tion of foreign governments. This is because most dangerous narcotics are produced in foreign countries. Thus, our capability to deal with supplies of drugs available in the United States depends largely on the interest and capability of foreign governments in controlling the production and shipment of illicit drugs. Many countries still see drug abuse as primarily an American problem and are unaware of the extent to which the problem is truly global in scope. Poorer nations find it difficult to justify the allocation of scarce resources to deal with drug abuse in the face of many other pressing needs. Also, some opium producing countries lack effective control over, or access to, growing areas within their boundaries and, thus, their efforts in drug control programs are made more difficult. Still, we have been reasonably successful in enlisting the cooperation of foreign governments. We must now intensify diplomatic efforts at all levels in order to encourage the greatest possible commitment from other governments to this international problem. We must continue to provide technical and equipment assistance through cooperative enforcement efforts with U.S. agents stationed overseas, all aimed at strengthening drug control organizations within foreign countries. And we must continue to participate in building institutions and a system of international treaties which can provide a legal framework for an international response to this international problem. I have spoken personally to President Echeverria of Mexico and Lopez-Michelsen of Colombia and with Prime Minister Demirel of Turkey in an effort to strengthen cooperation among all nations involved in the fight against illicit drug traffic. I intend to continue to urge foreign leaders to increase their efforts in this area. Attorney General Levi has recently discussed drug control problems with the Attorney General of Mexico and Secretary of State Kissinger has discussed narcotic control efforts with senior officials in Latin America on his recent trip there. I have asked both of them, as well as our Ambassador to the United Nations, William Scranton, to continue to expand these important discussions. The reactions of the governments which we have approached have been positive there is a genuine and healthy air of mutual concern and cooperation between our countries and I am confident that our joint efforts will bring about a real reduction in drug trafficking into the United States. One recent example of the new awareness and commitment of foreign governments to this struggle deserves special mention. President Echeverria has written to inform me of his intention to set up a cabinet level commission to coordinate all law enforcement and drug treatment programs within Mexico and to suggest that his commission might periodically exchange information and ideas with a counterpart here. This proposal, which was the result of discussions between President Echeverria and concerned members of the United States Congress, stands as a clear signal that the Mexican government recognizes the need to build a coordinated response to the problem of drug abuse. I believe the periodic exchange of views on this matter between our two nations would be helpful. Accordingly, I am assigning responsibility for liaison with the Mexican Commission to the Cabinet Committee on. International Narcotic Control and I am directing the Secretary of State, as Chairman of the CCINC to immediately form 90-321 O 77 - 4 an executive committee to meet with its Mexican counterpart to discuss ways in which our government can collaborate more effectively. We shall of course consult with concerned members of Congress as these efforts are carried on. Drug abuse is a national problem. Our national well-being is at stake. The Federal Government-the Congress, the Executive Branch and the Judicial Branch-State and local governments, and the private sector must work together in a new and far more aggressive attack against drugs. I pledge that the Federal Government will maintain the high priority which it has given this problem. We will strengthen our law enforcement efforts and improve our treatment and rehabilitation programs. With Congress' help, we will close loopholes in our laws which permit traffickers to prey on our young; and we shall expect the courts to do their part. All of this will be of little use, however, unless the American people rally and fight the scourge of drug abuse within their own communities and their own families. We cannot provide all the answers to young people in search of themselves, but we can provide a loving and a caring home; we can provide good counsel; and we can provide good communities in which to live. We can show through our own example that life in the United States is still very meaningful and very satisfying and very worthwhile. Americans have always stood united and strong against all enemies. Drug abuse is an enemy we can control but there must be a personal and a national dedication and commitment to the goal. If we try, we can be successful in the long run. I am convinced we can-and that we will. THE WHITE HOUSE, April 27, 1976. GERALD R. FORD. IRS: TAXING THE HEROIN BARONS The Narcotic Sentencing and Seizure Act of 1976 THURSDAY, AUGUST 5, 1976 U.S.SENATE, SUBCOMMITTEE TO INVESTIGATE JUVENILE DELINQUENCY, COMMITTEE ON THE JUDICIARY, Washington, D.C. The subcommittee (composed of Senators Bayh, Hart, Burdick, Kennedy, Mathias, Hruska, and Fong) met, pursuant to notice, at 9:40 a.m., in room 2226, Dirksen Senate Office Building, Senator Birch Bayh (chairman of the subcommittee) presiding. Present: Senator Bayh. Also present: John M. Rector, staff director and chief counsel; Mary Kaaren Jolly, editorial director and chief clerk; and Kevin O. Faley, assistant counsel. Senator BAYH. We will reconvene our hearing this morning, from the hearing of July 28, 1976. The subcommittee's enabling resolution, Senate Resolution 375, section 12, 94th Congress, is hereby noted for the record. Also, S. 3411,1 the bill before us, and President Ford's message of April 27, 1976,2 on drug abuse will be included in the record. OPENING STATEMENT OF SENATOR BIRCH BAYH, CHAIRMAN Senator BAYH. Today we continue the Subcommittee To Investigate Juvenile Delinquency's review of the President's drug abuse message to the Congress and his "Narcotic Sentencing and Seizure Act of 1976," S. 3411. It is our intention to forge a sensible statutory response to the abuse of high-risk drugs and to major drug traffickers that will assure an effective and judicious use of our limited criminal justice resources. There is an enterprise in this Nation that employs persons from every walk of life. This business packages its goods in ski poles, hand made pottery, antiques, sardine cans and even expensive sports cars. It operates around the clock 7 days a week; it has at its disposal fleets of fishing trawlers, pleasure boats and squadrons of aircraft to serve the needs of its hundreds of thousands of American customers. It has not only managed to endure a record period of inflation, but also has, in fact, prospered under full employment. 1 See p. xIx et seq. 2 See p. XLIV et seq. The enterprise is heroin trafficking. A primary premise of my approach is that the Federal Government must act more decisively to attempt to take the easy profits out of major drug trafficking. As policymakers we must place the nature and extent of heroin traffic in perspective. As Assistant Secretary of the Treasury David Macdonald told the Subcommittee last week, it is important to recognize that what we are talking about: "is big business. In terms of dollars, it is one of the larger industries in the United States and exceeds the gross sales of many multinational corporations." The Treasury Department estimates that the retail value of heroin sold in the United States each year is in the neighborhood of $7 billion. In my view this is a conservative estimate. Others have found that the domestic heroin market sales are in excess of $10 billion annually. In 1972, the entire domestic prescription drug industry accounted for $5.4 billion in sales, or significantly less than the illicit domestic heroin industry-which, incidentally, pales by comparison with our legitimate domestic narcotic sales of $120 million. The drug industry employed 143,985 persons in the United States; and, in the latest year for which data are available, paid a total of nearly a billion dollars in taxes. The outlaw drug industry paid negligible taxes, if any. ILLEGAL EMPIRE GREATER THAN 65 PERCENT OF WORLD'S LARGEST COMPANIES The annual domestic sales of this illegal empire are greater than 34 of the 50 largest industrial companies in the world. The annual domestic sales of this illicit giant exceed those of 495 of America's 500 largest industrial corporations. Its gross sales: double Eastman Kodak's; triple those of Lockheed Aircraft or McDonnell Douglas, Coca-Cola or Pepsi Co., R. J. Reynolds Industries or Phillip Morris; quadruple Anheuser-Busch and are tenfold the sales of Jos. Schlitz Brewing; and are 7 times those of Campbell Soup and 30 times the sales of Gerber Products. Many of the high-level traffickers who generate these astronomical sales records are insulated from the illegal merchandise and consequently cannot readily be convicted for drug violations, but are often vulnerable to financially oriented investigations. As Secretary Macdonald pointed out last week such an approach "could have greater impact than by concentrating solely on the drug transactions themselves." PRESIDENT'S MESSAGE SUPPORTS DORMANT NTTP PROGRAM I was especially pleased that the President, in his April drug message, called for the reactivation of the Internal Revenue Service tax enforcement program aimed at high-level drug traffickers. In reaffirming his support for this dormant, but vital program, the President said: We know that many of the biggest drug dealers do not pay income taxes on the enormous profits they make on this criminal activity. I am confident that a responsible program can be designed which will promote effective enforcement of the tax laws against these individuals who are currently violating these laws with impunity. This IRS narcotic traffickers tax program, aimed specifically at major trug traffickers, was announced by the former President in June 1971, and the Congress then voted emergency funds for this vital and worthwhile initiative. Though a recent review of the impact of this program by the Domestic Council Drug Abuse Task Force characterized it as "extremely successful," all is not well with this special attempt to tax narcotics merchants. In fact, since 1973, after an impressive 18-month track record, the current IRS Commissioner, whom we will hear from this morning, reportedly downgraded and eventually deemphasized-some would assert dismantled-the program. It appears, however, that the Internal Revenue Service is in the process of reconsidering the viability of the NTTP. Whether this apparent reassessment was voluntary or not should be left to the speculators; but, coincidentally, the day before our first hearing on the President's drug message, on July 27, 1976, the Administrator of DEA and the Commmissioner of IRS signed a memorandum of understanding regarding the Presidential directive to reestablish a tax enforcement program aimed at high-level drug trafficking. We are anxious to cooperate with DEA and IRS in the revitalization of this program. I cannot accept, however, the premise of some that an intolerable level of abuse is an inherent byproduct of a Federal effort designed to insure that the barons of this enormous heroin empire are not immune from the burden that law-abiding taxpayers share. Of course, reasonable persons can differ about policy, but I am certain that we all are concerned that the IRS not be used for political or other improper purposes. We intend to work closely with the Justice and Treasury Departments to help guarantee that the narcotics traffickers tax program is implemented consistent with the effective oversight and controls recommended by my distinguished colleague from Idaho. It is remarkable that taxpayers have not revolted against an absurd policy that requires millions of decent, hardworking men and women to voluntarily relinquish a portion of their paychecks, while, despicable merchants of death and despair are put on notice that they can continue to flaunt our tax laws with impunity. As testimony before the subcommittee last week reemphasized, the American public and the Congress were hoodwinked into believing that the legendary corner of heroin abuse had been turned. Today's realities regarding drug abuse-a country blanketed from coast-tocoast with lethal brown heroin and all the inevitable tragedies-are sobering evidence of the task before us and the compelling need for a realistically focused Federal drug policy. Our witnesses today each have special knowledge and responsibilities regarding these concerns. I welcome them and look forward to an in formative and productive session. The Congress and the President and the country have talked and worked and expressed concern about the problems of drugs for more years than I care to remember, yet the problem continues to escalate. Society continues to suffer in part because a few of its members are trying to get rich at the expense of others. What this committee is determined to do is to redouble our efforts to try and get some results. I believe in due process and I believe in |