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apparent but this account information is necessary to pursue the inquiry. This would involve a relatively large number of routine inquiries now made by letter to banks during the course of the many forgery investigations by the Secret Service. To impose the notice requirement in this situation would, we believe, unnecessarily complicate this relatively simple process without materially enhancing the privacy interests involved.

This section would also reach circumstances where the government had information that an illegal transaction had taken place, but it did not know the praticular account involved. Thus, for example, upon learning that a large amount of cash generated by a criminal activity had been deposited in a particular bank the government would be able through use of process or formal written request to identify the account involved. Again, however, in order to examine transactions in the account the government agency would have to comply with the notice provisions.

Another exception in our proposal to the notice requirement is when access to records is sought by the Secret Service for the purpose of conducting its protective responsibilities, or when access is in connection with conducting foreign counter or positive intelligence activities. We believe that in these circumstances even after the fact notice would be very harmful to the execution of these responsibilities. In these circumstances the agency involved would certify to the financial institutions that grounds for an exception exist and the institution would be prohibited from notifying its customer that access has been obtained.

Finally, we believe that this Title need not apply when the records are being sought in an inquiry or proceeding directed at the financial institution itself. This would involve "redlining" or other similar investigations. In such a circumstance any conceivable privacy right of the customers involved is clearly outweighed by the burden and cost of giving hundreds or thousands of customers notice, standing and an opportunity to litigate in a case where their interest in the underlying case is highly speculative.

MISCELLANEOUS PROVISIONS

As I noted above, we support the various modifications reflected in Mr. Heymann's testimony and in the draft legislation submitted to this Committee. In particular, we share the Justice Department's belief that information lawfully obtained may have legitimate uses apart from the purposes for which it was originally obtained. It is, we believe, unnecessary and would add unneeded burdens to require each agency to resubpoena the same records. We believe, therefore, that this Committee should not amend the Privacy Act in this legislation. We are particularly concerned that H.R. 214 as drafted would prohibit the routine referral of investigative matters from investigative agencies to the Justice Department for prosecution, would inhibit the conducing of joint investigations and would prevent the transfer of information even when it contains evidence of a crime within the investigative jurisdiction of another agency. We also believe that this proposal should not prohibit the bank supervisory agencies from exchanging information with other bank supervisory agencies since all share a common responsibility.

Our proposal also adds to the list of supervisory agencies the Secretary of the Treasury with respect to the Bank Secrecy and Currency and Foreign Transactions Reporting Acts. Under these laws the Secretary is required to monitor the compliance of financial institutions with the requirements of those statutes. Thus, in that instance, the Secretary has responsibilities equivalent to the bank regulatory agencies themselves.

Finally, we concur with the views previously expressed by the Justice Department concerning the penalty provisions of Title IV, the uncertainty as to the desirability of including telephone toll records in the current legislation, the exclusion of the grand jury, and the limiting of this proposal to natural persons and not to corporations and other legal entities. Similarly, we also share their view that Congress should not be excluded from the provisions of this Bill as is now the case under Title V.

TITLES II-III

Title II of H.R. 214 refers to mail covers. We concur with the views expressed by the Department of Justice on this issue. We believe, however, that the statute should include as a basis for mail covers investigations conducted by the Secret Service in connection with its protective responsibilities.

Title III relates to electronic surveillance conducted pursuant to 18 U.S.C. § 2510 et. seq. As to these matters, the Treasury Department is considering whether to seek an added amendment to 18 U.S.C. § 2516 to include certain statutes enforced by the Customs Service. No decision has yet been made on this point by the Department.

Title III also includes an amendment to Section 2516 which would regulate supervisory observing of employees. The Internal Revenue Service does do some monitoring of this type. We believe that this telephone monitoring is essential to the IRS to ensure quality control of service to the public by taxpayer service and collection personnel. Where telephones are clearly marked as subject to monitoring and monitoring policy is known to employees through written training materials, their privacy interests are adequately protected. We are concerned that requiring duplicative special consents by employees would be impracticable because employees might unreasonably withhold such consents and frustrate our quality control program. The language of the Bill should thus be clarified to eliminate the implication that any notice other than that contained in the training materials is required.

We have no position on the other issues raised by this Title. This concludes my prepared statement and I will be happy to try to answer any questions you may have.

Mr. Davis. Thank you, Mr. Chairman, Mr. Ertel.

I think the issue that we are here discussing today, that relating to the privacy of financial and other records, is a very important issue. It is an issue that has evoked considerable controversy over a number of years. I think, unfortunately, in some of the controversy the issue has been set up as a battle of good versus evil, with various sides feeling that the good and the evil are in different places. We at the Treasury Department think that is not the way this issue should be looked at and analyzed because, in fact, the nature of this controversy is so difficult, because it does involve attempting to resolve two positive and two desirable goals:

The first goal is that our citizens be and feel free from official scrutiny beyond that which is necessary. That is a highly desirable goal.

The second is that our citizens be and feel free from the prospect of criminal activity, whether it be in the form of fraud, crimes of violence, assassination, or the like. It is important, because these are two desirable goals, to find some sort of balance.

The current practices are largely, we believe, insufficient; they tend to provide rules and guidance for none of the parties concerned.

In previous Congresses and in previous administrations the reaction of the executive branch has been to oppose virtually all legislation such as H.R. 214 on the grounds that no balance could be struck. We do not agree with that and we believe that a balance can be struck. The Treasury Department, working with the Justice Department, has developed a proposal which was submitted to this committee by Assistant Attorney General Heymann last week, and the Treasury Department fully supports and endorses both that proposal and the statement of Assistant Attorney General Heymann.

The proposal adopts the basic premise and concept of H.R. 214 concerning the fact that there is a right of privacy in financial records in the possession of third parties and that right of privacy attaches to the person whom those records are about. We believe, however, as Mr. Heymann testified, that certain amendments are necessary in order to put the balance, we think, in a slightly different position.

In coming to this position it is not because we think the proposals are "cost-free"-I put that in quotes for the law enforcement community. It is true that I think that these proposals will involve some losses and some delays. We just think that the proposals that we put forward will minimize those and will provide for the ability of the law enforcement organizations to carry out their primary and important functions while at the same time meeting, and filling, the void in terms of the privacy interest.

Before going to the specific proposals, I just want to briefly articulate some of the concerns and some of the issues which we looked at in coming to our position. These are set out in more detail in my state

ment.

First, as I said at the outset, one of our basic underlying principles was the fact that rules themselves are a guard against marginal intrusions which really may not be necessary and can be avoided. Also, in having rules, both the enforcer and the citizen will be in a position of knowing more fully and completely what their rights are.

Second, we believe that any proposal should provide an opportunity to identify and remedy possible abuses which might develop. I say possible abuses because I think it is one of the unfortunate realities of law enforcement that with the best of systems to avoid them there are going to be cases at some point in which some step is going to be taken which will require corrective action.

At the same time we believe it is important, that any proposals assure the ability of our enforcement agencies to carry forward their basic responsibilities and that any delays not be unnecessarily long. Delays themselves can cause a loss of important leads and of investigative momentum. Investigative momentum is a concept that is hard to explain. It is something I have seen as a prosecutor. What investigative momentum means in a good sense in terms is just the ability to do an investigation correctly, and I think that is an important consideration.

Second, we think it is important that in creating rules we make sure that we are not prohibiting access to agencies which need it and that we are making provision for such access; and that is particularly important to the Treasury Department, since various of our agencies in some or all of their functions do not have statutory administrative summons power.

Third, we think it is important that the proposals recognize some of the basic and unfortunate realities of the criminal justice involving the risks to witnesses, the risks of destruction of evidence and the like. Fourth, we think it is important to consider the impact of any proposals on the criminal justice system as a whole. We have a criminal justice system now which is justifiably criticized for being cumbersome and generating delay and being lengthy for all concerned. That is not in the interest, we believe, of the public; nor is it in the interest of all those people who are involved in the system.

So, therefore, we think in trying to develop an approach it is important to try and minimize whatever impact might be felt on the judicial system and reduce to the bare minimum the added burdens placed on courts and prosecutors.

With these in mind, as I said, we have agreed with the Justice Department in supporting the proposal submitted and described by Assistant Attorney General Heymann.

Again, my statement goes through many of the points that he made and my statement highlights some of the amendments that we think are important. Those amendments are in the areas of challenge procedures, in terms of adjusting time limits, in terms of making it clear that this would be an interlocutory order so that the appeal process would not unnecessarily delay an investigation.

We have most significantly recommended that there be some additional responsibility on the citizen seeking to object to agency access to financial records pertaining to that person to take some initial action. Therefore we would require in our proposal that the citizen file a very simple affidavit and a simple motion in court to start the process. It has been our experience, although the experience has been somewhat limited, under the Tax Reform Act of 1976, that it appears in many instances, where all that is necessary is an objection to the Government agency involved, that really not well grounded objections are being made and unnecessary delays are being put into the system. Therefore, we would require the person involved to file a relatively simple piece of paper and have some burden of going forward. We think that that would be a very important step in accommodating the various needs and principles that we discussed previously.

Of course, once the person goes forward and once it is in court, ultimately it will be the responsibility of the Government to establish that this information is necessary because there is reason to believe that it is relevant to legitimate law enforcement function.

A second principal point that is discussed in my statement relates to the need to provide for those agencies who do not have summons power. For the Treasury Department, that covers the Secret Service in all its responsibilities; that covers the Internal Revenue Service in terms of its very important internal affairs responsibilities, in terms of monitoring the problem of bribery of agents of the Internal Revenue Service; it covers certain aspects of the responsibilities of ATF; it involves certain aspects of the responsibilities of the Customs Service.

All of these agencies in various regards do not have administrative summons power. Therefore, the proposal submitted by the Justice Department and the Treasury Department, to meet these needs, involves a formal, written request procedure which would recognize the formal requests and make those formal, written requests subject to the same procedures as the administrative summons.

An important difference, of course, is on a formal, written request, even if the Government should prevail vis-a-vis the citizen the records pertain to, the third party who holds those records would be allowed to respond to the written request but would not be compelled to as if it were a summons or subpena.

Mr. KASTENMEIER. Mr. Davis, should these agencies which now do not have such power, be given administrative summons power? Mr. DAVIS. I think that in a way, from our perspective, it probably would be better and easier to administer if they did have summons power.

One of our earlier thoughts in considering this is that merely giving them summons power and setting rules and guidelines as to when

that could be used would itself put the system of records acquisition into more recognized procedure. We think that it would be helpful if they had summons power. We recognize, however, that that involves a whole set of issues involving a large number of agencies where there will be disputes as to whether or not we want to give them compulsory summons power. We feel this alternative system is certainly acceptable and would be satisfactory from our point of view.

The third main area of my statement relating to our proposals covers the various exceptions that we believe are important, those in which both delayed notice would be appropriate and those very limited circumstances in which no notice would be appropriate.

One of those involves a particular Treasury concern-it relates to the need that there not be a notice requirement when all that is being sought is essentially account information-who is the holder of the account. We are particularly concerned because the Secret Service, for example, investigates check forgeries.

I think, in 1977, they had 125,000 forged checks. Many of those checks will go through an account. The Secret Service will actually have the check but will need to get some information from a bank as to whose account that went through. Right now, to deal with, as I I say, upward of 100,000 checks, they are able to do that by a written form letter.

In that situation the Service has the financial instrument involved and there is already a report of a forgery to that instrument. We think that that is a clear example where we would think it appropriate to avoid any unnecessary burdening of that relatively simple and not intrusive acquisition of some basic information necessary to go forward with this kind of investigation.

The discussion of the other exceptions is contained in my statement. Another aspect that we view as important and we do ask for an exception-is where the Secret Service is acting in connection with its protective responsibilities. We think in that situation there are dangers in various cases in having any notice at all; but I would defer for more discussion on this issue, since it is not too dissimilar from the discussion contained in Mr. Heymann's previous testimony to my statement.

That outlines the statement which I have submitted to the committee as it relates to title I.

Our positions on title II and title III are very short. On title II we essentially support the Justice Department position as relates to mail covers and largely defer to the next witness this committee is going to hear from the Postal Service. On title III we generally take no position but refer very briefly to one practice that the Internal Revenue Service uses in terms of supervisory observing of its taxpayer assistance program and its collection program where employees are, in fact, notified that this kind of supervisory observing is going on. That concludes my opening remarks and I would be happy to try and answer any questions that you or any members of the committee might have.

Mr. KASTENMEIER. Thank you, Mr. Davis.

I have a number of questions. I think I will yield to my colleagues first.

Does the gentleman from Pennsylvania, Mr. Ertel, have any questions?