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made payable to my alias and would receive a check drawn on the Swiss bank. I would cash these checks at the Swiss bank in New York.
By tracing my transactions, it became apparent that numbered accounts could be used as a vehicle to secretly transfer large sums without difficulty. In addition to their use by tax evaders and persons who desire to take over U.S. corporations, numbered accounts could be used by racketeers to make payoffs and infiltrate into legitimate business.
I hope that my testimony will assist you in making a determination with respect to the legislation under consideration.
Senator PROXMIRE. Thank you very much, Mr. Richman.
What was the name of the Swiss bank in which you opened an account?
Mr. RICHMAN. It was the Swiss Bank Corp., their agency in New York, but it was called Swiss Bank Corp.
Senator PROXMIRE. You indicated you received an application from a bank with conditions on the reverse side. Could you recollect the questions on the application and the conditions on the reverse side?
Mr. RICHMAN. Not specifically. I think the major condition was the fee that they were charging for the withdrawals and the fact that they were not paying interest.
Senator PROXMIRE. You used an assumed name and presumably you used an assumed business address. They obviously couldn't have checked you out; is that correct?
Mr. RICHMAN. That is correct. Actually, I used an assumed name, and all the transactions were handled through a post office box.
Senator PROXMIRE. How did the correspondence from the Swiss bank come to you? Was it postmarked in Switzerland or did it have a U.S. postmark?
Mr. RICHMAN. It was postmarked in Switzerland, but the envelopes had no return address at all. They were the very light type envelope that is used for foreign airmail.
Senator PROXMIRE. Did the bank ever inform you of other services they would perform such as trading in securities?
Nr. RICHMAN. I believe in initial papers that I got there may have been something to that effect, but, of course, I wasn't interested in that and really didn't follow that up closely.
Senator ProxMire. To your knowledge, are the records kept of money orders by the institutions selling them?
Mr. RICHMAN. These money orders came back to the States because I did trace them to see what happened to my transaction. But remember, I purchased the money order in blank and, therefore, when the money order came back all it had was the Swiss bank
Senator PROXMIRE. Where did you purchase the money order? Mr. RICHMAN. Generally in the Philadelphia area, various banks in Philadelphia.
Senator PROXMIRE. But those banks would keep no record ?
Mr. RICHMAN. Well, they would have the money order come back, but they didn't ask any questions.
Senator PROXMIRE. Did you use your real name or assumed name when you bought those ?
Mr. RICHMAN. I used my assumed name. Actually, they didn't ask for my name. I just asked for a money order for $2,000.
Senator PROXMIRE. We have heard that several of the large New York banks have stopped making copies of checks drawn on them. Under these circumstances, wouldn't it be ridiculously easy to transfer money into a secret numbered bank account without fear of detection?
Mr. RICHMAN. Well, the microfilming of checks has always been an aid to the Internal Revenue Service agents who are trying to determine whether there is tax evasion or not. Every case that I ever worked on, I had to refer to the microfilm records. Whether or not this would make it simpler for specific foreign transactions, I couldn't say. I can say that the microfilming of checks is really a vital tool to all Internal Revenue Service where fraud is suspected.
Senator PROXMIRE. Can you recall any instance where copies of checks were instrumental in tracking down tax evaders where foreign bank accounts were not involved ?
Mr. RICHMAN. Yes, I think probably the most outstanding one was the Frank Costello case. That was before I became an agent. My understanding is—this case broke in New York—it was through looking at the microfilm records that they worked the income tax case on Frank Costello.
As I said before, every investigation that I was connected with, I had to go into the bank and review the microfilm records to come up with the evidence that I needed. Under the fifth amendment privilege, we never did get the taxpayers' records, so we had to reconstruct them from the bank records.
Senator PROXMIRE. In your statement, you indicate that racketeers often borrow their own money from their Swiss bank and then deduct the interest payment as an income tax deduction. Who is credited with the interest payment at the Swiss bank? Does the bank get it, or does it go back into the racketeer's account?
Mr. RICHMAN. I was referring to a specific case that I believe is still pending. It is my understanding this money went back to the taxpayer's account. The loan was not a bona fide loan.
Senator PROXMIRE. So he paid himself interest, he got a deduction on the interest that he paid, but he didn't have to report the income that he got for himself?
Mr. ŘICHMAN. That is right, and the corporation that was operating here in the United States took a deduction for that interest, Senator.
Senator PROXMIRE. Isn't the end result of this transaction that the racketeer enjoys the advantages of the secret foreign bank account, while, in effect, the American taxpayer pays him the interest on it?
Mr. RICHMAN. I would say in a sense because I guess all the legitimate American taxpayers are just paying a little bit more. That is what I would say.
Senator PROXMIRE. Senator Bennett.
Senator BENNETT. I am puzzled by your reference to Ingemar Johansson, particularly in view of your statement of the ease by which you could transfer money to your account in Switzerland.
Isn't the Ingemar Johansson case where he got the money out of the reach of the Federal Government which could no longer make any lien against it? Mr. RICHMAN. That is correct, Senator.
Senator BENNETT. And not that there was anything crooked about the transaction; he just was able to deposit it in a foreign country?
Mr. RICHMAN. That is what I wanted to convey with my explanation, that with the ease that he could get it out, unfortunately, once it did get out and the U.S. Government felt that there was tax due, we weren't in a position to get it back.
Senator BENNETT. That is true of any taxpayer who puts his assets beyond the reach of the lien of the U.S. Government, isn't that right?
Mr. RICHMAN. That is correct.
Senator BENNETT. So this bill has nothing to do with that particular phase of it?
Mr. RICHMAN. That is correct.
Senator BENNETT. You intrigue us greatly when you tell us you were going to test an informant's ability to provide you with reliable information about Swiss number bank accounts, and then you tell us about your experience, but was the informant ever able to give you reliable information ?
Mr. RICHMAN. No, sir. Senator BENNETT. So, he was not in a position to break the system? Mr. RICHMAN. Well, Senator, I was confronted with a lot of people who thought they would do a lot of things. This was part of the problem. This
man looked particularly good in that he had the use and the command of many languages and he traveled throughout Europe, and we certainly felt that it was worth looking into. As I say, the only thing we spent was a little time with him, and we felt it was well worth the effort. But like many other investigative techniques that I applied, most of them came up rather meager, and he was one of them.
Senator BENNETT. You went in some detail, and I appreciate it, to tell us your own experience in transferring money to a Swiss bank.
If this bill were passed, of course, presumably you would have to make a report of your transactions. But couldn't you put an accomplice between you and the Swiss bank and transfer the money to İstanbul or London or somewhere else?
Mr. RICHMAN. This is true. I would imagine that all the laws that we pass, there are probably people sitting around trying to figure out ways to get around them if it is that type of individual. But I agree with Mr. Morgenthau wholeheartedly when he says that if we enact legislation that will make this just a little bit tougher, I think we will discourage certain taxpayers who may now be evaders from violating this law. I think this will have some deterrent effect, I also feel that this law will provide tools in certain cases to come up with prosecution Senator BENNETT. By putting such an accomplice between you
and the Swiss bank and then having the Swiss bank buy securities for you in the name of the accomplice, the Swiss bank then would be certifying that there was no American involved in the stock transaction which would be a false certification.
Mr. RICHMAN. That is my understanding, and I believe that is correct. I think we ran into this trouble in enforcing the interest equalization law. However, I know that we did make some successful cases in that area, even though they took place after I left the Service, and, therefore, I feel that the law itself served its purposes. It wasn't a 100-percent cure-all, but it certainly made good strides in good tax enforcement.
Senator BENNETT. In other words, it scared a few more who might not have been scared without it?
Mr. RICHMAN. We prosecuted a few more, and I am sure in the tax enforcement field, the enforcement agency is really for the deterrent effect that it has on other taxpayers who may or may not be honest taxpayers.
Senator BENNETT. No further questions.
In the absence of this legislation requiring records to be kept on money orders, it is apparently quite easy to transfer money into a Swiss account without detection. Isn't that right?
Mr. RICHMAN. That is correct.
Senator ProxMIRE. Thank you very much for your most helpful and enlightening information. You have had some fascinating experiences that are useful for the record.
The committee will stand in recess until tomorrow morning at 10 o'clock, when we reconvene in this room to hear Mr. Robert Haack, president of the New York Stock Exchange, and other witnesses.
(Whereupon, at 11:50 a.m., the hearing was adjourned, to reconvene at 10 a.m., Thursday, June 11, 1970.)
FOREIGN BANK SECRECY
THURSDAY, JUNE 11, 1970
Washington, D.C. The subcommittee met, pursuant to adjournment, at 10:01 a.m., in room 5302, New Senate Office Building, Senator William Proxmire (chairman of the subcommittee) presiding.
Present: Senators Proxmire and Bennett.
Our first witness this morning is the distinguished president of the New York Stock Exchange, Mr. Robert Haack.
Mr. Haack, we are delighted to see you. You are a graduate of a celebrated class at the Harvard Graduate School of Business Administration. That is the principal reason why I am happy to see you and congratulate you on the grand job you are doing as president of the New York Stock Exchange.
I might explain that Mr. Haack and I were fellow graduates in the class of 1940 at Harvard Business School, and it reminds me of the depressing fact that we go back to our 30th reunion of graduate school this year. So with that unhappy thought, go right ahead.
STATEMENT OF ROBERT W. HAACK, PRESIDENT, NEW YORK
STOCK EXCHANGE, ACCOMPANIED BY DONALD L. CALVIN
Mr. HAACK. I might also remind you, sir, that I am a former constituent of yours from the sovereign State of Wisconsin.
Senator PROXMIRE. That's right, you were one of my former bosses.
Mr. HAACK. Mr. Chairman, my name is Robert W. Haack, president of the New York Stock Exchange. Donald L. Calvin, a vice president of the New York Stock Exchange, is with me.
We recognize the need for legislation to prevent the use of foreign banking facilities for illegal purposes by U.S. citizens and residents.
While reasonable men may differ as to the best method to deal with persons who channel funds abroad to escape detection, there should be no disagreement that the evasion of U.S. laws, by whatever means, should be brought to a halt. We are pleased to lend our support to legislation which seeks to do so. Accordingly, we support the objectives of S. 3678.
Some of the provisions of the bill touch upon the very delicate area of international commerce in securities. In these areas we must not be unmindful of the need to act with discretion lest we disturb existing legitimate relationships to the detriment of both ourselves and our foreign business associates.
In this connection, we have reviewed titles III, IV, and chapter 3 and 4 of title II with the objectives of the bill in mind while focusing on these provisions from the standpoint of legitimate securities transactions.