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Mr. STANKEY. Probably of conducting the mail watch. As I stand here and think about the situation, I think perhaps personally I would have favored releasing the tapes and hoping that this would have been brought to the attention of Congress-the situation of the thousands of Swiss bank accounts that were not being investigated which should have been investigated. This should have been something brought to the attention of Congress.

However, as I indicated, I was not, in spite of the indications on the bottom of the draft, the principal draftor of that memo.

Mr. LEVITAS. Was Mr. Meehan, to your knowledge ?

Mr. STANKEY. Mr. Meehan was on the staff of the Assistant Commissioner of Compliance at that time.

Mr. LEVITAS. To your knowledge, was he the principal draftor?

The only names that appear here are: The signature by John F. Hanlon, and then below that is the legend which I previously described identifying Stankey and Meehan. Those are the only three names, so I presume one of the three of those persons was involved in writing that letter.

Mr. STANKEY. I am sure that we all were to some extent. I think they asked me about, you know, what they planned to do. But as I pointed out, I was at that time detailed to the Office of the Secretary.

Mr. LEVITAS. I think my time has about expired. But it seems to me as I am reading—and this is only my inference because I am not privy to what was in the minds of the person or persons who wrote this letter—but it seems to me that not only did the destruction of this tape potentially frustrate the following up on some of the leads that had been developed and make it, if not impossible, certainly difficult to pursue those leads; but that it was an attempt to frustrate a congressional committee in discharging its responsibilities.

And while I am speaking relatively softly, I consider that a very serious situation.

Mr. STANKEY. I do too, Mr. Congressman. I agree with you perfectly.

I would like to make one more comment in that I was brought up here unexpectedly. Although the indication was that Stankey and Meehan drafted this memorandum, as you are probably well aware, in government quite often things indicate certain initiators, but they definitely reflect the input of the principals.

And without indicating that the principal may have changed the initial memorandum to the point where it would be almost unrecognizable, I would disclaim responsibility for this memo as being the principal initiator even, inasmuch as I was not even working in the Intelligence Division at that time or in the Internal Revenue Service.

Mr. LEVITAS. Mr. Chairman, I have no further questions on that point. It perhaps needs a little more clarification.

Mr. ALEXANDER. Mr. Chairman, I have something to add, in view of the problems Mr. Stankey is having in remembering what went on in 1972. That is not unexpected.

I would like to submit what purports to be, and what I believe to be, an earlier draft of this memorandum, which shows only one name: RJStankey: gec 7-28-72; and shows as the initiator someone named Stankey.

Mr. ROSENTHAL. He hasn't tried a lawsuit for awhile. He is enjoying this.


Mr. LEVITAS. Basically, although not the only thing that is in this, Mr. Chairman, it is the concept of CYA that I find in this last sentence that bothers me—that to avoid criticism, we have arranged to destroy a tape which a congressional committee has expressed a specific interest in.

Mr. Commissioner, while I am looking at this letter, I wonder if you could advise the committee, to your knowledge has IRS destroyed other files after receiving a congressional request?

I am sure even FBI Director Kelly doesn't know what goes on in the FBI.

Mr. ALEXANDER. Here we get to the problem of negative assurance. To my knowledge, we have not. And you can be sure that I have given directions that we won't; and you can be sure that I share your con

about what is reflected in that memorandum. Mr. STANKEY. Mr. Chairman. Mr. ROSENTHAL. Go right ahead, please.

Mr. STANKEY. Under the circumstances, I hope you will permit me to say that my last comment still stands—that in this situation I feel that I was given direction if I did in fact dictate this memo or draft it. My recollection is somewhat hazy. I know I had input; I don't deny that.

But it certainly did not reflect my personal feelings or beliefs in the situation.

Mr. LEVITAS. Mr. Stankey, I am not familiar with how these forms work.

Mr. STANKEY. May I look at that? I haven't had the advantage of seeing it.

Mr. LEVITAS. Surely. For the record, I would like to say it says, "Code,” “Surname," "Date. Then it says, "Initiator," "Reviewer," and “Surname.”

Under "Surname of initiator," it says "Stankey.” And then I can't make it out.

Mr. STANKEY. That is “Iverson,” sir. He would have been a branch chief at the time.

Apparently, looking at this, I must have been back in the Intelligence Division during this period of time. I apologize.

Mr. LEVITAS. I certainly understand that people cannot recall what happened on July something back in 1972, but sometimes you can get your memory refreshed by looking at some of these documents.

And as I look at this letter, which appears to be an earlier draft, although it is not certain because only the subsequent one was signed, there seems to be very little change between the two documents. So apparently you did have significant input into the preparation of that letter—including that last sentence, which is the one that really disturbs me.

Thank you, Mr. Chairman.

May we have a copy of this or is this your only copy, Mr. Commissioner?

Mr. ALEXANDER. That is yours. And if that copy is not legible enough, we will do our best to provide you with a better one.

[The letters referred to follow:]

Director, Office of Law Enforcement.
Assistant Commissioner (Compliance) CP:I:P
Draft Cover Letter to Senator Ervin

This is in response to Dr. Golding's memorandum of July 24, 1972.
We concur in the draft that was transmitted with the memorandum.

We do not believe that the computerized Swiss bank file falls within the purview of Senator Ervin's request. It has not been updated, is not used to obtain information concerning specific individuals, and would be awkward to access on that basis. It is a working file containing the names of individuals, who appear to share one characteristic, the ownership of a Swiss bank account. However, to avoid any possible criticism, we have arranged to destroy the file.

Assistant Commissioner, (Compliance).

RJSTANKEY:gec 7-28–72

Director, Office of Law Enforcement.

Assistant Commissioner (Compliance)

Draft Cover Letter to Senator Ervin

This is in response to Dr. Golding's memorandum of July 24, 1972.
We concur in the draft that was transmitted with the memorandum.

We do not believe that the Swiss bank tape file falls within the purview of Senator Ervin's request. It has not been updated, is not used to store or obtain historical information concerning the specific individuals, and would be awkward to access on that basis. It is used primarily as an efficient means to create hard copy lists. In short, it is a working file containing the names of individuals, who appear to share one characteristic, the ownership of a Swiss bank account. However, to avoid any possible criticism, we have arranged to destroy the tape file.

(Signed) JOHN F. HANLON,
Assistant Commissioner,

(Compliance). RStanley/BLMeehan :hn 7/28/72

[Supplemental correspondence from Robert J. Stankey, Jr., , follows:]

ALEXANDRIA, VA., September 17, 1976. Hon. BENJAMIN S. ROSENTHAL, Commerce, Consumer and Monetary Affairs Subcommittee, Committee on

Government Operations, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: I would like to clarify the record concerning my testimony before the Subcommittee on July 1, 1976.

As you may recall, I was called, without any prior notice, to testify concerning a fie copy of a memorandum dated July 28, 1972, which was addressed to the Director, Office of Law Enforcement, Treasury Department, by the Assistant Commissioner (Compliance), IRS. The memorandum concerned a draft response to an inquiry from Senator Ervin.

I was not shown the document in question prior to being questioned about it and, to my knowledge, I had not seen it since 1972. As my testimony indicated, although I remembered that Senator Ervin had made a general request for information pertaining to data banks and that I had been asked about the Swiss bank mail watch data, I did not recall drafting the memorandum.

In June, 1972, IRS Commissioner Walters detailed me to Treasury to assist with the implementation of the regulations that had been recently issued to implement Titles I and II of Public Law 91-508, commonly referred to as the Bank Secrecy Act. That detail was extended and subsequently lead to another detail and my eventual transfer to Treasury. During those details, I continued to have a great deal of contact with IRS officials. At the time I testified, I did not recall any interruption in my assignment at Treasury. In reviewing my files, I have been able to determine that I was working at Treasury in the latter part of July, 1972, and that my principal assignment in the early part of August, 1972, was the gathering of material to be used in preparing testimony Assistant Secretary Rossides gave on August 11.

While there is no doubt that I prepared the original draft of the memorandum in question, I do not recall originating the basic decision that the information should not be disclosed to Senator Ervin and that the computerized files should be destroyed. I believe that a more senior IRS official instructed me to include those thoughts in the draft memorandum. I do know that I resisted the destruction of the computerized file and was successful in retaining a print-out of the information it contained which I considered to be very valuable for legitimate law enforcement purposes; it contains the names of thousands of persons who had apparently violated Federal laws.

I apologize for any disruption in the hearings that my testimany may have caused. I would like to assure you that it was unintentional on my part. Sincerely,

ROBERT J. STANKEY, JR. Mr. ROSENTHAL. Commissioner, are there any other mail watches going on now?

Mr. ALEXANDER. Not that I know of.
Tom, do you have any ?

Mr. CLANCY. Not of this magnitude, Mr. Chairman. There may be some mail watches in our ongoing investigations. This is part of our procedure. But it must meet certain standards. It must be a felony investigation and it must be approved by the Chief of the Intelligence Division. And it is only for a very limited time.

Mr. ROSENTHAL. In other words, it is your answer that there are no broad scale, wide latitude mail cover investigations going on at the present time?

Mr. Clancy. To the best of my knowledge.

Mr. ROSENTHAL. Is there anybody who could be a little more sure than "to the best of my knowledge ?"

Mr. Clancy. There are certainly no national-type mail watches. It would be extremely unusual to have a broad mail watch in the Intelligence Division without the Director of the Intelligence Division's knowing about it.

But I can verify that for the record. Mr. ROSENTHAL. Who is the Director of the Intelligence Division? Mr. CLANCY. I am, sir. Mr. ROSENTHAL. You would know it then. Mr. Clancy. That is right. Mr. ALEXANDER. That is why I asked him, Mr. Chairman. Mr. ROSENTHAL. But to the best of your knowledge, no one in your division is doing this?

Mr. CLANCY. There is not any broad mail watch similar to this Swiss mail watch of 1968, 1969, and 1971.

Mr. ROSENTHAL. Thank you very, very much.

At any rate, the problem or dispute, if you could describe it as that, between yourself and the Assistant Secretary of the Treasury will be resolved by Mr. Simon or has been resolved ?

Mr. ALEXANDER. I would suggest that there appears to be some divergence of view. I will not call anything a dispute.

Our statement does not reflect any. And we do not think there really is one. But to the extent that there is a divergence of view within the Treasury on what actions the Internal Revenue Service should take and how it should conduct itself, those divergences are to be resolved by the Secretary of the Treasury; yes, sir.

Mr. ROSENTHAL. Thank you very, very much, Commissioner, and your associates and colleagues.


REVENUE SERVICE Mr. Chairman and Members of the Subcommittee: Approximately six years ago, officials of the IRS and others appeared before the House Banking and Currency Committee to testify concerning the need for legislation to regulate certain types of domestic and international financial transactions. Former Commissioner Randolph Thrower at the time, supported the proposed Bank Secrecy and Reporting Act and discussed experiences of the IRS in attempting to assess and collect taxes in fact of tax evasion using foreign banks under the protection of secrecy laws.

In response to the concerns expressed by the Internal Revenue Service and by other U.S. law enforcement and regulatory agencies, Congress enacted the Bank Secrecy Act of 1970 (PL-91-508). We have come here today, Mr. Chairman, to discuss our activities over the intervening years under those portions of that Act which are under our jurisdiction and to give our assessment of the problems that we still face in attempting to assess and collect taxes owed by those who use secret foreign bank accounts to evade U.S. taxes. We believe that it is particularly appropriate for us to be presenting this assessment regarding the problems posed for tax administration by inaccessible foreign financial records just at a time when Congress is considering measures which would restrict our access to the records of domestic financial institutions, and when it is also considering the legitimacy of various types of secret U.S. bank accounts.

We believe that the enactment of the Bank Secrecy and Reporting Act provided us with a number of valuable tools for dealing with the use of complex financial transactions to hide income. The recordkeeping requirements of Pub. L. 91–508 enable the Service to trace domestic flows of cash and credits, including the U.S. end of international financial transactions when conducting an examination or investigation. I might add that the Act's recordkeeping requirements have been of particular importance, having been established, as they were, at a time when some banks were beginning to reduce their own recordkeeping efforts. The reporting provisions of the Act have permitted the IRS to monitor, and, where necessary refer to appropriate agencies so that they could take enforcement action with respect to large improper and illegal domestic and international currency transactions. Further, we believe that the publicity given the Act at the time of passage and in subsequent court cases, along with our enforcement actions, have had a significant impact in encouraging voluntary compliance with the tax laws. In short, those who would consider the use of secret foreign bank accounts to evade taxes have been put on notice that the use of such accounts will be more dangerous.

At the same time, our experience over the past five years has made it clear that serious problems remain in the use of foreign financial institutions by American taxpayers seeking to evade paying their just tax. Before discussing those problems, however, I would like to describe our responsibilities and activities under Pub. L. 91–508.

As you may know, the regulations developed under the Act require taxpayers to report interests in and signature authority over foreign bank accounts as required by the Internal Revenue Service. It is the position of the Service that its authority to require this reporting stems from Section 6011 of the Internal Revenue Code. Also, financial institutions are required to record the identity of persons involved in any currency transactions exceeding $10,000, and report the details of such transactions to the IRS within 45 days.

To deal with the latter reporting requirement, we developed our Form 4789, currency transaction report, which was distributed to all U.S. financial institutions with instructions that the forms be filed with our Philadelphia Service Center. As you know, however, the responsibility for implementing and enforcing these reporting and recordkeeping requirements by most financial institutions lies with the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the National Credit Union Administration. The Service has the responsibility for

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