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1 by title III shall be effective on any date not earlier than the

2 publication of the regulation in the Federal Register and

3 not later than the first day of the thirteenth calendar month 4 which begins after the date of enactment.

Passed the House of Representatives May 25, 1970.




Senator PROXMIRE. We are honored to have as our first witness this morning Hon. Will Wilson, the Assistant Attorney General, Department of Justice.

Mr. Wilson, will you come forward.




Mr. Wilson. Mr. Chairman, I am accompanied by Mr. Seymour, the U.S. attorney for the southern district of New York, and Mr. Rosthal, who is the staff man working on this matter in our department.

I have a prepared statement which I would like to give if it is agreeable with the Chairman.

Senator PROXMIRE. Yes, indeed, and any part of your statement that you skip will be printed in the record as if read, and I will say the same for Mr. Seymour.

Mr. WILSON. Mr. Chairman and members of the Subcommittee on Financial Institutions, I appreciate the opportunity to consider with you Senate bill 3678, which is primarily designed to prevent the use of foreign banking facilities by American citizens to evade and defeat American laws and security regulations. S. 3678 also provides for certain recordkeeping by domestic banks as an aid to law enforcement.

On May 25, the House of Representatives unanimously passed H.R. 15073, which the Department finds is similar in language and purpose to the legislation before us today. I would therefore, itemize what I believe are the major provisions of these bills and then note two significant additions appearing in S. 3678.

Both H.R. 15073 and S. 3678 contain the following provisions:

1. Domestic financial institutions could be required to retain records of checks and other financial transactions in accordance with regulations to be promulgated by the Secretary of the Treasury.

2. Transactions involving the payment, receipt, or transfer of U.S. currency or monetary instruments would be reportable in a single report by the domestic financial institution and by the person involved.

3. The transportation of U.S. currency or its equivalent into or out of the country would be reportable when it exceeded $5,000 on any one occasion or $10,000 in any year.

4. An individual or a domestic financial institution engaged in a transaction with a foreign financial institution would be required to maintain records or file a report of that transaction in such manner as the Secretary of the Treasury may direct. Here, I would note that Treasury has announced that next year's personal income tax forms will require a taxpayer to decline if he has maintained an interest in a foreign bank account during the previous year. This Treasury requirement will, I believe, enhance the recordkeeping provisions of S. 3678.

5. Present penalties for violating margin requirements on securities loans, now limited to the lender, would

be extended to the borrower as well to prevent a foreign lender from evading the margin requirement regulations.



To these purposes S. 3678 adds two new provisions:

1. U.S. broker-dealers would be prohibited from dealing in U.S. securities on behalf of foreign banks or brokers unless the foreign bank or broker names the persons for whom it is acting, or alternatively, certifies that it is not acting for a U.S. citizen or resident.

2. U.S. citizens or residents placing stock orders through foreign banks or brokers must give the foreign bank or broker permission to disclose to the U.S. broker-dealer, with whom the transaction is finally consummated, the identity of the individual for whom it is trading. This permission is designed to allow the foreign entity to disclose the U.S. citizen's or resident's identity without a claim that such disclosure violates its nation's secrecy laws. In other words, this requires the American citizen using a foreign bank account to waive the foreign nation's secrecy requirements.

Mr. Chairman, both H.R. 15073 and S. 3678 might be interpreted to require domestic banks to make a copy of each check or draft drawn on it and presented to it for payment. However, the House bill exempts from any such requirement domestic financial transactions involving less than $500. This exemption does not appear in S. 3678.

In my testimony before the House Committee on Banking and Currency on December 4, 1969, I urged that we not burden legitimate business with unnecessary redtape. Our purpose, I said, should be to detect

, and prosecute crime, not build a mountain of paper.

In my testimony today I would defer to Treasury witnesses who will appear later in these hearings on the question of what particular methods place unreasonable burdens on the banking community and, more importantly, the American public. I profess no special expertise on this subject. Also I would prefer to leave the value of the safeguards added by S. 3678 to insure the integrity of margin requirement regulations, to Treasury witnesses and representatives of the Securities and Exchange Commission.

My concern and my responsibility is the enforcement of the Federal criminal laws. Regarding S. 3678 entirely from that position I can state

I unequivocally that the legislation before us would provide additional ammunition in the fight on organized crime and white collar criminals.

U.S. Attorney Whitney North Seymour, Jr., who is here with me today, will discuss with you actual instances of the misuse of foreign banking facilities in violation of our laws. Incidentally I would note that immediately after taking office as U.S. Attorney for the Southern District of New York Mr. Seymour established a new sixman unit under the direction of an experienced assistant to concentrate on white collar crimes.

Mr. Chairman, as you know, I cannot properly identify matters now pending in the Criminaí Division and the offices of U.S. attorneys throughout the Nation. To do so would endanger present investigations and grand jury inquiries. I can, however, describe some types of situations in which foreign bank secrecy laws inhibit detection of major criminal conduct:

We are aware that a bank in Geneva, Switzerland, is being used on a regular basis as a depository of “skim” from Las Vegas for the benefit of known hoodlums.

We know that foreign banks are used to "clean" dirty money. Here is an example of how it works-a racket controlled domestic corporation borrows $200,000 from a foreign bank. The loan is


collateralized by the same $200,000 which never leaves the foreign bank. We refer to this as a "plug" loan. The corporation then loans $200,000 of illegally obtained funds to one of its officials, describing the foreign bank loan as the source of this money. Everyone benefits—the corporation deducts the interest on its foreign "loan" from its tax returns; the racketeer official deducts the interest he pays the corporation; more significant, he justifies possession of the $200,000 and defeats efforts to prove a net worth tax case. The foreign bank receives interest on money which it retains. The domestic money, illegally obtained, surfaces as clean money to be used in further illegal activities or to penetrate legitimate business.

We see the SEC frustrated in its endeavors to prove securities violations when stock distribution or the transmission of proceeds are channeled through foreign banks. Competent evidence to establish who owns stock—or who sold it—or who was paid for it becomes difficult and often impossible to obtain. It is reasonable to assume that in many cases these devices are employed to violate the antifraud provisions of U.S. securities laws and to evade payment of Federal income taxes.

We are deeply concerned when foreign secrecy laws prevent foreign bankers from introducing foreign bank documents into evidence. We are equally concerned when domestic banks and other domestic financial institutions fail to retain records highly useful to enforcement of the criminal laws-Federal, State, and local.

We realize that couriers jet to all parts of the world carrying with them the profits of criminal conspiracies. We need a “handle” on these people by which they can be convicted for failure to declare the funds they carry or, more important, induced to name the principals for whom they work. Mr. Chairman, in describing these situations which occur on a daily basis I consider that I have supported the need for the type of legislation now before this subcommittee. I would like at this point to make a suggestion on the immunity provision appearing in S. 3678.

That provision is section 211 of title II-Reports of Currency and Foreign Transactions. By its terms it would grant immunity from prosecution "on account of any transaction" concerning which a witness is compelled to testify. S. 30 which passed the Senate on January 23, 1970, is designated the "Organized Crime Control Act of 1969." S. 30 would repeal some 50 immunity statutes now in effect and substitute therefor a single, general immunity statute applicable to court proceedings. The extent of the immunity would be limited to the testimony which was compelled or to leads obtained from it. It would not include a “transaction” involved if the Government could demonstrate its case was based on evidence independent of the compelled testimony. I would suggest therefore the deletion of section 211 from S. 3678 or, in the alternative, the substitution of the type of immunity provision set forth in section 6002 of S. 30.

In my testimony of December 4 before the House Banking and Currency Committee, I discussed at some length the negotiations between our Government and the Swiss Government looking to a treaty of mutual assistance in criminal matters conducted here and in Switzerland. A working-level draft of the proposed treaty will be consid. ered by representatives of both governments in mid-July and we are

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hopeful a meaningful agreement can ultimately be achieved. I must admit, however, that a viable treaty with the Swiss will not provide a total response to the criminal challenge. Other jurisdictions have adopted commercial secrecy laws. From the islands of the Bahamas to the Middle East to Hong Kong we find these laws impeding the search for evidence. We must be certain we do not substitute the bank secrecy system of one area for that of another. Flexibility is required, and I fully endorse the discretion which S. 3678 gives the Secretary of the Treasury to eliminate or modify the reporting of transactions by Americans with foreign financial institutions.

Mr. Chairman, by its unanimous approval of the companion bill to S. 3678 the House of Representatives demonstrated its determination to end the threat to the laws of the United States through the use of the secrecy laws of other nations. I am confident that the hearings before this subcommittee will demonstrate anew the grave problem and will result in logical solutions. Whether the legislation before us can be improved as it relates to recordkeeping and reporting and thus made even more effective, I leave to experts in the field of banking and finance. No one, however, can dispute the objectives of this legislation. Thank you, Mr. Chairman.

Senator PROXMIRE. Thank you very much, Mr. Wilson.

Mr. Seymour, would you want to go ahead with your statement now?

Mr. SEYMOUR. It is up to the pleasure of the chairman.
Senator PROXMIRE. Fine.

Mr. SEYMOUR. Perhaps, Mr. Chairman, I might, for your convenience really, submit my formal written statement on the understanding that it can be adopted as my testimony in chief.

Senator PROXMIRE. Without objection, your statement will be printed in full in the record.

(The full statement appears on p. 71.)

Mr. SEYMOUR. My name is Whitney North Seymour, Jr., U.S. attorney for the southern district of New York. I am extremely honored to appear before this committee to share with you the experience our office has had in attempting to deal with problems of banking secrecy.

Secrecy and subterfuge are the white collar criminals' best friends. The surest invitation to illegal conduct that man can devise is a hidden conduit for transmission of funds safe from the eyes of law enforcement officials. That is exactly what secret foreign bank accounts do. Although such accounts may be used with perfect innocence by some depositors, they are too tempting a lure for the tax evader, the securities swinder, the corrupter of public employees, the fraud and the cheat.

The "little tin box” of the 1930's has been replaced by the Swiss bank accounts of the 1970's.

Over the course of several years our office has found a large-scale pattern of evasion of Federal criminal laws by cloaking financial transactions with the secrecy afforded by foreign law. The problem is far from confined to Switzerland. Similar secrecy obtains in Lichtenstein, Panama, the Bahamas, and other jurisdictions, and has been successfully used to carry out numerous violations of law.

Secret foreign accounts have been used in connection with violations of many different Federal statutes. For example, corporate insiders who do not wish to comply with the securities laws, and do not wish


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