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erences and the like--as a way of encouraging countries to weigh the consideration of signing such an agreement in a broader balance.

Such proposals are under review by the task force. We do not have any specific decision with that at this time.

Mr. LEVITAS. The mechanism of requiring corporations to certify to the existence or nonexistence of foreign secret bank accounts has been considered.

Do you feel this would have any effect in curbing this type of practice?

While I am certain that there would be very little way of checking on the verity of that certification, once you place the responsibility on a corporate officer to make a certification, he may be disinclined to subject himself to the penalties of false oaths and the like.

Do you think that has any efficacy; or is it just another legislative attempt that does not deal with the problem?

Mr. SMITH. We would think, Congressman, that it would have efficacy, though it is hard to say with precision what degree of efficacy. It is really for that reason that the President proposes to seek legislation requiring reporting by U.S. firms. Those reporting requirements, in and of themselves, can and should act as a deterrent to improper practices.

Mr. LEVITAS. That is what I was getting at.

Mr. DARMAN. Congressman, I might add a further point here. You referred to financial institutions and reporting requirements related thereto. Of course in many instances the questionable payments involve intermediaries which do not fall under the conventional definition of “financial institutions."

And to the extent that one is effective in deterring undesirable fund flows through financial institutions, one would perhaps simply cause them to be rechanneled through other intermediaries-into expanded agents' fees, for example. So it is necessary to get at the whole range of possible intermediaries. And we think a reporting requirement, such as that which we are in the process of drafting for submission to the Congress, will get at the problem more broadly.

Mr. LEVITAS. Does the present law, to your knowledge, require American companies and their executives to furnish the books and records of their foreign subsidiaries to inspection by U.S. officials?

Mr. SMITH. It is my understanding that under the tax laws certain informational returns are required from U.S. corporations regarding activities of foreign subsidiaries.

And likewise, for instance, the Export Administration Act, administered by the Department of Commerce, will track disposition of a high-technology product, for instance, even though it has left this country, and the tracking will involve the activities of a foreign subsidiary of a U.S. corporation.

The extent to which one decides as a matter of national policy to do this is problematical. Every time you demand a right to control the activities of or look at the books of a foreign entity, for instance a corporation in France, that has implications for our relationships with the French Government. And there have been exacerbations in the last 20 years—especially in the Export Administration field regarding the extent to which we would assert our jurisdiction over legal entities of a foreign jurisdiction.

Mr. LEVITAs. You, Mr. Darman, as well as Commissioner Alexander, touched upon a problem that has come to my attention in other committees and other matters. That problem is that a lot of our efforts to accomplish certain specific goals, through the Department of Commerce, through the Department of Transportation, through the Department of Treasury, run head into State Department jurisdiction of relations with foreign countries.

And frequently in negotiations between this country and other nations, the State Department downgrades to a low position of importance the significance of that particular interest. They feel it is more important for us to have good relations with XYZ Corp. rather than to impose reciprocal taxes on the landing of aircraft or; in this case, the extent to which the State Department would be willing to permit a quid pro quo to take into account our desire to curb these practices.

Have you encountered any resistance in the State Department to efforts to encourage foreign nations to enter into such treaties and agreements ?

Mr. DARMAN. On the very last point, the State Department has the lead responsibility for attempting to encourage foreign nations to sign such treaties. And they have been, as far as we have been able to determine, quite vigorous in their efforts.

The more general point I would like to comment on, however, is the question of tension between the Department of State's interests and other bureaucratic interests in the executive branch. There is indeed such tension. One encounters it every day. But it seems to me that that is to be expected and that it is in the public interest. The State Department is responsible for assuring that the U.S. interest in foreign policy is properly represented.

There are other competing interests within the executive branch, and in several of these instances, it is a problem of balancing. And one would expect tension. It is inherent in the nature of the complex problem one is dealing with, I think. We do not view it as troublesome.

Mr. LEVITAS. Thank you, Mr. Chairman.
Mr. ROSENTHAL. I have just one question.

The task force has not concluded its work yet. Is there a time at which you are supposed to make your report to the President?

Mr. SMITH. Mr. Chairman, the President, in setting up the task force on March 31, asked the task force to report to him not later than the end of this calendar year, and to give him such interim reports as might be appropriate.

Faced with the need to decide whether or not additional legislation was appropriate and faced with the fact that this Congress is coming toward its end, we worked hard this spring to do the analysis, which we have related to you today. And the President, on the basis of that analysis, has decided to propose legislation which we would hope will reach the Hill this month, and in time for scrutiny by the Congress in this session.

The task force's work will nontheless be ongoing. We will look at things such as guidelines for activities of Federal employees with regard to corporate practices abroad; we will seek to further define and analyze the scope and implications of the problem.

But we have jumped ahead of schedule somewhat out of a concern for getting legislation to the Hill in this session of the Congress.

Mr. ROSENTHAL. I think this is an extraordinarily useful exercise. I want to compliment you on doing a very far-reaching and comprehensive job. I trust that you will continue with the same degree of vigor as has obviously gone forward in the past. The subcommittee stands adjourned.

[Whereupon, at 11:50 a.m., the subcommittee adjourned, to reconvene subject to the call of the Chair.]




For immediate release Tuesday, September 14, 1976


A federal grand jury today indicted an Ohio man and the managing director of Castle Bank and Trust Company, (Bahamas) Ltd., on charges involving an alleged false denial on a federal tax return of a foreign bank account.

Attorney General Edward H. Levi said the two-count indictment was returned in U.S. District Court in Cleveland.

Named as defendants were Jack Payner, about 68, of 27020 Cedar Road, Beachwood, Ohio, and H. Michael Wolstencroft, managing director of Castle Bank, located in Nassau.

According to Scott P. Crampton, Assistant Attorney General in charge of the Tax Division, the indictment charges that Payner falsely answered “No” to the question on his 1972 income tax return which asks : “Did you, at any time during the taxable year, have any interest in or signature or other authority over a bank, securities or other financial account in a foreign country ?”

The indictment also charges Wolstencroft with aiding and abetting Payner by furnishing a false affidavit regarding the existence of Payner's account at Castle Bank and Trust Company.

Assistant Attorney General Crampton said that the indictments were a result of the "Project Haven" investigation, a combined investigative effort of the Internal Revenue Service and the Department of Justice looking into the use of foreign bank accounts by U.S. taxpayers.

Maximum penalty on conviction for the false statement and the aiding and abetting is five years in prison and a $10,000 fine.



(No. 18 U.S.C. § 1001, 18 U.S.C. & 2)






The Grand Jury charges : That on or about April 15, 1973, in the Northern Dis. trict of Ohio, Jack Payner, a resident of Cleveland, Ohio, did willfully and knowingly cause a statement, which was false as to a material fact, to be submitted to the Internal Revenue Service, by preparing and causing to be prepared, by signing and causing to be signed, and by mailing and causing to be mailed, in the Northern District of Ohio, a false and fraudulent income tax return on behalf

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