DEA/IRS AGREEMENT ON KINGPIN PROGRAM

Mr. WOLFE. Basically, Mr. Chairman, that's what we did here, and as a member of this we said we would have this program of the top violators, and this is exactly what happened in our meeting with DEA. We followed it through, we had the agreement with DEA, and we would be happy to submit to the committee a copy of that agreement, and this is precisely what we are going to do.

Senator BAYH. The agreement came up, when, last week? Just coincidentally, again, a day before the DEA people came up here to testify. I'm concerned not only about whether that agreement is worth while, but why it took so long to get any agreement on such an important matter. That is part of the problem.

Now, I notice figures here, they are IRS figures which document the decline of activity directed in untaxed narcotics income. If you look at the number of cases selected in 1972, there are 791; the number of cases selected in the first 6 months of 1975 is 99. So there has been a significant fall off there.

Why?

Mr. ALEXANDER. Well, Mr. Chairman, first I think I've already mentioned the numbers game, and I've already mentioned that you can make a lot of street cases pretty fast, and it takes time and effort and trouble to make a case against a major trafficker.

We can play a numbers game without delivering a sound program to the American people.

Senator BAYH. Can you please tell me then, under the old program, what percentage of your cases were directed at the nonstreet people as compared to street people, and how that percentage has changed if it has changed? I mean not only are the numbers declining from 791 to about 190 in that 3-year period, but the additional tax and penalties recommended has gone from $54 million to $8.1 million, and that would be $16 million for a whole year period.

CLAIMS GAO REPORT "ILLUSORY"

Mr. ALEXANDER. Well, that $8.1 million may be bigger than the $54 million. When you read the GAO report, you'll find that much of the dollars that have been mentioned to this committee as recommended, turned out to be completely illusory, and the GAO found that to be an inadvisable action.

Senator BAYH. Which numbers?

Mr. ALEXANDER. The $54 million.

Senator BAYH. Wasn't the $54 million IRS figures?

Mr. GLYNN. We did not submit the figures that you're reading from. I don't know what your source is, but we did not submit them. We were not asked about them, and we did not submit them.

Senator BAYH. We got them from Treasury.

Mr. GLYNN. Again, I don't know what the source of them is. We did not submit them directly or indirectly, and we were not asked for them.

Ms. ALPERN. There was a total of $54.2 million assessed in fiscal year 1972, one of the years in which this program was functional. And it may relate to that, but that is the assessed amount recommended, as the Commissioner has just indicated.

Senator BAYH. Well, what were the seizures. When you look at the figures in 1972, $54 million; in 1973, $94 million; in 1974, $75 million; and, suddenly you get to 1975 and there is a precipitious fall off there.

CLAIMS "LOT OF WATER" IN TREASURY REPORT FIGURES

Mr. GLYNN. The point is there is a lot of water in the earlier large figures because we had to give the money back. That is the point we are trying to make.

Senator BAYH. Well, what are the figures in the seizure then? Just to prod your memory, it was $8.5 million in 1972, $13.3 million in 1973, $8.4 million in 1974, and $1.4 million for the first half of 1975? Now, are those also watered figures?

Mr. ALEXANDER. Some of them are, Mr. Chairman. The aggregate turned out to be, and I thought we had this information, the aggregate through fiscal 1975 in real dollars turned out to be about $38 million.

Senator BAYH. I don't want to ask any improper questions. I see a lot of head-shaking here. These are figures we obtained from the Treasury Department.

Mr. ALEXANDER. Well, a figure can represent a recommended deficiency and another figure can represent what actually turned out to be the tax. And may I suggest that these figures are different, quite different. Recommended deficiencies were far different in this program from actual that is shown in the GAO report that I have given you and I appreciated it in view of the fact that there seems to be some question of fact here. If you could look at it.

MARKED DECLINE IN RESULTS-REGARDLESS OF STATISTICS USED

Senator BAYH. Well, the statistics bear out what you said that the initial recommendations are substantially higher than the actual collections and seizures that are held up. Whichever figure you use, you see a marked decline in results between 1971, 1973, 1974 and then zoom down in 1975. And that concerns me.

Mr. ALEXANDER. We went out of the street business, Mr. Chairman. Senator BAYH. Well, that's why I asked the percentage.

Ms. ALPERN. Actually, Mr. Chairman, if I might inject myself into this, 1973 was the year, according to our records, where we had total recommended assessments of $94.4 million. Now, that is the largest figure that I have. Nevertheless, in 1973 when by everybody's account we had a very active program, the revenues actually collected were $10.9 million, which was less than the revenues collected in 1974, when the total figure assessed was some almost $30 million less than in 1973. Now, what happens between the time there is a recommended assessment until it goes through the system to final collection is that the

original assessment shrinks and can shrink dramatically. Other than our experience for fiscal year 1972 through fiscal year 1975 cumulatively, assessments and collections cannot be related. But, for that period of time, we had total recommended assessments of $240 million and actual collections of $38.3 million.

Senator BAYH. What about 1975?

MS. ALPERN. In 1975 we had total assessments of $28.3 million and collections of $3.8 million.

Senator BAYH. Which is a significant falloff?

Ms. ALPERN. Yes; but the assessments were less also.

Senator BAYH. All right. Whatever yardstick you want to use in this area, whichever yardstick, the results in 1975 were less than they were previous.

Mr. ALEXANDER. That's right.

Senator BAYH. You say you are out of the street business. Okay, give me some figures that document this alleged change. I understand that Congressman Vanik has been trying to obtain recent figures and statistics from you but he's not had very much success in getting them. He can speak for himself when he appears later this afternoon.

What are the figures? What are the percentages? I asked the question a moment ago. Can you provide me with the percentage of cases that involved street peddlers versus more professional traffickers in that period of 1972, 1973, 1974, compared to 1975?

Mr. WOLFE. We were just discussing it. I think what we would like to do, Mr. Chairman, is to submit that for the record. I don't have that broken down between whatever we call a street and whatever we call a class I violator. We would like to have an opportunity to submit that for the record.

[Subsequent to the hearing the following information was received:]

[EXHIBIT NO. 4]

Question. Senator Bayh: "Can you give me the percentage of cases that involves street peddlers and more professional kinds in that period of '72, '73, '74 compared to '75?"

Answer. Although we are unable to determine from our reporting systems whether individuals included in the former Narcotics Traffickers Program were classified as street peddlers, upper-echelon traffickers, or the classification referred to in our recent agreement with DEA as Class I violators, an analysis of termination assessments initiated as a result of the NTP program does give some insight into this question. Out of a total of 3,999 termination assessments processed, only 69 related to "targeted" NTP cases. In selecting targeted cases, the National Office NTP Case Selection Committee attempted to pick upper-echelon narcotic traffickers. The balance were nontarget cases, initiated primarily as a result of street arrest activities by local police which were brought to the attention of the appropriate Intelligence District. Recommended assessments relating to the 69 target cases amounted to $23.7 million, for an average assessment of $343,000 per case. Recommended assessments relating to the 3,930 nontarget cases amounted to $144.2 million, for an average of $37,000 per case. This supports the conclusion that the target cases were upper-echelon traffickers, while the spontaneous assessments of so called "street program" were principally directed at the small operator at the bottom of the distribution pyramid.

Details of these assessments for fiscal years 1972-75 are given in the attached table.

Attachment.

SUMMARY OF RECOMMENDED TAX ASSESSMENTS FOR NARCOTICS TRAFFICKERS PROJECT BY FISCAL YEAR 2

* Covers cases with over $2,500 in recommended assessments.

'Examinations completed through district audit review staff (not necessarily closed by the audit division).

• Amount previously reported ($32.4) adjusted to eliminate duplicate assessments.

* Amounts actually collected include the amounts of money actually received by the Service as a result of levy or seizure action.

MERGED INTO REGULAR SPECIAL ENFORCEMENT PROGRAM

Mr. CLANCY. I would like to clarify one thing. The street people we were referring to were not subject to this. The interesting thing about this, and the thing I'm interested in, is the prosecutions of the middle or upper echelon trafficker in the last program that we had, not the street people who were, if you will, taking the cash from then. And so we can, I think, show you the number of terminations of taxable years and jeopardies that were not subject also to criminal investigation and prosecution. Now, in the Intelligence Division we are charged with the responsibility to make the criminal investigations. Perhaps to explain what did happen in fiscal 1975, at the close of fiscal 1975 we did in fact merge the program, the former program, into our regular special enforcement program.

I think some testimony before this committee would indicate that we abandoned the program, we abandoned working traffickers, narcotic traffickers, and that simply is not correct. Perhaps the level of the cases that we were investigating during fiscal 1976 after it was merged into our regular special enforcement program was less than when it was at its height back in fiscal 1973, but during this current fiscal year which just concluded on June 30 we have in the pipeline, if you will, these are cases that the Intelligence Division has recommended prosecution on on people that have received illegal income from the narcotics business. We have 295 of those cases pending for some action.

Senator BAYH. 295 cases?

Mr. CLANCY. 295 cases pending.

Senator BAYH. How does that compare with previous years? Mr. CLANCY. That I can't tell you offhand, but we can give you that. Mr. WOLFE. Fiscal 1974 we had 245 pending, fiscal 1973 we had 217, and at the end of fiscal 1972 we had 54.

Mr. CLANCY. The point I'm trying to make is we have not abandoned the investigation of people who have received illegal income from

narcotics.

Senator BAYH. Has the quality of cases changed? You don't see a significant increase in cases over the past 3 years, at least by numbers? Mr. CLANCY. We would hope that the quality has improved.

Senator BAYH. I don't mean the quality of the work. I mean the nature of the seriousness of the violations involved.

Mr. CLANCY. The type of individuals we are investigating, the Commissioner referred to a case that was recently in the Washington Post newspaper, last week I believe, where the individual was indicted on charge of filing a false return. If you recall reading that article, it implied that substantial funds to the tunes of hundreds of thousands of dollars had been secreted in foreign bank accounts. I would say this is the type of person we are very much interested in investigating. Senator BAYH. I have that article here. We will put it in the record.

[EXHIBIT No. 5]

[From the Washington Post, July 31, 1976]

ALLEGED DRUG DEALER HELD IN TAX CASE

(By B. D. Colen)

A former employee of the government of Thailand, alleged to be a large-scale heroin dealer in the Washington area, was arrested Thursday at his Silver Spring home and charged with filing a false 1975 income tax return.

Assistant U.S. Attorney Andrew Radding said in U.S. District Court in Baltimore yesterday that Suwan Ratana and his wife, Rebecca, who also is charged with one count of filing a false return, claimed a 1975 income of $14,000 when they "made deposits in their bank account of $669,000."

Radding told U.S. Magistrate Paul M. Rosenberg that the Internal Revenue Service had estimated that the couple owes $778,000 in taxes on their income for the first five months of this year. The couple would have needed an income of more than $1.5 million to owe that much in taxes.

"What I said at the hearing was that this has been a joint investigation between the IRS and the Drug Enforcement Administration," said Radding, "and that Ratana is a large-scale heroin dealer in the Washington area.

"He's involved with the smuggling of drugs from Thailand to the U.S. and the distribution of drugs in the District, Montgomery and Prince George's counties," Radding continued.

"We also said that in 1976 he transferred $1 million in cash from here to Swiss banks and $100,000 to a bank in Thailand," Radding added.

Radding told the court that Ratana claims to have been unemployed since 1972. He has been in this country since 1959, the prosecutor said.

Two Thai officials, who refused to give their names, said Ratana used to work for the Thai government student department, which aids Thai students in this country.

Radding said Mrs. Ratana was released without bond but her husband was held in lieu of $200,000 bond.

"We felt he was an extremely high risk for flight because he had drug connections and connections in Thailand. I'm told by the IRS agents this is the highest ever set in a tax case of this sort," Radding said.

Mrs. Ratana refused to comment on the case when reached by telephone at the family's home at 10502 Calumet Dr., Silver Spring.