COMBINED HOLDINGS

FOREIGN BANK SECRECY

TUESDAY, JUNE 9, 1970

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS,
Washington, D.C.

The subcommittee met, pursuant to adjournment, in room 5302, New Senate Office Building, Senator William Proxmire (chairman of the subcommittee) presiding.

Present: Senators Proxmire and Bennett.

Senator BENNETT. Ladies and gentlemen, Senator Proxmire, who is chairman of the subcommittee is appearing as a witness before another committee in the Senate, and therefore he has asked that I start the hearings. Our first witness today is the Honorable Eugene T. Rossides, Assistant Secretary of the Treasury for Enforcement and Operations.

Mr. Secretary, if you will identify the people who are with you at the head table, and then you may proceed as you please.

STATEMENT OF EUGENE T. ROSSIDES, ASSISTANT SECRETARY FOR ENFORCEMENT AND OPERATIONS, DEPARTMENT OF THE TREASURY; ACCOMPANIED BY ROBERT COLE, SPECIAL ASSISTANT FOR INTERNATIONAL TAX AFFAIRS; WILLIAM L. DICKEY, DEPUTY ASSISTANT SECRETARY; MICHAEL BRADFIELD, ASSISTANT GENERAL COUNSEL; BERNARD MEEHAN, SPECIAL ASSISTANT, COMPLIANCE STAFF, INTERNAL REVENUE SERVICE; AND ROBERT ROSTHAL, DEPUTY CHIEF, GOVERNMENT OPERATIONS SECTION, DEPARTMENT OF JUSTICE

Mr. ROSSIDES. Thank you very much, Mr. Chairman.

With great pleasure I introduce on my right Mr. Robert Cole, who is in charge of the International Tax legislative staff at the Treasury and who has been our executive secretary on the Treasury Task Force on Bank Secrecy.

On my left is Mr. Ira Tannenbaum, attorney in our Tax Legislative staff and secretary of our Treasury Task Force.

Also accompanying me is my deputy, Mr. William Dickey.

On the far right is Mr. Bernie Meehan, special assistant on the Compliance Staff of the Internal Revenue Service. And on my far right is Mr. Robert Rosthal, deputy chief of the Government Operations section of the Department of Justice who has been working closely with us. Waiting right behind me is Michael Brodfield, Assistant General Counsel, Department of Treasury.

Senator, if I may, my testimony is rather long and there are attachments that total over 30 single spaced pages. If I may summarize and offer the testimony for the record.

Senator BENNETT. The testimony with the attachments will be included in the record in total, and we will be happy to have you summarize it in any way you please.

(The complete statement appears on p. 170.)

Mr. ROSSIDES. Senator, when this administration took office, this was one of the problems in law enforcement that faced us and that we took a great deal of interest in doing something about it. At the Treasury we joined with our fellow Departments at Justice and State and with the cooperation of the Securities and Exchange Commission we formed a team that entered into serious negotiations with the Swiss Government.

In effect, the President and the administration decided to elevate the problem of bank secrecy from an ad hoc basis-trying to obtain information from time to time when a particular case would come upto a foreign policy level of negotiating a workable treaty so that we could obtain information from foreign countries on a usual and easy basis.

Actually, our program developed into a four-part program of the administration. I would call the President's reform program to do something about foreign bank secrecy.

The first, as I have mentioned, is the foreign policy approach. In this case we are not just dealing with the one country, Switzerland, which I will mention a little further on, but in effect we are reviewing all of our existing tax treaties to see that the information exchange provisions are adequate. In any new treaties we will make sure that such provisions will be adequate.

Secondly, and it is part of the philosophy-my own philosophy and, I believe, it is also the philosophy of the administration-let's look at the laws we have, see how we are administering them, and see what additional regulations we may be able to put into effect under existing law. I will discuss that. That is the administrative area, and I think one of the key things that we have done, and one that I have great hopes for is that we have made a firm decision at the Treasury that on next year's tax return there will be a requirement that those persons having an interest, direct or indirect, in a foreign bank, brokerage or similar account will have to check off on the tax return that they have that interest.

Thirdly, we have made on behalf of the administration legislative proposals. This is the first time that I am aware of that there have been any legislative proposals made by any administration in recent history. We intend to have additional proposals as they come along for the Ways and Means Committee and of course the Finance Committee. The fourth area is to work closely with the private sector in learning more about the techniques and methods of international tax evasion and international financial crimes. I believe that in this day and age when the speed of communications is such that today you can be here in the United States and in a few hours you can be in another country, the opportunities for such evasion and crimes are increased. An analogy would be what Chief Rowley of the Secret Service mentioned; in the old days when counterfeit bills would appear in a city or in a particular State, it would be localized there, today it can appear there and that

same bill the next morning can appear across the country in another State.

Most important, and what should be kept in mind, are three fundamental concerns of the Treasury Department and the administration as we prepare our proposals and as we reviewed our administrative practices. The first is that the U.S. dollar is the principal reserve and transactions of currency in the world. Foreign holdings of U.S. dollars are huge, amounting to some $43 billion in liquid form. We must do nothing which would in any way interfere with the free flow of goods and trade and capital into any unreasonable or any undue extent. Excessive measures would give concern to our allies and other nations as to the position of the U.S. dollar.

I think one of the great results of our international payments system has been the free flow of the dollar back and forth and the absence of any kind of controls. It has, therefore, been of paramount concern to us that any proposals we make will in no way restrict the regular and efficient flow of our domestic and international business or personal transactions or particularly diminish the willingness of foreigners to hold and use the U.S. dollar.

The second consideration, Senator, is that consistent with our determination to deter tax and other evasion by U.S. persons involving foreign financial transactions, we have sought to develop proposals under which the benefits to our revenue system and to our law enforcement objectives outweigh costs and inconveniences of the proposals.

Finally, the third basic thought that has been in our minds, and a very important one, is that we have kept firmly in view our traditional freedoms, such as the constitutional prohibition against unreasonable searches and seizures and the right of our citizens to privacy.

In strengthening enforcement, we must not jeopardize these principles. There has been a lot of talk, also, Senator, as to the amounts of moneys involved in international tax evasion. Frankly, there are no firm statistics. No one can say how much. We don't know. However, whether the amount is large or small and whether the number of persons involved is great or few, nevertheless, the principle involved is central to the proper administration of our self-assessment system of taxation. Tax fraud schemes must be attacked vigorously.

I might add that in the last few decades there has been an increasing use of the commercial banks to gather savings and hold the deposits of individuals. In the past financial obligations were settled through the transfer of coin and paper currencies, but now with few exceptions the personal or corporate check settles accounts. With the convertibility of currencies, particularly the dollar, with the increasing interrelationship of our economies, international financial transactions often involve foreign bank accounts in at least one stage or another.

Another point that I think should be made is that the United States does not and should not seek jurisdiction over foreign financial institutions not engaged in trade or business in the United States.

I would like to discuss for a few moments our negotiations with the Swiss, if I may, Senator. We have had several conferences with the Swiss authorities, the latest one being in March of this year in which all four agencies participated. Then it was agreed there would be a Treasury team that would discuss the tax aspects separately with the Swiss. These discussions were held in Berne in May. Another meeting with the Swiss is scheduled next month at which all four agencies