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Last December my predecessor gave some additional examples which are prelude to my testimony today. He referred to another instance of the use of the Swiss bank for sale of unregistered stock: The Realty Equities Case where a corporate insider took advantage of a corporate opportunity through a Swiss account realizing a profit of almost half a million dollars in a quick turnover because of that vehicle.

He referred to insider sales of General Development Corporation convertible bonds.

He referred to the conviction of the brokerage firm of Coggeshall and Hicks for participating in margin violations. He also referred to the First Hanover Case in which the use of an American brokerage firm became the vehicle for a margin violation as a prelude to a corporate takeover attempt which also provided some very substantial profits. I think one of the significant cases he referred to from our district probably of major significance was the use of a Swiss bank account as the vehicle for conveying proceeds of illegal heroin traffic. He referred to one case in our district in which $950,000 had been funneled through a Swiss bank account in connection with illegal narcotics traffic.

It is against this background that I report to you today that the Southern District of New York located in the financial center of the country continues to see a mushrooming of these practices. We have, as Mr. Wilson has indicated, increased the size of our fraud unit because of the expanded activities, investigating and prosecuting these cases, and we continue to find violations similar to and sometimes more sophisticated than those that have gone before.

My formal statement today refers to the use of Swiss bank accounts as conduits for bribes to government employees. I refer specifically to a recent indictment filed just a couple of months ago involving illegal payments to military post exchange personnel. We have investigations currently on even more elaborate schemes for insider trading in corporate securities. Several dealing by underwriters in hot issues of new stocks through Swiss accounts.

My statement refers to the Weisscredit Bank Case, a quite broad scheme in which an officer of a New York brokerage firm working in conjunction with an officer of the Swiss bank is alleged under the indictment to have set up a margin requirement violation with U.S. residents having accounts in the Swiss bank which then became the vehicle for making purchases on the New York market.

And then I have reference to a number of other current investigations involving both Swiss and Bahamian bank accounts. There is no question that the problem for the prosecutor operating in this area is really acute without adequate records. We depend almost entirely on informants who are very difficult to develop.

We believe very strongly that adequate records which are the objective of this legislation could do a great deal to strengthen our hand, and we are very enthusiastic about the purposes of this legislation.

Senator PROXMIRE. Thank you very much, Mr. Seymour, and thank you, Mr. Wilson. These are both fine statements, and I do appreciate the force with which you come down in behalf of legislation of this kind and the very constructive suggestions you make for improving the legislation.

Mr. Wilson, I wrote you a few days ago and told you when you came before us I was going to ask you questions on another matter.

I want to do that first and get those out of the way, and then we can proceed to questioning you and Mr. Seymour on this legislation.

Taking advantage of this situation, because I think it is one of the rare and unusual opportunities for me to do so, my questions, of course, relate to the Air Force's intimidation and firing of Ernest Fitzgerald and our correspondence over possible criminal prosecutions resulting from this.

In your letters, you indicate that until the proceedings now underway before the Civil Service Commission are complete, the Justice Department will take no action in this case. Just how are the Commission's proceedings relevant?

Senator BENNETT. Mr. Chairman, at this point, and I am not being arbitrary about it, I would like to know the jurisdiction of this committee over this case.

Senator PROXMIRE. Well, this committee doesn't have jurisdiction over this particular area.

The reason I ask these questions is that the case developed in the Joint Economic Committee, and this is one of the rare occasions where I have a chance to question Mr. Wilson, and Mr. Wilson is the man directly involved in this case, and I thought in the interest of public disclosure and public information, having given the Justice Department a chance to give their side of the case, that this was the best opportunity to do it.

Senator BENNETT. I think it should be outside of this record. I don't think it belongs in this particular record. It has nothing to do with Swiss bank accounts or foreign bank accounts. If you want to question him, I guess I have no right to object to that, but I respectfully suggest that the questions and the answers not be included in the record of this proposed legislation.

Senator PROXMIRE. Would the Senator have any objection if the record were kept but if the record were not put into the proceedings? Senator BENNETT. That is my point. This is a personal discussion between you and the witness on a subject that has nothing to do with today's record. If you want to carry on that discussion and develop a record, I suppose that is your right, but I submit, and I think you will agree, that it has no place in the record of today's hearing.

Senator PROXMIRE. It is certainly very important in my view of the public's business. I understand the Senator's position. In that event, the record will be kept but it won't be included in the record of this particular hearing.

(Off the record.)

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

Now let me get back to the bill that is before us.

You mentioned that several banks stopped microfilming checks drawn on them. Could you explain why copies of checks are very important in law enforcement activities?

Mr. WILSON. They are very important because they are frequently the direct evidence of the transaction itself as they are introduced in evidence to prove their element in the case.

Secondly, under the Best Evidence Rule they are frequently the best evidence of the writing and its contents and what it contains. Thirdly, they furnish impartial and virtually unimpeachable testimony to a transaction that would otherwise have to be proved by the verbal testimony of the parties.

We consider them to be the highest quality of evidence and the very best evidence in many of these cases.

Senator PROXMIRE. You indicate that you know of a Swiss bank being used for Las Vegas skim money. Can you tell us roughly how much money is involved?

Mr. WILSON. No; we don't know that. We know it is a large amount based upon the number of trips and the probable amount that the couriers carry, but we do not have access to any direct proof of just how much they are carrying.

Senator PROXMIRE. If you know the money is going into the bank, why don't you simply arrest the courier?

Mr. WILSON. We have no offense for which we can arrest him. It is not an offense to carry cash out of this country.

Senator PROXMIRE. Can you explain the customary procedures used by gamblers in the transfer of illegal skim money into Swiss bank

accounts?

Mr. WILSON. Yes, sir. They use many different procedures, but in essence it is first a transportation problem of getting the cash into a bank account. As you can appreciate, our whole economic system is based upon credit, and credit is power. Cash in large quantities is virtually unusable in many situations, because they cannot, for instance, without creating more questions than they would like to answer to an inquiry, say, gain control of a corporation with a payment of cash, or other uses of cash, real estate, that sort of thing. So, any racketeer has the primary problem of converting a cash flow from, say, an illegal gambling operation into usable credit. That is one of his top problems.

They have, especially now in the racket field, a money mover, a man who moves money, and that is one of the things they do to change cash flow that is itself of little value to them into usable credit.

Senator PROXMIRE. What does the money mover charge for it? Mr. WILSON. They get 2 to 5 percent from informer information, depending on the size of the transaction.

Senator PROXMIRE. How would the legislation before this subcommittee aid in preventing the transfer of illegally obtained funds?

Mr. WILSON. First it makes a great deal more evidence available inside the United States than we have now in that it requires the photocopying of checks passing through most bank accounts. I noticed in the report from the committee, the House committee, that Chairman Patman objected to the exception of checks under $500 and he had a rather strong argument against it, and I am not prepared to say that he is not right.

The exception for $500 was put in I think in order to try to eliminate the possibility of a great deal of paperwork. But in any event, that provision will be very helpful in all types of cases, not just organized crime cases. It will be very helpful in the collection of income tax.

Secondly, the main thing this act does in addition to that is to make it illegal to carry cash outside of the United States without first reporting it, and it makes the reporting an act which we can attach legal significance to, and those two things I think are of immense importance to law enforcement.

Senator PROXMIRE. If a person is already violating the law, wouldn't he also violate this statute as well?

Mr. WILSON. Yes, sir.

Senator PROXMIRE. But you feel you would be in a stronger position to prosecute?

Mr. WILSON. Yes.

Senator PROXMIRE. Who else besides gamblers transfer funds into secret foreign bank accounts?

Mr. WILSON. We think it is used extensively in the narcotics traffic. It is probably used in the concealment of stolen securities, stolen bonds, stolen stocks, which frequently show up in Europe and other places and which are used to be converted into credit.

Senator PROXMIRE. The Treasury already requires banks to report unusual currency transactions under the authority contained in the Trading With the Enemy Act. Why aren't these reports good enough for your purposes?

Mr. WILSON. Well, they haven't been. We have not construed the Trading With the Enemy Act to apply to such things as couriers of Las Vegas skim and I don't believe that the Treasury does either.

Senator PROXMIRE. When you correct your remarks, would you check this out a little further and give us other reactions you have on that?

Mr. WILSON. Yes, sir; I would like an opportunity to give you a fuller discussion of that.

Under the Trading With the Enemy Act domestic institutions primarily engaged in cashing checks and exchanging currency must report "unusual" financial transactions. The weakness in this system arises from the varying definitions of the word "unusual" applied by the domestic institutions. A $10,000 cash withdrawal my be unusual for bank A and commonplace for bank B. In addition many banks do not sufficiently verify the identity or the address of the individual engaging in the transaction.

Under S. 3678 transactions on which reports would be required would be expanded to include currency "or such other monetary instruments as the Secretary of the Treasury may specify." Reports would no longer be made by the domestic institution alone but by the real party in interest as well. The improvement is obvious and the advantages to law enforcement equally obvious.

Senator PROXMIRE. Do you know of any cases where funds have been deposited in a U.S. bank on the condition that some or all of the proceeds be loaned to a designated borrower?

Mr. WILSON. Oh, I think that is done. I can't think now of specific cases, but I think it is a practice that happens. A borrower goes to a bank and they say we are "loaned up," we don't have any money, and if you can find someone who will put in a CD, a certificate of deposit, why, we will make you a loan.

So the borrower goes around, and he goes to a loan broker and, in effect, purchases a CD for the bank. I think that is a practice that is used some.

Senator PROXMIRE. What I was referring to was where perhaps criminal elements, organized crime do that."

Mr. WILSON. We have cases in the southern district of New York.

Mr. Seymour can discuss it in greater detail. I think we have had some situations where the borrower has, in effect, borrowed back his own money from a foreign bank.

Senator PROXMIRE. Does this type of indirect lending violate any banking statute, assuming that the loan is otherwise bankable?

Mr. WILSON. Not unless it is a violation of SEC regulations. If it is used for margin to evade the margin requirements, it could, or it might be used in some more elaborate type of fraud, but just the transaction itself would not be a violation.

Senator PROXMIRE. When a U.S. bank accepts deposits under the condition of making loans to designated borrowers, do you think it would be a good idea to require the bank to report the existence of such an arrangement with the Secretary of the Treasury?

Mr. WILSON. I am going to defer to the Treasury on that, Senator. I am not that familiar with the banking practices to be able to answer that.

Senator PROXMIRE. Would a violation of our tax or securities laws also be considered illegal under Swiss law if the violation had occurred there?

Mr. WILSON. I am not familiar with the Swiss law. They do have a taxing system that does have some criminal penalties involved in it, especially in their local taxation, and I am not real familiar with it. But the Swiss generally have maintained that in our negotiations with them on the treaty that normal income tax fraud case in this country would not be a violation in that country. The Treasury experts who have been closely examining the Swiss laws feel that that may not be entirely accurate, but I don't know the answer to it.

Senator PROXMIRE. If a particular category of crime is not illegal under Swiss law, can Swiss banks cooperate with foreign law enforcement agencies by disclosing information?

Mr. WILSON. They cannot now without violating their own secrecy laws unless it comes out in some proceeding. Now, we have had a case or two where there have been Swiss proceedings involving Swiss violations that exposed the account and we got information that way. Senator PROXMIRE. In your view, is it likely that Switzerland will agree to a treaty which will permit their banks to disclose information in connection with tax and securities cases?

Mr. WILSON. I think they will. We have negotiated with them for over a year. We are down to the final stages. They have been very cooperative, and in my judgment they are negotiating in good faith, and in my judgment we will secure a treaty.

Senator PROXMIRE. Mr. Wilson, you recommend elimination of the immunity provisions because S. 30, the crime bill, will take care of this. But enactment of S. 30 is not a certainty this year.

Why not retain the immunity provisions in this bill and provide that S. 30 supersede them when enacted?

Mr. WILSON. In my prepared testimony I suggested that if an immunity provision be retained in S. 3678 that it employ the language of section 6002 of S. 30. In that way, should S. 30 fail of enactment this year, we would at least retain the type of immunity approved by the Senate in S. 30.

Senator PROXMIRE. You would support that?
Mr. WILSON. Yes, sir.

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