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OVERSIGHT HEARINGS INTO THE

OPERATIONS OF THE IRS
(Administration of Bank Secrecy and Reporting Act)

94-2

HEARINGS

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES

NINETY-FOURTH CONGRESS

SECOND SESSION

JUNE 28, 29, AND JULY 1, 1976

Printed for the use of the Committee on Government Operations

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COMMITTEE ON GOVERNMENT OPERATIONS

JACK BROOKS, Texas, Chairman L. H. FOUNTAIN, North Carolina

FRANK HORTON, New York JOHN E. MOSS, California

JOHN N. ERLENBORN, Illinois DANTE B. FASCELL, Florida

JOHN W. WYDLER, New York WILLIAM S. MOORHEAD, Pennsylvania CLARENCE J. BROWN, Ohio WM. J. RANDALL, Missouri

GILBERT GUDE, Maryland BENJAMIN S. ROSENTHAL, New York PAUL N. MCCLOSKEY, JR., California JIM WRIGHT, Texas

SAM STEIGER, Arizona FERNAND J. ST GERMAIN, Rhode Island GARRY BROWN, Michigan FLOYD V. HICKS, Washington

CHARLES THONE, Nebraska DON FUQUA, Florida

ALAN STEELMAN, Texas JOHN CONYERS, JR., Michigan

JOEL PRITCHARD, Washington BELLA S. ABZUG, New York

EDWIN B. FORSYTHE, New Jersey JAMES V. STANTON, Ohio

ROBERT W. KASTEN, JR., Wisconsin LEO J. RYAN, California

WILLIS D. GRADISON, JR., Ohio CARDISS COLLINS, Illinois JOHN L. BURTON, California RICHARDSON PREYER, North Carolina MICHAEL HARRINGTON, Massachusetts ROBERT F. DRINAN, Massachusetts EDWARD MEZVINSKY, Iowa BARBARA JORDAN, Texas GLENN ENGLISH, Oklahoma ELLIOTT H. LEVITAS, Georgia DAVID W. EVANS, Indiana ANTHONY MOFFETT, Connecticut ANDREW MAGUIRE, New Jersey LES ASPIN, Wisconsin

WILLIAM M. JONES, General Counsel

JOHN E. MOORE, Staff Administrator
WILLIAM H. COPENHAVER, A880ciate Counsel

LYNNE HIGGINBOTHAM, Clerk
J. P. CARLSON, Minority Counsel

COMMERCE, CONSUMER, AND MONETARY AFFAIRS SUBCOMMITTEE

BENJAMIN S. ROSENTHAL, New York, Chairman CARDISS COLLINS, Illinois

GARRY BR WN, Michigan ROBERT F. DRINAN, Massachusetts

WILLIS D. GRADISON, JR., Ohio ELLIOTT H. LEVITAS, Georgia

JOHN N. ERLENBORN, Illinois
DAVID W. EVANS, Indiana
ANTHONY MOFFETT, Connecticut
ANDREW MAGUIRE, New Jersey
EDWARD MEZVINSKY, Iowa

EX OFFICIO

JACK BROOKS, Texas

FRANK HORTON, New York
PETER S. BARASH, Staff Director
HERSCHEL F. CLESNER, Chief Counsel

ROBERT H. DUGGER, Economist
RONALD A. KLEMPNER, Counsel

JEAN S. PERWIN, Counsel

DORIS FAYE TAYLOR, Clerk
ELEANOR M. VANYO, Assistant Clerk

(II)

CONTENTS

Hearings held on-

Page

June 28.

1

June 29

65

July 1..

143

Statement of -

Alexander, Donald C., Commissioner, Internal Revenue Service;

accompanied by William E. Williams, Deputy Commissioner;

Meade Whitaker, Chief Counsel; Thomas V. Glynn, Assistant to

the Commissioner; Singleton B. Wolfe, Assistant Commissioner

(Compliance); Thomas J. Clancy, Director, Intelligence Division;

Anthony J. Totera, Chief, Tax Forms Development Branch;

Anita F. Alpern, Assistant Commissioner (Planning and

Research); Robert H. Terry, Assistant Commissioner (Accounts

Collection and Taxpayer Service); Joseph G. McGowan, Director,

Office of International Operations; and Robert J. Stankey, Jr.,

Assistant to the Director, Financial Crimes and Frauds, Office of

Law Enforcement, Department of the Treasury -

144

Crampton, Scott, Assistant Attorney General, Tax Division, Depart-

ment of Justice; accompanied by Myron C. Baum, Deputy Assistant

Attorney General; Cono R. Namorato, Chief, Criminal Section; and

Edward M. Vellines, Criminal Section..

65

Grissinger, Charles, and Jacob Kaufman, subcommittee staff investi-

gators on detail from the General Accounting Office -

130

Hills, Roderick M., Chairman, Securities and Exchange Commission;

accompanied by Stanley Sporkin, Director, Division of En-

forcement-

2

Keeney, John C., Deputy Assistant Attorney General, Criminal

Division, Department of Justice; accompanied by Lawrence

Callaghan, Special Assistant to the Attorney General, Office of

Legislative Affairs; William C. Hendricks, attorney, Fraud Section,

Criminal Division; and Mark M. Richard, Chief, Fraud Section,

Criminal Division..

71

Macdonald, David R., Assistant Secretary of the Treasury, Enforce-

ment, Operations and Tariff Affairs; accompanied by James J.

Featherstone, Deputy Assistant Secretary, Enforcement; and

Robert J. Stankey, Jr., Assistant to the Director, Financial Crimes

and Frauds, Office of Law Enforcement.--.

34

Rosenthal, Hon. Benjamin S., a Representative in Congress from the

State of New York, and chairman, Commerce, Consumer, and
Monetary Affairs Subcommittee: Opening statement-

1
Smith, John T., II, General Counsel, Department of Commerce, and

Richard G. Darman, Assistant Secretary for Policy; accompanied by
John R. Garson, Assistant General Counsel, Domestic and Inter-
national Business..

173

Letters, statements, etc., submitted for the record by-

Alexander, Donald C., Commissioner, Internal Revenue Service:

Draft cover letter to Senator Ervin.---

164

Prepared statement.--

166-173

Clancy, Thomas J., Director, Intelligence Division, Internal Revenue

Service: Information concerning transmission of photocopies to any
Federal or State agency

IJ3

Hills, Roderick M., Chairman, Securities and Exchange Commission:

Material concerning legislative recommendations and the need

for them...

24-34

Keeney, John C., Deputy Assistant Attorney General, Criminal

Division, Department of Justice: Prepared statement and additional

material..

75-101, 102-129

(III)

6

3325T XL 1

08/94 53-005-00

Letters, statements, etc.—Continued

Macdonald, David R., Assistant Secretary of the Treasury, Enforce-
ment, Operations and Tariff Affairs:
Information concerning cross-referencing between frequent

international travelers and persons who have identified them- Page
selves as having a foreign bank account.-

45 Prepared statement and additional material.

47– Smith, John T., II, General Counsel, Department of Commerce, and

Richard G. Darman, Assistant Secretary for Policy: Prepared
statement and biographical data --

178–203, 204-205 Stankey, Robert J., Jr., Assistant to the Director, Financial Crimes

Frauds, Office of Law Enforcement, Department of the Treasury:
September 17, 1976, letter to Chairman Rosenthal concerning a
memorandum dated July 28, 1972 ----

164-165

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OVERSIGHT HEARINGS INTO THE OPERATIONS OF

THE IRS
(Administration of Bank Secrecy and Reporting Act)

MONDAY, JUNE 28, 1976
HOUSE OF REPRESENTATIVES,

COMMERCE, CONSUMER,
AND MONETARY AFFAIRS SUBCOMMITTEE
OF THE COMMITTEE ON GOVERNMENT OPERATIONS,

Washington, D.C. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2172, Rayburn House Office Building, Hon. Benjamin S. Rosenthal (chairman of the subcommittee) presiding.

Present: Representatives Benjamin S. Rosenthal, Robert F. Drinan, Anthony Moffett, Elliott H. Levitas, Edward Mezvinsky, and Garry Brown.

Also present: Peter S. Barash, staff director; Herschel F. Clesner, chief counsel; Eleanor M. Vanyo, assistant clerk; and Henry C. Ruempler, minority professional staff, Committee on Government Operations.

OPENING STATEMENT OF CHAIRMAN ROSENTHAL

Mr. ROSENTHAL. This morning the subcommittee continues its oversight review of the Internal Revenue Service and Federal agency enforcement of the Bank Secrecy Act of 1970.

The initial phase of the hearings will explore the use of foreign financial facilities for illegal and improper purposes by U.S. citizens or residents and by persons doing business here.

We will be examining the effectiveness of administrative steps undertaken by the Government under the Bank Secrecy Act to meet the problem.

At hearings of the House Banking Committee in the late sixties relating to foreign bank secrecy, it was estimated that the use of foreign secret financial facilities created a loss of tax revenues to this Government in the hundreds of millions of dollars. We will attempt to determine if this situation continues to exist today.

Recent public disclosures showing that foreign secret financial accounts were utilized for many questionable corporate payments and illegal campaign contributions raises serious questions as to the reporting and disclosure programs instituted under the Bank Secrecy Act.

The subcommittee will explore what use has been made of information relating to foreign financial accounts obtained by the Internal

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