial transactions in accordance with regulations to be promulgated by the Secretary of the Treasury.

2. Transactions involving the payment, receipt, or transfer of U.S. currency or monetary instruments would be reportable in a single report by the domestic financial institution and by the person involved. 3. The transportation of U.S. currency or its equivalent into or out of the country would be reportable when it exceeded $5,000 on any one occasion or $10,000 in any year.

4. An individual or a domestic financial institution engaged in a transaction with a foreign financial institution would be required to maintain records or file a report of that transaction in such manner as the Secretary of the Treasury may direct. Here, I would note that Treasury has announced that next year's personal income tax forms will require a taxpayer to decline if he has maintained an interest in a foreign bank account during the previous year. This Treasury requirement will, I believe, enhance the recordkeeping provisions of S. 3678.

5. Present penalties for violating margin requirements on securities loans, now limited to the lender, would be extended to the borrower as well to prevent a foreign lender from evading the margin requirement regulations.

To these purposes S. 3678 adds two new provisions:

1. U.S. broker-dealers would be prohibited from dealing in U.S. securities on behalf of foreign banks or brokers unless the foreign bank or broker names the persons for whom it is acting, or alternatively, certifies that it is not acting for a U.S. citizen or resident.

2. U.S. citizens or residents placing stock orders through foreign banks or brokers must give the foreign bank or broker permission to disclose to the U.S. broker-dealer, with whom the transaction is finally consummated, the identity of the individual for whom it is trading. This permission is designed to allow the foreign entity to disclose the U.S. citizen's or resident's identity without a claim that such disclosure violates its nation's secrecy laws. In other words, this requires the American citizen using a foreign bank account to waive the foreign nation's secrecy requirements.

Mr. Chairman, both H.R. 15073 and S. 3678 might be interpreted to require domestic banks to make a copy of each check or draft drawn on it and presented to it for payment. However, the House bill exempts from any such requirement domestic financial transactions involving less than $500. This exemption does not appear in S. 3678.

In my testimony before the House Committee on Banking and Currency on December 4, 1969, I urged that we not burden legitimate business with unnecessary redtape. Our purpose, I said, should be to detect and prosecute crime, not build a mountain of paper.

In my testimony today I would defer to Treasury witnesses who will appear later in these hearings on the question of what particular methods place unreasonable burdens on the banking community and, more importantly, the American public. I profess no special expertise on this subject. Also I would prefer to leave the value of the safeguards added by S. 3678 to insure the integrity of margin requirement regulations, to Treasury witnesses and representatives of the Securities and Exchange Commission.

My concern and my responsibility is the enforcement of the Federal criminal laws. Regarding S. 3678 entirely from that position I can state unequivocally that the legislation before us would provide additional ammunition in the fight on organized crime and white collar criminals. U.S. Attorney Whitney North Seymour, Jr., who is here with me today, will discuss with you actual instances of the misuse of foreign banking facilities in violation of our laws. Incidentally I would note that immediately after taking office as U.S. Attorney for the Southern District of New York Mr. Seymour established a new sixman unit under the direction of an experienced assistant to concentrate on white collar crimes.

Mr. Chairman, as you know, I cannot properly identify matters now pending in the Criminal Division and the offices of U.S. attorneys throughout the Nation. To do so would endanger present investigations and grand jury inquiries. I can, however, describe some types of situations in which foreign bank secrecy laws inhibit detection of major criminal conduct:

We are aware that a bank in Geneva, Switzerland, is being used on a regular basis as a depository of “skim" from Las Vegas for the benefit of known hoodlums.

We know that foreign banks are used to "clean" dirty money. Here is an example of how it works—a racket controlled domestic corporation borrows $200,000 from a foreign bank. The loan is