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actually included in the bill for recordkeeping. In the domestic area, however, as I mentioned, we just don't know enough yet. And we want to have the normal discretionary language for the Secretary of the Treasury to develop the kinds of transactions that would be needed.
This includes the recordkeeping and the second domestic provision is the reports, Treasury currency reports. We have had Treasury currency reports presently under the emergency regulations, and we feel and we concur in the general approach on Treasury currency reports, but we feel quite strongly that there has to be a standard. The House committee accepted the standard on recordkeeping limiting it to items that are highly useful in criminal, tax, and regulatory investigations and proceedings, but we feel that it was unfortunate that they did not accept that same standard for the reporting requirements on Treasury currency reports, and we would urge that such an amendment be included. To summarize, on the legislative aspects, Mr. Chairman, the Treasury proposals would require a bill that would include: (1) Requiring U.S. banks and other financial institutions to maintain records of specified international transactions; (2) requiring persons importing or exporting from the United States large amounts of currency or its equivalent to file reports; (3) and this gets into the domestic area, authorizing the Secretary of the Treasury to impose recordkeeping requirements on banks and other financial institutions with respect to domestic transactions; (4) requiring—again in the domestic area-requiring Treasury currency reports, to the extent it is found that such records and reports in (1), (2), (3), and (4) are likely to have a high degree of usefulness in criminal, tax, and regulatory investigations and proceedings.
A second bill that we are working on would amend the Internal Revenue Code to provide a specific penalty for failure to comply with the foreign account disclosure requirement and to provide statutory presumptions that U.S. taxpayers engaging in certain foreign transactions and not furnishing complete information with respect thereto are dealing with their own untaxed income.
I do want to mention that H.R. 16444, which is not before the committee but which was prepared by the Treasury and introduced by Representative Widnall on March 12, 1970, would provide the legislative framework, other than the Internal Revenue Code amendments, for the enforcement system which we recommend.
We would recommend, as I mentioned before, amending H.R. 16444 or the current bills before the committee to specify the required records of international transactions in a separate action. In addition, I am sure that Treasury and congressional staffs could make a number of technical improvements. I might mention in this regard, Senators, I think everybody is agreed on the objectives in this particular area. The question is how do we best get there.
I am convinced that we can come up with a bill that is effective in increasing our ability to handle this problem from a legislative point of view and yet one which will not interfere with the normal flow of commerce and goods and capital, which is so extremely important particularly at this sensitive time.
I would like to present the administration's position on extending margin requirements to borrowers and restricting dealings with foreign financial agencies. I would like to read this section, if I may, since it gets into another sensitive area.
“Section 301 of the bills would give the Federal Reserve Board clear authority to apply margin requirements not only to lenders but also to borrowers. This is an entirely new concept in the regulation of credit as margin rules have been only applied in the past to lenders.
“The Administration supports the extension of the margin requirements to borrowers provided it is made clear that this is not intended to regulate the availability of credit abroad to foreigners. Therefore, Section 301 should be amended to provide that only borrowers who are American citizens or residents and foreign persons controlled by or acting for them are subject to these requirements. In addition, it should be made clear that the requirements are applicable only with respect to the purchase of United States securities, or of foreign securities where the transaction is executed in the United States.
"It is not our intention to engender direct jurisdictional conflicts with foreign countries which have sovereign authority to regulate the availability of their own domestic credit. Any problems that may be raised by foreign participation in our securities markets should be approached through international cooperation."
"The second area concerns restricting dealing with foreign financial agencies.” A new section appears in S. 3678 which does not appear in H.R. 15073 which aims at identifying users of foreign financial facilities. The new provisions, title IV, of S. 3678, would accomplish this objective by providing that no person may effect any transaction in a domestic security within the United States if such transaction was initiated by a foreign financial agency, unless such person either obtains from the foreign financial agency the identity of all persons having any beneficial interest in the transaction or has in good faith accepted a certification from the foreign financial agency that no citizen or resident of the United States had any beneficial interest in the transaction. In addition, it provides that any U.S. citizen or resident who purchases or sells domestic securities through a foreign financial agency must both authorize that foreign financial agency to disclose the citizen's or resident's identity to the U.S. broker or dealer executing the transaction and file periodic reports with the Securities and Exchange Commission disclosing details of purchases and sales as may be required by the SEC.
“We must be careful to avoid provisions that are too stringent and which may have the effect of impeding the channels of trade and this defect exists in title IV.
“Moreover, I believe that foreign financial agencies might find it extremely difficult to comply with this provision. Even with the best of will, a foreign financial agency might be unaware of the real parties in interest in a transaction. Consequently, fear of the consequences of failure to comply with this section, particularly if criminal or other penalties were to attach to a false identification or certification, could have serious effects on the willingness of foreigners to invest in the United States. Thus, this provision is likely to produce little in the way of reliable information and could have limiting effects on investment in the United States.
“At the same time, title IV would put a heavy administrative burden on those foreign securities dealers and banks seeking to make portfolio investments in the United States. Yet the information obtained under title IV would in part duplicate information obtainable under other provisions of the bill which will achieve many of the same
objectives as those sought to be accomplished by title IV, but without the significant drawbacks of this provision.
“For these important reasons, the Treasury recommends the deletion of this provision from S. 3678. In our view, it does not meet the goals set by Senator Proxmire in introducing S. 3679 that 'Our law enforcement authorities need additional tools to trace the international flow of funds into and out of the United States without impairing the international mobility of capital or infringing upon the sovereign rights of foreign countries. I would add in this connection, that we started out with a bill on foreign bank secrecy. To that bill was added domestic recordkeeping and reporting requirements for law enforcement purposes, and we feel that is fine. We have added margin requirements, and as we suggest it be limited. But this one gets quite far into an area which can bring great concern to the flow of capital, and that is why we feel quite strongly that that provision should be deleted."
I can finish up in a couple of moments, Senator. The next area of my testimony discusses our proposed amendments. Attachment B discusses further the subject of our proposed amendments, but here we mention some highlights. In the companion bill in the House, H.R. 15073, the purpose of title I was amended in accordance with a suggestion from the Treasury that the purpose of the bill was to assist criminal, tax and regulatory investigations and proceedings.
Unfortunately, additional amendments of that nature that we wanted for title II were not accepted by the committee and there are very broad areas which are not really germane to the purpose of the bill, and we would urge that these amendments which I would hope are simply drafting questions could be accepted by the committee.
The second broad area we discussed a little earlier in my testimony is the question of unnecessary and counterproductive domestic records. I think to highlight it, our feeling was, let us now put in the statute and not just in regulations those six broad areas of recordkeeping requirements for international transactions because we have studied that area, we have spent a lot of time in that area.
In the domestic recordkeeping area, we just don't know, and we feel it would be far preferable to set the standard that banks and other financial institutions would be required to maintain records that are highly useful in cirminal, tax and regulatory investigations or proceedings and to put the burden on the Secretary to now do the study job, which we are starting to do and we are into, in the domestic area that we did in the international area, rather than to come in and use language that is mandatory in many respects on photocopying of records.
There is a question of what the language says. In my judgment, we could have been spending time in other areas of the bill which get more into the heart of it, but this seems to have become a bone of contention in the House. I would hope it would not be in the Senate, because I think what we are aiming for here is clarity and aiming for a bipartisan effort in this area.
The third amendment area that we talk about is one I discussed briefly with regard to the constitutional right against unreasonable searches and seizures and the right of privacy, sections 241 and 242 on the bottom of page 18 of the testimony. This goes into additional reasons for deletions of those sections and technical points are made.
The fourth area would be to tighten up on the Secretary's responsibility and authority for carrying out the appropriate recordkeeping and reporting requirements, and we refer to provisions that are in H.R. 16444. In another area, we defer to the Department of Justice on the inconsistency with S. 30, the Organized Crime Control Act and the question of immunity.
I might read the conclusion, Mr. Chairman. The Treasury has undertaken actively and vigorously to curtail the use of foreign bank accounts and international transactions for tax evasion and other crimes.
Our program includes administrative action, new regulations, treaty negotiations, legislative proposals, and cooperation with the private sector. Today I have presented our proposals for legislation and for improvements in the bills before this committee which legislation we urge the committee to adopt.
We believe that such legislation would contribute to our efforts to curb tax evasion and other crimes by U.S. citizens and residents where foreign accounts and international financial transactions are involved assuming budgetary resources for proper enforcement are obtained.
However, past experience indicates that no system is foolproof. We will continue to be alert to new devices developed by those seeking to evade taxes or otherwise violate our criminal laws.
We feel that the measures that we have undertaken and the legislation we have recommended, when fully utilized by the Internal Revenue Service and other Federal law enforcement agencies, will result in improvement in our continuing efforts to curb tax evasion and other white collar crimes as well as to suppress organized crime.
Thank you very much, Mr. Chairman. We will be happy to answer any questions that you have.
Senator ProxMIRE. Thank you, Mr. Rossides.
I want to apologize for being late. I was testifying before the Public Works Committee. I had expected to be through at 10:30, but I was held up unfortunately, but that is the reason for it.
I am very happy that Senator Bennett went ahead. Because I was late, I will defer to Senator Bennett for questions.
Senator BENNETT. Thank you, Mr. Chairman. Mr. Rossides, you have referred rather frequently to H.R. 16144. Can you either tell us or put into the record some kind of a summary of the differences as well as the similarities between that bill and the one before us?
I recognize that H.R. 16444 is not before us.
Mr. Rossides. I could comment orally and then maybe we could put something in the record. I think more important maybe the staff's could work together and take what they feel is best from both bills.
In my own judgment, basically these bills are similar. H.R. 164-14 and S. 3678 and H.R. 15073—there is a difference on the question of whether the two bills before the committee make it mandatory or recordkeeping or do they give the Secretary flexibility; we feel that that needs clarification and we urge the flexibility approach.
But basically, they are trying to do the same job, and it may be that in the House questions of pride of authorship became involved.
We feel that H.R. 16444, plus the amendment that we are suggesting of specifying the six areas of recordkeeping in the foreign area, make for a far easier bill to work with, and we would just urge that the
committee give full thought to the language from H.R. 16444 that could possibly be incorporated in the two bills before the committee presently.
I think that the best way would be for the staffs to just take a look at them, or anybody to just take a look at the greater complexity of the two bills before the committee as compared to H.R. 16444. Possibly language could be taken from that other bill and incorporated.
Senator BENNETT. Are we the only Nation in the free world that has this trouble with the Swiss numbered bank accounts ?
Mr. Rossides. I am afraid not, Senator. A number of the other nations have similiar problems.
Industrial nations have expressed a great concern about this method and area of evasion, but also it affects developing nations, the new nations, where there is flight of capital, and where can they find some haven instead of having the capital in their own country to help develop their own country.
We have had that expressed to us also.
Senator BENNETT. Is there any unified or even any informal attempt to bring the united pressure of these affected countries on the Swiss ?
Mr. ROSSIDES. There is not at present, Senator. My own prediction is that this will develop. There have been requests for international cooperation in this area. I think that this is the road of the future, and this is also part of the expanded charge that I have given to our Treasury task force, the broader implications down the road of international cooperation in the area of international financial frauds and international tax evasion.
But with the ease of modern communication, the increased pace of international business and the rapid flows of funds there should be developed a system of cooperation so that we are not just doing it on an ad hoc basis. Because what happens is in certain nations it is a flight of capital, in other nations it is capital going over, becoming cleansed and coming back-the problem with the United States. International cooperation is coming and it is one of the key elements down the road, and not too far, in my own view.
Senator BENNETT. I have discussed this question informally a little while ago with an official of the Swiss Government, and from that discussion I got the impression that as in our country there are State banking laws which differ from State to State, there are banking laws in Switzerland which differ from canton to canton, so that there are certain conditions under which we can get information in one canton that might be denied in another.
Is this your understanding?
Mr. ROSSIDES. A Federal treaty such as the judicial assistance treaty being discussed would be the law of the land.
It is my understanding that they have the various cantons which are extremely powerful and indeed in our research we came up with the point that they do have criminal tax cases in the cantons where most of the taxes are collected.
But if there is a treaty—such as the tax treaty we presently have with Switzerland-it is Federal law and it is supposed to be enforced in the cantons as well. However, if the treaty refers to local law or practice, then cantonal law remains important.
Senator BENNETT. The comment that was made to me was we really have not exhausted our opportunity to take advantage of these dif