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Comparative financial statements—50 percent net long position with

maximum gross positions.-
International transactions..
Investment company holdings of the Fund of Funds, Ltd.,
Transactions in U.S. corporate bands and stocks reported by banks and

brokers in the United States, 1954-69.-
Management company holdings of the Fund of Funds, Ltd.

Page 329 290 102

165 103

FOREIGN BANK SECRECY

MONDAY, JUNE 8, 1970

U.S. SENATE,
COMMITTEE ON BANKING AND CURRENCY,
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS,

Washington, D.C. The subcommittee met, pursuant to notice, in room 5302, New Senate Office Building, Senator William Proxmire, chairman of the subcommittee, presiding.

Present: Senators Proxmire and Bennett. Senator PROXMIRE. The subcommittee will come to order. Today the Subcommittee on Financial Institutions will open 4 days of hearings on the subject of secret foreign bank accounts. Our purpose is not to focus criticism on other countries or to force them to change their bank secrecy laws. Instead, we are concerned with the enforcement of U.S. laws against U.S. citizens who violate those laws.

Secret foreign bank accounts fulfill a variety of legitimate objectives. But there is a growing body of evidence that Americans have misused foreign bank accounts for the purpose of evading U.S. laws or regulations.

We are concerned, and properly so, about maintaining order in our cities and on our campuses. The problem of affluent, adult hypocrisy, delinquency, and crime is no less important. Each year the Treasury and the American taxpayers are cheated out of hundreds of millions of dollars in tax revenues by Americans who are able to conceal their income through secret foreign bank accounts.

This situation is intolerable and must be stopped. We cannot convince the young or the poor to work for orderly change within our system if we continue to permit white-collar chiselers to flout our laws with impunity through the use of secret foreign bank accounts.

Some of the specific abuses associated with secret foreign bank accounts include the following:

Avoidance of income taxes on capital gains arising from securities transactions;

Illegal manipulation of our securities markets;
Violation of insider trading regulations;
Diversion of illegal money to foreign havens;

Circumvention of margin requirements on stock transactions; and

Illegal takeover of U.S. industries by persons unknown to U.S. authorities. The circumvention of our tax and securities laws may be approaching massive proportions judging from the growth in stock transactions initiated abroad. In 1968, foreign banks or individuals bought or sold $24 billion of securities in our capital markets.

(1)

a

Nearly $9 billion of this amount of business originated in one country-Switzerland—whose banks can act as securities dealers for their customers without disclosing their identity to law enforcement officials.

No one knows how much of the $9 billion in stock transactions was on behalf of U.S. citizens or whether any of those transactions violated U.S. law. Fuller disclosure is obviously needed.

S. 3678, which I introduced with Senator Williams of New Jersey and Senator Brooke, is similar to H.R. 15073, passed by the House of Representatives. However, the Senate bill goes beyond the House bill in two major respects:

First, it prevents U.S. broker-dealers from effecting transactions in U.S. securities on behalf of a foreign bank or broker unless the foreign bank or broker discloses the person for whom it is acting or certifies that it is not acting for a U.S. citizen or resident. This provision should remove the veil of secrecy surrounding foreign stock transactions.

Second, my bill requires U.S. citizens who place stock orders through foreign banks or brokers to give the foreign bank or broker permission to disclose the person's identity to the U.S. broker-dealer with whom the transaction is ultimately effected. This provision will enable foreign banks or brokers to disclose a U.S. citizen's identity without violating their country's secrecy laws.

In addition, my bisl contains provisions similar to those in the House bill including the following:

First, domestic financial institutions are required to maintain records of checks and other financial transactions under Treasury Department regulations;

Second, unusual or sizable deposits or withdrawals of U.S. currency would have to be reported by the financial institution and the individual making the deposit or withdrawal;

Third, movements of U.S. currency into or out of the country would have to be reported when they exceed $5,000 on any one occasion or $10,000 in any one year;

Fourth, individuals who have transactions with foreign financial agencies would have to maintain records on those transactions; and

Fifth, the penalties for violating the margin requirements on securities loans would be extended to the borrower in order to prevent circumvention by a foreign lender.

There seems to be widespread agreement by the Congress, the Treasury, the banking and investment community, and by law enforcement agencies that legislation is urgently needed to curb the abuses of secret foreign bank accounts. Given this agreement I am confident that the details can be worked out and that an effective statute can be enacted into law this year.

(The bills S. 3678, with report, and H.R. 15073 follows:)

918T CONGRESS

2D SESSION

S. 3678

IN THE SENATE OF THE UNITED STATES

APRIL 6 (legislative day, APRIL 3), 1970 Mr. PROXMIRE (for himself, Mr. BROOKE, and Mr. WILLIAMS of New Jersey)

introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

A BILL To amend the Federal Deposit Insurance Act to require insured

banks to maintain certain records, to require that certain transactions in United States currency be reported to the

Department of the Treasury, and for other purposes. 1 Be it enacted by the Senate and House of Representa

2 tives of the United States of America in Congress assembled,

[blocks in formation]

2

1 $ 101. Retention of records by insured banks

2

The Federal Deposit Insurance Act is amended (1) by 3 redesiguating sections 21 and 22 as 22 and 23, respectively, 4 and (2) by inserting the following new section immediately

5 after section 20:

6

“SEC. 21. (a) (1) The Congress finds that adequate 7 records maintained by insured banks have a high degree of 8 usefulness in criminal, tax, and regulatory investigations and

9

proceedings. The Congress further finds that photocopies 10 made by banks of checks, as well as records kept by banks 11 of the identity of persons maintaining or authorized to act 12 with respect to accounts therein, have been of particular

13 value in this respect.

14

“ (2) It is the purpose of this section to require the 15 maintenance of appropriate types of records by insured banks 16 where such records may have a high degree of usefulness 17 in criminal, tax, or regulatory investigations or proceedings. 18

“ (b) The Secretary of the Treasury (referred to in this 19 section as the ‘Secretary') shall prescribe regulations to carry

out the purposes of this section.

21

“ (c) Each insured bank shall maintain such records

22 and other evidence as the Secretary shall require of the

23

identity of each person having an account with the bank

24 and of each individual authorized to sign checks, make with

25 drawals, or otherwise act with respect to any such account.

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