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1 TITLE IV-SECURITIES TRANSACTIONS INVOLV
ING FOREIGN FINANCIAL AGENCIES
3 $ 401. Information required to be furnished to the Securi
The Securities Exchange Act of 1934 (15 U.S.C. 78a 6 et seq.) is amended (1) by redesignating sections 31, 32, 7 33, and 34 as 32, 33, 34, and 35, respectively, and (2) 8 by inserting the following new section immediately after
9 section 30:
"SECURITIES TRANSACTIONS INVOLVING FOREIGN
"SEC. 31. (a) No person engaged in the business of 13 effecting transactions in securities for the accounts of others, 14 or buying and selling securities for his own account through
a broker or otherwise, shall make use of any means or
16 instrumentality of interstate commerce or of the mails, or 17 of any facility of any national securities exchange, to execute 18 or cause to be executed, or to effect or cause to be effected,
19 directly or indirectly, any transaction in any domestic secu
20 rity, if such transaction was initiated by a foreign financial 21 agency (as defined in section 203 (h) of the Currency and
1 Foreign Transactions Reporting Act), unless at or before
2 the time of transaction
“(1) such foreign financial agency has disclosed
to such person the identity of all persons having any
beneficial interest in such transaction; or
“(2) such person has accepted in good faith a
certification from such foreign financial agency that
no citizen or resident of the United States has any
beneficial interest in the transaction to be effected.
(b) No citizen or resident of the United States shall,
11 directly or indirectly, purchase or sell or arrange for the 12 purchase or sale of any domestic security, from or through 13 a foreign financial agency, unless such citizen or resident14
“(1) gives a written authorization to such agency 15 to disclose his identity to any person (A) engaged in 16 the business of effecting transactions in securities for the
account of others or for his own account through any
means, instrumentality, or facility referred to in sub
section (a), and (B) the services of which are utilized in connection with such purchase or sale; and
“(2) files periodic reports with the Commission disclosing the details of any such purchase or sale in accordance with such regulations as the Commission
1 "(c) As used in this section, the term 'domestic secu2 rity' means a security the issuer of which is a resident of, 3 or is organized under the laws of, or has its principal place 4 of business in, a place within or subject to the jurisdiction
5 of the United States."
TITLE V-EFFECTIVE DATES
7 $ 501. Effective dates
(a) Except as otherwise provided in this section, this
9 Act and the amendments made thereby take effect on the 10 first day of the seventh calendar month which begins after
11 the date of enactment.
12 (b) The Secretary of the Treasury may by regulation 13 provide that any provision of title I or II or any amendment 14 made thereby shall be effective on any date not earlier than 15 the publication of the regulation in the Federal Register and 16 not later than the first day of the thirteenth calendar month 17 which begins after the date of enactment. 18 (c) The Board of Governors of the Federal Reserve
19 System may by regulation provide that the amendment made
20 by title III shall be effective on any date not earlier than 21 the publication of the regulation in the Federal Register and 22 not later than the first day of the thirteenth calendar month 23 which begins after the date of enactment.
(d) The Securities and Exchange Commission may by
46-824 0 - 70 - 3
1 regulation provide that the amendment made by title IV
2 shall be effective on any date not earlier than the publication 3 of the regulation in the Federal Register and not later than 4 the first day of the thirteenth calendar month which begins
5 after the date of enactment.
BOARD OF GOVERNORS,
Washington, D.C., June 2, 1970.
DEAR MR. CHAIRMAN : You have requested a report from the Board on 8. 3678, which is designed to deter the improper use of secret foreign bank accounts, tax evasion, and other illegal activities through new requirements, to be administered by the Secretary of the Treasury, for improved recordkeeping and reporting by banks and other financial institutions. The bill would also strengthen the Federal securities law to reduce evasion thereof through the use of foreign financial agencies.
When he introduced the bill on April 6, for himself, Senator Brooke, and Senator Williams of New Jersey, Senator Proxmire said, among other things, 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 mobiltiy of capital or infringing upon the sovereign rights of foreign countries."
The Board favors the objective of S. 3678 and, therefore, would urge favorable consideration by your Committee and by the Congress of legislation along the lines of Senator Proxmire's bill, keeping in mind the limitations relative to capital mobility and sovereignty expressed by him when he introduced the bill, as just indicated. Broad discretionary authority in the Secretary of the Treasury to issue regulations, including authority to classify and exempt persons and transactions, is, of course, essential to the appropriate and efficient implementation of Titles I and II of the bill containing its recordkeeping and reporting requirements.
The Board has noted particularly the clarifying changes that would be made by Title III of the bill in Section 7 of the Securities Exchange Act of 1934, pursuant to which the Board issues its “margin” regulations covering security credit. These changes would help reduce circumvention of existing law (a) by extending the Board's regulatory authority specifically to borrowers, as well as lenders, and (b) by specifying that the Board's authority covers security credit to American borrowers regardless of who or where the lender may be. It clearly is inequitable for borrowers in this country to be able to obtain security credit through foreign facilities on terms not lawful here. The first change made by the bill in this respect would be helpful in treating this problem. The second would clarify the Board's authority to regulate other devices for evading its margin requirements, such as foreign companies controlled by American lenders. The Board, however, wishes to emphasize again the importance, as indicated by Senator Proxmire, of not infringing upon the sovereign rights of foreign countries, and it is assumed that Title III does not envisage any efforts by the Board to attempt to regulate transactions that, under the customary principles of law, are outside the jurisdiction of the United States. We also wish to emphasize the importance of avoiding any discouragement of foreign investments in United States securities. Indeed, our balance of payments position is such that we should encourage the inflow of foreign capital.
As Senator Proxmire also remarked, S. 3678 is similar to H.R. 15073 as passed by the House May 25, 1970. H.R. 15073, however, would add to Section 7 of the Securities Exchange Act of 1934 a provision not contained in S. 3678. Under that provision, a borrower of security credit obtained in the basis of a material misrepresentation made or participated in by him as to the purpose of the credit would be subject to criminal liability, whether or not he acted with actual knowledge that the credit was in violation of the Board's regulations. Such a provision would be helpful in the enforcement of the regulations, since there can be situations in which a borrower furnishes false information about the purpose of the loan where it would not be possible to prove that he willfully or knowingly violated the provisions of the regulations. The Board, therefore, suggests that favorable consideration be given by your Committee to the provisions in this respect in H.R. 15703.
Title IV of Senator Proxmire's bill would make certain changes in provisions of the Securities Exchange Act of 1934 which, apparently, would be implemented by the Securities and Exchange Commission rather than this Board. These provisions were described by Senator Proxmire when he introduced S. 3678 as designed to remove the veil of secrecy surrounding foreign securities trans