Mr. ROSSIDES. Let me add one other comment about title IV. I anticipated that this would be a bone of contention, and my key point is again it gets away from what is a helpful thrust of the legislation on recordkeeping and reporting requirements.

Let me say that this title IV just exhibits throughout, Senator, with all due respect, a hostile attitude toward foreign investment. It indicates in a way financial isolationism. The way we handle problems such as this should be with international cooperation, not an attempt by the United States unilaterally to start building up a wall against foreign investment. This section would not help us, Senator; it would harm us.

Senator PROXMIRE. Senator Bennett.

Senator BENNETT. We have an interesting situation in the Middle East. We are lined up on one side more or less of a conflict. On the other side there are men of immense wealth who presumably use the Swiss banks to a great extent. I wonder if this is not the device by which the wealth of the Middle East, the oil rich countries, can come into the United States without their getting involved in the patriotic problem in the war that is going on, and whether that might not be a substantial source of these billions of dollars that are generated.

Mr. ROSSIDES. Excuse me for a moment, Senator. Let me confer with the staff. That may well be true. There are vast sums available for investment in that area; however, I do not want to speculate on the size of such flows.

Senator PROXMIRE. Under title IV all the bank would have to say it is not coming from a U.S. citizen, and if it is coming from a U.S. citizen disclose who it is. It would not reflect if it is coming from somebody in Egypt or some other country.

Mr. ROSSIDES. It is extremely difficult for them to know. They talk about certification of non-U.S. origin. How can they certify when they are not sure? You are talking about a heavy paperwork burden and you are talking about telling a foreign business how to operate. Senator PROXMIRE. Why would any legitimate U.S. investor object to having his identity disclosed if he trades through a foreign bank account?

Mr. ROSSIDES. Senator, he would not object, in my judgment. But the point on this title is that it goes to all foreigners as well. In other words, they have to certify that they are not dealing for Americans or give the name of their American customer. They have no accurate way of determining the true character of the funds entrusted to them.

We have been building up since World War II an international system aimed at the goal of lowering barriers to the international flow of goods and capital. This is putting up one of those barriers and we feel we should aim more at cooperation working with the other nations.

Senator PROXMIRE. Isn't it true that if U.S. brokers execute stock orders on behalf of a U.S. principal, law enforcement agencies can now ascertain the identity of the principal through subpena or other legal process?

Mr. ROSSIDES. Certainly, against U.S. brokerage houses, and I have issued some of those subpenas myself, Senator.

Senator PROXMIRE. If foreign brokers and investors wish to enjoy the benefits of participating in our capital markets should not they be required to play by the same rules imposed on domestic brokers ?

Mr. ROSSIDES. No, sir, this is not an area in which we can appropriately impose our rules on others.

Senator PROXMIRE. Why not?

Mr. ROSSIDES. It is a question of how you deal with foreign countries. We are not trying to tell the Swiss how to run their business or the French how to run their brokerage businesses. When we put on requirements we are not trying to run the internal affairs of other countries, particularly in the monetary field which is a very, very ticklish area. This factor should also be considered in the light of the impossibility of enforcing the rules proposed in title IV.

Senator PROXMIRE. We are not trying to run the internal affairs of another country. They are taking part in our market and we are just stating the rules under which they may take part.

Mr. ROSSIDES. Senator, if you want to cut down on the flow of investment funds into the United States, this particular title could help do that.

In your preparatory remarks in the introduction of your legislation you suggested that one of the tests was not to cut down on the mobility of capital. We are saying, as a Treasury position, that this does. We have not investigated the degree to which it should help law enforcement, but because of the difficulties of enforcement we are skeptical.

Senator PROXMIRE. You say you estimated that it may, you just don't know, this is your best guess, and you are very well qualified to make a guess, I would not deny that. But on the basis of all the information you have and what you do not have now, you really cannot tell.

Aren't you really saying our balance of payments position is enhanced by those who wish to avoid disclosure because they might be breaking the law? Doesn't this put us somewhat in the position of an international fence who knowingly accepts illegal merchandise because of the profit? As a spokesman for an administration concerned with law and order, how can you defend the morality of this provision?

Mr. ROSSIDES. I just disagree with your premises completely, Senator. The information that would be obtained by this title would be very little. You could not depend on the reliability of it. The import of title IV will be an administrative nightmare; it is financial nationalism and parochialism, it would deter the flow of international investment into the United States.

Senator PROXMIRE. Well, the rhetoric is fine. The substance comes through that you think it would deter the flow of investment into this country. You may or may not be right about that, and we just do not know and you say you do not know whether or not these bank accounts in Switzerland represent 5 or 10 percent of American holdings or they may represent a great deal more than that. Mr. ROSSIDES. We will check on the statistics.

Senator PROXMIRE. I should say American deposits in Switzerland. Mr. ROSSIDES. Senator, my point is that we have a good idea in this bill on the question of recordkeeping and reporting requirements. It is part of a total program of administrative action, legislative action, international cooperation. We are trying to move ahead and not just slowly. We are saying that this provision does not help.

You have other provisions in your bill which are most important, and why don't we try that and see how that is moving along. But we urge, Senator, most respectfully that this provision be deleted.

Senator PROXMIRE. You also indicate that the information obtained under title IV would in part duplicate information obtainable under other provisions of the bill. What other provisions were you referring to?

Mr. ROSSIDES. I will have Mr. Cole answer that, Senator.

Mr. COLE. Basically what we are looking for is information about foreign transactions and accounts of Americans. Americans, under our proposals, would have to indicate on their tax return if they have a foreign account. So we find out about it in that way.

Senator PROXMIRE. That is not in the bill. You are talking about the bill here. You say the information obtained under title IV would in part duplicate information obtainable under other provisions of the bill.

Mr. COLE. I think that should be broadened to other provisions of the bill or other provisions of the existing law.

Senator PROXMIRE. Are there other provisions of the bill which require this, too?

Mr. COLE. If an American took cash out of the United States to invest abroad, to deposit into a Swiss bank, to have it reinvested, that would be reportable under the bill if the amount exceeded the mini

mum.

If he used as a means of transfer a check or cash transfer from his U.S. bank to a Swiss bank, then a record would be made of that and that record would be available to U.S. law enforcement authorities according to existing procedures. So there would be

Senator PROXMIRE. There would be no record of the transactions back in the Swiss bank into this country.

Mr. COLE. But the money would have to either start off in the United States or come back into the United States. An American would start off with his money in this country. In order to get it overseas it would have to go through channels about which we would obtain information. In order to get the use of the money after he was through investing, he would have to bring it back to the United States. Again, these channels would be used, and again there would be information, Senator.

Senator PROXMIRE. But you would not know that he was bringing it back to this country, you would not know he is making capital gains in the stock market or he is manipulating certain stock.

Mr. COLE. We would not have information at the investment stage. We would have information at the stage when the money went abroad originally and information again when the money came back to the United States for investment in this country for purposes of expenditure or division among heirs or other use.

Senator PROXMIRE. You would not know about the investment procedure. This is why it would be useful to the SEC as they have testified. If you eliminate that you eliminate that opportunity for the SEC to enforce that.

Mr. ROSSIDES. No, sir, you would not have it at the investment stage where today we have insider trading laws in the United States and you have to declare it, but you would have it when the flow of money comes back through the banking system. The report would be there,

it would have to be kept; so, you would have the ability to trace the

transaction.

Senator PROXMIRE. But it would not be tied into that particular individual, it would be coming from the Swiss bank, it would not have the trail clearly delineated.

Mr. ROSSIDES. I am not saying you would. You would have it there for investigation. That brings up the other point.

Senator PROXMIRE. But you cannot investigate. This is what the bill would permit you to do.

Mr. ROSSIDES. Oh, yes, you get leads, and then you start your tougher procedure.

Senator PROXMIRE. But you cannot go behind that Swiss bank. Mr. ROSSIDES. It makes it more difficult on law enforcement this way, but it is a safer way from the point of view of your constitutional rights and the right of privacy. When you say go behind a Swiss bank, that is the point of saying on the tax return do you have an interest in a Swiss bank account. You check that off. That is probably one of the most significant things we are going to do. Why? The deterrent effect.

I am not going to say this is going to deter organized crime. They know how to move cash around. That is why we have the other provision about cash. But the average white collar criminal is going to have to think a lot more now because he knows that just on a random sample the possibility for detection of fraudulent statements is greater. We are trying to build up that system.

One of the things I would urge is review of the testimony where we discuss section 241, where we ask for deletion of that section because of the constitutional right against search and seizure and the right of privacy which is an area you are so keenly interested in.

We are building up these procedures which attempt not to interfere with the sovereignty of another nation and also to push that other nation for greater cooperation.

Senator PROXMIRE. I have one final question. In referring to the photocopying of checks, you object to such mandatory requirements. However, the actual language of the bill requires photocopies to the extent that the regulations of the Secretary so require. My question is: Doesn't this give you the flexible authority you need to tailor the requirement to fit individual situations?

Mr. ROSSIDES. The last few words?

Senator PROXMIRE. Doesn't this give you the flexible authority you need to tailor the requirements to fit individual situations?

Mr. ROSSIDES. Senator, this was the big bone of contention. Actually the House committee takes a view that it requires us. My own interpretation frankly would be that we have discretion. But there is enough of a dispute, enough unclear language which is simply why we urge the two staffs, Senator, to-work together to come up with clarifying language.

On this one we are saying the following on the recordkeeping requirement. No. 1, in the international area, we will require in the statute these six categories that I mentioned earlier in the testimony and which are elaborated in attachment A. Very detailed, substantial recordkeeping.

Then, on the domestic side, we say, again under the test-this will be under the test of highly useful, in criminal, tax and regulatory

investigations and proceedings-the Secretary should have the discretion to continue his study and come up with regulations. This one takes the other approach: When we don't know what should be kept, let's make him keep everything.

Getting back to the specific question on discretion, I would want to interpret it that we have discretion. The House likes to interpret it that we do not have discretion.

Senator PROXMIRE. The House report language says "It should be made clear, however, that the Secretary's duty to impose such a requirement is neither absolute nor permanent." It seems to me it gives you discretion. That is on page 16 of the House report.

Mr. ROSSIDES. In our attachment B, Senator, we refer to the committee report and we say that "While the committee report recognizes this power, it indicated that, in view of the congressional findings, the Secretary is left with 'little choice but to require, upon the effective date of the legislation, that banks photocopy all checks' except those covered by the $500 exemption provision."

Senator PROXMIRE. But you can subsequently exempt.

Mr. ROSSIDES. Senator, I am saying that I would interpret this as giving us enough—well, discretion enough to do this, exempt. Senator PROXMIRE. And so does the House report.

Mr. ROSSIDES. I am not so sure. I do not like that language, Senator, mandatory this and that. My own recommendation would be absolute exemption on everything because we do not have enough facts as to what is highly useful. That is what my recommendation would be right away. Otherwise you are going to have a battle and charges that you are not doing anything. When sufficient harm is done the specific domestic recordkeeping requirements can be improved.

Senator, I would urge that the two staffs get together and come up with some language that would be more clear.

Senator PROXMIRE. Thank you very much. Thank you for a very, very helpful statement and for your responsiveness.

I certainly did not mean to indicate by my questioning that I was at all hostile to you. I think you are a very competent and able official and you have done a fine job this morning.

Mr. ROSSIDES. Senator, I appreciate very much being here.

(The prepared statement of Mr. Rossides together with attachments follow :)

STATEMENT OF EUGENE T. ROSSIDES, ASSISTANT SECRETARY OF THE TREASURY FOR ENFORCEMENT AND OPERATIONS

Mr. Chairman and Members of the Committee, the Treasury Department appreciates this opportunity to present the Administration's reform program to combat the use of secret foreign bank accounts by organized crime and white collar crime to violate U.S. tax and other laws, and to testify on S. 3678 and on H.R. 15073 which was passed by the House on May 25, 1970.

When this Administration took office, it decided to do something about this problem. We point out with pride that this is the first Administration seriously to study the matter and recommend action designed for correction of this longstanding problem area. The Treasury is in the forefront of this effort. Treasury organized a Task Force to attack the problem on a concerted basis. It is the first of its kind of which we are aware.

Our overall aim is to build a system to combat organized crime and white collar crime and to deter and prevent the use of secret foreign bank accounts for tax fraud and their use to screen from view a wide variety of criminally related financial activities, and to conceal and cleanse criminal wealth.